DEFENCE LOANS BILL.

HC Deb 06 March 1939 vol 344 cc1771-801

Order for Third Reading read.

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

3.58 p.m.

Mr. Pethick-Lawrence

This is the fifth and final stage in this House of this proposal, which has now been before us for over a fortnight. On the four previous occasions on which discussion has taken place, a great deal has been said, but so important is this Measure that I am sure neither the Government nor the House generally will grudge a short time for further consideration of it at this stage.

I do not think it will come as any surprise to the House when I say that my right hon. and hon. Friends who sit with me on these benches do not propose to divide the House against the Third Reading of the Bill. This is the natural result of the logic of events to which all parties in this House are subject. I would remind hon. Members that the first so-called National Government was formed mainly to uphold and maintain the Gold Standard, but one of its first actions was to depart from the Gold Standard. Then the National Government, vowing its opposition to our policy of nationalising the Bank of England, has in each succeeding Currency Bill drawn nearer and nearer to that position. To-day we find this Government in opposition to foreign Governments with which this country has been traditionally friendly, while making friends with other Governments which traditional prejudice might incline them to oppose.

In the present proposals, the Government and their City friends are throwing over completely, cherished and orthodox financial traditions. They are setting out for an unknown destination on an uncharted sea. We on these benches, in spite of our opposition to much of the Government's foreign policy from which, in our opinion, arises the need for this Bill, find ourselves driven into the position of not opposing this Bill. That does not arise because the foreign policy of the Government has been successful, but just because the foreign policy of the Government has been a failure. The fact that we take this course to-day does not mean that we abate in any respect our hostility to a great deal of the Government's foreign action, nor does it commit us in any way to acquiesce in the Budget which the Chancellor of the Exchequer will have to introduce later, and to the allocation that he decides to make between taxing and borrowing to pay for the expenditure of the Budget.

With regard to hon. and right hon. Gentlemen below the Gangway, I understand that they also will almost certainly take the same course, equally driven by the logic of events in this matter, just as in individual cases they are driven by that logic to accept Socialist action, which in theory they oppose. The fact is that we of the British race are essentially an empirical people. We refuse to allow preconceived theories to prevent us from learning by experience. Up to a point that is a good thing and I hope it will continue; but the Government will be deceiving themselves if they think that the logic of events is in any way a complete substitute for intelligent planning. Waiting until the logic of events drives one into a certain course generally involves a very late start, it frequently involves a wrong start and much waste, it often means that essential matters are not dealt with at all, and it often results in the adoption of a pis aller not nearly as effective as a well-thought-out scheme.

The Government are champions in the matter of non-planning. The Financial Secretary to the Treasury admitted to me last Thursday night that the £400,000,000 additional asked for in this Bill is not a planned figure at all. The Prime Minister in effect admitted to me about a fortnight ago that the scheme for the repayment of the Loan had largely gone west and that there was no other scheme of the Government in sight. The Government as a whole admit that they cannot foresee or attempt to predict the financial future. I do not want to put a case which cannot be sustained, and I am quite willing to agree that it is, of course, true that in view of the black international clouds no one can be expected to predict or foresee the future, which must depend on international contingencies. The game of international relationships to-day is like a game of chess; our move must depend upon the move of those sitting opposite to us who have charge of the other pieces. All the same, in a game of chess one must have a plan.

If I were prepared to digress, which I have no intention of doing, I could show how the position to-day arises from the failure to prepare a good plan in days gone by. But I have no desire on this occasion to digress, no desire to rake over the ashes of the past. What I do want to do, what is I think of value, is to bring home to the Government the need for making a plan to-day. I want the Government to make a plan to marry economic recovery to the monetary expansion which is implied in this Budget deficit. I want the Government to plan to marry nutrition to agricultural prosperity. I want the Government to marry the provision of deep trenches and of better communications to the cure of enforced idleness both of human and material power. None of these things will be done adequately unless the Government plan to have them done. The unemployment figures of to-day may go down a little, but they will not be reduced to the insignificant figures which in this time of big Government orders they ought to reach, unless the Government set out to plan their reduction. Children will go on being under-nourished, bridges in England and Scotland, such as over the Forth and the Severn, will go on being unbuilt, unless the Government take these things in hand.

Mr. Deputy-Speaker (Sir Dennis Herbert)

I think the right hon. Gentleman is now inclined to digress.

Mr. Pethick-Lawrence

I am very 10th to question your Ruling in any way, Mr. Deputy-Speaker, but I think that what I was saying was relevant to the issue. My point is that here is this vast sum to be spent and I want it to be spent in the right way. I was not going any further with that point, but I think that what I was saying was strictly revelant to the Third Reading of the Bill. I do not think you will have any occasion to object to what I am now going to say. I want to look even a little further ahead. This Bill for the borrowing of this very large sum of money arises admittedly from the international tension. We all hope that that tension will one day be broken, not by war, not by the overriding of other peoples' will in submission to our will, but by the realisation by people of all nations that only by mutual good will and give-and-take can the greatest benefit of each be attained. Of course none of us can foresee when that will come about. We all believe, if we are optimists at all, that it will come about one day, and we all hope and pray that it will come soon. But there is grave danger, if the Government have no plan, that when peace breaks out it may bring with it economic disaster and collapse. We have seen how the new control of man over the forces of nature, with the possibility of abundance, has produced unemployment, and the only remedy that the Government have been able to find has been artificial scarcity.

Mr. Deputy-Speaker

I must ask the right hon. Gentleman to keep a little more closely to the question before the House, which is the Third Reading of the Bill. The Bill is a Bill to extend the figure of the Defence Loans Act, and there is, therefore, a very small area to be covered in the discussion.

Mr. Pethick-Lawrence

What I want to say is really directly concerned with this sum of money. I am calling attention to something which arises directly out of it. Here the Government are asking for a large addition to this sum of money. I am pointing out that they need a plan not only for the spending of this money wisely, but in order to be prepared for the situation when the money that they are spending is no longer required. I submit that that has a direct concern even with the Third Reading of the Bill. But I am not dealing with that point at any length.

Mr. Deputy-Speaker

The right hon. Gentleman earlier in his speech said that he would not go into details. This Bill refers to borrowing for the purpose of defence and the discussion must be confined to matters of defence. For the sake of the House generally I must ask the right hon. Gentleman to confine his remarks to that subject; otherwise we shall be having a Debate on the entire policy of the Government in matters generally.

Mr. Pethick-Lawrence

I wish to fall in with your Ruling. I have very few more remarks to make, and they do arise directly out of the position which this Bill contemplates. All that I am trying to show is that the Government have this programme of expenditure in view and they have not only to envisage that spending but to envisage also what will be the position when the spending comes to an end, that the Government must not be allowed to be unprepared when this monstrous production of war material is ended. Some will say that that is a long way ahead and that we need not start planning now. That is a half truth. It is wonderful how far coming events cast their shadow before. We may not have such a very long notice of that happy consummation. It will take a long time to prepare the necessary plans for using Government money, instead of for making mere armaments, for the purposes of peace. We were unprepared in 1919–20. I beg the Government and the House to see that we are not equally unprepared if and when the situation that we all greatly desire comes about and the expenditure of this money directly on preparations for war is no longer necessary.

4.15 p.m.

Mr. W. Roberts

I hope I shall not trespass too far. I do not wish in any way to enter into many of the general questions which have been raised in the course of these Debates, and I do not wish to deal with the questions of foreign affairs which have made this Bill necessary, but I do want to ask the Chancellor of the Exchequer, if he is replying to-day, to give us the benefit of his views on a subject which has not been discussed during this Debate at any great length, namely, the effect of this vast expenditure, which is being met to such a large extent now by loans, on the general economic and the industrial and financial situation of this country. So far in this Debate a few speakers have touched on the subject, but I do not think it has had nearly as much attention as it should have had. We are constantly hearing it said that we must make great sacrifices to meet the present situation, and we have had an increase of Income Tax amounting to 1s. on the standard rate, and increases of indirect taxes, but I have a feeling that if it were not for such a large part of next year's programme being met by borrowing, the armaments programme would be looked upon in many circles with very much less favour than it is to-day. The fact that such a large part is being met by loan is postponing the burden on the taxpayer, and it is quite right that some of it should be postponed, but it is also having other indirect effects which I would like to discuss for a moment.

Theoretically, of course, such a large expenditure on an unproductive purpose such as armaments should impoverish the community very greatly, but that is true only if the productive capacity of the country was fully occupied before those productive forces were turned to the manufacture of armaments, and I imagine that it would be generally accepted that in fact to-day, whatever may happen in the future, the armaments programme has not reduced the standard of living of the people of this country. We have had to meet increased direct and indirect taxation, we have had to forego a reduction of taxation which might otherwise have been available, and we are foregoing increases in the social services which are very desirable. We are told when we raise various matters, such as old age pensions, that it is impossible to meet those claims on account of the demand for armaments, but in fact the actual standard of living of the people of this country to-day, as I think the President of the Board of Trade pointed out in winding up the Debate on unemployment the other day, was higher last year than it was the year before, and he quoted, I think I remember, that valuable source of information for Government speakers when in difficulty—the "Daily Herald" —to prove his point. The standard of living of our people has not yet suffered, but we are now coming to a time in the armaments programme when the cost of it is increasing very greatly and when it is no longer an armaments programme added to an upswing in the cycle of trade, but an increased armaments programme on top of a time of recession or depression, and that may make a very considerable difference next year and in the years to come.

I think it is worth comparing for a moment the position in this country with the position in the country with which we are engaged in this race, and considering how the weight of the armaments programme in Germany has affected the people of that country. In the first place, I take it that the German programme has been very much larger than our programme and that it still is larger. It is larger in cost, for a variety of reasons. There is conscription, and there are questions of fortifications which do not arise with us. It is larger very considerably than the efforts that we are making, and it is larger also relatively, as a proportion of the national income. Without going into any figures, it may be stated that the German programme uses a larger percentage of the national income than ours is doing. Some estimates are that it is using as much as 50 per cent. of the national income of that country. In order to meet that situation, the German Government have adopted a method of complete control over the economic life of their country—control of wages and prices, complete control of foreign trade, and complete control of investments. It has been financed by credits, by loans, by taxation, and, more recently, by confiscation of the property of Jews and others.

But the situation there differs from that in this country in that, in Germany, they have succeeded in mobilising the whole productive strength of their country and in that no unemployment exists to-day. In fact, the tendency is to import labour into Germany. The fact that no unemployment exists in Germany must not be taken, though, to mean that the standard of living there has risen. Indeed, it is doubtful whether it has risen at all, or more than a very little, during the years since 1932, and the total available consumption of goods has merely been spread over the whole population in a more equitable way now. But the point that I wish to make is that the difference is that in Germany the whole productive energy of the country has been mobilised for the purposes of this vast programme of armaments which they are carrying out and which is the reason for our efforts here, and that in order to do that the rulers of Germany have had to take complete control of their economic system. I do not say that we ought to have followed the methods of that country, and it is not my purpose, in drawing attention to these facts, to suggest that, but it is my purpose to suggest that while we have 2,000,000 unemployed in this country, while we have in fact failed even to mobilise our own man-power, we shall not be able to compete in this race effectively, and it does surprise me that so little attention has been given in these Debates to this problem, which seems to me to be one of the fundamental problems behind the arms programme.

The right hon. Member for East Edinburgh (Mr. Pethick-Lawrence), who has just spoken, referred to it the other day when he was speaking, I think on the Second Reading, and pointed out what has been the attitude of the Government in Germany, that in fact the vast reserves of unemployment that the present German Government had when they came into power were treated, not as a liability, but as an asset. It made it possible for them to set this vast machine to work that they had the men available, and if only the Government of this country had regarded as an asset the fact that we have men who are available, as well as the fact that we have financial resources, our general situation would have been better. The hon. Member for East Aberdeen (Mr. Boothby), speaking on the Committee stage, said that ultimately the only way in which we could pay for this programme was by increasing the national income, and he made various proposals how that could be done, into which I will not enter in any detail; but that, surely, is the simple truth, that we shall be faced with the bankruptcy to which the Prime Minister referred at the end of his speech unless the national income can be increased to meet the enormous weight of this output of arms.

In the meantime, what is happening, it appears to me, is that the industrial structure of this country is being destroyed. A very large proportion of the money required in this Bill is for the Air Ministry, and if I might make one specific inquiry about that, I would ask this question: The Air Ministry programme is involved in creating a great deal of plant for the production of aeroplanes, and there are many hon. Members who are better informed on that subject than I am and who are very dissatisfied with the output which is being obtained. I merely ask whether the fact that we can still buy motor cars at the same prices as before the rearmament programme is not rather a surprising fact. There is a shortage of skilled labour, but apparently none has in fact been diverted from the production of either private or commercial motor cars. I referred at the beginning of my speech to the fact that we were called upon to make sacrifices, and I am wondering whether one of the sacrifices that we might make might not be to use our cars a little longer—in fact, to reduce the output of ordinary commercial motor cars in order to make available the skill and the productive capacity of the motor-car industry for armaments work.

Mr. Deputy-Speaker

The hon. Member is trying very hard to relate this to the Bill, but if I could find this in order, I should be obliged to wonder what limit there could be to the Debate.

Mr. Roberts

I bow to your Ruling, but the relation was a simple one in my own mind. It was that if the available plant for motor car manufacture were used to a greater extent it would be an economy, because it would render the establishment of such a large amount of new productive power——

Mr. Deputy-Speaker

On that basis the hon. Member would be able to discuss every possible trade and industry he could think of. There must be some limit.

Mr. Roberts

I again bow to your Ruling, but a large part of the sum involved in this £800,000,000 is to be spent on the Air Ministry, and although I realise that there are differences between a Third Reading Debate and a Committee Stage Debate, I was under the impression that if it were possible to talk about profiteering, as it was on the Committee stage, it might also be possible

Mr. Deputy-Speaker

This Bill does not provide for expenditure at all, so that there is no expenditure which can possibly be discussed upon the Third Reading. That comes on the Estimates. The only point in connection with this Bill, as far as I can see, is the difference between borrowing money and raising it by taxation.

Mr. Roberts

I am in some little difficulty because if money is to be borrowed, surely we are entitled to ask how it is to be spent?

Mr. Deputy-Speaker

Yes, but at another time.

Mr. Alan Herbert

On a point of Order. The Bill provides for additional services to the Defence Services, namely, air-raid precautionary services and grants in aid of the Essential Commodities Reserves Fund. Is it in order to discuss those services?

Mr. Deputy-Speaker

Certainly not.

Mr. Roberts

I will not pursue the point except to finish what I was saying in one sentence. This development in the aircraft industry is distorting our industrial development, and if the production of motor cars were lessened owing to a falling off in demand there would be provided a valuable alternative if and when the armaments programme comes to an end. As it is, a vast surplus productive capacity is being created, perhaps necessarily, because in war time it may be necessary to have the whole of the aircraft capacity plus any capacity which could be taken over from the manufacture of motor cars. It would make a more balanced industrial situation if, in fact, the Government were also pressing on more energetically with air-raid precautions. I will not dwell in detail on that because I realise that I should be out of order, but if I may make a comparison, I would say that one of the reasons why German workers are fully occupied is that a large number of them are engaged on fortifications. We do not require them in this country. The building trade will, as some of the structural work in the armaments programme is completed, suffer a severe depression.

Mr. Deputy-Speaker

The hon. Member is doing exactly what I said he could not do. If he pursues that line there is no limit to the number of industries he can discuss. I must ask him to confine himself on the Third Reading of the Bill to the question of the borrowing of the money.

Mr. Roberts

I will proceed to a different point which I hope may be in order. I would like to comment on a part of the speech which the hon. Member for Mossley (Mr. Hopkinson) made the other night, in which he suggested that the Air Ministry had positively gone out of its way to create rings.

Mr. Deputy-Speaker

The hon. Member is going from bad to worse. He may have some difficulty in finding something to say but I must not allow him to say things which are out of order.

Mr. Roberts

I am puzzled, because I was going to make a specific suggestion, from a comparison of what is happening in other countries, as to a way in which economies might be made. I was going to refer to the proposal made by the right hon. Member for Hillsborough (Mr. Alexander) and inform him that his proposal is being carried out in another country, but if that is not in order I will not proceed with it. If it is in order, however, I will proceed with it ——

Mr. Deputy-Speaker

I would rather the hon. Member did not. I do not want to interrupt him too often, but it is clear from what he has said that it would not be in order.

Mr. Roberts

I will proceed to recapitulate the general questions which I wanted to put to the Chancellor of the Exchequer. We are now borrowing for this purpose probably two-thirds of the total national savings, and perhaps the Chancellor would be good enough to make some observations on what the effect of that may be, taking into account the fact that if it were not for the expenditure which is taking place on armaments we should probably be experiencing a serious trade recession, with unemployment at a much higher figure. There is no doubt that the armaments programme is interfering in some branches of our export trade and that our adverse trade balance is getting worse. In the light of that general situation, is the Chancellor satisfied that the armaments programme as it stands to-day can be financed in this way without dealing with the problems of increasing our national income and of reabsorbing the productive capacity which is idle? Has he given any consideration to the other problems which arise out of this question? Germany has been forced into a position of taking greater control over industry in order to make their armaments programme possible.

Mr. Deputy-Speaker

The hon. Member is not only quite irrelevant, but he is now being guilty of repetition of what he has already said.

Mr. Herbert

On a point of Order. I am afraid that I could not have expressed myself clearly when I rose before. Two points arise on this Bill. The first is in Sub-section (1) of Clause 1, which increases the amount which may be issued out of the Consolidated Fund to £800,000,000. The other point is in Subsection (2), which provides that "Defence Services" shall include Air-Raid Precautionary Services and grants-in-aid of the Essential Commodities Reserves Fund. May I ask your guidance on these points? Are we not, even on the Third Reading Debate, to be allowed to discuss on Sub-section (2) whether we desire Air-Raid Precautionary Services to be included in the Defence Services under the Act of 1937, and, if so, what Air-Raid Precautionary Services and what proportion of the money shall be borrowed in respect of them?

Mr. Deputy-Speaker

Yes, that would be in order, but I do not see what bearing this point of Order has on the Rulings I have been giving. If the hon. Member wishes to make a speech he may do so if he succeeds in catching my eye, but he will be stopped if he goes too far.

Mr. Herbert

I wanted to make the position clear, for I think I misled you before.

4.41 p.m.

Mr. Henderson Stewart

At the end of the long series of Debates on this Bill two things stand out with great prominence. The first is the absolute unanimity in the House upon the necessity for carrying the defence programme to the end. The other is the unchallengeability of this country to see that programme through with whatever financial and other resources are necessary. Differences have been expressed on the foreign policy of the Government, and there have been criticisms about the methods and scope of the rearmament programme. That is natural and proper in a democratic assembly, but on the basic principle of rendering this country safe against attack and prepared to play its part in the defence of freedom, wherever a threat to dominate the world is evident, this House and people are united. They are not only united, but resolute and determined. They are fortified in that stand by the sure knowledge that, despite the trade depression of recent years and the increasing cost of social services, the wealth, the resources and the productive capacity of this country are more than enough to meet the cost of this programme and still to leave much in the National Exchequer for even greater needs if, unfortunately, they should arise in the years to come.

It is well that we should make these things plain now. These truths should be broadcast to the world, for, better perhaps than anything else, they may serve to discourage aggression whereever it is now threatened. Let nobody or no country be under any misapprehension. Whatever may have been the position at the time of Munich, the crisis of last September roused this country to a sense of the realities of the situation, and to-day it is alert, watchful and ready for all emergencies. Neither threats nor blandishments, from whatever quarter they may come, will persuade this country either to curtail its efforts to make itself strong or to yield to force one inch of democratic right or territory. I read to-day in the "Times" a message from its Rome correspondent according to which it seems that in Italy a democracy is only regarded as safe, from the dictators' point of view, when it is depressed. Then let us make it abundantly clear, on the Third Reading stage of this Bill, that this democracy is not depressed, but is ready for all eventualities.

The very resolution of our people, however, calls for complementary measures from this House. As has been said, our people have made great sacrifices and, I believe, are ready to make more sacrifices, of property and of leisure, but in return they ask of Parliament and the Government for two or three simple but nevertheless binding assurances. The first is that the money voted under these loans shall be wisely, efficiently and effectively spent. There has been a long Debate on that topic, and I shall not develop it now. I am more concerned about a second assurance for which, I believe the people ask to-day, especially the working people. I am a little concerned to know whether you, Sir Dennis, will regard it as being in order, but the second assurance for which the people ask is that the orders which flow from this Bill when it becomes an Act shall be spread as widely as possible over the country, so that the advantages of work and wages, and therefore of good living, shall be enjoyed by the largest possible number of workpeople and their families.

Mr. Deputy-Speaker

The hon. Member has made his point, but he must not carry it further.

Mr. Stewart

Perhaps you would agree that it would be relevant to make a brief reference to the Statement upon Defence which is so closely related to this Debate. In that Statement it is made plain that in the case of the Air Ministry the principle of the spreading of work has been accepted. It is stated in language which no one can misunderstand. It says that it was: Decided that part of the additional volume of orders should be placed with manufacturers having capacity which would be of value in aircraft production and who controlled large bodies of skilled labour. And this is the part to which I wish to direct attention: Accordingly the aircraft industry was required to sub-contract with such firms a large proportion of the orders received. The Advisory Panel upon rearmament which was appointed by the Prime Minister for the express purpose of facilitating this great programme reported upon this same matter at the beginning of last month. They said what is apparent to all of us who keep in touch with the country, namely, that there are great industrial resources now untapped. The Service Departments are calling for the provision of fresh arms, and in this report of the experts is shown a course which might well be taken. They say: The Panel holds the view that there may still be untapped resources in industry which could and should be utilised on the same basis of voluntary co-operation as has hitherto obtained. Upon that I should like to ask a question. The Panel is at present directing its attention to this question and is making a comprehensive approach to organised industry for its assistance in discovering ways in which performance could be improved or progress expedited.

Mr. Deputy-Speaker

The hon. Member cannot go into details of that sort now. Many of the matters which are dealt with in the White Paper would have been perfectly in order upon the Money Resolution preceding the introduction of the Bill and upon the Second Reading, but they are not matters which can be gone into on the Third Reading. The Debate must be confined to what is in the Bill.

Mr. Stewart

Of course, I submit to your Ruling, Sir Dennis, and will conclude my observations upon that point. If the country is to maintain and increase its determination to have a full implementation of this programme I submit that we must endeavour to secure the personal loyalty of the citizens, and that that personal loyalty would be better spread and be more apparent if it can be proved to the country that not this section or that in England or in Scotland but as many sections as possible are sharing in the benefits of the arms programme. Having made that plea to the right hon. Gentleman I conclude with the hope that that assurance may be given. I understand the Government are ready to give it. I put forward the request to-day in the hope that full satisfaction may be given to it.

4.52 p.m.

Mr. Bellenger

I have one or two observations to make upon the Third Reading of this Bill, and should probably have had a few more were it not for the fact that I realise that most of them would be out of order. Although my right hon. Friend said that we on these benches are not going to divide against the Bill we cannot congratulate the Chancellor of the Exchequer for while we realise the inevitability of the increase from £400,000,000 to £800,000,000 in the expenditure for defence, we are seriously disturbed at what may be the ultimate effects upon the welfare of our population. I am afraid that this increase, and the probable further increases later, may mean, as has happened abroad, that it will be a case of guns before butter; and however much we may be concerned to defend our country's interest and to provide the money for the defence of our country against foreign aggressors I do not think that any hon. Member, in whatever part of the House he may sit, can look upon this heavy burden with anything but increasing anxiety, as the money will be found not only from the pockets of the direct taxpayers but from those of the indirect taxpayers, including a large number of working-class people whose own budget is at the present time sadly shrunken.

I also fear that the raising of this money may affect our industries. Obviously, the Chancellor has to find the money by either short-term or long-term borrowing, and from many quarters he has been advised to find a good deal of it by way of short-term loans. I shall not ask the Chancellor what proportion of this £800,000,000 will be found by short-term bills and what part by long-term loans, but I should like him to say whether he anticipates that the floating of these loans will have an effect upon the interest rates of money. It has been part of the Government's policy to keep money cheap, and many economists who have studied this matter fear that money rates may rise and throw upon both direct and indirect taxpayers an added burden.

Of course it would be out of order at this stage to resume the discussions which we have had on other stages about the profits in the arms industry, and I will content myself with this general remark, that the arguments from this side of the House in those Debates have not been answered to our full satisfaction, nor to the satisfaction of many hon. Members opposite. The Chancellor of the Exchequer is bound to recognise the assistance which hon. Members on these benches have given him in all stages of this Bill, and the House is bound also to recognise that we on these benches are just as patriotic and just as ready to defend the legitimate interests of our country as hon. Members opposite, but nevertheless we hope in the near future to see some different policy which will reduce the burden being placed upon the people by this Bill which we are discussing to-day for the last time in this House.

4.56 p.m.

Mr. Stephen

I should not have intervened in this Debate but for the fact that certain Members will persist in saying that there is unanimity on this matter among all parties. My hon. Friends and I have made it perfectly plain at an earlier stage that that is not the case. Because of our opposition to this proposal we challenged a Division, and were then asked to stand, and did not go into the Lobby because of the Ruling from the Chair, but the fact remains that the Independent Labour party and other Members in this House have throughout been in opposition to the proposals of the Government with regard to this rearmament programme and this Measure—my Independent Labour party colleagues and I, the hon. Member for Attercliffe (Mr. Wilson), the hon. Member for Penistone (Mr. McGhee), I think the hon. Member for Bow and Bromley (Mr. Lansbury) and others. I want also to make it plain that while we are a small party in this House there is in the country a very big volume of opinion—I quite admit a minority opinion, but it is the opinion of millions of people, the Peace Pledge Union and other parties—which is in agreement with us in our opposition to this programme.

I note that one speaker said in referring to this additional £400,000,000 loan that it would consist of so much of the savings of the people. That really is not so. The loan will produce additional inflation to the extent of £400,000,000. Instead of taxpayers being called upon to pay directly, it will be spread over the whole community and taken out of the whole community, because an additional £400,000,000 of credit will be taken out of the banks. It will not be the case that Treasury notes to the value of £400,000,000 will be handed over, but additional credit will be created by the banking community based on the securities given to them by their various customers. The money represented by those securities will be continuing in the various industries as before, but there will be £400,000,000 additional pounds which will have been created by the bankers, and the effect of this will be seen in the rising prices of various commodities. Therefore, through rising prices, the general public will have to pay for this £400,000,000. I know that these financial operations are very mysterious in their working and I do not intend to pursue this matter.

My colleagues and I are opposed to the Bill. We shall not challenge a Division because we have already tried to do that and were refused a Division. We want to put on record that we are opposed to the whole policy of the Government in this respect. We think that it is a disastrous policy and will not bring security to the nation. All the expenditure from 1914 to 1918 did not bring security, and here we are at it again, in another race of armaments. Only by changing the policy would there be a prospect of world peace and something being gained. Instead of setting ourselves to arm for the purpose of fighting another nation at some future date we should use the whole resources of the nation in a great fight against poverty, and we should make an appeal to other nations to join in such an attack upon poverty, in which the whole resources of the British Commonwealth would be at our disposal for a united effort to banish poverty from the world. On the Second Reading Debate, the right hon. Gentleman the Member for South Hackney (Mr. H. Morrison) said that all parties were agreed in this matter; I hope that I have made it plain that there are parties and millions of people in this country in opposition to the policy of the Government and that if they had the power they would refuse to allow this Measure to pass.

5.3 p.m.

Mr. Crossley

I will not attempt to follow the hon. Member's arguments but I would congratulate him in making a speech which was hardly completely in order. I rise not to make a speech but to make a correction in the speech which I made upon the Second Reading and which was certainly in order then. You, Sir Dennis, were in the Chair. I am not certain whether it is now in order to refer to this matter because I understand that the limits of Debate are very much narrower. I was talking on the Second Reading about value for money and I stated, subject to correction, that the price of various articles was sometimes fixed according to the price of the firm with the least efficiency, and that the price that the most efficient firm received therefore was higher than it would otherwise have been if the tenders had been spread over three or four firms. I am glad that I have been informed that I was quite inaccurate in making that statement and that in point of fact, nothing more than a percentage profit is paid to any firm, although that percentage may vary with its turnover. I should hate to make an inaccurate statement in the House, and I am glad to have been allowed to take this opportunity to try to put it right.

Mr. Deputy-Speaker

I have no hesitation whatever in reassuring the hon. Member because the House is always indulgent in giving an hon. Member opportunity to correct a mis-statement he has made. But his remarks were not in order as a matter of debate on this Third Reading. I permitted him to make his correction, and he has done it with commendable brevity.

5.5 p.m.

Mr. Tinker

Although we cannot go into details to-day of how the money will be used which we are authorising by the Bill, we are surely entitled to ask one or two questions. Upon the Second Reading and on the Committee stage I tried to find out how the Government intended to deal with the allocation of the money and to-day I am asking the Chancellor of the Exchequer to give some information to the House as to how the matter will be dealt with. I was told that in various speeches he had given certain directions. I am now asking the Chancellor of the Exchequer that when he comes to reply on this Debate he should give some indication of what the Government intends to do on this all-important matter.

Mr. Deputy-Speaker (Colonel Clifton Brown)

I am afraid that it would be out of order for the hon. Member to put such questions on the Third Reading of the Bill. I have already heard that Ruling given from the Chair. Moreover, it would be out of order for the Chancellor of the Exchequer to give any reply to the questions which the hon: Member is proposing to ask.

Mr. Tinker

The Bill asks the House to grant an additional £400,000,000, and I think that hon. Members are entitled on the Third Reading of the Bill, before our final assent is given, to ask the Chancellor of the Exchequer for a further explanation.

Mr. Deputy-Speaker

The hon. Member is wrong. The Bill authorises the borrowing of money and we cannot now discuss how that money will be spent. Those matters were relevant to the Committee stage of the Financial Resolution.

Mr. Tinker

This money will be given to the various Services, and the very fact that it is for defence means that the Services will have some of the money. Are we not entitled to ask, for instance, questions about the allocation of this money to air-raid precautions? The points that arise in one's mind are the allocation of the money in the preparation of trenches and shelters and whether that work would be given to private firms or to municipalities and, if so, how the allocation of the money would be arranged.

Mr. Deputy-Speaker

I am afraid that we cannot discuss how this money is to be spent. The Bill is merely for an extension of this service, and other services may be added. We cannot go into that matter now.

Mr. Tinker

It is difficult to go against your Ruling, Colonel Clifton Brown, and, that being so, I will conclude my remarks.

5.8 p.m.

Captain Cazalet

I hope to keep in order and to confine my remarks to a very few minutes. In the initial stages of the Bill a stranger listening to our Debates, after he had heard the panegyrics, would have received a surprise to find that it was a Bill to vote £800,000,000 for the purposes of rearmament and not for any constructive social purpose; merely for making implements of war. I think it was due to the intense relief which a great many Members felt that they accorded a welcome to the Bill and to the speech of the Chancellor of the Exchequer indicating the possibility that there would be no appreciable increase in taxation this year, rather than to the actual proposals of the Bill. We are inclined to forget, grateful as we may be that no additional or appreciable taxation will be imposed this year, that during the next 30 years the Bill may well mean an increase of about £200,000,000 a year upon the burdens of the taxpayers of this country. The actual amount that we are spending on armaments must be nearer to £2,000,000,000 than to £1,500,000,000. That figure is the criterion of the national effort.

It is curious to remember that only eight years ago Members of every party were vying with each other on the platforms of the country as to how little they had spent on the various defence services. Now almost every party is rivalling the others in encouraging the Chancellor of the Exchequer to spend more money on rearmaments of one kind or another. Two things seem clear. In this race of expenditure on armaments we shall be able to last longer than any other country in Europe, and if we all continue indefinitely it must mean universal bankruptcy. In the moment of satisfaction that we are becoming safer and stronger we may forget the permanent burden that we are putting upon the shoulders of the people of this country, and that in the long run must have an effect upon the social services and upon the standard of life of the mass of the people. We may be inclined to forget also the insane folly of a world devoting vast sums of money and time and thought to works of destruction.

Much was said in the initial stages of the Bill upon the subject of profiteering, and I would like to make one short observation on that subject. We cannot go into individual cases of profiteering, but the matter formed the subject of many speeches and of practically the whole of one Government reply. I hope I may be allowed to make one remark upon it.

Mr. Deputy-Speaker

I am afraid it would be out of order to do so, as there is nothing about it in the Bill.

Captain Cazalet

We are all agreed that cases of profiteering are to be condemned, but to make general assertions of large-scale profiteering to-day is inaccurate and is damaging in the impression that it creates in this country and abroad.

Mr. Tinkers

All that I asked was that the Chancellor of the Exchequer should make a statement on that subject disputing such assertions or otherwise, but Mr. Deputy-Speaker would not let me get any further with my request.

Captain Cazalet

I believe that a general accusation of profiteering is not accurate. I will curtail my observations on this point, merely adding that it is all very well to argue against excessive profits but the main consideration is whether by the use of this money we are getting goods produced of the right standard. I believe that the answer is in the affirmative. Lastly, are those goods being produced under reasonable conditions of labour? I believe that the answer to that question is also in the affirmative. Never have we had a period in which there has been so much peace in industry, which shows that the trade unions are doing their work. I believe that they also——

Mr. Deputy-Speaker

I allowed the hon. and gallant Member to make one short remark, but he now appears to be exceeding that limit.

Captain Cazalet

It is very difficult to go into one or two of the things that I wanted to say. Perhaps I may be allowed to say, in conclusion, that I believe the Bill is an indication of the fact that this country is growing in strength and importance every day and that we are beginning once again to wield in world affairs an influence which we never ought to have lost. I believe that the day is not far distant when we shall suddenly find ourselves playing a role which will surprise our neighbours almost as much as it may surprise ourselves.

5.15 p.m.

Mr. Stephen

I desire, with your permission, Mr. Deputy-Speaker, to make a personal statement in correction of a statement I made when I spoke a few minutes ago. I referred to the right hon. Gentleman the Member for South Hackney (Mr. H. Morrison). My reference was intended to be to the Chancellor of the Duchy of Lancaster, and my confusion arose from the fact that the two right hon. Gentlemen have the same name. I think it is only fair to the right hon. Gentleman the Member for South Hackney that I should make this correction.

5.16 p.m.

Mr. Ede

I find myself in a rather difficult predicament, for most of the matters referred to by previous speakers to which one would have liked to allude have been ruled out of order, and, although those hon. Members have got their shot in first, it would be a breach of the Rules of the House to attempt to deal with the subjects they have raised. There are, however, one or two points which have not yet been mentioned, and there are, perhaps, one or two hurdles that have not yet brought a horse down. I should like to find out whether the Chancellor of the Exchequer will be in order in replying to those points.

The first is that, when the figure of £400,000,000 was originally proposed, we understood that that amount was to be raised by loan out of a total expenditure of £1,500,000,000 or thereabouts. The borrowing power is now being raised to £800,000,000, but, so far, I have not heard the total sum out of which that £800,000,000 is to be raised by loan. I think it was the hon. and gallant Member for Chippenham (Captain Cazalet) who spoke of the total expenditure as being in the neighbourhood of £2,000,000,000. If that is to be the total expenditure, it would mean that, of the additional £500,000,000, £400,000,000 is to be raised by loan, and only £100,000,000 is to be raised by revenue. But, whether that estimate is correct or not, I do not think any figures have been given in the course of these Debates to show us exactly what proportion it is now proposed to raise by loan. Of the original total expenditure, 262/3 per cent. was to be raised by loan. What is the total sum of which this £800,000,000 is a fraction? Can we know whether the ratio of 262/3 per cent. is still to be preserved, or whether that percentage is to be considerably enlarged?

The hon. and gallant Member for Chippenham asked what we were getting for this money. I thought that what was said by the hon. Member for East Fife (Mr. Henderson Stewart) represented what we were supposed to get for the money. He suggested that this money is to be provided in order that there shall be no repetition of Munich. I thought at the time that he was a supporter of Munich, but perhaps he has learned wisdom in the last few weeks, and has found that the learning of wisdom is an expensive process. I take it that this defence loan is supposed to be a means of giving us security, but does anyone really believe it is going to give us security? I recollect saying a few months ago, in one of these Debates, that the world at the present time reminded me of a scene in a Wild West saloon, where men from the wide open spaces were sitting playing poker, with a gun on each hip, and waiting for the opportunity to seize the jackpot by a display of their skill with the six-shooter. Does anyone believe that the expenditure of this money to-day is going to do anything but encourage other people to raise their loans?

Really, we are playing poker. We put up £1,500,000,000 to back our hand, and we hoped that that would persuade other people that our hand was so strong that they could not go on. We are now putting in something else. Is there any indication anywhere in the world that this is bringing anyone to their senses? As I see it, it is getting us nearer to the stage when these guns will be drawn. I read speeches by the dictators in which they allude to our Debates on this matter, not as evidence of our desire for peace, of our desire to see that freedom shall be preserved in the world, but as evidence that we intend to use these arms provocatively. I venture to suggest—I hope I may be in order in making this one point, beyond which I will not go—that we may yet realise that the display of force will never bring peace, that, if we want peace, we shall have to show a willingness to employ the means of reason. I know that, in the world as it is at present, this is difficult, but I see no hope that from the expenditure of this money we shall get peace. We shall have to put this money in, but it is not the end.

It seemed to me that the speech of the Prime Minister was the most appalling speech that any Prime Minister could have made, when he said that, when we have paid for these armaments by loan, we shall then have to pay for their maintenance by loan. I wonder what would have been said of him, when he was Lord Mayor of Birmingham, if he had appeared at a Ministry of Health inquiry into a proposal to raise a loan for some capital project in his city, and had said, "When we have raised this money out of loan, and built this swimming bath" or whatever social improvement it might have been, "we also propose to raise the annual deficit by loan." I wonder what the Prime Minister would have said, when he was Minister of Health, to any municipality that submitted to him such a proposal. I venture to say he would have regarded that as the first ground for refusing his sanction to the loan.

It is, of course, in the state of the world to-day, impossible to divide against this Measure, but I do ask the Chancellor of the Exchequer to consider how far it is possible to assure us or any other people that we are getting security. Are we getting more than a gambler's chance that we may be able to bluff somebody else who is playing in the same game? No one would have believed seven years ago that it was within the financial capacity of the country to raise anything like this sum of money for any purpose at all, and for any of the purposes that make for the regeneration of the world we should still be told that it was impossible. I see the voting of this money with a heavy heart, because I believe that, not merely is it not going to produce any good, but that it may very well be productive of great suffering in the world.

5.26 p.m.

Mr. Denman

I want merely to pursue one question, namely, the first question raised by the hon. Member for South Shields (Mr. Ede), relating to the proportion between the money to be borrowed and the money to be raised by revenue in any one year. I think my hon. Friend the Member for Walsall (Sir G. Schuster) referred to the matter during the earlier stages of the Bill, but he did not receive a reply at the time, and, indeed, he did not expect one. It seems to me to be important that the public should know what is in the mind of the Government. The old principle of our finance was perfectly clear. It was that any expenditure likely to be annual should be met out of revenue, and, indeed, the application of the principle went further than that, because a great deal of expenditure that was obviously capital expenditure was met out of annual revenue. My right hon. Friend will remember the bitterness of the controversy in pre-War days over the Naval Loans Bill, when quite a modest demand was made for power to borrow for what nowadays we should certainly regard as capital expenditure.

Are we, in this Bill, deliberately making a fresh departure? Are we contemplating borrowing for an expenditure which is likely to recur? I ask the question in no hostile sense; I ask it only because I believe we ought to know what we intend to do in this matter. It is regrettable if the financial conditions are such, and the world position is such, that we are compelled to do this, but let us know it and recognise that we are likely to be able to carry on that process quite as long as any other country. We must recognise that borrowing on such a scale is, quite frankly, war finance—that, financially speaking, we are in a condition of war. That fact, apart from all others, must, on financial grounds alone, make us desire all the more urgently the coming of a time when we may be able to return to the methods of peace and once more revert to financial rectitude.

5.28 p.m.

The Chancellor of the Exchequer (Sir John Simon)

I think the time has come when the House will be ready for me to make a short reply to the Debate, and I will endeavour to deal with some of the points that have been raised so far as those points have been found on analysis to be legitimate points with which to deal now. I have a good deal of sympathy with some of my hon. Friends who have raised points which I think were of very great substance and importance, but still we must keep to the Rules. When we come to the Third Reading of the Bill, we have to see what the Bill contains, and if by any chance we go outside that, we must expect to be pulled inside it again by the authority of the Chair, which we all accept. Even so, there must be some matters that are in order on the Third Reading of the Bill, and I should like to make some remarks about two or three of them.

In the first place, I would remind the House that, as has been pointed out from the Chair, this is not a Bill which spends any money at all, but a Bill which gives authority under which, without further request for power, money may be borrowed to be devoted to a limited list of purposes which are defined in this Bill and in the original Act. It is a facultative Bill. Even so, we are not seeking to get from Parliament a blank authority which enables us, even for these defence purposes, to go and spend the money without further challenge. As the House knows—and it is a very important House of Commons point—we provide in our legislation that we have to put down in the Estimates what is the particular head of the Estimates under which we seek to use any portion of this borrowed money, and, therefore, the matter does come up for consideration by the House, as indeed it ought, on each occasion.

I have been asked by the hon. Member for South Shields (Mr. Ede) and also by my hon. Friend on this side how far I thought the powers we were taking here were powers to raise and use money for what might be called capital purposes and how far it might be supposed to be an authority to use borrowed money for meeting recurring annual charges. The hon. Member opposite, in that connection, invited me to go into a calculation based on the Rule of Three. It was quite a legitimate and natural sort of question. He said, in effect, that we started with a figure of £1,500,000,000, out of which £400,000,000 might be borrowed. We were now asking for powers to borrow £800,000,000 and what was the equivalent now of the original figure of £1,500,000,000? The original figure was divided in the ratio £400,000,000 from loan and £1,100,000,000 from revenue. Ought we therefore to say that the defence expenditure we have to face is to be divided in that proportion as between capital expenditure and non-capital expenditure? That would be a misconception.

We never conceived that this rearmament expenditure should be regarded as an expenditure eleven-fifteenths of which represented the total of recurrent expenditure and a mere four-fifteenths was the capital expenditure. The reason for that division of the £1,500,000,000—we know now that that figure is insufficient—was that it was thought that, by putting a great strain upon ourselves no doubt, we could raise £1,100,000,000 out of taxation and that if so we ought to do it; but we thought it would be putting more of a strain on the country than was justified in the then circumstances to ask for the other £400,000,000 to come out of taxation. There was never any conscious attempt to apportion the outlay as between capital and non-capital expenditure in that proportion. On the contrary. That basis left us in this situation—and I think it is the best situation to be in—that we are throwing a very considerable part of the capital expenditure on revenue and there is no doubt that that is a wise and prudent thing to do.

What my hon. Friend the Member for Central Leeds (Mr. Denman) has said is quite just. What were called classical principles in the days before the War are very good principles to-day. We have to remember that there are two different senses in which you may describe expenditure as being in the nature of capital. In one sense a thing is in the nature of capital expenditure if you hope to have to incur it only once or at distant intervals of time. But in another and a more fruitful sense, capital expenditure is the outlay of money upon an object which will bring back as a return year by year that which enables you in due course to replace the thing when it has gone. That, unfortunately, is not the character of armaments expenditure. Whatever may be the difficulties, I hope nobody will ever find me pretending that one is the same as the other. It is not. We may attempt to justify the apportionment of certain expenditure to be met by borrowing, and it can be justified, I believe, in the circumstances, but that does not mean that we are spending our money on something that will, so to speak, earn its keep and in a way which conforms to the rules for borrowing in the strict and classical sense. That justification can never exist in regard to such expenditure as this. I believe a great many people in the House will agree with me about this and will be glad to hear it stated from this Box. Then it was asked on what principle have we asked for another £400,000,000? Is it merely the old principle of saying, "Think of a number, then double it "? It is not quite that, because that would involve, according to the nursery formula, "taking away the number you first thought of." I do not know that we can do that. The real reason is something like this, and I have already explained it in Committee of Ways and Means. I do not find it possible to state a figure which can be substituted for the original £1,500,000,000. It is quite clear that it will be a figure substantially more. I have never thought that we can work out theoretically a precise relation between the taxation figure and the borrowing figure. We are, I believe, justified in the circumstances of this expenditure in getting a substantial contribution from loan. It would not be reasonable, or possible, to put on the people of this country, within the limits of a single 12 months, the whole of the defence expenditure for next year. The amount we raise by taxation for purposes of defence may not be the same in one year and another, but you would not ordinarily expect the figure to alter, except in time of war, at a very rapid rate. But in fact we are this year raising out of the revenue for defence purposes twice as much as we raised in 1934. We have doubled the amount we are putting on the taxpayers, and that shows that we are not attempting to shovel our responsibilities on to posterity. But it is not a practical proposition to say that the whole of this sum simply must be raised by taxation, and you are bound to turn to the other alternative of loan. I shall not admit that the amount we are seeking to get out of loan exceeds what can be classified as a non-recurrent charge.

Mr. Bellenger

Would the right hon. Gentleman give us a formula then for the guidance of future Chancellors as to how he arrives at the figure that he decides should come from revenue and the proportion that should be obtained by way of loan?

Sir J. Simon

Is this with reference to the £580,000,000?

Mr. Bellenger

Yes or any defence expenditure in any other year.

Sir J. Simon

I do not think I can go over it again, even if it were in order. As to the £400,000,000 that is in order and I will say a word about it. It may be said that the £400,000,000 is not enough for one purpose and that it is too much for another—that we are between two stools, but I think the House of Commons will probably support the view I take. I do not think it would be right or prudent to ask at present for a greatly swollen sum beyond the £400,000,000. I sincerely hope things will take such a turn that it will not be needed. I cannot see any public advantage from making an extravagant claim which may not be necessary, and I should have thought that the House of Commons would prefer that whoever was responsible would have to come back and ask for further help rather than that he should ask for a blank cheque and go away rubbing his hands, knowing that he had an almost unlimited amount at his disposal without the need for future authority. I do not, of course, say that there is any particular virtue about the figure of £400,000,000, or against, for example, £350,000,000 or £450,000,000. But I thought there was a certain advantage in repeating the same figure as before, if only to mark the fact that we were not seeking exactly the amount we needed but were making provision for an adequate amount in any circumstances. That is broadly why the Bill contains the figure of £400,000,000.

My hon. Friend the Member for East Fife (Mr. Henderson Stewart) asked a question about the report of the industrial advisory panel which was communicated to the House on 2nd February, and in particular with regard to the references about the panel making further inquiry for the purposes they mentioned. No further report has been made on that subject yet—after all, the report was made only last month— and we shall have to wait a little longer.

I was asked whether I thought the raising of this large extra sum of money was likely to have serious economic effects on the finance and trade of the country. I would point out again that what this Bill does is to give authority. It is not operative. As regards the original authority, the first £400,000,000, we have been very careful not to march into the money market with this authority and get the money anyhow. This is a much more delicate matter than that. It is to the interest of the country that these things should be handled with the greatest possible skill. I appreciate the technical accuracy of the remarks of the hon. Gentleman opposite with regard to short-term Bills and longer-dated issues, but he will not expect me to make a statement on that now. Everything depends on how it is done.

This great effort to find the resources which we need for this purpose will be carried through without crippling industry, without prejudicing the steady building up of the reserves and the savings which, after all, are the fund out of which this money must be got. I believe that that can be done, and will be done, without prejudicing the prospects of British industry. It is certainly the case, since the announcement I made a few weeks ago, that the indications have been favourable. I believe they show that we can shoulder this burden, and that we will shoulder it. I appreciate that this Bill is not receiving the unanimous support of the House. The hon. Member for Camlachie (Mr. Stephen) was justified in calling attention to that, and in correcting any previous mis-statements from this Box. Subject to that, I think it is a satisfactory thing, in what is a very difficult world, to find to what a very large extent it has been recognised, both inside and outside the House, that this is a thing we must do, and that this is the way to do it.

The right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence), in the course of his speech, at the beginning, repudiated theoretical considerations and calculations, and took up the attitude of the practical man who learns from experience. In this matter I am very glad to know that everybody is learning from experience, because I recall that when the original Defence Loans Bill was presented to this House in 1937 the Opposition divided the House at every single stage, including the Ways and Means Resolution.

Mr. Bellenger

There was no Munich then to guide us.

Sir J. Simon

I thought the hon. Gentleman said, "No leader." We all know now, and speaking as one with a great burden on my shoulders, I am most genuinely obliged to hon. Members of this House who have considered these most important proposals so fairly, and who, while reserving their own views— and their rights of criticism and rebuke— at the same time accept, subject to the views of the hon. Gentleman and his friends below the Gangway, the necessity for these proposals. I ask that this Bill should now be read the Third time.