NATIONAL LOANS.

HC Deb 07 November 1939 vol 353 cc93-145

4.0 p.m.

The Chancellor of the Exchequer (Sir John Simon)

I beg to move, That—

1. (1) The Treasury may borrow in such manner as they think lit on the security of the Consolidated Fund—
1. (a)any sums required for raising any supply granted to His Majesty for the service of the year ending the thirty-first day of March, nineteen hundred and forty; and
2. (b) an additional sum not exceeding two hundred and fifty million pounds; and
3. (c) any sums required for the repayment of any maturing securities issued or deemed to have been issued under the War Loan Acts, 1914 to 1919, or any provision thereof or issued under any Act of the present Session for giving effect to this Resolution, or of any Treasury bills or ways and means advances;
2. (2) the Treasury may, for the purpose of carrying out any arrangement for the exchange of Government securities, create and issue new securities and undertake to make payments to holders of securities surrendered in pursuance of the arrangement;
3. (3) any Act of the present Session for giving effect to the foregoing provisions of this Resolution may contain any provisions incidental thereto or consequential thereon, including, in particular, provisions—
1. (a)charging on the Consolidated Fund—
1. (i) the principal of and interest on securities issued under the Act;
2. (ii) any expenses incurred in connection with the raising of money or the issue or redemption of securities under the Act;
3. (iii) any remuneration payable to the Bank of England or the Bank of Ireland in respect of the management of securities issued under the Act;
4. (iv) any money required for the purpose of any sinking fund established under the Act or for the purpose of carrying out any such arrangement for the exchange of securities as aforesaid;
2. (b) authorising the payment into the Exchequer of any money received by the Treasury in pursuance of any such arrangement;
3. (c) enabling money raised by the issue of national savings certificates to be applied for any purpose for which money may be raised under the Act;
94
4. (d)authorising the Treasury to borrow under the Act money which, by virtue of any other Act, they are authorised to> borrow under Sub-section (1) of Section, one of the War Loan Act, 1919."

This is a Ways and Means Resolution upon which it is proposed to found a Bill with the title of the National Loans Bill. The Bill will give to the Treasury-powers of borrowing similar to those which were given by the War Loan Acts passed annually during the last war. Indeed it is possible to trace the record of this practice further back than the last war, for there were similar War Loan Acts passed by Parliament in 1900, 1901 and 1902, to authorise the necessary borrowing for the prosecution of the Boer War. The Committee will understand that legislative provisions of this sort are empowering provisions. They are limited to conferring powers on the Treasury and to authorising machinery for the issue and service of securities which may be created under such powers. It would be quite contrary to precedent, and indeed it would be quite impracticable, to legislate specifically for a particular loan, with defined terms and date and period, to be raised in the future. The terms and conditions of such a loan must necessarily be left to be decided in the light of the best advice that can be obtained, and announced at the moment when the loan is being issued. I do not think hon. Members will question the wisdom of that view. If you were indeed to attempt such specific loan legislation, with all the details set out, and then pass such legislation through its various stages—the Financial Resolution, Second Reading, Committee, Report and all the rest of it—of course, the interval would give an opportunity which might easily be abused, with the result that by the time the loan was issued the terms and conditions would be unsuitable.

It is obviously not in the public interest that the terms of a future loan should be the subject of Debate and discussion before the issue is made. Therefore it has always been the accepted principle, going back to the Boer War and the war of 20 years ago, that what the Government must do in war-time is to acquire all the necessary powers, and then it is their responsibility—it is a very grave responsibility—to use those powers to the best advantage of the State. Another point that I wish to mention to those who are interested in this unusual subject is that, apart from the legislation I am now asking. authority to introduce, the Treasury would have no adequate powers to raise new money for the purpose of prosecuting the war. There are a certain number of limited and special standing powers which Parliament has given to the Treasury. I have had a list of them made. It is a technical matter and it would be perhaps dull to go through the items. But I will give an example.

The current Consolidated Fund Bill confers power to borrow by the issue of Treasury bills repayable in the same financial year; and there are one or two other cases. But it has always been recognised, and it is plainly right, that the authority for what are called large war borrowings, general authority such as the present Resolution proposes to confer, is desirable and indeed necessary. Instead -of trying to piece together out of the Statute Book, with all sorts of references back, odds and ends of authority—instead of trying to do your business by that means it is very much better to authorise and pass into law a National Loans Bill which will be self-contained, which will be the direct authority for what is to be done and will of course be set out, in the documents that are issued when the loan or the loans are created, as the statutory authority. That Bill I am now seeking to introduce.

There is one other general observation which I think hon. Members may be glad for me to make. It is true that I am asking for a Bill which gives authority for war borrowing. At the same time it is possible to limit what I am asking now to a period in time, to a single year; and I think it is plain that Parliament would not wish to give a wider authority than that. If hon. Members will look at this Resolution—it is rather forbidding in appearance, but that cannot be helped—they will see that it starts by saying: The Treasury may borrow in such manner as they think fit on the security of the Consolidated Fund— (a)any sums required for raising any supply granted to His Majesty for the service of the year ending the thirty-first day of March, nineteen hundred and forty. Hon. Members will appreciate that if you simply take that sub-paragraph (a,)which is power to borrow in respect of supply up to 31st March, 1940, then any borrowing would have to take place before that date is reached. In the Resolution, therefore, there is paragraph (b)which gives power to borrow: an additional sum not exceeding two hundred and fifty million pounds. That additional sum corresponds to the additional sum which was authorised in the late war in each of the War Loan Acts, from 1915 to 1919. The reason for it is that any borrowing under sub-paragraph (a)must necessarily be effected during the present financial year, and if things so developed that you wanted to exercise the power of borrowing after 31st March next but before the next year's Loans Bill is carried, you must secure now a certain latitude, which is thus defined. Of course under sub-paragraph (a) the total authority is very large. It is.really quite impossible to suppose that we are seeking to borrow the whole of this year's supply—-I have been imposing the most stringent taxation in order to raise a very large part of it. But there is no other convenient limit to put into the Act of Parliament. You have to provide for the possibilities of unexpected events, and it has always been found that it is impossible to say in advance exactly where the line should be drawn in these Bills. The best thing to do is to take the amount of supply voted this year and add to it further authority which can be utilised after 31st March next year.

I ask hon. Members to turn next to paragraph (1, c), power to borrow for the purpose of repayment of securities already issued. That power is, of course, already existing. We have not issued securities without having power to borrow for the purpose of paying them back. The question is, which is the better course—to have a Bill all ready which is quite self-contained, which anyone can read without looking back, or to legislate by reference to past Acts. It seems better not to have any unnecessary references back to earlier Acts. So I propose in the Bill that we should repeal the old existing powers.

Mr. Graham White

Does that also cover loans under the Trade Facilities Act, all liabilities that there may be within the period of the Bill?

Sir J. Simon

As to that I shall inform myself more precisely. I do not think so. It was not what I had in mind, but I will look into the matter and make quite sure. I was thinking primarily of the ordinary provision by which we may borrow to repay securities which have been already issued. Paragraph (2) of the Resolution is a technical paragraph. It makes provision for powers which would be necessary in the event of a conversion of securities. Paragraph 3 of the Resolution is also a technical paragraph and I do not think the Committee will wish me to go right through it, but there are one or two points I might bring out. The effect of paragraph (3) is pretty clear in the language in which it is expressed. I ask hon. Members to look at sub-paragraph (3, c). That enables money raised by the issue of National Service Certificates to be applied for any purpose for which money may be raised under the Act. That is a widening of existing authority.

As things stand under the present law, which was passed in times of peace, the proceeds of such certificates must be applied to the redemption of debt. I must not, of course, anticipate the precise use which may be made of these powers, but I would remind the Committee that I said in my Budget speech—the observation, I believe, was received with general approval—that it was our intention, when the time came to borrow, to appeal to the smaller investor who has got certain savings as well as to the man and the institution with great possessions. This provision in paragraph (3, c) is devised partly with that in view, because I think it is right that the citizen of small means —a very important part of the community —who makes his contribution, a modest contribution, through the medium of National Savings Certificates, should feel that by so doing he, no less than his richer fellow-citizen, is securing that his contribution, however small, is going directly for the purpose of fighting and winning the war. I do not think it would be very much consolation to the small man to say to him, "Will you take this certificate and help to pay off the National Debt?" What we want him to feel is that he is helping to win the war.

Lastly, under paragraph (3, d,)you get a reference which I think needs a little explanation. I ask that the Bill should include a provision authorising the Treasury to borrow under the new Act money which, by virtue of any other Act, they are authorised to borrow under Subsection (1) of Section one of the War Loan Act, 1919. That is rather an elaborate phrase, but it is designed again to secure simplicity. That Sub-section (1) of Section 1 of the War Loan Act, 1919, is the last enactment of that class on the Statute Book at present, and it is referred to in a great many provisions of recent years, as being the reference to which it is most convenient to turn for the purpose of defining powers when taken for new purposes. If we were to keep that going, it would mean that everybody would have to turn back to the Act of 1919, and what I am proposing to do, is to repeal all those references in a Schedule to the new Bill, and in place of them to make the reference to this new Act. All that is for the purpose of making the job as simple as it can be and not having to go back into ancient and rather technical matters. There are many cases where Parliament has authorised the Treasury for some specific purpose to borrow, as the phraseology runs, in any manner in which the Treasury are authorised to raise money under the Act of 1919. The provision in the Resolution, of course, substitutes a reference to the new Act for the reference to the Act of 1919, and it secures that the definition of borrowing powers authorised to be exercised shall be made by reference to what will be the latest Act on the subject. In effect, the new Act will take the place of the Act of 1919. When the Bill is introduced hon. Members will find that, by the Schedule, we have knocked on the head the authority of the older Act in relation to the Scheduled provisions.

I had better tell the Committee that one of the Acts which will be included in that Schedule will be the Defence Loans Act of 1937. That was the Act under which we were going to borrow, under which we did get power to borrow, £400,000,000 in connection with the £1,500,000,000 for rearmament which was then the prospect. After that, by an amending Act in the spring of this year, that £400,000,000 was increased to a total of £800,000,000. The situation about the borrowing under that Act is as follows: the powers conferred by those two Defence Loans Acts have been or will be used to the extent of £695,000,000 out of the £800,000,000, and of this £695,000,000, £502,000,000 is in respect of the present financial year and is actually being borrowed under the Defence Loans Acts. The authority was given when we passed the Estimates. There thus remains unused under those Defence Loans Acts a balance of £105,000,000. It would be far more convenient, in place of following the special procedure of the Defence Loans Act, for this balance to be merged into the general powers which the new Bill will provide. As I have said, I propose to include the Defence Loans Act as one of those which will be repealed.

I have slated to the Committee as well as I can the contents of this plan, and I have gone through the terms of the Resolution. I am well aware that the matter is technical and that the explanation is tedious, but it is a matter of general importance. It is a proposal really to confer powers, not to exercise them. I think it must be admitted that it is absolutely necessary to confer these powers on the Treasury, and, as I have explained, they follow precisely in their general character the powers conferred by the War Loans Acts in past wars. Hon. Members may, perhaps, want to have the Bill in their hands in order to appreciate fully the provisions contemplated, but I hope I have explained and made clear the reasons why the Financial Resolution is framed as it is.

4.22 p.m.

Mr. Pethick-Lawrence

It would be impossible to over-estimate the importance of what we are doing to-day. As I see it, and as everyone with imagination must see it, we are starting here, in this House of Commons, the major operation of the war, for without an adequate financial basis every war must fail. In other days our task would have been described graphically as providing the "sinews of war," for then men with strong arms prevailed. In the last war we thought in terms of rifles, and the phrase was coined of the "silver bullets" which the Chancellor of the Exchequer required. In our modern, air-minded age, "silver wings" is perhaps the up-to-date equivalent. The task which the Chancellor has to set before the nation is indeed colossal, and heavy is his responsibility. Faulty finance might not, perhaps, lose us the war—it did not lose us the last war—but it would certainly blast the hopes of a prosperous peace.

I will preface with a few general remarks what I have to say on the Financial Resolution. In the first place, the outbreak of war creates dislocation, and one of the objects of sound war finance is to end that dislocation and to enmesh the whole of our resources in a common effort. So far this has not been done, and we look to the Chancellor of the Exchequer and his colleagues to achieve it with the minimum of delay. Secondly, war causes great inequalities of sacrifice. War finance cannot completely cure these, because they are inherent in our system, but it ought to mitigate and not to aggravate them, and again it is up to the Chancellor of the Exchequer to bring this about. Next, there are many pitfalls for finance in war time, and unfortunately the last war exhibited them all. There is the danger of extravagant charges for Government contracts, there is the danger of inadequate taxation, there is the danger of cumulative inflation, and, finally, there is the danger of high and rising rates of interest on Government loans.

Without going into details as to the first three, I think I am well within the mark and should be supported by expert opinion when I say that in the last war the combined and cumulative effect of these dangers was to swell the cost of the war by at least £2,000,000,000 and in consequence to add to the National Debt over £7,000,000,000, instead of under £5,000,000,000, which would otherwise have been the case. As to the fourth, the rate of interest, which is strictly germane to to-day's discussion, I would remind the Committee that during the last war the rate of interest on long-term loans ranged from 4 to something like 6 per cent. Had it instead ranged from 2 to 3 per cent., or, as I would rather express it, for reasons which I shall explain later, from 3 to 2 per cent., the avoidance of all these dangers together would have meant that at the end of the war we should have had to face, not an annual debt charge of over £300,000,000, but one of less than £150,000,000, a totally different proposition.

Now let us see where we are going in the present war. In some respects we are starting where the last war left off. In fact, I sometimes feel as if we have been living in a dream during these last 20 years and that we have now awakened to a continuance of the horrid reality. At the end of the last war we were spending somewhere about £2,000,000,000 a year upon its prosecution, and I imagine that we are spending roughly at that rate at the present time. If the war lasts three years, and if we were to fall into the same errors again this time, then by the third year we might very easily be spending at the rate of £5,000,000,000 a year, and if that were to be borrowed at 6 per cent., then, in one single year, we Should be adding a post-war annual charge of no less than £300,000,000, which was the amount added in the whole course of the last war. I am sure that there is not a single Member of this House who will dissent from me when I say that that is indeed a terrible prospect, but it is no good shutting our eyes to the fact; it is no good vaguely believing that it will not happen. It is up to the Chancellor of the Exchequer and to us in the House of Commons to insist that it does not happen.

How is that to be done? It depends very largely on how the Chancellor of the Exchequer uses the powers which he is asking us to give him to-day. Extravagant costs do not come directly within the purview of this Resolution, but as the Chancellor referred to them earlier this afternoon perhaps I may say a word on the matter. It is vital that they should be checked, and it is of great importance, that the House of Commons should take a hand in the matter, but there are a few words of warning with regard to this Select Committee which I feel it is incumbent on me to utter. In the first place, the Government must not think that they can in any way shelve or hand over their responsibility to this committee and shelter behind it. The main responsibility for checking extravagance must rest with them, and them alone. Secondly, those with whom I am associated would hesitate to be parties to a Select Committee which would have a roving commission, like what is known as the Geddes or May Committees, which would cover the whole type of national expenditure and which would be likely to recommend cuts at the expense of the people for whom we have a special responsibility.

I do not propose to say much about taxation in general for it was the main subject of the Budget a few weeks ago. On the whole I do not dissent from the view of the Chancellor that it made nearly as heavy an inroad as was possible at that time into the incomes of the population. At the appropriate point I will reexamine one aspect of this question. I come to the question of inflation. One of the main causes of inflation in the last war was the way in which the joint stock banks were encouraged to lend money to their clients to lend to the Government. As a result of this and other financial methods, the banks more than doubled their deposits and their advances and made huge profits, which were masked at the time by the falling value of securities. The important point to note is that they did all this on Government money and on Government credit. I do not know precisely how the joint stock banks' deposits and advances stand at the moment, because the returns are confusing, but there is reason to think that they are already rising considerably. The Government can take steps to limit this increase or to secure that the advantage falls to the nation and not to private individuals or to companies. One of the causes of inflation was due to the War Debt being sold to the public in such great chunks at a time that they could not be fully digested, and in order to make it possible for them to be taken up the banks were called upon to intervene and lend the money to the public. One of the means, therefore, by which a similar inflation can be checked in future will be for the Chancellor to issue War Loan, or whatever it may be, in smaller parcels or in the form of perhaps continuously running Treasury bonds "on tap," as they were called during the last war.

Meanwhile, during the last war the Bank Rate stood consistently between 5 and 6 per cent. Nothing like this must be allowed to happen again. I am one of those who think that the Bank Rate ought never to have gone up to 4 per cent., as it did at the beginning of this war, but whether my view be accepted or not, I congratulate the Chancellor upon getting it down to 2 per cent. again, with Treasury bills down to something like a discount rate of £1 4s. per cent. per annum. I am not sure that the Chancellor ought to rest content there. There is no particular merit about 2 per cent., and there is no reason why in the days in front of us he should not bring it down even lower than that, to 1½or possibly even to 1 per cent. The rate of interest paid by banks to depositors is at present ½ per cent. There is no reason why it should not fall even to zero, and no reason why the Treasury bill rate should not fall to the 4s. leaving the £1 out of the picture. The Committee will remember that it is not long since the Treasury bill rate was not far removed from ½per cent., or, in the phraseology I have been using, 10s. per cent. per annum. There is an alternative to all that: the Government might short-circuit the whole procedure. That would mean a considerable change, but sometimes considerable changes have to be adopted in the course of a war.

All that brings me to the point, the most important of all, namely, the question at what rate of interest long-term War Loan will be issued. In the last war the investor was coaxed and bribed by high and rising rates of interest. I will not stop to examine whether there were alternatives to that course even in those days, but it is clear that it is not necessary to pursue that policy at the present time. The Government have great powers and I venture to think that they will have the support of public opinion—not merely ill-informed public opinion, but opinion inside financial circles—for making the rates of interest low, and, what may perhaps be still more important, for reducing it as the war goes on. It may be said, of course, that even if the investor be prevented from doing better for himself in other investments, he may prefer to spend the money as he gets it on himself and not to save at all. The Government can stop up this leak by sumptuary legislation, if necessary, as they have in effect done in the matter of petrol. We have also to remember that the pool from which this money must ultimately come is immense. It is no other than the whole proceeds of Government expenditure, which must in course of time filter down into the pockets of the public and cannot all be spent on personal satisfaction at the time.

I am proposing that the Government should use power not merely to keep down, but to lower as the war goes on the general rate of interest. The reverse side of that picture, of course, is the raising of the capital value of gilt-edged securities. I pause to point out that the raising of the capital value of gilt-edged securities will be very welcome to most persons at present in possession of wealth. It is in strict contrast to the crushing depreciation imposed during the last war, when Consols fell nearly to 50, with other gilt-edged securities similarly depressed. I will return to this point shortly. The present interest rate on gilt-edged securities is in the neighbourhood of 3¾ per cent. I would warn the Chancellor that the public will be utterly dissatisfied, and rightfully, if the first War Loan be floated at this rate or even round 3½ per cent. The rate ought to be considerably lower. The point, however, which I am specially stressing is that during the progress of the war it ought continuously to fall. If it starts at 3 per cent., it ought to be made to go down to 2½ per cent., and even to 2 per cent. before the war is over.

I come to the second paragraph of the Resolution dealing with the exchange of securities. I assume that this relates to the necessity of finding foreign exchange to pay for purchases from abroad, which we are no longer able to buy "on tick" as we did in the last war. We must, therefore, pay for what we get from other countries either by our exports, or by gold, or by offering what are known as dollar securities. It is worth while turning aside for a moment to examine a new technique which the German Government have discovered for obtaining foreign exchange. Hon. Members will have noticed that they are bringing home to the Fatherland, or to other parts of their newly acquired provinces, German persons from the northern countries. The financial arrangements of the transfer are that those persons are able to carry next to nothing with them as cash, and they leave behind them their property, which has at some subsequent time to be liquidated. The whole of that liquidation creates foreign exchange for the German Government. I have seen an estimate in reference to persons returning from the Baltic countries put at something between £50,000,000 and £100,000,000. I have no means of checking the figure, but I can well believe that the amount will be considerable. German technique may not stop there, and they boast that it will not stop there. They are talking about pursuing -a similar policy in south-east Europe. If they do that they may not get the apparent advantage of a few tens of millions; they may get foreign exchange to the tune of hundreds of millions, and it will be their object by that means to finance their imports by what is, in effect, a capital transaction during the war without providing any corresponding exports. Our Government must see what they can do to reduce the effect of this, partly by diplomatic and partly by economic policy. The point, of course, is to reduce the amount available for imports into Germany during the war.

Obviously we cannot imitate the German example in our own case. What our Government have actually done is to ask for a register of dollar securities, on which, no doubt, they will subsequently base a requisition. On that two points arise. First, is the register substantially complete? Have we really got a full list of all holdings of British nationals in dollar securities? I am told that it is very far from complete. I suggest to the Government there are several ways in which they can overcome this secrecy and evasion. I do not think they are a wise matter for public discussion inside this Committee, but I have no doubt the Government are aware of them. I believe it would be the universal opinion that it is utterly unfair, when some people have correctly and patriotically disclosed their holdings, that others should be illegally withholding that information and continuing not only to hold their securities undisclosed but making illicit profits from them. I am not one of those who love to see people punished, and it is not prosecution and punishment that I want. What I want the Government to do, even though they may have to take drastic steps to do it, is to complete this register. Those who have hitherto evaded their duty should be given to understand that it is their business forthwith to furnish the information, and to make restitution both as to the amount and as to the profits that have already been made.

The second point that arises on this question is, In what form are we going to requisition these securities that are so essential to us for purchasing the products of foreign lands? Some people may say, "Commandeer them." I am not one of those who take that view. It seems to me that it would be flagrantly unjust and unfair, because there is nothing irregular or improper in a person holding foreign securities.

The Chairman

For the sake of future speakers in the Debate, I think it is desirable that I should give some indication of what will not be in order. The right hon. Gentleman will realise that this Resolution deals only with Government securities. He is referring to investments held abroad. I do not complain of his making a reference to that subject in the way he did, but he must not go into the question of how the marshalling of foreign investments generally is to be dealt with.

Mr. Pethick-Lawrence

I quite appreciate your point, Sir Dennis, and will endeavour to keep strictly within your Ruling, but Sub-section (2) of the Resolution is precisely concerned with this point. As I understand it, it is the purpose of that Sub-section to create fresh securities and to give them to the holders of dollar securities in exchange.

Sir J. Simon

I hesitated whether I should interrupt before, because I did not wish to do so, finding what the right hon. Gentleman was saying was very interesting, but he is under a misapprehension. As I said when I explained the Resolution, paragraph (2) is providing for the possibility of conversion. It has nothing to do with the requisitioning of dollar securities. The requisitioning of foreign securities like dollar securities is provided for under powers which exist now. We do not want any Act of Parliament for the purpose. They are paid for in cash out of the Exchange Account. I do not wish to put any limit upon what the right hon. Gentleman says, because it is very interesting and informative, but it is an error to suppose that paragraph (2) of the Resolution has anything to do with the requisitioning of dollar securities.

The Chairman

That is what I meant when I said that the Resolution dealt only with Government securities. Perhaps I should have said British Government securities.

Mr. Pethick-Lawrence

I am sorry that I have transgressed beyond the bounds of order. Perhaps you will allow me. Sir Dennis, in order just to complete the matter, to put it rather more briefly than I had intended. The Chancellor now explains that the matter of raising Government securities in order subsequently to exchange them for dollar securities is not covered by this particular Resolution. I will only say that it is quite clear that it is the intention of the Government to take that course, and that we on these benches say that the right method to meet this difficulty would be to impose a special tax on all capital wealth to pay for it. I suggested this before the war, and I was told that there were two objections, first, that cash was wanted then and not capital, and, secondly, that it would depress stock prices. To-day, of course, it is capital that will be required and not cash. I pointed out earlier that the effect of the policy of lowering the rate of interest and keeping up the exchange value of gilt-edged securities in particular will be to enhance the property of. those who have wealth at the present time. Therefore, it is by no means unreasonable that, as a sort of set-off against the great gains they will get out of this policy, those people should be called upon for a special contribution out of capital to the Exchequer.

To sum up, the policy I have been endeavouring to put forward consists of the following items: First, I want to limit inflation. Secondly, I want to lower still further the short-term money rates. Thirdly, I want to force up the price of gilt-edged securities and so bring down the rate of interest. Fourthly, I want to have the loans floated in moderate parcels, at low and decreasing rates of interest. Fifthly, as part of the scheme for taking foreign exchange, I want a special tax on capital wealth.

Those are admittedly drastic proposals, but in my opinion they are neither unfair nor impracticable. I believe they will commend themselves not merely to un-instructed persons but to persons of high financial standing, and, indeed, some of them have already secured such approval. If they are adopted they will do something to make the sacrifices of the war less unequal. Do not let us forget that at the present time large numbers of men are being ruined by the war—I am not talking of physical or mental sacrifices, but of financial and economic sacrifices—-and large numbers of others are being called upon to make huge financial sacrifices. Only if we limit the gains of others in some such way as I have described can we justify the sacrifices of these people. Only if we do this have we any chance of asking the public of all classes not to make their little bit for themselves out of the War when they see their chance.

I hesitate to describe the consequences if this line is not taken. If vast fortunes are made out of this war, as they were out of the last, it is no use to pretend that matters can be put right afterwards by clawing back some of the proceeds by taxation. The proposals which the Chancellor gave in outline earlier in our Debate are still in the same nebulous stage, and so far he has declined to clothe them with anything like greater material shape. If the Government allow things to drift now they are making certain that a condition of grave internal instability will arise when the war is over. I am not going to paint a picture of civil commotion, or anything of that kind, but I remember very well a very cogent and true remark made by the Prime Minister himself only a few weeks ago in another connection. He said that the British people were slow to be roused to action but, when once roused, they were very resolute. I content myself by saying that if by the financial policy by which this war is carried through grave social and economic inequalities existing before the war are aggravated at its conclusion, disunity will have been created inside this country which those who have created it will one day bitterly regret.

4.58 p.m.

Mr. White

May I, like the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence), preface the brief observations I shall address to the Committee by saying with what satisfaction we heard earlier in the day of the proposal to appoint a Select Committee to deal with certain aspects of war expenditure. It is a course which has been advocated by us on these benches and to which we have attached, and do attach, great importance, simply because a similar instrument was found to be of great value in the height of the expenditure of the last war. We certainly have not in mind, and would not support for a moment, the idea of a committee with a roving commission let loose and at large upon the Government finances. I remember reading some years ago a letter from Lord Randolph Churchill, one of the right hon. Gentleman's predecessors at the Treasury, written to a colleague, in which he said that he would like to let the House of Commons loose on the Departments. The picture of the House of Commons arming itself with economy axes and rushing upon the Departments is one which would fill me, at all events, with terror, but I do think that a committee of the kind which is in mind may prove very valuable and useful. We had no idea that this was to be a hostile committee in any sense. It was to be a committee of co-operation rather than one which would set out with hostile intention to attack anything and everything. Already there has been support for it in the House and we are glad that the Chancellor of the Exchequer and the Government have seen their way to appoint it.

I have always felt it to be a great misfortune that, when we are dealing with technical matters, as we are doing to-day, involving enormous transactions affecting the lives of everyone in this country, we should have to discuss them in such terms as are set out on the Order Paper, because very few people can understand them. The right hon. Gentleman did his best to explain to us the machinery which is employed to raise these sums of money. I associate myself with what the right hon. Gentleman said on the necessity for low interest rates. I do not think there is any occasion to adopt extraordinary powers for that purpose, if I understand the spirit of the people aright on this occasion. I believe that people are prepared, in the city and elsewhere, those who have money, whoever they may be, to play their part in the war. This is not a war with any glamour about it. It is a dour business. I do not know whether anybody will make a fortune out of it, but if he does I think he will be heartily ashamed of himself. I agree with the financing of the war at low interest rates. It would certainly be impossible to contemplate a state of things in which we had rates advancing steadily as the war went on, because we should speedily find ourselves in a position where the National Debt had grown to such an extent that some form of repudiation would follow.

I was surprised, with regard to the arrangement mentioned in paragraph 2 of the Financial Resolution, for the exchange of Government securities, to hear the right hon. Gentleman the Member for East Edinburgh say that the list of such securities was incomplete and that there had been evasion. If that is so, I hope that the gaps will be speedily filled up and that any evasion will be dealt with, I was surprised to hear him say it be- cause I fail to understand how anybody could evade unless he were prepared to forego the pleasure of receiving any income from it.

Mr. Pethick-Lawrence

He can have the income from it paid to his account in a foreign bank and he can postpone transferring the money to this country until a suitable time.

Mr. White

Only if he were nonresident in this country.

Mr. Pethick-Lawrence

No.

The Chairman

I hope that the hon. Member and others will forgive me interrupting again, but I am obliged to point out that the subject upon which the hon. Member is now speaking cannot be pursued.

Mr. White

I only wished to make a passing reference to the matter and to express surprise at the importance attached to it by the right hon. Gentleman. I do not wish to argue the matter in any way, but I express the hope that if there are such people means will be found of bringing them to book. If we proceeded to raise interest rates we should find that the burden would be unbearable. Nevertheless, our supreme purpose is now to divert from civil expenditure such money and resources as we possibly can and to raise money by loan from actual savings, and, as much as possible, from taxation. It is only in that way that we can avoid the dangers of inflation, which fall with such severity, and without any justice, as between one section of the community and another.

The prospect of being able to raise loans much more favourably than when we discussed the Budget is another matter to which I would refer. It is true that we do not know what is in the mind of the Government with regard to the loans nor with regard to the effective use to be made of the mobilisation of the securities which have been registered ready for mobilisation. We have, in the Resolution, some indication of the ceiling of expenditure which we may expect to have in the current year. The amount of borrowing I should think we shall have to raise this year will be £1,250,000,000. That is a task which the country is capable of performing, always provided that it is satisfied that the war is being efficiently prosecuted up to the very limit of our capacity. That is a condition of our being able to raise the money. Unless we are spending everything for the successful prosecution of the war the national income will not rise, and we shall fail to give effect to the plan which the Resolution foreshadows. These matters are essential for the prosecution of the war.

I would like to say a word of warning in that connection. While we are discussing finance and the instruments of finance it will be relevant to point out that finance cannot act in a vacuum and that, if the war is to be successfully prosecuted, finance must be not the dictator of policy but the servant of policy. It must be related to the whole economic structure of the country. Therefore, I am a little bit concerned about what is happening in the country at the present time. The right hon. Gentleman told us that the economic efforts of the country remained un-co-ordinated. The country has been extraordinarily patient—properly so— while enduring dislocation in finance and commerce during the early days of the war. Throughout the first month there was little or no criticism. In the second month people said: "The change-over is taking longer than was expected." Now I notice a different tone. I saw an article in the "Times" recently in which it was stated that co-ordination among the Departments—

The Chairman

This is another occasion on which I must ask the hon. Member to reserve his remarks to a future date. They would all be very pleasing and interesting in a general speech on a proper occasion, but they are not matters into which we can go in detail on this Resolution.

Mr. White

I certainly shall not press that matter beyond your Ruling in any way, but I had thought that the conditions in which the money could be raised would be in order. I will leave that aspect of the subject for another occasion. This question of finance and the raising of the loans is a vital link between our war front and the peace front. The two are really indivisible. Our economic and financial problems must be seen as a whole. On another occasion we shall be able to relate the loans which are to be raised as a result of the Bill which will issue from this Financial Resolution to their application to the necessities of the time. Our supreme task is to avoid inflation, by financing the war from taxation and from loans from actual savings.

5.10 p.m.

Mr. Lewis

The Chancellor of the Exchequer comes to us for very wide powers to raise very large sums of money, but he does not tell us to-day, and he has intimated that he does not propose to tell us when he introduces the Bill which will be founded upon this Financial Resolution, precisely how he proposes to exercise these powers. In other words, he does not propose to tell us anything about the terms on which the loans are to be issued. The reasons he gave for not doing so appeal to all of us; at the same time, this is not an inappropriate moment to hope that when he considers these matters he will take a very broad-minded view of the possibilities open to him. Preparations have already been made for tapping what I may term the ordinary savings available for investment. Restrictions for the purpose of damming up all other possible outlets for savings have been put on forming new companies or of issuing further shares for existing companies. Undoubtedly, when the time comes, the Chancellor of the Exchequer will endeavour to get a very large proportion of the money which, in the ordinary way, would be saved and put into securities of all kinds.

If my right hon. Friend has the courage he might go further than that and tap a further source of supply. People spend their money in all sorts of different ways. Some save a large proportion and invest it, either because of the power which that investment gives or because they want to use the money later for themselves or their children. Many people prefer to spend a large part of the money which they obtain. In particular, many people like to use a considerable part of their money for some gambling purpose. The right hon. Gentleman would do well not to forget that. Suppose he were to issue as an experiment, say, £1,000,000 worth of £1 bonds on some such terms as that no interest should be paid and that the bonds would, in any event, be repayable at par in, say, 20 years. As an inducement to the subscriber 1 per cent., shall we say, every year, of the total issue could be devoted to providing premiums on the redemption on some of the bonds. The premiums should be provided so that the bonds drawn during those years would be repaid at, say, twice their face value. I would outline one suggestion—

Mr. Boothby

How does that proposal differ from a straightforward issue of lottery bonds?

Mr. Lewis

I am sorry that my hon. Friend has referred to a lottery because I am trying to persuade the Chancellor of the Exchequer to do something which, I am afraid, may go very much against the grain with him. I am asking him to appeal not so much to the man who desires to invest money for the purpose of getting income from it as to the man who wants to gamble.

Mr. Boothby

In a lottery?

Mr. Lewis

Let us consider what could be done if it were desired to float such loans. I see that my right hon. Friend has the assistance of Lord Mottistone, the chairman of the National Savings Committee, to make a movement which was described in the Press as "popularising payment for the war." I do not know how warmly Lord Mottistone might be able to commend an issue of a loan of, say, 2½ per cent., but I am certain that he could commend with immense enthusiasm the issue of a security of which he could say "If you put up your money, in no circumstances can you lose it and you may double it, perhaps even in 12 months." Lord Mottistone is not only chairman of the National Savings Committee; he is also chairman of Wembley Stadium. I mention the fact in order to suggest to the Chancellor of the Exchequer that if he wants to go to someone who knows a little about these things Lord Mottistone would not be a bad person to consult.

I understand that the Chancellor has had an austere upbringing, and I think anything in the nature of gambling would be abhorrent to him personally. But, after all, we have to come in contact with a lot of things which are abhorrent to us, for example, the war. I feel that here is a sort of supply which has not been tapped and which might prove to be very large. After all, large sums are expended every year in all forms of gambling— horse-racing, football pools, etc.—and a lot of that money could be directed in such a way to the service of the nation on this occasion. The service of the loans would be no expense, because with regard to the people whom I have in mind the fact that the actuarial odds might be somewhat heavy against them does not weigh very greatly, and the people who put up the money could not in any circumstances lose their money. Therefore, you would not be persuading anybody to part with his money. I suggest that some proposal of that kind is worthy of consideration, and I would urge the Chancellor of the Exchequer to discuss it with the chairman of the National Savings Committee.

5.19 p.m.

Mr. Woodburn

It is with some diffidence that I enter into a Debate of this kind, but the very generous way in which the Chancellor treated me the other day gave me encouragement to venture a few more remarks to the Committee. First of all, the whole question proposed in the Bill raises in the public mind the spectre of inflation, and if the Chancellor would be good enough to answer me I would like to ask two questions: What principles are guiding the loans and what precautions are proposed to be taken against these loans causing inflation? We are all very familiar with the process of inflation. It starts by a general increase in prices and that inevitably brings demands for increased wages; the very necessity of paying these wages brings in its turn the demand for more currency and the printing and issuing of more notes, and that brings about such an increase in cash reserves that the Bank starts to issue more credit on the strength of it, and so the inflation grows on what it feeds on.

Inflation destroys the whole confidence of the people in money. It increases the speed of spending. People rush to the shops and make purchases in order to avoid the rise in prices which they anticipate. If I may illustrate that, I remember during the 1923 period of inflation seeing a farce on the French stage. It was a German shop. Sausages were priced at six marks. A woman who was about to buy them said she would not do so because she could get them next door for four marks. While she was out a newspaper was brought in saying that the mark had fallen again, so they took the ticket for 6 marks down and put up another ticket with 12 marks. The woman having been to the other shop returned and, finding that there was a ticket now with 12 marks, again went back to the other shop where the same process was at work, only to return once more and find that the price had gone up to 24 marks. We know to-day that the Germans fear inflation, which they have experienced, more than they fear invasion which they have not experienced. In 1914 the mark was equal to 1s. By the end of 1923, one shilling was equal to 1,125,000,000,000 marks. Therefore, it will be understood that when that situation arises the whole value of money disappears altogether.

In this Bill the danger arises from the fact that our borrowing for public enterprise will inevitably stimulate borrowing for private enterprise. When the Chancellor issues his loans and spends the public money for the prosecution of the war that will inevitably bring a kind of prosperity to industry. However, while the Chancellor of the Exchequer may control the public borrowing, it is much more difficult to control the private borrowing which may bring about that inflationary position. I, therefore, suggest that borrowing by public loans should be limited to borrowing from existing spending power, and should not be a second-hand method of creating bank credit. For instance, the Chancellor of the Exchequer will be borrowing directly from the banks, which is all to the good, but if we issue a public loan, as my right hon. Friend from our bench said, there is the danger that instead of people lending their actual money to the Government they merely will go to the bank and borrow credit from the bank which they will then lend to the Government.

In the last war I understand banks sent circulars to their customers offering them a loan at 3 per cent. which they could then lend to the Government at 4 per cent. That is, the Government paid then 4 per cent. of which they paid 3 per cent. to the banks, simply for the manufacture of credit which was nothing more nor less than bookkeeping entries in the banks' books. At the end of the last war this process had gone to such an extent that certain people were richer in this country by £5,065,000,000; I think it will be agreed that after the last war the country was bound to be poorer and yet these people were richer by that amount. It is interesting to see some of the details: 150,000 people were over £5,000 richer, 120,000 people were over £10,000 richer, 40,000 people were over £25,000 richer, 20,000 people were about £50,000 richer, 10,000 people £100,000 richer, 3,000 people £200,000 richer, 500 people £400,000 richer, and 200 people £500,000 richer, while 300 people were over £1,000,000 each richer at the end of the last war.

Mr. Loftus

Those figures are most interesting, especially those of the great multitude who were £5,000,000,000 richer. Could the hon. Member give the date, because the actual purchasing power at the end of the war was 9s. compared with 20s. pre-war? It makes a difference.

Mr. Woodburn

I am coming to that. The figures I have given have come from Cmd. 594, from the Board of Inland Revenue.

Mr. Loftus

What was the date?

Mr. Woodburn

Immediately after the last war. The question which the hon. Member raises is a very important one because the remedy for this was just about as painful as the process of causing this inflation, since in 1921 the Government had to start to deflate its currency, and by April, 1922, there had been repayment of £400,000,000 of Treasury Bills as a result of nearly £400,000,000 Treasury bonds sold. This brought about a terrific crisis in this country from which we had not recovered when the war started. The miners were locked out and every industry in this country was driven into poverty. The savings of the whole working class were dissipated in months of idleness because of this attack on the workers.

Mr. Loftus

The export trade also suffered.

Mr. Woodburn

Yes, and the export trade was affected as well. Everyone agrees that we want to avoid this, if possible. The point which the hon. Member raises is important because by this deflation of the currency these people who were richer by £5,065,000,000 had that money almost doubled and it became worth nearly £10,000,000,000, whereas great firms in the country which had large stocks of iron valued at £14 per ten found they were now re-valued at £7 a ton. The value was cut in half, and these firms for many years had to adjust their books in order to recover their solvency. I, therefore, suggest we must consider carefully whether these proposals are going to lead us into very uneasy patches of inflation, and whether we are going to pay, as was the case after the last war, a huge interest on what is, after all, imaginary money and a wholly inflated debt. I appreciate the Government's efforts to stop the general rise of prices which would accelerate this process. The Prices of Goods Bill will probably be useful, but I would suggest that that Bill should be applied immediately to war purposes.

The Chairman

The hon. Gentleman must not pursue that subject now.

Mr. Woodburn

In any case, I think the Government should take steps to try and reduce the amount of money which they are going to spend by these methods. The creation of credit in itself is not inflationary. If I may quote from the Minutes of the Macmillan Committee: The control of money is the power to employ labour. The creation of credit or loans by banks is the creation of power to employ labour. It follows, therefore, that the only limit to the creation of credit is the amount and quality of unemployed labour. Once the unemployed labour of the country is exhausted, then the only other means of obtaining labour is to transfer it from some other place where it is already being employed. If I may presume to make some constructive suggestions to the Government, they would be these: That the Government should control all the creation of credit or loans by the banks during the war; and that these loans should be permitted only for, first, Government purposes, second, productive purposes, and, third, legitimate private purposes; that the Government should borrow all credit direct from the bank, and not allow the borrowing of credit from the bank by private individuals for those individuals to re-lend it to the Government; and that there should be a voluntary restriction on private spending, by borrowing the existing spending power from the public by the issue of a public loan—but I would emphasise what my right hon. Friend has said, that it would be deplorable if that issue was made at such a rate of interest as to suggest that anyone was making money out of the war. It seems to me that a survey of production ought to be made, in order to see from what activities the desired labour could be transferred. The cost of the war could be reduced by the application of the principles of the Prices of Goods Bill to all war contracts with the abolition of all unnecessary middlemen's profits and other wasteful expenditure.

The Chairman

Again I must warn the hon. Member that he must not go into detail on these matters. References to the principle of such questions are all that can be offered on subjects for legislation of this kind.

Mr. Woodburn

As a matter of principle, I think that the people generally would agree with the Government's using public credit for public purposes. So far as labour is concerned, I think there are great reserves of personnel, of individual skill, as yet untouched. I think there are limits of the use of credit not yet reached which the Government could apply as public spending power for public purposes; but it must be directed and controlled with a public purpose in mind. I hope that the Chancellor will set up—as I am sure he is anxious to do—some committee or advisory board to survey the possibilities of financing this war without inflation, and of carrying through the war without creating those tremendous financial and economic problems which came out of the last war. The people on this side have unhappy memories of the destruction of their organisations and funds through the crises that came out of that war, and the country itself has scarcely survived those crises. This time we should aim at prevention rather than cure. I am sure the Chancellor and the Committee are as anxious as we are, and I venture these suggestions in the hope that some may prove useful.

5.33 p.m.

Mr. Boothby

When the hon. Member for Clackmannan and Eastern (Mr. Woodburn) complains—as he did very much—about the dislocation and the hardships that were incurred by the industries of this country as a whole after the deflation of 1922, I would suggest that that was not only the result of the fact that we had had a serious inflation during the war. We set ourselves after the last war a quite impossible task, which I hope and believe we shall not set ourselves after this war. We tried to go back to the gold standard at an exchange parity with the dollar which was quite impracticable. We tried to go back to the impossible rate of 4.86, instead of the more reasonable rate of about 4; and in doing so, we inflicted quite unnecessary suffering upon the workers. I do not blame anybody particularly. It was laid down, apparently, after the war by the Cabinet that we ought to go back to gold at the old parity with the dollar; and we struggled on until we did so. The result was disastrous. That was a real mistake, and I do not see why it should be repeated. When the hon. Member points out that we are in danger of inflation at the present time, I would say that, while I am in sympathy with much of his argument, our unemployed labour reserves are far from exhausted. There is a great pool of unemployed labour, and of productive capacity, from which we can still draw.

Mr. Woodburn

I did not say that we were at that stage. I suggested that it would be wise to have a survey of the position before we came to that stage.

Mr. Boothby

I agree about the survey. I imagine that the Chancellor is taking surveys all the time. But, while we ought to avoid anything in the nature of uncontrolled inflation, there are as great disadvantages in deflation. Deflation, if carried on long enough, ultimately spells bankruptcy just as much as inflation does. We want to pursue the happy medium. I honestly feel that, in our almost tempestuous anxiety to avoid any kind of inflation at present, we may inflict on the business community of this country a deflationary process which may hinder us greatly in our attempt to finance this war.

We have already had imposed on us very heavy taxation, almost penal taxation so far as the direct taxpayers are concerned. If we are to achieve the results that my right hon. Friend hopes to achieve, we have to increase the national revenue; to do that we have to increase the national income; and to do that we have to increase the national productivity. We have to get business going. There are great resources in this country still, but we shall not be able to achieve the results which my right hon. Friend, with some justification, expects from his Budget, unless we get the wheels of in- dustry turning. This is a simple elementary point; but I think it deserves hammering home at the present time, when we hear all this wild talk about inflation. In order to finance this war we have to produce; and there is at the moment great danger of a large section of our producers being hammered out of exist-ance. We ought really to profit by the experience of the last war, and avoid the mistakes of the last war in financing this war.

Perhaps I might venture to suggest three mistakes that we made in the last war—for which my right hon. Friend certainly was not responsible. On the whole, theloans issued were too long-dated, the rates of interest paid on them were definitely too high, and the inflation of prices which was allowed to take place during the war was completely uncontrolled, and, therefore far too steep. What we want to do is to shorten the date of our loans, to lower the rates of interest, and at the same time to control the rate of inflation by the steps which have been indicated by the hon. Member for Clackmannan and Eastern. If we were now to issue a very long-dated loan, carrying a high rate of interest, that would do more than any other single thing to prevent my right hon. Friend from getting the revenue he desires from the taxation which he imposed the other day, because it would seep up all the money in the country which would otherwise be available for putting into productive industry, and so coming back to my right hon. Friend in the form of revenue. It is a point worthy of consideration that we ought not now to draw into the sink of the Exchequer a large proportion of the money which is available for investment, but that we should allow that money to be used for the purpose of expanding production, so that it will ultimately come back as revenue at the rate of taxation that my right hon. Friend has imposed.

He ought very seriously to consider, for the time being—we can none of us look far ahead at present—an issue of Treasury bonds which can be discounted at a moderate rate for cash by the banks. If he does that he will not impair the cash reserves of the banks; and, therefore, he will avoid deflation. There may be a little printing to be done; but if he makes the bond issue discountable for cash, the banks will regard it as a cash reserve; and, therefore, there will not be the drain on actual currency that might otherwise be anticipated. You may have to do a certain amount of printing—sub rosa,if you like—and you will have to have some form of inflation before you get through this war. What you want is a form of inflation which inflicts the least hardship on the community as a whole, and which is effectvely controlled.

Mr. Woodburn

Would the hon. Gentleman tell us how many guns inflation will produce, compared with non-inflation?

Mr. Boothby

I am not concerned with the number of guns at the moment. I am concerned solely with how we are going to pay for guns. I hope that at a later date my right hon. Friend may be able to issue short-dated loans at 2 per cent., or even less. I think we ought to avoid the mistake, made in the last war, of issuing long-dated loans at comparatively high rates of interest. Just think of the amount of money that we had to tax our people in order to pay interest on that War Loan which was incurred in the last war, before it was converted.

Mr. Ede

It all sounds so easy when the hon. Member talks in these generalities; but, following up the point put by my hon. Friend the Member for Clackmannan and Eastern (Mr. Woodburn), what are the kind of things of which he thinks we ought to produce more? Can the hon. Member get down from these generalities to particulars?

Mr. Boothby

I was talking in generalities because if I get down to particulars I should, as Sir Dennis has frequently reminded the Committee, be quickly called upon to resume my seat. I am referring to productive industry as a whole, without which I honestly do not think we can finance the war. My observations are in effect a plea to the Chancellor of the Exchequer to remember that, if we are to finance this war, he has to get his revenue, and the wheels of industry must turn round. Unless you give people a chance to make some sort of profit, even if you take it away later, you will not get those wheels going. You have to get industry into full activity if we are to finance this war, instead of allowing it to run at something like 60 per cent., as it is at present. Until you get 100 per cent. activity, all this talk about inflation is quite unnecessary; because you will not get inflation until you get all our unemployed in employment and all our factories in full production. When that time comes we shall be able to devise means to prevent profiteering, and to see that prices do not rise unduly. Without getting industry into full production, I see very little chance of our being able to finance this war. I would beg my hon. Friends on all sides of the Committee to remember this aspect of the problem whenever the haunting spectre of rising prices and rising costs comes before them. Uncontrolled inflation is a danger—I am perfectly ready to grant that fact—but at the same time there is an equally great danger on the other side, and we have got to strike a balance between the two.

5.46 p.m.

Mr. Benson

I always listen with very great interest to the hon. Gentleman the Member for East Aberdeen (Mr. Boothby), but I have seldom remembered a more interesting and less comprehensible speech than that which he has delivered to-day. He used the phrase that he preferred a happy mean between inflation and deflation. What on earth does that mean? The only meaning that it can have is that we must stay where we are. In reply to my hon. Friend the Member for Clackmannan and Eastern (Mr. Wood-burn) the hon. Member said he was not concerned with the production of guns, but only for the payment for guns, and that it is for the payment for guns we must have inflation. He proposes to pay for guns by raising the prices of them, but how the raising of prices for guns will enable us to pay for them is beyond my comprehension. He said that he wished to stimulate the export trade, again by inflation. How does he propose to stimulate the export trade by raising the price of every article we have to export? The hon. Member was extremely interesting, but I must say that he was extremely difficult to follow. He has warned us that we must have inflation. There was almost a ring of triumph in his voice when he said that. He wants inflation. He has wanted inflation ever since I can remember. Frankly I admit there is great danger of inflation but see no reason for rejoicing. The Government are the largest purchasers in the country, and before the war ends will be purchasing something like half the national production. In 1913 the total national income was estimated at £2,300,000,000. The Government purchases in 1916, 1917 and 1918 averaged £2,500,000,000. Inflation will hit the Government and whatever advantages they may get by a rise in prices followed by an increase in profits and increased taxation will be far more than discounted by the very enhanced expenditure that will be involved by a rise in prices.

Mr. Boothby

As the hon. Member has criticised me very much with regard to inflation, may I ask him a simple question? How does he propose to get his production by deflation?

Mr. Benson

I did not say anything about production by deflation, and I agree with the hon. Gentleman when he said that deflation is as much an evil as inflation. We have to maintain as far as possible the existing price level, and if the Government give orders and organise industry there will be no difficulty about getting production. There is no need to raise prices in order to get production. It is only when industry is entirely uncontrolled that you get some form of stimulus by the raising of prices.

If I may get back to the details of the Resolution, there are one or two points with regard to which I should like to question the Chancellor of the Exchequer. He said that they propose to repeal the Defence Loans Act, 1937. Does that mean also that his rather fantastic sinking fund proposals will be repealed with that Act, and that we shall get rid of the Sinking Fund? I see in the Resolution paragraph 3 (iv) the Government propose to include more sinking fund proposals in the Bill that is to be based upon this Resolution. Sinking fund proposals, if they relate to a specific issue, and are in the nature of a contract with the lender for the purpose of maintaining the level of the issue, are justifiable, but if they are proposals like those in the Defence Loans Act, 1937, to tie the House and future Houses, if they are like the old fashioned sinking funds, they are merely window-dressing. I hope that he is not going to slip into his Bill window-dressing proposals which really have no financial validity.

With regard to paragraph (2), the right hon. Gentleman the Chancellor of the Exchequer referred to the possible need for conversions. That is rather obscure. I always feel that, with regard to the present Government, obscurity tends to cover a multitude of sins. What form of conversion does the right hon. Gentleman anticipate? Is there any idea at the back of his mind to issue a loan with conditions attached that it may be converted into a subsequent loan, if such subsequent loan is issued subject to better conditions? That is an extremely evil thing, for it paves the way for an increasing rate of interest. Anything that suggests that this House is prepared to pay higher rates of interest on loans as the war goes on would, I think, be disastrous. There is a good deal of psychology in the matter of issuing loans and they can be got more cheaply if the feeling of the country is that the Chancellor's first terms are his last and that there is no possibility of better terms later on.

Mr. Radford

Is not the hon. Member in favour of such an option to convert into any subsequent loan, which would ensure that subscribers would, at any rate, be in as favourable a position as those who hung back from the first loan?

Mr. Benson

The hon. Gentleman completely misunderstood me. I said that any proposal of that kind would prepare the way for better terms later on, and suggested that there was going to be a steady increase in the rate of interest. At the beginning of the war there was a feeling in the country that the Government would borrow at 5 per cent. The feeling in this House during the Finance Debates was very definite, and it was stated that 3 per cent., or thereabouts, was our aim. What has been the effect? That point of view has spread in the country. The recovery of the gilt-edged market has been due partly to the very strongly-expressed statements in the House of Commons that 3½per cent. should be the maximum. It would be disastrous if the Chancellor of the Exchequer under cover of paragraph (2) of the Resolution gave any hint that he contemplated the possibility of better terms for subsequent loans.

I feel on the general question of borrowing very much like an "innocent abroad." I understand that the net saving of the country in the normal prewar period was about £400,000,000 a year. That is all that we can borrow if the borrowing is to be legitimate. Any increased borrowing must be out of increased production, otherwise it will be inflationary borrowing. In spite of the view of the hon. Gentleman the Member for East Aberdeen I do not think the House wants that. The one thing that puzzles me is this. If the money is there to be borrowed and if it is being steadily produced by increased production, why have we to borrow it? Why cannot we get it by taxation? I realise that at the beginning of the war you could not take capitalised savings by taxation, but we shall very rapidly exhaust any savings that have already been made. Why should the increased production which must inevitably come from heavy Government orders be allowed to flow into savings instead of being skimmed by taxation? Everything that the Government buy must be produced now concurrently. If it is produced concurrently, I do not see why we cannot short-circuit the borrowing process and somehow or other get the money by taxation. It would be difficult, I admit, but, if the money is there, why cannot it be raised in one way instead of the other? Is the Chancellor of the Exchequer to go on the old lines adopted in the last war of piling up debt which sooner or later is bound to be liquidated? If the money is there, let us get it by the direct method of taxation.

5.59 p.m.

Mr. Stephen

The Chancellor of the Exchequer seemed to be very uneasy when he was at that Box introducing this Resolution. He sought to make clear to us exactly what he had in view, and since he sat down he has received a lot of advice as to how he should operate. He has been told that there ought to be a certain amount of inflation, and also that it is hoped that there will not be any inflation, and I am quite sure that if he were to take all the advice that has been given to him he would be in a very unfortunate position. When the Budget was before us there were many Members with gloomy faces because of the increased taxation, and I suggested to them that perhaps they were unnecessarily gloomy. I remember that the finance of the last war was such that at the end of it the people in possession of the land and industry of this country were in possession of more production plant and a greater industrial capacity than when the war started. In addition to having greater production in their land and greater production in their industrial concerns, the State also owed them £8,000,000,000. Therefore, I could not see how the people in control of the land and industry of this country need be in the least gloomy. As I listened to the Chancellor of the Exchequer to-day I realised more and more how much joy there must be in two sections of the community when war comes along—the munition makers and the moneylenders. Those vultures, in the present state of society, certainly must have a great deal of joy, especially the people who own the productive plant for the making of munitions. Those two sets of people seem to be the only people who can be happy in the circumstances in which we find ourselves to-day.

When I look at the Resolution, it appears to me perfectly obvious that the Chancellor of the Exchequer is following the system which was followed during the last war. He indicated that that was the general line that he was pursuing. Hon. Members suggest that he must see to it not to repeat the mistakes of the last war in connection with the financing of this war, but it is evident that he is going to take the same line, and that if mistakes were made in financing the last war they are going to be made in financing the present conflict. I have a certain amount of sympathy for the Chancellor of the Exchequer when he is told to see to it that there shall be no inflation in connection with these loans, and when he is also told that he must have regard to our export trade, and that a certain amount of inflation will be necessary. I feel a great deal of sympathy with him when he is torn between those two opinions.

The hon. Member for East Aberdeen (Mr. Boothby) suggested that the Chancellor of the Exchequer should pursue a happy medium. So much of the advice that has been given to the right hon. Gentleman consists of a lot of worthless platitudes, and the advice of the hon. Member for East Aberdeen about trying to find a happy mean between inflation and deflation was so much nonsense. The Chancellor of the Exchequer is a creature of circumstances in the system in which he is operating, and in these circumstances, unless he is prepared to take a definite line and to overthrow the ordinary structure of economic society, it will be necessary for him to pursue a policy which will lead to inflation. Many of the loans that will have to be floated will necessarily, in the present financial structure, lead to inflation. There is no way out of it. Credit will be created as a result of these loans, and if the Chancellor of the Exchequer acts within the ordinary financial structure, maintaining that financial structure, he will have to reconcile himself to a certain amount of inflation in connection with the loans.

The method in the Resolution is all wrong. We had in connection with the provision of the gun-fodder for the war to depart from the ordinary voluntary structure in our society. We had to introduce the revolutionary system of taking the men, whether they wanted to go or not. We had to conscript human lives for the war, and I think the Chancellor of the Exchequer will meet with tremendous difficulties unless he is prepared to adopt the same principle in regard to the financing of the war as was taken with regard to finding the manhood for the war. Unless he is prepared to conscript the wealth of the country, take all that is necessary of the financial resources of the country and put each individual under the same system as the men who have been taken into the Forces, he will be faced with all the mistakes that were made in financing the last war, which led to ultimate confusion and chaos. On this occasion, if the war goes on for anything like the same length of time as the last, far greater confusion and chaos will occur than occurred on the last occasion.

In the Debate on the Budget I asked where the £1,000,000,000 was to come from that was to be got by loans? More than £1,000,000,000 is now contemplated. That money has to be created. How are those millions to be created? Why should the Chancellor of the Exchequer allow this credit to be created by private individuals? Getting behind all the make-belief of the financial machine, in connection with which all the resources have to be found, and getting behind these loans, there is this public credit, and the Chancellor of the Exchequer will make a tremendous mistake in allowing the banks and private individuals in this country to be left in a position to create this credit, which is ultimately really social credit.

Mr. MacLaren

Hear, hear.

Mr. Stephen

I hear my hon. Friend applauding what I say in that respect. When I look at the Resolution I think of the record of the Chancellor of the Exchequer. I think of the first political ideas that I ever heard him promulgate in public. On that occasion he was a new Minister in a Liberal Government, and he came to Glasgow to speak in support of a candidate for the Lord Rectorship of Glasgow University. At that time his way of finding money was not by loans such as are now proposed but by the taxation of land values, about which he was very eloquent. Those ideas which he promulgated with such fine enthusiasm in those days seem to have gone by the board, but I would suggest to him that in the desperate circumstances in which he finds himself he might have returned to the love of his earlier political days and might have found something along those lines that would help him. I would also refer him to the theories of Major Douglas and the Social Credit school. I am confident that they have a good deal to teach him to which it would be worth his while to pay attention in regard to the creation of credit, as social credit.

In this Resolution the right hon. Gentleman finds himself in a difficult situation. There are certain financial exploiters of the nation who are prepared to take the opportunity that a war gives them in appropriating a tremendous amount of social credit by making loans, for which they are not able to provide anything really but book-keeping entries. I feel utter dismay at the way in which the Chancellor of the Exchequer is going on in the rotten old path of capitalistic finance and the exploitation of the people. I am completely opposed to this Resolution, and fundamentally opposed to the whole policy of the Government. I am not in the least impressed by the pseudo-wise remarks that have been addressed to the Chancellor of the Exchequer, telling him not to pursue too much an inflationary policy and to be careful not to go too far along the line of deflation. It is all a lot of humbug and nonsense. The right hon. Gentleman will have to go along those lines according to the rules implicit in the present system, but I would ask him to take his courage in his hands, to throw overboard the rotten financial system of exploitation, to adopt the principle of the conscription of wealth, and to put the financiers of the country in the same position as the young fellows who have been compelled to give their bodies in this great conflict into which the country has entered.

6.14 p.m.

Mr. Tinker

The Chancellor of the Exchequer said that his statement might be tedious and lacking in interest, but I found it very interesting, and it would have been more so if the Chairman could have allowed the scope of the Debate to be enlarged. On important occasions like this hon. Members have particular points of view in regard to the way in which the finance of the country ought to be run. There are the questions of inflation, deflation, conscription of wealth, taxation here and taxation there, and everybody has a different point of view to put. This afternoon we have to deal with the question of raising loans. We all remember that when the Chancellor of the Exchequer brought in his last financial statement he said a proportion of the money would have to be raised by loan. Recognising that fact, the House of Commons has to try to-day to visualise in what way the Chancellor of the Exchequer will get his money and what will be the rate of interest. The big financial interests will be called upon to find a lot of the money. They are always waiting for that. It is a question of how to invest their money to the best advantage with little regard to the national interest. In finance there is no soul or conscience, it is just a question of the rate of interest.

The Chancellor of the Exchequer mentioned the small investor, and I want to put one or two points to him in regard to the small investor. I hope that he will put the rate of interest so low that no one will be able to make a good fortune out of the war. The last war left us in a sorry plight. In the nation's distress huge fortunes were made, and we are now trying to pay off the great burden of debt which was then created. I hope that the rate of interest will be as low as it possibly can be. In the Post Office Savings Bank the rate of interest is 2½per cent., and it is a very safe investment. Is there any reason why the Chancellor of the Exchequer should not start on a basis of 2½per cent., and no higher? That is my first point. My second point is that there will be no difference in the rate of interest to the big investor and the small investor. I hope they will get the same rate of interest, and that if there is what is called a short-term policy in connection with this matter it will not receive a better rate of interest than the small investor receives. At all events, I hope the rate of interest will not be more than 2½per cent.

The hon. Member for Camlachie (Mr. Stephen) brought forward a plea for the conscription of wealth. I only wish the Chancellor of the Exchequer could do that. I know it is difficult to get the country to take that point of view, but when human life is conscripted I hope that the question of the conscription of wealth will be examined. What is the total national wealth? I think we should be able to find out. If the Chancellor of the Exchequer goes in for a 2½ per cent. rate and finds that he cannot get the money, he can come to this House and say that he has offered a fair rate of interest and cannot get the money, and then I suggest that he should ask for powers to take over all the wealth of the country. If the people of this country will not lend their money at a reasonable rate of interest, it will be a splendid opportunity for the Chancellor of the Exchequer to conscript wealth in order to carry on the war.

This question of borrowing money means a tremendous burden for the future. The hon. Member for East Birkenhead (Mr. White) mentioned a sum of £1,250,000,000. I do not know how he arrived at that figure, but I take it; and 1 per cent. on that amount means £12,500,000 and 2 per cent. £25,000,000. By adding 1 per cent. you put upon the taxpayer an additional burden of £12,500,000, and it is not fair that this tremendous burden should be put on the backs of poor people, because it has to be repaid. There is one thing which I admire about this country; we do try to honour our debts and pay them. [Interruption.]I am speaking nationally, not internationally, although even in that case we were not getting paid by other people. But speaking nationally, we always try to honour our debts. If 1 per cent. means £12,500,000, think what it will mean if the Chancellor of the Exchequer goes to 3 or 4 per cent., or even to 6 per cent. It will mean an enormous burden on the people of this country, which will have to be paid sooner or later by extra taxation.

I put forward these points in the hope that the Chancellor of the Exchequer will try to see the point of view of an ordinary back bencher who is always troubled when listening to speeches on high finance, which he can never properly understand. I am putting the ordinary man's point of view, that we should keep down the rate of interest, and that if the Chancellor of the Exchequer does not get a sufficient response he should conscript wealth for the successful prosecution of the war.

6.23 p.m.

Mr. Kirkwood

In taking part in a Debate on finance I have to be very careful, because I have got into serious trouble before in the House and also in my own party. I can remember the last war and how the financial system of Great Britain collapsed like a pack of cards. The great financiers were left standing, and the wonderful brains of this country found wanting. There was only one thing which was not found wanting and that was the British working class, who saved the situation. A moratorium was declared at that time, and something was introduced which I suggest to the present Chancellor of the Exchequer should be introduced now. I remember suggesting to a Labour Chancellor of the Exchequer, Mr. Philip Snowden as he was then, that there was only one place where he could get money and that was where it was; and that he ought to go there for it. I suggested that he should issue Bradburys. We got Bradburys instead of Treasury notes, instead of Bank of England notes, and they served their purpose just as well. That is the way out here if the Chancellor of the Exchequer cares to take it. The hon. Member for Bridgeton (Mr. Maxton) suggested at the time that they should start their printing machines and work them day and night if necessary running out Bradburys. I suggested that they might call them Snowdens, or any name that they liked, because whatever you call them they have the same backing, and that is the backing of the British working class.

It is quite unnecessary to pay 2½per cent. or any per cent. at all. When we were fighting tooth and nail on behalf of working engineers to get an increase in their wages, it was with the greatest trouble that we managed to win a paltry 2S. a week increase, and only is. at a time. What did the Bank of England do when they wanted an increase? Did they negotiate? No; they intimated that they were going to have an increase and the Government had to give it, in spite of all that the Labour party could do to get the Government to stand against the demand. Why should we go on paying this? It is pure robbery, and robbery that is unnecessary. I can forgive former Governments who had not the experience and forgive common humanity in the country who had not any experience, but this country has gone through war before, a war which I opposed, just as I oppose all wars, and we were left with £8,000,000,000 of debt. The working classes of this country have to pay the interest on that amount to individuals who have never turned out a shell, who were never in the trenches, and who never lost a night's sleep; and here we are going to do it again. But not if I can help it. I will do all that one man can to draw the attention of the country to the fact that the Government are not worthy of the support they are getting from these benches or from any benches. The Government are simply going on with their old tweedledum-tweedledee business. It is a standing disgrace that they should be allowed simply to do what they like, robbing the working class—

Mr. Radford

Why does the hon. Member go on referring to the loads placed on the working class? The load makes itself visible when the Budget comes, and then all classes, and not only the working class, have to pay.

Mr. Kirkwood

There is an old saying that if one goes on repeating something, people will believe it, but the working classes in this country are so intelligent that they will not believe that, repeat it as often as you like. What they know is that all the wealth in this country is produced by labour, and whoever enjoys it without working is stealing the bread of the workers. We are all living on the backs of the producers. The individuals who are going to get many of these millions produce absolutely nothing. I opposed to the best of my ability the conscription of the youth of this country, but that Measure was carried. Why do not the Government conscript the wealth of the country? No party has a right to agree to the conscription of human life unless as a quid pro quothe wealth of the country is conscripted. If there were that quid pro quo,it would be worth our while considering the business, just as I have a price for silence in this House, and that price is a Socialist republic. All these things are possible to the House. What is the use of our talking about our democratic Government and our democratic country when day after day we have to draw attention to the fact that we on these benches are getting nothing from the Government? This afternoon we had an exhibition of questions being put across the House, and we requested—

The Deputy Chairman (Colonel Clifton Brown)

I do not see the connection between questions across the Floor of the House and the Money Resolution that is now being discussed.

Mr. Kirk wood

Discussion has got to be across the Floor of the House, and with all due respect to you, Colonel Clifton Brown, it is across the Floor of the House that I am speaking. The point I was making was that there are certain questions which it is not considered proper or right for us, even in the Opposition, to put. We are trammelled. The representatives of the people of this country, who have been crushed and robbed—for I consider it an act of robbery to pay to men so much per cent, for the loan of money—

Mr. Marcus Samuel rose—

Mr. Kirkwood

I will not give way to the hon. Member. The Government have conscripted the youth of my native land. Do hon. Members think I am going to stand idly by and see the youth of Scotland sacrificed in defence of wealthy men, in defence of a financial system which will not permit of old-aged pensioners getting more than 10s. a week? No, Sir. We on these Benches were sent here to fight the ruling classes of this country because the working classes believe that they are being dealt with unjustly. It is because of that injustice down the ages that we were sent here in 1922, and my constituents have sent me here ever since with even greater majorities. The discontent is there. There is discontent with the conditions that prevail. I ask the Chancellor seriously to consider the issue of Bradburys, that cost us nothing but the printing and the paper. Why should we not have them? Why should we borrow money from individuals who have nothing to back it but us? It was the economic resources of the British Empire that defeated the Germans in the last war. It was not that the British soldiers were any braver than the Germans; it was our great economic resources. To-day, those resources are greater than ever before. Never were there such resources in the history of the world as there are to-day at the command of the British Government. Therefore, it is quite unnecessary for the Chancellor to go outside the powers of the Government.

We hear a great deal about the Income Tax of 7s. 6d. in the £.It has been said that if a Labour Chancellor had introduced such a Budget as the right hon. Gentleman has introduced, there would be a hue and cry against the Labour party. I believe that to be true, but although it is true, I will give the Government credit for what they have accomplished. Yet that does not satisfy the workers. The workers are discussing this question as never before. It must be remembered that it was a tremendous leap which this country took when it conscripted the youth of the country, and that has altered the whole face of argument. Individuals who formerly took practically no interest in politics, and whose great idea was simply to get on, have been hit in a manner in which they have never been hit before. They have been struck down to an equality, and they are asking why they should be put down in this fashion, why they should be treated as helots while the big financiers are still in the unique position of saying what will be and what will not be as far as financing the war or anything else is concerned.

The Chancellor has a great opportunity staring him in the face. Time and time again I have said that I never challenge the ability of statesmen, but I challenge their courage, and it is the courage of the present Chancellor that I challenge. I challenge him to stand out against the powers that be, which are practically all-powerful in this country at the present time. Let the workers realise their power. The workers have been conscripted, and all the onus of the defence of this country is put on them. They have to give up their lives; they have to give up their jobs at £3 or £4 a week and get a paltry 1s. a day. It is too funny for words. Many of them have made that terrible sacrifice, against all my advice, and done it gladly. But beware of the day when the workers meet you in battle array, as they will unless you are prepared to placate the situation. No consideration is being given for the tremendous sacrifices that the working class has made. It is the working class you have to depend on. The British working class is the finest raw material in the world. I ask the Chancellor seriously to consider the suggestion I nave made; I ask him to start the printing machines, and to run off "John Simons" to finance the war and everything else.

Mr. M. Samuel

Can the hon. Gentleman tell me why, in the workers' republic, they are paying 6 per cent. interest?

Mr. Kirkwood

I suppose the hon. Member is referring to Russia. I have absolutely nothing to do with Russia. I take no instructions from either Moscow or Rome. To all the world I give my hand, My heart I give my native land.

6.45 p.m.

Mr. Sloan

The Chancellor of the Exchequer is in the position to-night of one who has to make grave decisions upon which will depend the happiness of the great mass of the people of this country. It must be apparent even to the most innocent tyro in finance that the orthodox methods of finance will not do on this occasion and that a tremendous change will have to be made in order to finance this war. We entered the last war with an Income Tax of 1s. 4d. in the pound and a National Debt of about £600,000,000. We are entering this war with an Income Tax of 7s. 6d. in the pound and a National Debt of £6,000,000,000 or £7,000,000,000. That comparison makes it evident that, in some directions, very serious changes will have to be made in our future finances whether in war or in peace. A very important consideration to my mind in connection with this question is that the rates of interest which are to be paid on the loans now to be raised will condition the rates of interest at which local authorities will be able to finance their business. High rates of interest will destroy the social services of this country. If the policy which was pursued in 1914 is adopted, it will damage those social services beyond repair and the present generation will never be able to recover that loss.

If we have done any good at all in this country during the intervening period between the two wars, that of 1914–18 and the present war, it has been the little progress which we have achieved in our social services. We have made that progress largely because of the fact that local authorities have been able to borrow cheap money. It will be remembered that in 1919, after the last war, when local authorities began to build houses, building materials were so expensive and the price of money was so high that serious difficulties were encountered. My county council paid 6 per cent. to finance its first housing scheme. If we take the cost of a house at £500, these high charges meant about £15 a year difference in the rentals which the people had to pay. It seems to me that the unfortunate people of this country are continually in a state of paying for past wars or present wars, or if we have not a war actually on hand, we are making preparations to pay for a future war. If we have the honour to live in the greatest Empire which the world has ever seen, we have also certainly the honour of paying for it.

As I say, when the last war began in 1914 the National Debt stood at £600,000,000. That largely represented debt remaining from the borrowings during the period of the Napoleonic Wars. Having paid £3,000,000,000 or £4,000,000,000 in interest, we still had the bulk of those borrowings to pay when we entered on a new war. When I pass Trafalgar Square and see the statute of Napoleon—[HON. MEMBERS: "Nelson."] I am glad to have brought a smile to the countenance of the Financial Secretary to the Treasury. One thing that has always attracted me since coming here has been the smile of the right hon. and gallant Gentleman. His more sinister aspects I have not yet seen. But, as I say, I sometimes wonder whether the slogan should not be "England expects every man to pay his duty for the next 100 years." If we could have a League of Nations which would ensure that no further wars could be fought on the instalment system—

The Deputy-Chairman

I am afraid we cannot discuss general policy or the League of Nations on this occasion. We are now dealing with a Money Resolution and the Debate must be confined to matters concerning the money to be raised and how it should be raised.

Mr. Sloan

I was only about to remark that if we had a League of Nations which ensured that no more wars would be fought on the instalment system, we would have no more wars. If war had to be paid for on a cash basis, it would speedily come to an end. America has set us an example by saying "We will supply you with armaments, provided you bring the cash and carry them away." If the Chancellor of the Exchequer could now decide, as regards this war to raise the money, month by month and year by year, it would take us out of many of our difficulties. It would be interesting if the right hon. Gentleman could give us a summary showing how our national income is expended and the proportion of it which is spent on the luxury of war. I am credibly informed that about three-quarters of the national income is being paid at present for wars of one kind or another.

The Deputy-Chairman

I am afraid that argument is too far away from the Resolution before the Committee. We are now discussing ways and means of raising the loans dealt with in the Resolution, and not expenditure on past or future wars.

Mr. Sloan

I think it is the duty of the Chancellor of the Exchequer in framing these loans to see that there is no profiteering in money. These loans should be, as nearly as possible, interest-free. That is the theme which ran through the whole of the address of my hon. Friend the Member for Dumbarton Burghs (Mr. Kirkwood), but his analogy when he referred to the Bradburys was not quite complete. We manufactured Bradburys but instead of using them, as he suggested, to pay for commodities we handed them over to the banks and then had to borrow them back at high rates of interest. If the Chancellor of the Exchequer, however, will take the tip which has been given to him by my hon. Friend, it will remove many of the difficulties with which we are faced.

We have to-day called to the Colours thousands of our young men, and the number may be millions before we have finished. Those young men have given their all. Their bodies have been conscripted. They have been or are being taken from their homes and from employments where they were earning wages, and they are now faced with the prospect of earning nothing for the duration of the war. Surely, it would not be too much to ask that the same principle should apply to the financing of the war and that the wealth required should be conscripted. I do not believe that that could not be done. I do not believe that it would be impossible to find sufficient wealth in the country, without piling up these huge loans to be paid for by posterity. In the floating of these loans another attempt, apparently, is to be made to bring in the working men of this country. The Chancellor of the Exchequer has indicated that appeals will be made to working men to subscribe to loans in the form of war savings certificates or war bonds as was done before. I remember that during the last war my own people, the miners, subscribed by deductions from their weekly pay. I also remember how they had to get rid of those bonds in 1926 when they were locked out. These men were told by the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) that they were the greatest people in the world when it was necessary to get an increased production of coal, but in 1926, after having served the country, they were locked out and they had to get rid of the war bonds for which they had so patriotically subscribed.

One would like to impress on the Chancellor of the Exchequer at this juncture that any attempt to float loans bearing high rates of interest will be most unpopular in the country. When the war broke out, gilt-edged stocks came tumbling down and if minimum prices had not been fixed, Heaven knows how far they would have gone down. Now they have stiffened because the people concerned are not quite sure of the reactions of this House in regard to the floating of these loans. The Chancellor of the Exchequer will be wise if he cashes in on this period, and says to the working people that he will not be a party to piling up for posterity huge loans bearing enormous rates of interest.

6.56 p.m.

Mr. John Morgan

I appreciate the gesture from the other side, and I do not intend to detain the Committee very long. I listened with interest to what my hon. Friends on this side had to say about Bradburys, but I could not help feeling that this is a rod with which we hope to break the backs of the people we are dealing with, and that we had better not leave it in the hands of those on the other side. I can imagine that my hon. Friends here would be more satisfied if there were in this country a Government which had already possessed themselves of the railways and the mines and the actual physical means of wealth. Then they might have some index on which to base the issue of Bradburys. But we have only at this moment the instrument of taxation, and there is very little national property on which to base the issue of currency. I am afraid I should not be ready to give the Government of the day the right to print Bradburys indefinitely. In other words, I cannot see that we should contemplate at this time any suggestion of inflation, as we usually understand the term.

Mr. Kirkwood

May I intervene because I was put down at the Labour party conference on this question? The hon. Member thinks that what I suggest would not be a good thing to do at this moment, but is he in favour of conscripting the youth of this country?

Mr. Morgan

I am coming to that. I was making the point that until we actually possessed the physical means of wealth and the property in this country the mere printing of notes would only add to our difficulties. I am sure the fact has not been lost on the Chancellor of the Exchequer that this country has, already, in the initial stages of this war, conscripted human life and that there must be in the forthcoming loans, to be subscribed largely by financial interests in this country, an element of sheer patriotism. There must be some element which represents sacrifice, clearly defined and presented as such to the financial interests. I know that hon. Members will refer to the Income Tax as representing a measure of sacrifice demanded from the wealth-owning classes, but when it comes to loans this country will not stand for the 5 per cent. sort of mind;—though I do not suppose the Chancellor of the Exchequer intends to put out a loan at 5 per cent.—or anything equivalent to that type of issue. It would have a serious effect in the public mind at this stage.

On the other hand he must take into account that he may have other loans to float later, and he will wish to retain for those operations the confidence of the interests concerned. But I feel that he must provide, in his forthcoming loans, for soome gesture of patriotism on the part of those who are in a position to subscribe and who are not necessarily putting forward the same element of sacrifice as the conscripted life in the Services. There must be some kind of options in his forthcoming issue, whether they take the form of beneficial war contractors taking up loans in lieu of cash payments for their services, or whether they take the form of the surrender of former war loan now at higher rates of interest for the lower rates of interest which I presume the Chancellor will offer.

Some option of that kind should be present in the issue in order to satisfy a patriotic element that, I am prepared to admit, is to be found in the financial classes of this country, although, of course, some will have to proceed on the strictly business line, being corporations handling trust moneys and so on; but the right hon. Gentleman should, in my opinion, provide to meet this general expectation in the minds of vast masses of the people that there should be some equivalent contribution from wealth to that of the conscription of life that has been initially required. It should be there, or there will remain intense dissatisfaction and a further disturbance of a disquiet that is abroad that we have not yet mastered the profiteer, the muddler, and the bureaucrat. That element is there and should be met.

I have heard discussions in the Lobbies among people who feel that one should forestall the desire to get back to football pools and the rest of it by some kind of limited lottery system, such as seems to appeal to the French people. It is an idea that is abroad, and, as far as I know, it has not yet been ventilated here, because many people are afraid that it will offend the susceptibilities of certain types of mind in this country. But the fact has to be faced that there are millions of people who are ready to subscribe millions a year through such a motive, and that certain vested interests are exploiting this desire, or this instinct, for a let-off. I cannot imagine that the Chancellor of the Exchequer is going to provide for this let-off in the first loan—I suppose he would consider that it would disturb the confidence that might be felt in the financial structure of this country— but other countries adjacent to us and allied with us undoubtedly have practised this financial art to some advantage to themselves.

The right hon. Gentleman the Chancellor of the Exchequer must be aware of two feelings that are abroad. One is that the financial interests have got to make an obvious gesture when it comes to the raising of money to finance the war; they must be given the option to disclose an element of patriotism at this time. The second thing is that, however hon. and right hon. Members opposite may be inclined, I was going to say to snigger, but I will say to express a certain amount of incredulity, there is a determination abroad among masses of the people of this country that they are not going to carry the weight of this war to the extent that they carried the weight of the last war, and that they must see that the burden is carried by those who, in their minds, rightly or wrongly, should carry it. Although the Chancellor may be thinking in terms of a strictly financial operation in the course of the next few weeks or months, he must at the same time issue that loan with a due eye to the sentiments that are running in this country towards those people who operate the financial machine and who seem in the end to operate it most successfully for themselves and in the ultimate vested interest of the concerns with which they are associated. We must provide an . option for the financial interests to give a very clear indication of their patriotism at the present time.

7.5 p.m.

Sir J. Simon

The Debate has gone on, I think, for some three hours or more, and I must say, having listened to the whole of it, that I greatly admire the ingenuity of hon. Members in different parts of the Committee, because I assume that all that they have said was within the rules of Order, and undoubtedly it was not very easy to make any standard observation which was strictly relevant to this particular Resolution. The Resolution is, of course, one which merely authorises the giving of powers. How those powers will be exercised, whether by the printing of unlimited quantities of pound notes—as to which I would refer the hon. Member who mentioned it to the right hon. Member who sits on the Front Opposition Bench—or whether in other ways, is necessarily a question for the future. I would only say about the anticipation or the advice which has been expressed this afternoon that I have listened carefully to what has been said, and that I realise more than ever the difficulties of my task. I am sure that the observations of hon. Members are well worthy of further consideration; but really, in replying now, I do not feel that I am able to discuss questions about inflation and deflation and a number of other very difficult —at least, I find them difficult—terms which have been used rather freely in this Debate.

The right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) made, if I may say so, a very interesting speech, and I have no doubt that we shall return to the point which he then made, although he was, perhaps, rather unfortunate in his interpretation of its second paragraph, which, as I explained, is designed merely to provide for the possibility of conversion of a Government issue into another Government issue. I do not agree either with the hon. Member for Chesterfield (Mr. Benson), who thought that the presence of this paragraph in the Resolution might even encourage people to think that they should hold back in the hope of better terms in some subsequent issue. I do not think it would have that effect at all.

Mr. Benson

I did not suggest that that paragraph would do that. I do not think people read our powers. I was afraid that there might be some part of the Bill which is to be introduced which would enable that to be done.

Sir J. Simon

I do not understand the hon. Member's explanation but it does not matter. I thought the hon. Gentleman's reference was to this part of the Resolution, and I thought he was expressing the view that it might encourage people to think that if they held back from subscribing to early loans, they would get better terms later on. That is quite a mistaken inference from the paragraph. It is necessary in order to coyer conversions of any kind, either during the war or after the war; and perhaps it might be borne in mind that conversions do not always benefit the security holder. I seem to remember that there was a conversion in 1932 by which a 5 per cent. loan was, I think, scaled down to a 3½ per cent. loan. Anyhow, the object of that particular part of the Resolution is, we all agree, what I have just stated.

I think that, in explaining the Resolution, I made a statement to the Committee on one point that was not quite accurate, and I would wish to correct myself now in the presence of hon. Members. I made a reference from which it might be understood—indeed, I think I used a word which suggested—that it was proposed to repeal in the Bill the Defence Loans Act. What I ought to have said and what I meant to say was that the Defence Loans Act will be bound to be referred to in the legislation which we are about to introduce for the purpose of substituting the new Act for the Act of 1919. It was the substitution of the new Act for the previous Act which I had intended to illustrate by reference to the Defence Loans Act. It is not that the Defence Loans Act will be repealed. It is operating, as I said, in the present financial year in respect of £502,000,000, but I think it will probably be convenient as regards any balance not to take advantage of the especial procedure of the Defence Loans Act to which the hon. Gentleman referred in critical terms, but rather to let that balance be merged in the general powers which will be placed in the new Bill. We are not repealing the Defence Loans Act. I want to tell the Committee that I made a mistake, that I apologise, and that I hope the position is made plain now.

I do not think I can go through all the matters that have been discussed here to-day. It is natural that hon. Members who have spoken should look forward and speculate on the use that might be made of these powers and indicate warnings—many of them much to the point— as to the sort of way in which those powers should or should not be used. It is equally clear that I cannot say anything about it, because if I uttered a single phrase, who knows what inferences might not be drawn and what consequences might not ensue? I am herein the unsatisfactory position that for three hours I have been receiving advice, very good advice, no doubt, but I am unable to say to what extent the advice will be followed.

Mr. Kirkwood

Is the right hon. Gentleman going to take some of that advice?

Sir J. Simon

I excused myself from discussing at length whether the war can be paid for by printing an unlimited number of notes. In my earlier remarks I suggested that the hon. Member should apply to his right hon. Friend the Member for East Edinburgh, who is a considerable authority on matters of this sort. He will explain to the hon. Member what would happen to workmen's wages and other things if we adopted that impracticable expedient.

It is true, as one hon. Gentleman said, that in passing this Resolution and introducing the Bill, we are approaching grave and important decisions. It is true that this Measure has an immense amount to do not only with the winning of the war, but with the future when the war is over, and I am not in the least disposed to minimise the seriousness of that or of the responsibility that rests on those who have to decide. It is natural and right that hon. Members should adopt a critical tone and that the Debate should lave taken so much of the character of warning or of objection. But I would ask this of the Committee: When the time comes when we have as a nation to face this effort in connection with the War Loan, let us remember that Britain has great resources and that the appeal we make ought to be as far as possible an appeal that we make altogether. It is an appeal that we ought to make to all kinds and conditions of people. We cannot expect everything in the plan to be precisely what everyone would most prefer, but I would earnestly appeal to hon. Members to do their utmost if it is possible to enable us to make this appeal together. If it is made together, and if we can carry public and Parliamentary opinion with us, and it is felt to be an honest effort, it will be a contribution of incomparable value to the fighting and winning of the war.

Mr. Gallacher

Whatever method is taken for raising the money, will the Chancellor give consideration to the remarks of the Prime Minister about placing a burden on posterity when we were discussing old age pensions, or is it only when old age pensions are discussed that posterity is to be considered? In raising the money will the Chancellor accept the principle that while there are people who have a surplus of wealth, that surplus will be taken before a loan is raised?

Mr. Little

May I ask the Chancellor to see that, in view of the fact that so much of the old War Loan is held as trustee stock and by others whose means of livelihood largely depends on it, nothing will be done to depreciate its value?

Sir J. Simon

With reference to the questions just put to me, I have already said that it is impossible for me, and it would be wrong for me, to make any declaration at this moment which might, even by accident, be assumed to point in a particular direction. I shall consider carefully everything that has been advanced in the Debate, but it would be utterly wrong for me at this stage to say anything which would qualify the complete freedom with which these powers must be used on behalf of the country.

Question put, and agreed to.

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