HC Deb 02 October 1939 vol 351 cc1673-788

Order for Second Reading read.

3.8 p.m.

The Financial Secretary to the Treasury (Captain Crook shank)

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

As it fell to me on Friday, through the temporary absence of my right hon. Friend the Chancellor of the Exchequer on other Government business, to introduce this Bill, it may be courteous to the House that, in, offering it for Second Reading, I should make a few brief remarks on it. After all, the Budget statement was made less than a week ago. In peace time, there is normally an interval between the Budget date and the introduction of the Finance Bill of some six weeks or two months, and it is reasonable, therefore, when the Bill is in its Second Reading stage, for a somewhat longer review to be made of the financial situation than is required to-day, considering that the Budget was opened only on Wednesday of last week, and that quite apart from the general undesirability, which I am sure every hon. Member feels, of making long speeches in this House in war time.

Mr. MacLaren

Or any other time.

Captain Crook shank

I need do no more, therefore, than recapitulate one or two of the major features. The reception of the Budget by the taxpayers in this country has been truly remarkable, and it is one more sign—if any more signs were needed—of their determination and resolution to do whatever each one of them individually can do in the financial sphere towards winning the war. The figures speak for themselves. We are hoping to raise as was explained in the White Paper, some £888,000,000 as a result of the April Budget and £107,000,000 more as a result of this War Budget this year.

Mr. Pethick-Lawrence


Captain Crookshank


Mr. Pethick-Lawrence

I am sorry to interrupt the right hon. and gallant Gentleman. The Chancellor said he would lose some £60,000,000 as a result of a falling off of receipts under the old Budget, and that he was going to raise an additional £107,000,000.

Captain Crook shank

When I said £888,000,000, I was taking into account the falling-off to which the right hon. Gentleman referred. He should not be so quick in taking me up when I am quoting my own White Paper issued under my signature. The original Budget estimate was £942,000,000, but I was careful to use the figure of £888,000,000. Whether it is £888,000,000, plus£107,000,000—as it is—or any other figure of that kind, it is still true that these are fantastically high figures. When we add to that the fact that the taxation which we are now proposing is estimated to yield, in a full year, not £107,000,000 but £226,500,000, then it will be obvious to everyone in this House and throughout the country that the great rise in the field of direct taxation is going to impose far-reaching changes upon the homes of tens of thousands of our fellow-countrymen. It is well to mark the effects which this is bound to have upon great sections of the community—effects which they will cheerfully bear, because it is their intention, as it is the intention of everyone in this House, to see a successful outcome of the position in which we are to-day. I do not need to speak about the economic reasons for this high direct taxation, because my right hon. Friend the Chancellor of the Exchequer stated them clearly less than a week ago. We must all recognise, further, that the indirect taxation on beer, spirits, tobacco and sugar are likely to be borne, as I may put it, with resignation, if not with cheerfulness by the large body of indirect taxpayers—the general body of consumers in this country.

There is, also, in the Bill the necessary legislative provision for the introduction of the Excess Profits Tax. Its introduction was probably not unexpected in any quarters, and, as far as this Finance Bill is concerned, we have been able to model it very largely upon the Armament Profits Duty upon which we spent so many hours only two months ago. Indeed many of the Clauses are the same as the Armament Profits Duty Clauses mutatis mutandis, but, of course, there is this difference. The Armament Profits Duty, which will now disappear from the Statute Book, was only to be levied upon armament firms certified to be such by the Minister of Supply. This tax will fall upon all firms, whether armament-making or not. Of course, this is not a matter on which any estimate of revenue can be made, but I think everybody would agree that in these days it is the right sort of tax to introduce into the first Finance Bill of the War.

There is another point on which I wish to say a few words. We all recognise that when this vast sum of money—only just short of £1,000,000,000 this year—is being exacted from the taxpayer, he or she will wish to feel that the money is being as wisely and economically spent as possible. That point was raised in the Debates last week. So far, therefore, as economy in public expenditure is concerned, it may interest hon. Members to know that on Thursday, a circular was sent out over my signature to all Departments reminding them that the strictest economy must be exercised over the whole field of public expenditure, because of the imperative necessity of husbanding the financial resources of the country so as to make them available to the utmost for the purposes of the war. My colleagues have all been invited to undertake a careful examination of every item of expenditure in their Departments, whether already sanctioned or in contemplation. They are asked to secure that the services which must be carried on are administered in the most economical manner possible. The House will see that steps are being taken in this direction, and I would only add that the usual Treasury control can be trusted to be exercised to the utmost.

We are, indeed, facing, as is apparent in the introduction of a Bill of this kind, a colossal financial problem, in a war whose duration none can foresee and the cost of which, whether in lives or in treasure, none of us can foretell. But it is not the first time in our history that we have had to carry a burden of this kind. On 3rd December, 1798–141 years ago—speaking in this House on financial problems connected with the war of that time, Mr. Pitt used some words which it might be well for us to remember to-day. He said: No sacrifices have been thought too great for us to make—a common feeling of danger has produced a common spirit of exertion, and we have cheerfully come forward with the surrender of part of our property, as a salvage not merely for recovering ourselves but for the general recovery of mankind. That was the spirit which animated our great great grandfathers, and that is the spirit which animates us in our generation. Where Mr. Pitt was speaking of millions, we are speaking of hundreds of millions, but though the scale is different in terms of money, this Bill will enable us, in the sacrifices which we are called upon to make to be not unworthy of our glorious past so that we, in our time, can be successful in the fight which we are making, that the future may be more happy, more secure and more free.

3.18 p.m.

Mr. Dalton

The Bill which the right hon. and gallant Gentleman has presented to us provides for many substantial increases in taxation of many kinds. Some of us are agreeably surprised that the Chancellor has gone as far as he has gone in the aggregate, to provide new revenue now, thereby not falling into the error of the last war, of paying only a small fraction of the cost as we went along and borrowing the balance at exorbitant rates of interest.

Last night I listened, as perhaps other hon. Members did, to the First Lord of the Admiralty on the air. How much better the right hon. Gentleman does this than some of his colleagues. An excellent delivery it was that he made. How well he spoke of this House as being the embodiment of the national will power—the national will power to win this war and to take the necessary financial steps to that end. But let us take them in such a way as to impose the least burden, in the aggregate, upon our own generation and upon the generations that will follow the victory. As to indirect taxation, we on this side have already recorded our view, and we shall record it again, that the Sugar Tax is highly objectionable and is not necessary. As for beer, some of us feel doubtful, but not doubtful enough to press our doubts to a Division. For the rest, we accept the additional indirect taxation.

With regard to direct taxation, certainly the aggregate of new revenue is not too great, even at this early stage of the war, but there are two minor points to which we raise objection—first of all, to the reduction of the child allowance from £60 to £50 per child, and secondly to the reduction of the earned income allowance from one-fifth to one-sixth. As to the former, I desire to cite a leading article in the "Times" of last Thursday, which stated, in regard to the reduction of the allowance in respect of children: This reduction, small as it may seem, could only have occurred to a mind which preferred tidiness to foresight. That is what the "Times" thought, and I hope that the Chancellor on second thoughts will, in Committee, give up this particular proposal. It would cost £6,000,000 in a full year, and there are other ways of raising that amount of taxation. Surely, in the perhaps distant future when the war shall be over, more than ever the children will be the most precious assets in our community, and no step should be taken now which would throw, even fractionally, a heavier burden upon parents as compared with childless people. I hope, therefore, that the Chancellor will reconsider this preference for tidiness rather than foresight.

As to the reduction in the earned income allowance, this seems to us to be wrong in principle. Over many years, since, I think, 1907 or 1908—the Chancellor will remember exactly, because he was a member of that Cabinet—ever since the principle of differentiation between earned and unearned income was introduced, the tendency has always been to extend rather than to diminish the discrimination and to emphasise more and more that an income derived from personal exertions and from mental and bodily activity, which, whenever mental and bodily powers fail, fails also, is sharply different from an income which continue to flow in, even while we sleep, in the form of dividends, rent, interest, or profits. It is a very reactionary—in the literal sense of the word—and retrograde proposal now to narrow rather than to extend the discrimination between these two sorts of income. There is only one ground, it seems to me, on which this particular proposal could be defended. That would be if, simultaneously with it, there was now to be imposed an additional tax based upon the capital possessions of living people as distinct from dead people. If now we were going to have a special tax on the sources of unearned income, or investment income, in the form of a new, special levy on capital, as has been proposed by my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) and by others on these benches —if that were simultaneously being introduced, then, on balance and in the aggregate, there might not be any less discrimination as between earned and unearned income. But there is nothing of that kind in the Finance Bill, and I shall comment on that omission in a moment. Since the Government do not now propose to put an additional new tax upon capital, I say that the diminuation of the earned income allowance is indefensible in relation to the general scheme of income taxation.

Therefore, I would urge that the Chancellor should drop both these proposals and should seek elsewhere for an equivalent revenue in the field of direct taxation, and I believe that he could find it without great difficulty. My hon. Friend the Member for Kennington (Mr. Wilmot) made a speech last Thursday in which he said that five-figure incomes in war time cannot be justified—five-figure incomes, that is, in terms of pounds sterling a year—and the Chancellor of the Exchequer would have been perfectly right, continued my hon. Friend, if he had put an upper limit and had said that during the war all incomes over that figure would be taken for the purposes of the community; in other words, if there had been a sharp scaling-up of the levels of Surtax in such a way that no person, after he had paid his dues in Income Tax and Surtax, still had a net five-figure income to spend.

Mr. Macquisten

Nobody will have.

Mr. Dalton

The hon. and learned Member has not read the tables. I will take one illustration to reassure him and also to show that my hon. Friend the Member for Kennington had read the tables and was drawing a very sensible deduction from them. In the case of a taxpayer who gets £50,000 before paying Income Tax and Surtax, even when the full weight of next year's increased taxation falls upon him, he will only be paying over £38,000. If anybody will give the hon. Gentleman or myself £50,000 a year on condition that we only hand back £38,000 of it, we shall still have a five-figure income in war time. I hope I have reassured the hon. and learned Gentleman and further consolidated my argument. I venture to suggest that there are still plenty of people, hundreds of them—I do not want to quote again from official documents, but I have some here if I am challenged—literally hundreds of them, who are recorded as having surtax able incomes above the level at which they will still have five-figure incomes left to them after all taxation has been paid — £10,000 a year or more after they have paid all their Income Tax and Surtax under the proposed new schemes of the Chancellor. Therefore, I say that it would surely be much more equitable if the right hon. Gentleman were, in Committee, to-morrow or the day after, to withdraw these proposals regarding child allowance and earned income allowance, and to make up what would be missing, some £6,000,000 under each head, by a further turning of the screw at the higher levels of Surtax and Death Duties.

I further regret—and this has a bearing on the yield of direct taxes, not in the immediately coming months, but over the period of the war—that the Chancellor has not put into the Finance Bill any of those further provisions regarding evasion which have been suggested to him and which are of a simple character, as, for example, the proposal of my right hon. Friend the Member for East Edinburgh that it should be required of every taxpayer to declare all trusts in which he has an interest. That suggestion was made in last week's Debate, and it seemed to me and, I think, to many other hon. Members a very practical one and a very simple one. I regret that the Chancellor has not enacted that, and I hope that he may—because I assume that his mind is open on these matters—be prepared to bring forward a new Clause at some stage of our proceedings enacting that, or substantially that, so that we may get their proper contribution from those who have been hiding behind legal subterfuges which are perfectly well known to the Chancellor and his advisers.

A word or two now on the omission of any provision for a capital tax. The House will be familiar, because we have debated this matter on many occasions, with the proposals that have been put forward from this side of the House by a number of my right hon. and hon. Friends in favour of an annual capital tax during war time. It was put forward in some detail in the Budget Debates last Spring, and certain figures were given which were not contradicted or refuted and which were, broadly, as follows. There were at that time some 50,000 people, each of whom owned more than £50,000 worth of wealth, owning in the aggregate £8,000,000,000. An average levy on that of 1 per cent: only would bring in £80,000,000 a year. That would be of substantial assistance to the Chancellor of the Exchequer at this time and enable him to avoid many other forms of new taxation. There are 120,000 people possessing £20,000 or more each and possessing in the aggregate£10,000,000,000. A 1 per cent, levy on them would bring in annually £100,000,000. We proposed such a tax before the war broke out as a suitable tax to continue throughout the period of crisis. We judged then that the crisis might continue over a longer period before bursting into the flames of war. The war, however, has come quicker than some anticipated, and if the argument for the levy was strong during a period of near-war crisis, how much stronger is it in a time of full and unquestionable war.

Sir Annesley Somerville

Has the hon. Gentleman allowed for the diminution of the yield of Income Tax and Super-tax after the levy is made?

Mr. Dalton

The proposal is for a levy placed upon a capital valuation, as is the case with Death Duties, although it would be imposed upon persons in their lifetime and would be imposed only at a very moderate level of 1 per cent.

Sir Assheton Pownall

Every year?

Mr. Dalton

Every year during the period of the war.

Mr. Macquisten

Would not the value of the capital shrink enormously, and would it not go down and down?

Mr. Dalton

I am glad to find that this proposal arouses so much interest, and perhaps I may, therefore, dwell upon it a moment longer. No doubt many great fortunes will go down and down, and I think that it is most desirable in time of war that they should. However that may be, it is a confusion to suppose that there is any contradiction between having our Income Tax and Surtax system working effectively and a system of a capital tax of an annual character working alongside them. There is no more logical contradiction in that than there is in the system to which we are well accustomed of having a partial capital tax in the form of Death Duties falling on those sections of the community who happen to die in a certain year working alongside Income Tax and Surtax. Indeed, it may be observed that the yield of £80,000,000 from a capital tax of 1 per cent. on wealthy people who own £50,000 or more is approximately equal to the yield from Death Duties now. It is, therefore, clear that we can just as well combine, without any disastrous shrinkage of the revenue, this new impost with the existing Income Tax and Surtax, as we can combine the Death Duties with them.

It is, of course, true—and I make the concession at once—that if a man gradually pays over certain sums and realises some part of his capital in order to do so he has less capital from which his income is derived next year. [Laughter.] Of course, we all understand that. The extent to which this subject is still mentally new to hon. Members opposite is illustrated by their thinking that this is a new point. I would remind them that we are in a war and, of course, by the end of the war, a lot of rich people will be less rich than they are now. There-tore, it does not help the argument to say that after a lot of people have paid their taxes and realised capital in order to do it, they will have less capital. Of course, we all know that. It should be one of the purposes of the Chancellor to destroy by his financial measures not only our enemies abroad, but also those interests in this country—I will not call them enemy interests—which are the cause of those grotesque inequalities and injustices which have been tolerated in times of peace, but which must be burned and bombed away in time of war, not less than the major objectives against which we are moving. I will endeavour to sum up this part of the argument by saying that the Chancellor should arrange his taxation so that rich men shall definitely become less rich by reason of having paid their share towards the expenses of the war. If anybody thinks that is a new idea, I can only say they have been sleeping soundly for some considerable time.

With regard to the Excess Profits Tax, which covers nearly one-half of this Bill in. terms of Clauses, we have not heard much from the right hon. Gentleman. No doubt in Committee we shall hear a great deal more. There seem to me to be too many options so far as the standard profits are concerned. This matter was debated to some extent when the Armament Profits Duty was before the House earlier this year. The point was then made that the taxpayer had a great multiplicity of standards which he might select. This in itself would make for administrative complexity and also for inequity, because some of those standards covered periods when the process of war profiteering, or pre-war profiteering, on arms had already begun. Some of the alternative standard periods are periods in which abnormally high profits were made in the aircraft manufacturing industry and in a number of others. Its may be that in Committee we shall put forward proposals to amend somewhat this very elaborate scheme of options.

To sum up in what is very nearly the Chancellor's own way of putting it, I suppose his object should be to tax heavily, to borrow cheaply and to avoid inflation .In a few concluding sentences I should like to refer to borrowing, to the rate of interest and also to the question of inflation. On Thursday the Chancellor said we must, as far as we can, avoid any inflationary tendency. I am not sure how confident he is that he can succeed in that. We should. all wish him to succeed, but I want to draw his attention to a very curious statement which has been issued to the Press with, I suppose, the joint authority of the Chancellor and the Ministry of Information, which seems to be going very far indeed towards a curtailment of proper debate both in this House and in the Press. The statement says: In particular, opinions that there has been inflation of currency or credit in British or Allied countries should not be expressed or quoted"— or quoted— without the approval of the Ministry. That has been sent to the Press. It seems to me to be going altogether too far in the restriction of fair comment, and many persons connected with the Press also hold very strongly that it goes too far. I would ask the Chancellor to tell us whether he did reflect carefully before agreeing with the Ministry of Information to issue this instruction to the Press, or whether it was issued without overmuch consideration at the Treasury. Clearly it would not be issued without some consideration at the Treasury. This is one of a series of instructions, many of them most reasonable, which have been issued from the Ministry of Information to the Press, but I emphasise that if I or any other hon. Member were to say in this House that the Chancellor had failed in his purpose of avoiding inflation that that statement could not, in the terms of this instruction, be quoted in the Press in the report of Parliamentary proceedings without the approval of Lord Macmillan and his attendant Blimps at the Ministry of Information. That is a most unsatisfactory state of affairs.

Sir Irving Albery

Is the document which the hon. Member has just read in the nature of a request or is it a definite instruction?

Mr. Dalton

I have quoted the exact terms: Opinions that there has been an inflation of currency or credit in British or Allied countries should not be expressed or quoted without the approval of the Ministry. I say that is improper, because it goes beyond what is reasonable; but I will say no more until the Chancellor gets up and justifies it or says that he will withdraw or modify it.

Finally, on the subject of borrowing: The Chancellor is later going to propound the Government's borrowing scheme, and I am not asking for that to be announced to-day, but I am anxious to press a point which has been made from all parts of the House and not least by a number of Conservative Members. The hon. Member for Lowestoft (Mr. Loftus) in particular made a most cogent speech, as did other hon. Members, emphasising the supreme importance of taking all the necessary technical means of ensuring that we borrow very cheaply, much more cheaply than in the last war—both short-term and long-term. The Treasury Bill rate should surely not exceed 1 per cent. for a long period ahead. I do not want to go too far ahead, but for the next year or so there is no excuse for allowing conditions to develop in which the Treasury Bill rate exceeds I per cent. Before the temporary and disastrous rise in the Bank Rate it was 15s. per cent., and I urge that it ought not to rise above 1 per cent. during the ensuing period. So far as the long-term rate is concerned, no doubt the Chancellor will have seen some interesting calculations in a letter from Mr. Keynes in the "Times," which have been commented upon by a number of City editors, in which he points out that, if we make allowance for a sinking fund at the rate of 1½per cent. compound interest, we then have a situation in which the annual burden is the same in three cases: First, if we borrow £1,000,000,000 at 4 per cent.; secondly, if we borrow £1,280,000,000 at 3 per cent.; and, thirdly, if we borrow £1,500,000,000 at 2½ per cent. Between £1,000,000,000 and £1,500,000,000 represents, in a very rough way, the amount of borrowing that the Chancellor might embark upon in the coming year.

This statement shows that the Chancellor could, for the same annual burden in subsequent years, get £500,000,000 more towards the cost of the war if he borrowed at 2½per cent. than if he borrowed at 4 per cent. A further point which comes out of these figures is that the difference in the burden on the taxpayer of the interest and sinking fund from borrowing at 4 per cent. and borrowing at 2½ per cent. is more than twice the whole of the addition which the Chancellor is making to the revenue by his very stiff increases in taxation. He is going to get £226,000,000 extra revenue in a full year by means of these nex taxes, and more than twice that sum represents the additional money that he could raise on a 2½ per cent. basis as compared with a 4 per cent. basis. That is only illustrating, again from another angle, the point made by a number of hon. Members in favour of a stern insistence upon keeping down the rate of interest to the lowest possible level.

This Finance Bill is only the first step in our war finance. What will come next we shall see in due course, but I am convinced myself that the Chancellor will have to go very much further along the road of increasing taxation upon the large incomes and the large estates which, when all this taxation has been paid, will still remain. Any hon. Member who looks doubtful about it has only to take up the tables which have been issued and consider what will be left to the people near the top of the scale when they have paid all that the Chancellor is asking.[Interruption.] That will make a further deduction, but not one that will crush them to the ground. Hon. Members may think what they choose, but I will say blantly, that when this war is over, many things will have been changed, besides the balance of power in Europe, and in many countries great social revolutions will come—whether to this country or not I do not know. The idea that a small fraction of the community here can go on after the war, as before, monopolising the greatest part of the ownership of the wealth of this land— that idea has got to go. It certainly has to go. if there is to be any reality in the talk of a united nation. [An Hon. Member: "And thrift goes with it."] Be very sure that the millions whom my hon. Friends represent will not go to the extreme length of submitting to all the sacrifices which will be inevitable if Hitlerism is to be smashed, if there are to be, not perhaps as many war profiteers as last time, but still some war millionaires, and, further, if there is to be a small class of people who are still to go on with their five-figure incomes in time of war as in time of peace.

If you want national unity, you must no longer think that those are matters for cheap sneers in Debate, but must recognise that the only reason why we can face the prospect of many lovely and precious things being bombed and burnt away in this war is that we believe that many bad and evil things will be bombed and burnt away, too; not only Hitlerism, but social injustice in this country, and those intolerable contrasts between wealth and poverty, to destroy which this party was created long years ago. If, as a by-product of the war, those contrasts are destroyed then, over and above its major achievement, the war will have been worth while.

3.51 p.m.

Sir Percy Harris

With a great deal of what the hon. Gentleman has just said I agree, but he need not worry. If this war drags on for three years I am afraid there will be great inroads on the fortunes, not only of the wealthy and of one section of society, but of all classes. I suggest that this moment, one month after the outbreak of war, is not the moment for bitter, political controversy. 1 believe that the nation as a whole is behind this Budget, not because of its methods, which are undoubtedly unimaginative, but because the boldness of the amounts to be obtained from the nation—they are tremendous—have impressed not only our own country but the whole world.

I do not think it is a misfortune that there is no flight of imagination in the conception of this Finance Bill. After all, it is not the first Finance Bill of the year but the second. We ought to study this Bill in relation to the first Measure. Next year the right hon. Gentleman will be faced with the uneviable responsibility of producing another Budget, when he will have had time for reflection. No doubt he will be able to introduce a new technique and new proposals, as well as new methods of raising additional revenue. In the light of the fact that the Bill is the result of only a few weeks of war, we ought not to approach it with too critical an attitude because no new mehods have been introduced. In the broader sense it is, of course, a Conservative Finance Bill. It leaves alone many controversial problems. I agree that the Clauses which we ought to view most critically are those relating to the additional duty on sugar and the reduction in the family allowances. If we can get some modification of them we shall be well advised. In the main Finance Act of the year, the Chancellor of the Exchequer showed a readiness to accept amendment. I do not think he is right in comparing the additional Sugar Duty with the extra duty on alcoholic beverages, because sugar is not merely a food but is a very important raw material in many industries. As was pointed out at Question Time, it is rather unfortunate that when there is a large glut of fruit an extra duty should be imposed on a substance which is so essential to the preservation of fruit.

I want to accentuate the importance of the prevention of waste. The nation in every branch of society and industry is called upon to make a tremendous war effort. From the experience of the last war we know that there is a temptation in Government Departments to spend generously without the usual care or the usual check from the Treasury. In normal times, when expenditure is on an ordinary scale, the Treasury check is a most effective instrument in all Government Departments, but when we are em- barking on expenditure of the scale of to-day, ordinary checks cannot be effective. I notice that the Chancellor of the Exchequer and the Financial Secretary to the Treasury have realised the importance of bracing up the machinery of economy by sending circulars to the Departments, and also by the innovation of appointing financial officers to all the spending Departments. That is very much needed, but the House of Commons has always had a special responsibility for finance. We cannot shift all the burden on to the Government, who are influenced by the time factor. Every section of the House is pushing the Government to get on with this or that enterprise for the successful prosecution of the war, and the temptation to spend is terrific. Any restraint put upon the Departments in these days seems like preventing the successful prosecution of the war. Therefore, we ought to look to other methods, and to a new technique, by which the House of Commons can share some of the responsibility of, and can co-operate with, the Government, to see that money is properly spent, and, above all, that there is no waste.

When we discussed the first Finance Bill this year I made some suggestions arising out of my own experience in the last war. In 1917; after two years of carrying on the war, upon a much less expensive scale than to-day it was found by the then Chancellor of the Exchequer that the greater burden of the expenditure of all War Departments was threatening to make our difficulties greater in financing the war. If that was so in 1917 it is far more likely to be so in 1939. Our credit was higher then than it is to-day and we derived more from America than it is probable we shall be able to do to-day, even if President Roosevelt's proposals go through. It is vital, therefore, to economise our resources. Surely if the House of Commons in 1917 could do useful work in preventing waste, in 1939 we might be called upon to help. A Select Committee representative of every section of the House was set up in 1917. Some hon. Members will remember the work of that committee. I was a member of it and can justify to its usefulness. In its early days Ministers viewed with suspicion and officials did not like this innovation in procedure, but in the light of experience it was found that it was a most effective buffer between the various Government Departments and the Treasury in checking profligacy in expenditure. I suggest, therefore, that the Chancellor of the Exchequer should not be obstinate, pigheaded or prejudiced, that he should be ready to learn in the light of experience; and he must not take it as any reflection either on his ability or his capacity to control the Government Departments if a committee of this kind is now suggested.

Sir Patrick Harmon

The hon. Member is no doubt aware that the Select Committee on Estimates still continues its work and makes the most exhaustive examination of expenditure by all public Departments. I have served on it for 20 years and the Committee is not less efficient to-day than it was before.

Sir P. Harris

No one is needed to testify to the efficiency and capacity of both the Estimates Committee and the Public Accounts Committee, but the operation of those two Committees is too slow. The Select Committee to which I have referred was set up for a special purpose and it operated from day to day; it sat in Government Departments examining proposals coming from the officials and from others outside. We now know, to give one example, that during the last month the Government have taken over no fewer than 200 hotels. What this is to cost the State no one seems to know. That is the kind of thing a Select Committee might very well examine as it comes up, so as to be able to report quickly to the House. There has also been an immense expenditure on evacuation, but we have had no estimate as to its cost. We are advised that in a week or two there will be proposals to collect some of that cost from the parents of those who are evacuated, and in due course no doubt we shall have an Estimate presented to the House to cover that very big expenditure. That is the kind of thing in which a Select Committee could help the Government and co-operate with Ministers from day to day, in seeing that there is no needless waste of expenditure.

I make this proposal, not in any hostile spirit but with a desire to make my contribution and the contribution of my friends to the tremendous task of the Government, and to see that in carrying through the war to a successful issue the best use is made of the national resources, and that there is no needless waste. In the meantime I would congratulate the Chancellor on the boldness of the amount that he is asking the nation to find, and I think that in return we have a right to ask that none of this big sum should be wasted or frittered away.

4.5 p.m.

Sir A. Pownall

Like the last speaker I warmly commend the courage of my right hon. Friend the Chancellor of the Exchequer, if I may do so, in bringing in such drastic figures in times of this sort. J hoped as an Income Tax payer that I might have the privilege of paying 7s. 6d. in the £in the year beginning the 5th April next. The Chancellor has fulfilled my wishes and I am to have that privilege. I think that everyone in these days should reconcile himself to cutting clown his expenditure, if he has not already done so, to the extent of 2s. or 3s. in the £ if necessary. There is one feature only to which I take exception, and that is in regard to the children's allowances. I cannot tell exactly how much is involved. In times like these, when children are a very considerable expense, in many cases a good deal more expensive than formerly as scholastic arrangements have to be made for them far away from home, the smaller Income Tax payer has a difficult time. These extra charges are not to come into effect until April of next year, and I sincerely hope that in the meantime my right hon. Friend will see his way to abate the £2,000,000 or £3,000,000, or whatever it is. That would be a great help to the smaller Income Tax payers.

There is one other point, in connection with the Budget figures, which has not been dwelt on. If anyone will turn to the amount of war debt interest and funding charges just after the last war he will find that the total in round figures came to £330,000,000 a year. Owing to the cheaper rate at which we have been able to borrow, owing to the scheme for the redemption of the 1929–47 loan and its repayment, and borrowing at 3½per cent, instead of 5 per cent., we are now actually saving on debt charges, up to the introduction of the Budget of this year, ever £100,000,000 a year. That is an immense saving in the direct charges with regard to the debt.

Then take a little simple sum the other way. I am not going to follow the hon. Gentleman opposite with regard to the rate of borrowing. If we can borrow at 2½ per cent. I think it will be very remarkable. But even if we can borrow only at 4 per cent., £100,000,000 is our saving on debt charges compared with 20 years ago, as obviously the interest on £2,500,000,000, if we have to borrow £2,500,000,000 at 4 per cent., will be in round figures £100,000,000 less than it was in 1919, although of course the wealth of this country is appreciably more than it was 20 years ago. When one compares that with the German state of affairs one realises that although we started this war with an Income Tax of 5s. 6d. in the £ we are in an immeasurably stronger position than Germany when we are able to borrow a sum of this sort and still have to pay no more debt charges than we were paying 20 years ago.

With regard to Germany, some very interesting figures, based on official German statistics, were given recently by a Hungarian professor. They were issued in a book which incidentally. was officially confiscated in Hungary. It gives figures from every point of view about "Germany's chances in War." It points out, amongst other things, how Germany in the last war, with credits abroad of £1,000,000,000 or £1,500,000,000, was able to purchase war materials from neutral countries. Now Germany has virtually no credits at all abroad. To that extent also we start this war with an immense advantage over Germany. One small correction I would wish to make in my right hon. Friend's Budget speech. He mentioned how at the end of the last war German inflation had gone up to the extent of 1,000,000,000 times. It was a thousand fold worse than the Chancellor of the Exchequer said. The Germans had to wipe off a loan, and for one mark they had to give a million million marks. That is one of the dangers they are up against now—inflation on the vastest possible scale and ruin for a very large number of people, and a measure of capital levy —or call it what you please.

The hon. Member for South-West Bethnal Green (Sir P. Harris) spoke of a Select Committee on National Expenditure which was set up in 1917. It was set up not, as he said, two years after the beginning of the war, but three years after. This time we are discussing these problems within one month of the beginning of the war. In many respects we are now in the position that we were in in 1917, and I would suggest that in this matter, also, we might get ourselves quickly into the 1917 position. We have in this House a great deal of commercial and financial ability which in ordinary times does not get much chance of showing itself. Many Members spend a great deal of time on the Public Accounts Committee and the Estimates Committee. The Estimates Committee does not go through the Estimates of each Department each year as the Public Accounts Committee does. It takes two or three Departments each year. The Public Accounts Committee has a time lag of never less than 11 months, and sometimes two years. Its procedure is not applicable. But the procedure of the Select Committee in 1917 is applicable. Its members divided themselves into five teams. They scrutinised the figures for each Department, working with experts from outside. You might say that this would mean undue interference by Members of the House of Commons with officials who are already hard-worked, but I think Members of the House of Commons can be trusted not to be unfair to officials. It would be of great value to the nation if Members of Parliament could be used in that way. If, as has been said, in 1917 millions of pounds were saved by that means, millions of pounds could be saved this time, too. My right hon. Friend the Prime Minister is going to reply to-morrow to what has taken place between Russia and Germany. I think the best reply that can be made is that we are now mobilising hundreds of millions of pounds and, as we read this morning, calling up hundreds of thousands more men.

4.15 p.m.

Mr. Ridley

The hon. Baronet the Member for South-West Bethnal Green (Sir P. Harris) has deplored what he called the introduction of political strife in the speech of my hon. Friend the Member for Bishop Auckland (Mr. Dalton). But if the abandonment, or tempering, of political strife is to put a tax on honestly and sincerely held political convictions, I fear that the hon. Baronet and many other hon. Members who applauded his sentiments are in for an unpleasant shock. Sentiments such as were expressed by my hon. Friend will continue to be expressed, and will continue to meet with the general approval of those who sit on these benches. If the abandonment, or tempering, of political strife means the acceptance of a kind of universal Toryism, it may be assumed that the restraint which many of my hon. Friends have so far displayed will not continue to be displayed.

May I add my plea to that made by my hon. Friend the Member for Kenning-ton (Mr. Wilmot) on Wednesday with regard to the very heavy pressure which the new provisions make on incomes within the lower range? In the higher range, it may be argued, the effective Income Tax is more severe, but that effective tax invades only the area of luxury, and curtails only luxuries. There can be no justification for imposing in this lower income range, first, the impact of the seriously increased Income Tax rate, and, secondly, the further impact which comes from the alteration in the allowances. I take one typical class of people—for whom I am not specially qualified to speak, but whom I use as an illustration. This is a class of people who already are bearing a burden which is exceptionally heavy within this income range. I refer to school teachers, who have gone from evacuation areas into reception areas with their schools, and have consequently been involved in very heavy sacrifices, imposing strains and discomforts which are abnormal. They are having added to that these additional imposts of the substantial increase in the Income Tax rate and the alteration in the allowances.

I hardly thought that the day' would ever come when in this House I should desire to say a kind word about the Chancellor of the Exchequer. If I had thought three years ago that that would be the case I should hardly have thought it worth while for me to come to the House of Commons. I beg the Chancellor to realise that, while the Budget proposals have met with very wide acceptance, if he can substantially modify the provisions of Clause 9, with regard to these allowances, he will make the Budget even more generally acceptable than is now the case. I feel sure that in doing so he would have the whole House with him. Those who listened to his speech last Wednesday were, I think, witnesses of something very remarkable. 1 doubt whether any other Parliament in the world could have listened to the right hon. Gentleman's announcements with such composure. Now and again it seemed to border on unseemly levity, as though the ox were smiling in the face of the butcher. The House met the occasion in a very remarkable fashion and I think the country as a whole will met these new burdens in the same remarkable fashion.

The general point I wish to make is the point about which, I think, the House is more concerned, namely, that it would be foolish to ignore the fact that the Budget is going to place very heavy burdens on an already heavily burdened home front, and the home front is not an invulnerable front. It can bear, and is bearing, some strains; for instance the strains of evacuation, of reception and of voluntary work in varying proportions, and it is bearing them with courage and fortitude. It is bearing difficulties and hardships of a kind that no previous war has ever imposed upon the civil population, that is, upon the home front. It will continue to do that with continued courage and determination as long as it can feel that burdens and strains are being equally distributed and that in a period of war the circumstances of war are not being used in an ignoble fashion with the triumphant return of the hard-faced men.

The success or failure of the Chancellor's proposal in the civilian mind will largely be determined not by the Chancellor's proposals themselves, but, as the Financial Secretary to the Treasury indicated in the speech which he made this afternoon, by the conduct of the other Departments in the administration and by the spending of the administrative Departments. At the risk of being accused, as my hon. Friend the Member for Bishop Auckland was, of importing a small spot of party strife into this Second Reading Debate, I would say, only because it is vital to say it, that the political supporters of the Government should be under no delusion about the mind of the country and of the House in relation to this administration. This administration is probably suspected for more than one reason by more than half the electors. Many hon. Members strongly doubt whether, in the executive sense, we are as well equipped for war as we were 25 years ago. I have never been a Liberal and I am glad to say there has never been one in our family. This Government is gravely suspect and, despite the generosity of its political opponents and, as somebody once said, its scrupulous or less unscrupulous opposition, I doubt its ability to live down its mistakes.

In the Budget speech in 1937 the right hon. Gentleman the present Prime Minister, who was then the Chancellor of the Exchequer, speaking of the new impositions that were being made to meet the cost of rearmament, said they represented an ever-quickening approach to the goal of safety. This Budget and the terms of its new burdens are a terrible reply to that assertion. The truth is that the Government's policy, with all the money that is being spent, does not afford that safety, and I doubt its ability to provide security in time of war. Many people are not persuaded that we are equipped for a successful conclusion at the present time, and that is a matter for serious reflection. This Bill justifies that view, first, because the Government are unable to benefit by the experience of the last war, and, secondly, because of what I call the equalitarian demand of our people in this war. In 1914 we had a capital debt of less than £650,000,000 and we finished the war with a capital debt of nearly £8,000,000,000. Throughout the whole course of this war, no matter how long it may last, we shall carry a Budget charge every year of more than £200,000,000 in order to pay those people who were kind enough to lend us their money in the last war. The interest borne on the National Debt in the 20 years since the war ended is probably not less than £5,000,000,000. The figure is striking testimony to political incapacity and financial cowardice The process is now to be continued and added to by the new debt charges in the present war I am not impressed by the assumed inability to impose a levy on wealth for the purpose of meeting the financial obligations of the war, nor am I impressed with the desirability of leaving it to be cleared up when the war is over. When that time is here—and it is significant that no preliminary provisions are made in the Finance Bill for dealing with the matter when the war is over—new vested interests will have established themselves and all sorts of reasons will be found why the matter could not be dealt with then.

Among some newspapers published in the immediate post-war years which I came across, I found some cuttings from a newspaper which at that time was accustomed to speak in kindly terms or in less acidulated terms of the right hon. Gentleman the Chancellor of the Exchequer, and that paper was the "Daily News." Speaking of the capital levy it said: If the conditions then prevailing were the same to-day we should be in favour of a capital levy now It would then have been practicable. It would have had relatively little effect on the course of trade. And if such a levy had been made then it would have relieved us of some of our gravest anxieties to-day. Now, the suggestion seems to us, as serious politics, most impossible. What we want to-day above all things, is to get trade going; a capital levy would check its revival, less disastrously than Protection because less permanently, but still very seriously.

Sir Herbert Williams

May I ask a question?

Mr. Ridley

I have answered so many questions by the hon. Member in the past year that I have almost exhausted my capacity to provide any more answers. If the view expressed in the "Daily News" is really the view of the hon. Gentlemen opposite, let them courageously and frankly say so now. They should not try to impress us with the fact that they are in favour of attending to these matters in principle, and that they will act in two or three years' time.

Sir H. Williams

In 1922 his party fought an election on the capital levy. In 15 months they were in office. Can the hon. Gentleman tell me why they did not apply the principle in two or three months?

Mr. Ridley

The hon. Member knows the answer; he has asked the question so many times. This is a serious point and it is a matter for grave reflection that the hon. Member for South Croydon (Sir H. Williams) leads his supporters in a unanimous denunciation of the levy on wealth. If that is the view of Government supporters, it will have a serious effect on the attitude which my hon. Friends on this side of the House take to the present Budgeting proposals. It was once said of the present First Lord of the Admiralty, when Chancellor of the Exchequer, that Charles the First was sent to the block for sins less serious than the then Chancellor of the Exchequer had committed in the field of finance, and I hope that the present Chancellor of the Exchequer will avoid a charge as serious as that.

Mr. Bracken

As the hon. Gentleman is so strongly in favour of a levy on capital, will he accept a levy on the large resources held by trade unions, amounting in some cases to very large sums of money, in order to contribute to the National Debt?

Mr. Ridley

The hon. Member must realise that we are attempting to discuss a serious proposal. [Laughter.] If that is the attitude of hon. Members opposite, I would beg them seriously to reconsider it.[Laughter.] If it is to be assumed that political unity is to be secured in this House in a moment of serious gravity by a display of buffoonery of the kind we are now experiencing, hon. Members opposite will have a very serious awakening. In order to raise the maximum amount for war charges from current taxation, not only for financial and economic reasons, but perhaps more important for psychological reasons as well, the home front is bearing a greater strain than any previous war has ever imposed upon it. There will be a heavy toll of life, anxiety, bereavement, grief, and these things cannot be put off. They will be borne with courage and fortitude, but they will be borne much easier if there is no procrastination about other people's obligations. I heard the Lord Privy Seal in a broadcast speech the other evening, which I otherwise admired, say that in this time of grave anxiety class distinctions had been abolished. I cannot help regarding that as nonsense. Class distinctions are not matters of sentiment but of economics, and they remain. Want and Wealth. But it is even more necessary in time of war than in time of peace that these distinctions and differences should be minimised. Our aims should be the pursuit of a common course, by a common people, carrying as far as possible a common sacrifice.

My right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) and my hon. Friend the Member for Bishop Auckland have urged a levy on wealth. Hon. Members opposite may laugh. They may continue to laugh in the face of what in the end may be a very terrible experience indeed. You cannot afford to laugh at the increasing demand of an ever expanding body of electors who want social justice, equity and equalitarianism. Take my hon. Friend's proposal for a 2 per cent, levy on wealth and apply it to the case of a man with an accumulation of £100,000 and assume a 5 per cent. income on it, which is £5,000 a year. I know that there are heavy tax charges to be met out of that, as there are on all incomes whatever their range may be. In a three-year war the total cost of a 2 per cent. levy on wealth would be something less than £6,000 and something less than £600 a year in terms of income. His wealth would still be £94,000 and his income nearly £5,000 a year. The hon. and gallant Member opposite winced a little this afternoon when my hon. Friend talked about a 1 per cent. tax. I am sure he will find a little more capacity for assistance in another field than he found in wincing at the prospect of a 1 per cent, levy on aggregations of wealth. What is remarkable about a 2 per cent. levy is not what happens as a result of it, but what does not happen as a result of it. If you take £100,000, with a 2 per cent. levy, at the end of 50 years it would still be £30,000. If you take it over 100 years there would still be more than £10,000 left.[Interruption.] The hon. Member's arithmetic probably is not as good as mine, and mine is not very good. My boy worked out this for me. It is very likely, that unless the wealthy make just contribution for the preservation of their possessions, their possessions will not be preserved at all. It would seem to be a very modest contribution to make for the preservation of the standards of social and domestic comfort which are beyond the dreams of the great majority of the population of this country.

The Chancellor of the Exchequer has proposed some very modest, but all too modest, increases in the Estate Duty. They are to be welcomed for their tendency. There is an increasing recognition of the indefensibility of inherited wealth through endless generations. We must look, and the people who possess it must look, for a drastic limitation of the right of succession, and the next Budget should show a much more marked tendency in this direction, in which there is very considerable scope indeed. According to the report of the Commissioners of Inland Revenue for 1938, 95,000 people left £578,000,000, of which only about £78,000,000 fell to the Treasury in the form of Estate Duty. Within that figure there were 10 estates which exceeded £1,000,000, four exceeding £1,500,000, and two exceeding £2,000,000. They were all owned by 13 per cent. of those who died. Surtax rightly lends itself to still heavier impositions, and must continue to do so. I entirely adopt the view expressed by my hon. Friend this afternoon and by my hon. Friend the Member for Kennington on Wednesday. Much more attention must be given to incomes of higher rate. There are 80 incomes in excess of £100,000 a year, with an average of £190,000. There are 357 incomes of over £50,000, with an average of £90,000 a year. In any circumstances, these astronomical figures cannot be justified; in war time they become outrageously unwarranted, if you put beside these tremendous aggregations of wealth, or these enormous annual incomes, the meanness of the Sugar Duty. I say once more about the Tea Duty, and I make no apology for saying it again, that no Chancellor of the Exchequer ever stooped so low to pick up so little as is the case with these indirect taxes on both tea and sugar. The Tea Duty and the non-advalorem character of the tax on tobacco make a striking and unwarranted contrast to the wealth still enjoyed, even in a period of war anxiety, by people who ought to have been hit in the very highest range much more heavily than they have been or are by Surtax, and after they have gone, by Death Duties.

I make no excuse for making two suggestions which would involve expenditure. The experience of my constituency brings it to bear upon me heavily. Even now the means tests should be abolished, or even eased by a reconsideration of the basis of calculation, and something must be done now, as so many of my hon. Friends said, for the old age pensioner. Either or both these things would give some real evidence of national unity, and any rise in the cost of living will make all of them imperative. I am prepared to be astounded, as I most certainly should be, if any of these things were done. They are much too common sense. I share to the full the views expressed in this House in a succession of splendid speeches by my right hon. Friend the Member for Wakefield (Mr. Greenwood). I am under no illusion about the character or capacity of this Government, but I have yet to be convinced that they are capable of winning a war, because they are not capable of the sort of courage that war requires. One look at that Front Bench, one moment's reflection on its record, and nearly everybody in this House is filled with despair. The Government will not tax their rich friends beyond the point to which they are really compelled by circumstances to go. In the absence of any provision in the Bill for allowing for a tax on wealth, I am forced to the conclusion that at the end of the war, if this Administration continues till the end of the war, as was the case in the last war, the rich will be richer in terms of actual possessions.

4.40 p.m.

Mr. Boothby

There are one or two things that I should like to bring to the attention of my right hon. Friend the Chancellor of the Exchequer. I think the House as a whole probably considers that the best thing about this Finance Bill is the Excess Profits Duty. To those of us who have given it some consideration, although there has not been time to give it more than a superficial examination, it appears to have been extremely well designed; and I hazard the prediction that, although inevitably it will have to be modified in the light of experience, the Chancellor of the Exchequer will find as the war goes on that this tax will be his main source of revenue.

Sir H. Williams

Is not my hon. Friend's statement based on the assumption that there is bound to be profiteering?

Mr. Boothby

I do not think so; but inevitably we are bound to have a certain amount of inflation, and a great increase in productive capacity. I do not think that any economist on any side would suggest otherwise; and I do not think that the Chancellor of the Exchequer would deny that, as the war continues, this tax will become one of our main sources of revenue.

Sir H. Williams

Then my hon. Friend wants profiteering?

Mr. Boothby

No. If large profits are made, then under the provisions of the Bill they will be taxed; the object is to see that large excess profits are not made. If profits are not made in some form or another, then we despair of ever financing the war at all.

Mr. Robert Gibson

If what the hon. Member says is correct, would he agree to the duty being progressively put up?

Mr. Boothby

Certainly, as experience shows it to be necessary. I have already said that the duty will have to be modified in the light of experience. I do not want to see excess profits made by private individuals; but I suggest that as the war proceeds, and Mr. Keynes and most other economists fully agree, that this particular tax is likely to be the most fruitful tax from the point of view of the revenue. It will, as I have said, have to be adapted from time to time to meet new conditions as they arise, because only experience can show now we can best levy war taxation. However, from the superficial examination that has been possible, it seem to me that the tax has been extremely well devised; and the Chancellor of the Exchequer is to be warmly congratulated on it.

I do not think my right hon. Friend is equally warmly to be congratulated on his decision to make this very sudden and, in his own words, very fierce increase in the standard rate of Income Tax. I think hon. Members on the opposite side of the House can feel quite happy, particularly the hon. Member who opened the Debate, that, if the War continues, the capitalist system as we have known it will not emerge in any recognisable form. I do not think there can be any doubt about that. The point that I want to put to my right hon. Friend— not that I think he can make any change now—is that he might be a little lenient in the administration of the tax, in the light of present conditions. We are engaged in a tremendous change-over in our industrial and economic system from peace to war conditions. There has to be a great transition, and it is taking place at the present time. I agree with the Deputy-Leader of the Opposition that, technically, the reorganisation of industry should be carried on by those engaged in it—the employers, the workers and the trade unions—but the financial control of very large sections of industry will, as the war proceeds, inevitably fall increasingly into the hands of the Government. That must be so; and as that happens measures may have to be taken by the Chancellor of the Exchequer to deal with the situation from the point of view of the revenue, if necessary industry by industry.

I read in the OFFICIAL REPORT—I regret I did not hear it—a speech by the hon. Member for Barnstaple (Sir R. Acland). One hon. Member described his arguments as woolly. I think they were rather woolly. I do not think he knew precisely what he was trying to say; but I could see what he was driving at. No argument in this field can be anything but woolly, because we have had no practical experience. The hon. Member was suggesting that, as the financial control of many industries falls increasingly into the hands of the State, the State may have to devise special measures for seeing that excessive profits are not made by those particular industries. My point is that, during this period of transition, when things are bound to be difficult for a. great many business people, and many people are going to be thrown inevitably and, let us hope, temporarily out of employment, a great deal of dislocation is bound to be caused; and that by suddenly putting on this crushing increase in the standard rate of Income Tax my right hon. Friend has aggravated some of these difficulties. I wish that he had found it possible to give a warning this time to the general body of taxpayers that if the war goes on— the overwhelming probability is that it will go on—the direct taxation of individuals would be progressively increased.

What has happened is that we have a substantial section of the community, whom I would call the middle-class community, laboriously and with great difficulty making transitions in their businesses and in their private life. Some of them are already pretty hard-pressed, some are greatly impoverished and already in considerable financial difficulties. I refer particularly to the professional class. Let the Chancellor of the Exchequer take his own profession. There are lawyers and barristers who have been making very substantial sums of money in their practice. They will be called upon to pay a very high rate of taxation on income earned in recent years, although they find their income, perhaps, only half or a quarter of what it was, and in some cases reduced to nothing at all. Take the case of a Harley Street physician, with a very high rent, who has been making sums of anything from £5,000 to £10,000 a year, and now finds himself on Government work in a hospital at a salary of £400 a year; yet he has to pay tax on the very large sums he has earned in recent years.

The Chancellor of the Exchequer (Sir John Simon)

What my hon. Friend is saying is not in accordance with the provisions of the Bill or what I said in my speech. I am so conscious of cases of the sort that he has quoted that I explained, I hope clearly and in great detail, in my Budget speech, that instead of calling upon such a taxpayer to pay in respect of those thousands of pounds earned in past years, he would be entitled to substitute his actual earnings of this year. That is an enormous alleviation.

Mr. Boothby

I have that in mind. I remember well what my right hon. Friend said in his speech, and I was coming to that point. I was going to say that considerable reliefs have been given; but I would point out that, in respect of Surtax, which applies to two years ago, a great many business men in a comparatively small way have not been doing well in the last 18 months or two years; and they are now in considerable difficulty. Whatever reliefs the Chancellor of the Exchequer has provided in this respect, and I agree that he has given them an option, nevertheless this increase to 7s. this year and 7s. 6d. next year is a very sharp increase; and a great many of the professional classes in this country will find it very difficult to meet their obligations.

I would suggest that, while nobody supposes the right hon. Gentleman is now going to reduce the standard rate, he should direct his officials to be as lenient as possible during the next 12 months, that is during the transitional period, in dealing with these cases, and not to press any of them too hard. I can only say that during the last week-end I have, fortuitously, met three people who own houses, not large, in the country. In every case they have been trying their best to keep things going for at least another six months, but in every case they have now decided to close their house at once and dismiss their staffs. That is what is happening. The Chancellor of the Exchequer urged people not to sack their staffs, but if it is a choice between that and going into bankruptcy, they will sack them; and quite a number of people are to be sacked in the next few weeks. If the Chancellor of the Exchequer could see his way to throw out a ray of hope that these people will not be hard pressed, he might still save quite an additional, and, as I think, unnecessary dislocation during the difficult transition period from peace-time industry to war-time industry.

I regret the difference the right hon. Gentleman has seen fit to draw between earned and unearned income, only because I think it is a retrograde step. The tendency on the whole should be to bring greater relief to the man who earns his income than to unearned income. It seems to me, in relation to the whole of the expenditure of this country this year and the next, that you are causing by this sudden and steep increase in Income Tax an awful amount of additional dislocation for the sake of a comparatively trivial sum of money. The amount of money involved is not so very great. In Mr. Keynes' letter, which has already been quoted, there was one significant paragraph in which he pointed out the utter futility of the old imposts to solve the problem, even when pushed almost to the limits of endurance. You are not, in fact, going to finance this war by the old pre-war forms of taxation. Most hon. Members will agree with that; and that is why I attach importance to the Excess Profits Tax.

I think that the Chancellor of the Exchequer will have to consider carefully in the next few months whether it is not possible to raise additional revenue in the form of completely fresh methods of taxation. There is the possibility of a sales tax, which, I think, should be considered; and also a gifts tax. In this connection I warmly welcome the Chancellor's assurance that he has examined the whole question of the evasion of taxation, particularly in the form of Estate Duty; and I think the whole House is solid in this, that when everybody is being squeezed until the "pips squeak," they will not tolerate evasion of taxation of any sort or kind. No one will stand for that; and any measures which the Chancellor of the Exchequer may bring before the House to stop any gap which may exist, even to the point of an "all-in" Clause to the effect that any scheme or company devised for the main purpose of evading taxation shall be illegal, would be supported by the whole House. Ninety-five per cent. of the people pay their Estate Duty, and do not start slinging their money about to sons and aunts and nephews, or to one-man companies. It really is intolerable that that process should be allowed to continue any longer, and I am sure that the House will be solid in supporting the Chancellor of the Exchequer in any measures he may bring forward to prevent any kind of tax evasion during the period of the war.

There is one other point I should like to mention, and that is the question of the rate of interest. It is of immense importance. The Chancellor of the Exchequer will recognise that every speaker in this Debate is anxious that he shall finance this war at as low a rate of interest as is possible, and, above all, avoid the exorbitant rates of interest which were paid during the last war, from which we are still suffering. May I remind the Chancellor of the Exchequer that the whole of the increases in taxation he has proposed in this Bill can be thrown away by borrowing at 1 per cent. more than is necessary. The whole of this additional taxation can be thrown away by a 1 per cent. unnecessary increase in the rate of interest paid by the Chancellor of the Exchequer on the money he borrows. Let me then make this suggestion. I read carefully his arguments in favour of the recent increase in the Bank Race, and I also read his argument regarding gilt-edged prices. I say that he should not under-estimate his own power. I believe that the Chancellor of the Exchequer of this country can practically make the gilt-edged market what he likes at any-given moment. It is simply a question of inducing the right frame of mind in the country.

Take the case of the year 1932 when the public knew that there was going to be a great conversion scheme. To encourage this there was a little buying in the market by the Government broker; but the fact remains that, before the conversion scheme was carried through to complete success, the market was ready, because everybody believed that it was the intention of the Chancellor of the Exchequer to do it. Similarly, the other day everybody had an uneasy feeling that it was the intention of the Bank of England to raise the Bank Rate if war broke out, and the market worked lower in consequence. I believe the Chancellor of the Exchequer can finance this war on a 2½ per cent. or at most a 3 per cent basis without having recourse to any kind of compulsion, but I say that if he cannot do it at 3 per cent. or cheaper, then he ought not to hesitate to have recourse to some element of compulsion. I am quite sure that hon. Members would be most reluctant to see the war financed at anything higher than 3 per cent. —2½ per cent. if it can be done. I beg the Chancellor of the Exchequer not to underestimate the psychological forces at work in this connection, and, above all, not to under-estimate his own powers.

Naturally, we all chant in chorus that it is thoroughly desirable to avoid inflation of any kind, especially in the shape of monetary inflation; but, of course, it is inevitable that inflation of some kind there must be if the war continues. But if it is controlled, and I think it can be controlled, it need not have any disastrous effects, not even on the exchanges, because we are going to have world inflation if war continues, which will affect other countries as much as ourselves, including the United States of America. In this connection, if it brings any consolation to hon. Members, let me quote again from Mr. Keynes. Although he is much criticised I have never known him to be very wrong: An average increase of 20 per cent. at least in wholesale prices, which would mean a much smaller increase in the cost of living, is necessary and desirable; and would greatly facilitate the Treasury's task. Broadly, I think that is true; and equally I do not think we should be frightened of such an inflation, which is necessary if we are to achieve the revenue which my right hon. Friend requires. Ultimately, at the end of the war, if it is a long war, I think that some kind of levy on capital will probably be inevitable. There I agree with hon. Members opposite. I should like to support the suggestion made, not by any hon. Member opposite, but by my hon. Friend the Member for East Willesden (Mr. Hammersley), that it would be a wise precautionary measure for the Treasury to ask for a return of capital holdings at the present moment, or at an early date.

Colonel Wedgwood

Including land values?

Mr. Boothby

Of course. I am sure my right hon. Friend would never tolerate such a return being asked for unless they were included; but at the present moment, my suggestion is not for a return of values, but simply for a return of all capital holdings. This would be merely a precautionary measure. Probably, if the war continues, we shall reach a stage when the House, irrespective of parties—if the present parties exist at the end of the war, which is highly problematical—would wish that any great increase in capital values should be subject to a levy. A return of capital holdings could be made now, as a precautionary measure without causing any disturbance.

My final word to my right hon. Friend is this. In spite of any criticisms which I may have levelled against the increase in the standard rate of Income Tax—I have done so only because I believe they will bear very hardly, in spite of the reliefs given, on certain deserving sections of the community—I think the House recognises the tremendous courage with which my right hon. Friend has faced the main issues involved at the outset. It is not the end; but at least at the beginning he has tackled certain things with real courage. There is only one thing he said with which I profoundly disagree, and that was his remark that he felt that the question of old age pensions would have to be deferred. If I may humbly say so, I think he will find that view will not be taken by the House as a whole. The position of old age pensioners is a very hard one. They are not immune from aerial bombardment, they have very little amusement, they are hard pressed, and with the rise in retail prices which I believe is absolutely inevitable, they are going to be still harder pressed. To give them an increase of 5s. would cost what—three or four days of the cost of the war. 1 do not think that the House as a whole, quite irrespective of party, will accept the view that their claim, which is one of the most urgent social claims ever made on the legislature of this country, can be further ignored. I am convinced the House will insist that something shall be done for the old age pensioners, and that at no distant date. I believe that this demand will gradually come and steadily increase from Members of all parties, until it is met.

I conclude by saying that the whole problem of financing the war is utterly new, and infinitely more formidable than the problem presented at the beginning of the last war, when we had nothing like the same burden of national debt, and infinitely greater resources. I am . sure it can be solved; but I ask my right hon. Friend to bear in mind that we are all now in the realms of experiment; and not to hesitate to use his brilliant mind, and the minds of all the other brilliant people in his Department, to examine every aspect and facet of the problem; and above all, not to be afraid to be unorthodox if that would seem to be the right course to pursue.

5.5 p.m.

Sir Robert Young

Not having a house in the country, nor being a lawyer, nor a physician in Harley Street, I shall not endeavour to follow the hon. Member for East Aberdeen (Mr. Boothby) in relation to these matters, but the Chancellor's Budget statement and the Finance Bill give some of us an opportunity to recall some of the things that happened during the last war, a recital of which may be of interest to the Chancellor. First of all, I think the tonic effects of the speech of the First Lord of the Admiralty last Tuesday made it much more easy for many taxpayers to accept and swallow the Chancellor's slimming medication of the following day. The Chancellor was right in not wasting time in expressions of regret and sympathy for those who, in the first instance, will have to bear these heavy burdens. We all know, or at least we should know, that ultimately the burden will fall on the productive workers of the country, whatever their station in life. I should like to join with those who have said that in their opinion the Chancellor deserves commendation and congratulation for beginning what may be a series of war Budgets by proposing heavy and drastic taxation on what may be called the direct taxpayers and luxury consumers of our country. His proposals will help some people to realise the economic consequences of the war and assist them to take this war much more seriously than they did the last Great War.

If we are to visualise a three years' war, which I pray Heaven forbid, let us remember that these drastic burdens, more drastic I am sure than most hon. Members had expected, will be heavier still before the end of the war. The best of all rationing schemes in a war emergency is to ration incomes and luxury spending power. Let no one possessing an assured and adequate income complain of these burdens when human life and human liberty are at stake in the issues which confront the country. Our industrial and financial arrangements, and our personal conduct, should be to safeguard the economically helpless and needy on our home front from further distress. The spirit of self-sacrifice which impels brave men at sea to save first the women and children from the sinking ship, and the gallant conduct of associates on the battlefield who risk their lives, in addition to the personal hazards of war, to save a wounded comrade, should be the spirit that should animate us in bearing these financial burdens. During the last war, much of my time, like that of many others, was spent on what were known as Reconstruction Committees. It was time wasted, and with it went money and energy in the form of many meetings, many Departmental papers, much Departmental work, and ultimately ponderous blue books, issued to Members of Parliament, and sold at high prices to outsiders —books which nobody read. I trust the Treasury will see to it that during the progress of this war that process is not repeated and that a large section of the man-power of the country will not be engaged in such unnecessary work. When I came into this House in 1919 I met the late Mr. Edwin Montagu, formerly Secretary of State for India. He had been chairman of some of these supposedly valuable committees, and I found that he agreed with my criticism of them.

Later, there was one committee on which I sat which made valuable recommendations—recommendations which are likely, as a result of this war, to be put into operation. Those recommendations were turned down then by the plutocratic Members of the post-war coupon Parliament, who insisted on a free vote of the House although the then Chancellor of the Exchequer had stated that a levy upon war wealth would be very welcome to him for the purpose of reducing the floating debt of the country. They romped off with their war fortunes. Do not let us have a Parliament of that kind again, if we wish to prevent a revolution in this country. I refer to the committee on war wealth set up by the late Sir Austen Chamberlain. There is no need to re-do the work of that committee. Let the Chancellor, if he is not going to impose such a tax now, make sure that he knows what war wealth there is in the country when the war ends, and tax it immediately. If he does so, he will save himself the difficulty which confronted that committee in having to hark back for four years to determine the size of war profits. In my estimation no one who professes to be a lover of his country should be richer as the result of a war in which not only are financial hardships borne by many, but life and limb and health are freely given in the service of the country and for its safety. I would say to the Chancellor of the Exchequer that if at the end of this war, unless it is speedily ended, there should be any millionares or semi-millionares in the country, in my estimation both they and he should be summarily executed.

The 60 per cent. Excess Profits Tax fills me with misgivings. I remember in the early stages of the last war going with my trade union executive to discuss with the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) the question of the rise in the cost of living. We implored him to keep it down. We said, "Keep it down and if you take all the increased war wealth for that purpose, we, on our part, will not encourage or support any unreasonable demands for increased wages during the war." I think that was the genesis of the Excess Profits Tax. Unfortunately, the right hon. Gentleman the Member for Carnarvon Boroughs at that time was not able to carry the proposal as far as we, or, I think, he, would have liked. What did occur was that a proposal was put into practice the result of which was a committee on production and repeated applications for increases of wages were made to it, which, when partially secured, did not to any extent satisfy those who had received them. I believe that some employers of labour in those days were even able to make a bonus out of any increase of wages secured by the representatives of labour. This 40 per cent. left to the war industries, although, I suppose, subject to Income Tax, leaves room for dissatisfaction and industrial trouble in the near future. I wish the right hon. Gentleman had taken 80 per cent., at least, for a start. If he had done so, he would have lessened the chance of agitation for a share in the spoils justified on the workers' side, by the increase of the cost of living.

Having said that, I hasten to add that, as a smoker, I approve of the tax on tobacco, and as a teetotaller I support the tax on alcohol. My experience in the workshop has shown me that a smoke now and then increases and expedites production, but I have seen the consumption of alcohol or strong drink waste time, delay production and destroy material. In fact, the beer tax is not a war-time tax, but a re-imposition of a peace-time tax, which was removed by the Prime Minister, which the brewing trade and its customers bore with advantage or benefit to the physical and moral well-being of the community. Perhaps the Chancellor in his next Budget will remember to make this trade help to pay the expenses of the war, for I am perfectly certain it will never help to win the war. I know of no greater danger than the emptying of public-houses when the air-raid signal is given, and the allowing of anti-aircraft fighters to be in wet canteens late in the evening when an enemy raid may take place at any moment. I will say no more about that at the moment, but I could tell the Chancellor something that would surprise him.

We on this side of the House and, I am glad to say, many on the other side also cannot do otherwise than condemn the sugar tax as an impost on the penury of old age pensioners and the unemployed. The Prime Minister has said, and the Chancellor has repeated, that the proposed help promised to the old age pensioners in July last cannot be given. The same argument will apply in the next Budget to the Tea Duty. We are told that all, no matter however poor, should contribute to war expenses, but that kind of abstract equality of sacrifice is often very unjust. Many old age pensioners and people on public assistance cannot afford it, and those who have scarcely sufficient sustenance for physical health cannot endure higher taxation. You are, in a sense, trying to take something from nothing by adding distress to a deserving portion of the community and creating dissatisfaction, discontent, anger, agitation and rancour in the hearts and minds of many who would otherwise bear their burdens without complaint.

Yet I would say this, that I and, I think, some others could endure the sugar tax with equanimity if the Chancellor of the Exchequer and the Food Departments were to introduce a bit of benevolent Socialism on behalf of the deserving poor. Rationing will soon be in vogue in the country. Why not apply the Conservative principle of a means test to rationing? There would be little difficulty in doing so. The food committees could very well determine the old age pensioners' need and, having done so, could invite the local authority, or one of the large provision stores, or a branch of the co-operative society, to open a particular shop in each district and give to these old age pensioners the essential commodities of life at cost price. If you can fix a price for those who can afford to pay it, it is no less easy to fix a price for those who cannot afford to pay the increased prices arising out of taxation. Many of us feel that we are not helping to advance the cause of unity in the country as long as many of the old age pensioners and unemployed people on the means test are finding from day to day that the increased cost of living is penalising them to a great extent, and I make an appeal to the Treasury Bench, when their next Budget comes forward, if not before, and when they are likely to increase taxation on tea and other essential commodities, to see whether something cannot be done to keep down the price of food to the old age pensioners of our country.

5.25 p.m.

Lieut.-Colonel Sir Thomas Moore

When the hon. Member for Bishop Auckland (Mr. Dalton) got up to criticise the Finance Bill, I thought we were entitled to expect a reasoned, an intellectual, and an intelligent criticism of those proposals, but in view of the warnings and forebodings given to us by the hon. Member for Clay Cross (Mr. Ridley), I will not say any more about that speech by the hon. Member for Bishop Auckland than that I was gravely disappointed with it. I will only refer to one or two points that he made, which conveyed nothing of conviction to me and, I imagine, little to those who will read his speech tomorrow. He appeared to resent the fact that anyone should have any money left after paying his Income Tax and Surtax. That is possibly an exaggeration, but he referred to people with incomes of five figures who, after they had paid Income Tax and Super-tax, would have a certain amount of money left.

Mr. Pethick-Lawrence

Perhaps I might correct the hon. and gallant Member. My hon. Friend referred to people with such incomes that, after the payment of Income Tax and Super-tax, they would still have incomes of five figures left.

Sir T. Moore

The hon. Member referred obviously to the £50,000-a-year incomes —an astronomical figure that applies to no one in this House, I suppose—but he also pointed out that the person in receipt of such an income as that would have to pay, under these proposed terms, £38,000 a year; in other words, that he was to retain £12,000 a year. The hon. Gentleman then held up this monster to the obloquy of the House, entirely ignoring the fact that that man, after paying his Income Tax and Super-tax might have many other obligations and commitments, such as might possibly involve the retention of a considerable number of employés. Did the hon. Member mean that the State should be prepared to take on the job of finding work for such people as are thrown out of employment because of the imposts levied by the Chancellor? If that is the attitude taken up, that the State must shoulder that burden, I can only say with all respect that it was not carried out when the Government was controlled by those who are now in Opposition. It seems to me that those hon. Members have the idea of wealth on their minds as a sort of King Charles' head. I listened to the hon. Member for Newton (Sir R. Young), and he came back to it again and again, that anyone who possessed wealth was someone who was a parasite oramenace to the community instead of one who was going to help the Chancellor of the Exchequer to finance the war. It is by the proper accumulation, I do not say the unjust accumulation, of wealth that the Chancellor can get his money from these lucky and fortunate people and thereby enable the war to be carried on with some degree of safety and security.

I will finish my criticism of the hon. Member for Bishop Auckland by referring to the question of the capital levy. Candidly, I have tried to find out from the speeches that have been made what exactly that means, and I have never yet got a description that carried any kind of conviction to my mind. Suppose a man's total capital, the capital that he has devoted all his earnings throughout his life to acquire, is a house. Are you going to take a few bricks from that house each year or else throw him out of his house altogether? What advantage to the State or to anybody else would that be? It seems to me that the hon. Gentleman, in criticising the Budget this afternoon, made a speech that was totally below the mental stature that we should expect from a leader of the Opposition. I give my full, sincere, though reluctant support—

Mr. T. Smith

I thought, when the hon. and gallant Gentleman mentioned the capital levy that he was going to destroy the arguments in favour of it. Is the illustration in regard to the house the only thing he has against it?

Sir T. Moore

No; I was merely commenting on some of the proposals of the hon. Gentleman who spoke for the Opposition. I could spend the rest of the day pulling his remarks to pieces, but the time is not at my disposal. While we all face the future with courage and resignation, we must all naturally feel somewhat reluctant at having a Finance Bill of this character given to us. It will make a tremendous difference—not to the rich, for they are few and comparatively unimportant except that they supply the money to the Chancellor; but it will make a great difference to the millions of middle-class people who live on the verge of moderate comfort but are always looking round the corner to the future with considerable misgiving. I also feel that this Finance Bill is the antithesis of all previous Finance Bills introduced in peace time. Previous Finance Bills were properly designed for the purpose of raising the poorer classes to a higher standard of living. This Finance Bill will, I fear, have the effect of lowering the standard of the better-off classes to a general and common standard of poverty. But there is one thing about it which I fully support, and that is that it confirms to the world and to our enemies that Britain is in this war to the finish, and that whatever happens, whether it be by arms in the field or by resources at home, we are going to stand shoulder to shoulder until victory is gained.

The Budget must have, and will have, general acquiesence, even of those whom it hurts most. It is harsh and even ruthless, but as long as it is just it will receive general support. I emphasise that word "just" because it is the justice of the Finance Bill which will make its general appeal and ensure its general acceptance by the people. There are, however, one or two suggestions or criticisms which I must make. I suppose that in war-time, with black-outs and one thing and another, one talks to people more than in peace-time and one gets views and opinions more than one normally gets. Any suggestions I may make are not purely my own, but are largely gained by discussions with others. There is no doubt that a number of people are concerned, on top of the depressing effect of the black-out, petrol restrictions and so on, about the ruthless increase of Income Tax. I stand in admiration at the way it has been received, but there are many people who feel that it might have been more gradual, that the pill might have been a little more covered so as to make the swallowing more easy. It is for that purpose that I make one or two suggestions, not in regard to this Finance Bill alone, but in regard to those future Finance Bills which will follow as night follows day and to which we shall possibly get inured in the course of the next year or two.

I have made a little analysis into the question of cosmetics, which was raised by my hon. Friend the Member for Hitchin (Sir A. Wilson) the other day. There is a female population of about 24,000,000 in this country. We will estimate that less than 50 per cent. —a very low estimate—are users of cosmetics. I estimate that each woman uses cosmetics to the value of 6d. per week, and that, too, is a low estimate and by no means the average. That amounts to the staggering amount of £13,000,000 annually spent on this beautification. I do not believe that women would resent having to pay a 50 per cent increase on that 6d. That would give us another £6,500,000 a year. I imagine that it would be difficult to collect, but it would not be beyond the wit of the Chancellor to find a way out. I am satisfied that women are determined to remain attractive, despite the drabness and dreariness which surround them in the war, indeed possibly because of it, and so bring some life and gaiety into the black-out, especially if one has a torch. I feel convinced that this is a tax which would be paid regularly and that it would give a definite income of £6,000,000 or £7,000,000 a year.

Then I come to another suggestion, which I imagine hon. Gentlemen above the Gangway may dispute. I refer to bicycles. They are no longer the transport of the very poor; they are the transport largely of the better paid artisans and the clerical portion of the community. They are also now, and will be for the duration of the war, the transport of the rich. I hear on all sides that cars are being thrown in in exchange for bicycles. It is no use contemplating a question of 2s. 6d. tax on bicycles. It is an easy tax to collect, and I would put on a tax of £1 per year, and another £1 manufacturer's tax on delivery. It is estimated that there are 12,000,000 bicycles in the country and they will rapidly increase owing to the war, and so you would have an estimated yield of £15 million annually.

Lieut.-Colonel Sir William Wayland

Is not my hon. Friend aware that bicycles are used by most agricultural labourers?

Sir T. Moore

I imagine that the employers of the agricultural labourers would gladly co-operate. Now I want to ask the Chancellor of the Exchequer for a word or two of advice. In his Budget speech he advised careful spending and no spending on the unnecessaries of life. I have a whisky and soda every night before going to bed. According to the Chancellor, I must give that up. It is unnecessary, it does not do me any good, although I do not say it does me any harm. If I give it up and every- body else is as patriotic, how is the Chancellor to get the income from the whisky tax that he estimates?

Sir H. Williams

May I suggest that my hon. Friend has it at lunch time instead?

Mr. Barr

May I quote Lord Iddesleigh, the Chancellor in 1874, who said that if there was a decrease in revenue from this source, new habits would spring up and the country would be the gainer a hundredfold, and we should see with great satisfaction no diminution of revenue from other sources.

Sir T. Moore

My hon. Friend is completely right in his argument as applicable to peace time, but we are now dealing with war-time conditions, and a wartime Budget has been introduced in which revenue is the chief factor and not those high moral qualities which the hon. Member represents with such distinction in this House.

There is one final issue, and I almost apologise for referring to it because it has been mentioned by almost every hon. Member who has spoken. I am not going to make an appeal for old age pensioners on grounds of sentiment, though one could make a very good speech for them on sentimental grounds. I base my appeal purely on economics. Owing to the war and owing to the Budget an entirely different situation has arisen. Prices have definitely risen; the cost of food and of other things which the old age pensioners have to buy has gone up. Therefore, an increase of the old age pension will mean no squandering, no hoarding of that money, because it has to be spent to live. According to the new Bill shortly to be introduced by the .President of the Board of Trade there can be no profiteering by the intermediate handler of goods, the shopkeeper, who is the channel by which the necessaries of life reach the old age pensioner, and finally owing to the Budget proposals there can be no profiteering by the producer. Therefore, it seems to me that the old age pensioner is merely a post office by which the money issued by the Treasury comes back inevitably to the Treasury, but at the same time it provides for the stimulation of trade, it develops work and it gives a little more comfort and security to those whom we must regard in these war-time days as suffering most and who are the poorest of the poor.

5.43 p.m.

Colonel Wedgwood

This is the most staggering Budget I have ever come across, and the remarkable thing about it is the extraordinarily cool way in which this House and the country have taken it. It means immense sacrifices for everybody. In a sense those sacrifices may actually help the conduct of the war. With the Income Tax at 7s. 6d. it will be a sumptuary Budget, teaching us to live more cheaply. The hon. and gallant Member for Ayr Burghs (Sir T. Moore) is not the only one who will have to give up that whisky-and-soda. Many of us will have to give up our houses, many of us will have to cut down our style of living, and probably it will do us no harm whatever. We spend our lives trying to live up to the standard of our neighbours, and if we and our neighbours bring our standards down at the same time we shall all benefit, and nobody will be a penny the worse and a good deal the wiser. But there is one thing that makes the ordinary taxpayer extremely reluctant to part. It has been said that tills is a very just Budget. Yes, and because it is a just Budget people will pay the taxes but what strikes three-quarters of the people to-day as very unjust is that so much of the money should be wasted. If it were going to help to produce munitions, if it were going to help the country's effort to save civilisation and freedom, there would be no grousing or hesitation about footing the bill, but the people feel that the present Government have not any control over the finances of the country and are letting everything drift. To-day we have not on the Treasury Bench either the Chancellor of the Exchequer or any member of the great or little Cabinet.

Captain Crookshank

The Chancellor of the Exchequer has been here until a few minutes ago and is coming back almost immediately. It is his misfortune if he is not back in time to hear the right hon. and gallant Gentleman, but I will tell him what has been said. I should not like it to go out that the Chancellor was absenting himself from this Debate.

Colonel Wedgwood

He has not been in for the last hour.

Captain Crookshank

Oh, yes, he has.

Colonel Wedgwood

I cannot help thinking that the Financial Secretary will make a good deal better Cabinet Minister than most of those we might have on that bench, and certainly it is desirable that he, as representing the watchdog of the Treasury, should convey to the rest of the Cabinet something of what every Member of this House is thinking, that the money we are voting in this Budget is being thrown away—[An Hon. Member: "That is an exaggeration"] —largely thrown away.

I read in the papers to-day the report of the Auxiliary Fire Services Officer for London. He said there were 26,000 men in London drawing £3 a week and 6,000 women drawing £2 a week. That is. £90,000 a week, £4,600,000 a year. That is for only one of the air-raid services, and in London alone. If we add to the wages of the men employed the overhead charges of the service the cost will be well over £5,000,000 in London alone —for keeping people who are doing nothing but waiting for an emergency which may never arise and who will continue to wait, apparently, for the next three years. If we include not only London but all the rest of the country, we get the staggering total of at least £30,000,000 a year being spent on that one branch of home defence alone. In addition, we have to take into account all the air-raid wardens, all the reserve policemen, and the First Commissioner of Works taking 200 hotels. I suppose we can take it that each of those hotels is costing, on an average, £500 a week; that means'£100,000 a week for hotels, and if we keep them on for the whole year that item alone runs into £5,000,000.

Those expenses have been incurred without the sanction of this House, without any check from this House, and without any real check exercised by the Treasury itself. In the interests of all those taxpayers who are quite willing to pay as long as the payment is for the war I should like to hear some word from the Chancellor about the early curtailment of these extraordinarily expensive services. If we take them all in all—the hotels, the Auxiliary Fire Service, the wardens, the ambulances—all the enormous number of people who are standing by waiting for an air raid, the cost must be running into nearly £100,000,000 a year, in- cluding the local government and central Government charges. That enormous charge seems to have been incurred simply because some people—either interested or ignorant people—decided that there would be 200,000 casualties if London were bombed—a fantastic total. I should like to know from the Chancellor first whether that charge can be brought down. The Auxiliary Fire Service should be sacked, the air-raid wardens continued, unpaid, and the hotels handed back to the people who will use them instead of their being kept waiting for Departments which at present have not fled from London to occupy them.

I would like to know from the Chancellor of the Exchequer whether the same appalling expenditure is being incurred in France and whether he thinks it is likely to be incurred in Germany. The whole question of our being able to win the war depends now solely upon our financial soundness. We have somehow to keep the value of the £ up, if we are to win the war, and nothing will drive the £ down so much as the despair of the ordinary taxpayer in this country at seeing his money wasted and at feeling that it is no good backing up a Government who throw his money away.

The Debate has turned largely on this question of a capital levy, or the rate of interest at which money is to be borrowed by the Government during the war. Let us clear our minds of cant about this matter. If the money is to be raised at 2½ per cent., that means a capital levy, because quite insufficient money will be raised at that percentage voluntarily; and you will be obliged to have coercion. If the Government coerce one they must coerce all. We come to these alternatives: Are you to have a capital levy, or are you to have inflation? People all over the country are thinking about these things, and not only of the taxation now levied by the Chancellor of the Exchequer. In nine cases out of ten people are saying to themselves: "It is all very well, but where will the £ be next year? Where will my income be next year? I have to consider not only 7s. 6d. Income Tax in the £ but to contemplate the possibility of a 50 per cent. tax by reason of inflation and the fall in the value of the £" Those two things are alternatives. Spending at the rate at which we are doing without any credit to borrow, there are only two ways of meeting the expenditure. One way is inflation, and the other is a capital levy alias borrowing at an artificially low rate of interest.

There is conceivably the third alternative of raising in taxation the whole expenses of the war, but is that practicable? We shall have to borrow, and to meet that borrowing we must have either a capital levy or inflation. Let me tell the House the relative advantages and disadvantages of those two methods. Inflation hits all the people who have lent money, all those with a fixed income, all those who have pensions and investments in the funds—

Mr. Ellis Smith

And the workers.

Colonel Wedgwood

—Yes, and the workers in their wages, unless they get their wages put up. Then there is the case of the people who have equity shares —ordinary or deferred shares—and above all the people who own land. As the value of the £ goes down, the £ value of land constantly rises. In the same way, as the value of debenture and preferred shares falls under inflation so the value of the later charges, the ordinary and deferred shares, rises. Therefore, inflation is a discriminatory tax. It hits what Mr. Harold Cox used to call the redheaded men, certain people here and there. They are penalised by an enormously heavy tax and may lose every penny of their property. Other people find that the purchasing power of their property increases.

We should notice then, in dealing with inflation, the fact that it is a terrifically heavy taxation as well as discriminatory. When we are talking about a capital levy it is at about 2 per cent. interest, whereas inflation may be 50 per cent. or much more. Remember Germany, and think of how the mark was suddenly reduced to about one-millionth or two-millionth part of its value. Remember the stories that we were told here in 1931. People are faced with the risk of those conditions, and it is no use the Chancellor of the Exchequer pretending that people are not thinking about the matter because they may be saying very little. They are facing a terrific injury.

On the other hand, think of the capital levy—or, what is the Chancellor's alternative, a compulsory loan at 2 per cent. or 2½ per cent. One of the difficulties, of course, is that in nine cases out of ten people who talk about a capital levy exclude all idea of land and house property, although these are the biggest asset, and the asset which is continually rising in value. I hope that there is no chance of the Chancellor of the Exchequer forgetting, when he is making up his register of capital values, that he must include the value of land which the citizen owns. In many cases wealth or what is erroneously styled capital is based upon the ownership and monopoly of land values, and the value of that monopoly must surely appear in the right hon. Gentleman's new register for the capital tax or the compulsory loan. We have to get the value of the land. That is another difficulty. It is not so easy to levy a capital levy (or to have a compulsory 2 per cent. loan) as it is to slip into inflation. The devil of it is that inflation is so easy and so tempting to unprincipled Chancellors of the Exchequer. There are difficulties; but for goodness sake let us not start talking about these two things without realising that they are complementary and opposite. You have to have one or the other, or balance the Budget.

Let us, therefore, consider how we can best meet the situation, if the right hon. Gentleman is to do his best, as Chancellors of the Exchequer ought, in order to keep up the value of the £, keep up the export trade of this country and see that it is not penalised. It is all very well to say that we want to tax the rich, but you do not tax individuals; you tax goods produced by man. If you tax the goods made for the export trade, you will not be able to produce these goods so cheaply, and you will not capture markets in the neutral world; your export trade will fall down. We must preserve our export trade. Let those who are convinced tariff reformers remember that all trade is the exchange of goods for goods. If we can get munitions or aeroplanes manufactured more cheaply in America than here, and pay for them in goods which we can manufacture more cheaply here than they can in America, it is an economy to do so. From every point of view, if you want to keep up the value of the £ and run the war economically you should encourage your export trade; and do not forget that by encouraging your export trade you are also at the same time encouraging your home trade.

To-day, all over the country, hundreds of thousands of people have been thrown out of work by the war, in spite of the demand for air-raid wardens and goodness knows what. Men, particularly in the export trade, have been thrown out of work—and the Lord Privy Seal gets up and makes a broadcast speech the other day in which he says: "It's all right; in a few weeks' time the State will be finding jobs for everybody." That is the sort of silly statement which makes this country despair of that Government. The people are now out of work, and they are complaining more than any mere taxpayers. They include managers and people engaged in the artistic trades and professions. They are without any hope, because they cannot find a job. These people are out of work. Do not tell me that the only way to put them to work is to get them into the Army, the Navy and the Air Force. Get them into the export trade and you are serving the country every bit as well.

You have, therefore, to keep the £ up. To make it possible to remain solvent— to win the war—you have first of all to help the export trade. In this Budget the Chancellor of the Exchequer has not put any additional burden upon the export trade. He has kept on the Profits Taxes, the compulsory insurance of stocks, the expense of providing air-raid shelters—everything has been put on the backs of the manufacturers for the export trade in the last few months. We may well spare them in this Budget. Sparing the export trade, and helping it to keep up the sale of British goods to foreign countries so that we can buy the food and munitions that we want, is just as important for the winning of the war as the keeping up of munitions for the Fleet or the Air Force.

That brings me to another proposition. Almost all the taxes in this Budget must fall upon the production of wealth. I do not care on whom they are levied in the first instance, the ultimate result of the taxes makes the production of wealth more expensive. It restricts supply by increasing the price and it increases the price by restricting the supply, so that all the taxation in this Budget certainly falls in the long run upon the production of wealth. In the name of many of my colleagues on this side, and I believe in the interest of common sense, I ask the Chancellor to consider whether he cannot, at least in his next Budget, begin levying a tax upon land value, which will impose no additional burden upon production whatever. A tax levied on goods increases the price of the goods and is borne by the consumer. A tax levied upon land value is not levied upon production. Land is not produced at all. A tax levied upon land value cannot increase or diminish the supply of land. It does not restrict the supply of land available for use, and therefore does not increase the price of the land. In fact it does the reverse. Not only does it not restrict the amount of land available for use, whether it is used or not, but it increases it. It is thrown on the market, if you punish the man who keeps nature idle, thereby forcing him to come into the market and beg someone to use his land. That increases the supply of land available for use and enables goods to be produced actually more cheaply.

The argument is irresistible in time of war, because vested interests cannot be allowed to stand permanently in the way of the public interest in production at such a time. It is irresistible because we cannot have the profiteering which will go on if the value of the £ sinks and the price of land continually rises in consequence. Profiteering in this war may very well be as bad as the profiteering in the last war was in the defeated countries. There was one case in Hungary of property mortgaged for £20,000. It was mortgaged up to the hilt, but they paid it off after the war with a postage stamp. The actual value of the land had not changed, but the selling value in depreciated pengos had increased enormously. That is what happened also to landowners in parts of Germany. All their mortgages were wiped out by the inflation. We cannot allow that to happen in this country, and the only way to stop it is for the Chancellor to realise that his taxes on industry increase the price of goods and destroy our chance of increasing the export trade, and that we must levy the tax or part of it on that land value, which is a measure of the demand of the community for the land. The ownership of land will otherwise lead to more profiteering in this war than all the armament factories and shipping companies combined.

6.7 p.m.

Mr. Denman

The right hon. and gallant Gentleman will not expect me to revive, on this occasion, the controversy on land values, because I think he will agree that the interesting feature of the Debate is the more novel subject of the capital levy. We are indebted to the Labour Opposition for having raised it and brought it into open Debate because undoubtedly, as the war continues and as expenses rise, it will more and more be a subject of discussion, and it is well that we should examine it while we are able to examine these things almost academically in an atmosphere of good will and complete freedom from any electoral thoughts. I want first, however, to refer to two points which have been fairly frequently referred to. It is true that the burden of the Budget will be accepted with good will in proportion as two conditions are satisfied. The first is that there is the least possible increase in the obligations to owners of capital. The Budget is welcomed as being a great attempt to pay as much as can be from current earnings. In proportion as the Chancellor of the Exchequer is able to keep down the cost of borrowing he will receive the applause and congratulations of the public. The idea that the moneylender should profit out of the needs of the State is especially repugnant, and of that the Chancellor is very well aware. That is the first condition of the popularity of the Budget.

The second is that there should be a minimum of waste in Government expenditure. Several examples have been given of cases in which it is suggested there is large-scale waste. I am not sure that the public would not be more impressed by the little examples of wastefulness which they see and which they think are quite unnecessary. We are back to-day from the experience of the taking of the National Register. Most of the people in my household wondered what on earth that expenditure of public funds was for. It was plain that one of the effective functions of that Register was to delay the introduction of the system of rationing. Its other achievement was the issue of identity cards, of which not one in several thousands is ever likely to be of the least use apart from this rationing scheme. I find myself adorned with a new symbolic identity. I am "ENBC 551." I trust all my correspondents will do me the honour of adding this new distinguishing symbol to my name, and if it gives the Chancellor any pleasure to refer to me as "ENBC 551" instead of as "the hon. Member for Central Leeds" I hope that you, Mr. Deputy-Speaker, will not spoil his joy by calling him to order. What on earth is to be the value of this symbol to the great mass of the population? It is the feeling that people are doing unnecessary work and that unnecessary money is being paid out by the State that will make the collection of money under this Budget less acceptable than it would otherwise have been.

I want to refer to the capital levy, because that is an exceedingly important subject, on which we ought to clarify our ideas. Like the hon. Member for East Birkcnhead (Mr. White), I have never been able to convince myself that any of the practical proposals put forward were really workable or worth the disadvantages involved, but I believe the principle is capable of useful application. Let us examine what is meant by this capital levy. The hon. Member opposite talked of it as a levy on war wealth. That is one idea, that the State takes a proportion of the increased capital that has accrued to individuals during the course of or as a result of, the war. I think the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) rejects that type of capital levy, and I am profoundly convinced that he is right. It seems to me that that type of levy, which seeks to take a proportion of war increases, involves all the major difficulties with the least possible result. You require two separate valuations, and that means two valuation dates. What is to be your initial valuation date? The date of the outbreak of the war is an impossible one. I should say that almost thousands of millions, certainly hundreds of millions, of gilt-edged stock had no ascertainable value on that date. Would you take a date back in the summer, when we were working up to the crisis? Is that reasonable? I do not know. Then you have to select some date after the war. But whatever date you take, you will have great difficulties. If the war lasts no more than three years, your second valuation will begin before your first is completed.

People do not seem to recognise the complexity involved and the length of time that would be taken in the valuation of the total wealth of this country. We had an example of this attempt to value wealth not long ago in the case of the un-gotten coal—a trifle. That was valued by the Commission presided over by Mr. Herbert Samuel—as he then was—at £100,000,000. A few years ago it was valued at £66,000,000, giving approximately half the income that the Samuel Commission gave. Apart from the fact that those valuations were very divergent, consider what has happened now that the figure of £66,000,000 has been accepted. It was discovered—what was known all along—that it would take years to carry out that valuation in detail. It was estimated that the valuation would not be completed before 1943— approximately five years—the reason being that there are not enough valuers who know the technique of the thing. Picture yourselves valuing all London. Picture yourselves valuing all the land; all the charges on it. Consider minor problems like reversions or insurance policies, and all the other diverse forms of wealth which would have to be considered. It would be a matter of years.

You are not going to take any great sum, because we all hope that there will not on this occasion be war profits on anything like the scale of those made during the last war, and you are not going to take all the war profits but only a proportion of them. Such a capital levy would bring in such a miserable amount that I agree entirely with the right hon. Member for East Edinburgh that it is not worth the candle. I gather that he and the hon. Member for Bishop Auckland (Mr. Dalton) have quite different schemes. To-day, we had before us a proposal for a small capital levy taken annually.

Mr. Pethick-Lawrence

I have always been very careful to distinguish between a levy and a tax, and I think it would be rather to the advantage of the House to keep to the distinction. I should call a levy an impost placed on a certain form of property once for all—or at least, with the intention that it should be once for all. Such is the proposal that I myself made, and that was previously made in this House by an hon. Member who afterwards became Lord Arnold. His proposal was for imposing quite a heavy burden to pay off, after the last war, the debt incurred in the war. That was to be a levy of 30 or 40 per cent. When you have an annual burden you must use a different word from "levy." I suggest that the hon. Gentleman should borrow my precedent and use the word "tax." An annual tax on capital is something distinct.

Mr. Denman

I am sure the House is indebted to my hon. Friend for his clarification. To-day, as he knows, the Front Labour Bench is in favour of the 1 per cent. capital tax.

Mr. Pethick-Lawrence

Quite so. I only suggested that the hon. Member should use the word "tax" and not "levy."

Mr. Denman

That seems to me to have little more attraction than the plan first examined. There is the difficulty of valuation. Once the valuations are established, no doubt the changes from year to year will be relatively small, but it will be a number of years before you have got your original valuation. Each successive year will be in arrear, and what will have happened to the income on that capital in the intervening years? It is a complicated matter which you will find difficulty in dealing with. A more interesting process is a genuine, authentic capital levy, taking once and for all time a substantial amount of the wealth of the country and transferring it from private individuals to the State. If that is intended to be a transfer of capital to be used for revenue purposes and if the payer is intended to cash the proportion of the capital that is charged on his levy, I think it will be agreed that it is quite impracticable because, obviously, the payer would have to borrow the money and he would have to borrow and repay over a series of years, perhaps from the state itself, and the result of that would be a tax which, in fact, would not be so widely different from an Income Tax. It is better to use that well-tried machine, the Income Tax, which is probably the most efficient fiscal machine which the world has ever known, rather than attempt a newfangled levy which would yield much the same product.

There remains another kind of capital levy which, in principle, I think the House should support. The idea behind it is that this war will have been fought amongst other purposes for the preservation of the material resources of this country in which every citizen from the poorest to the wealthiest has some interest, and it is right that of the total expenditure a portion should be borne by the accumulated wealth of individuals. If that process meant that capital was transferred in kind from individuals to the State and kept as capital and there was no attempt made to treat it as revenue, I think it would be a good scheme. It is a device for building up the assets side of our national Budget. We all realise that even in the lifetime of our grandchildren it will never be possible to pay off the National Debt. It will be far better if in happier years we succeed in getting little bits off the National Debt, if at the same time we make substantial additions to the assets side of the State's wealth. If a suitable scheme of that kind were worked out I should certainly support it because I believe that is the only way in the long run that we can deal with the National Debt without inflation.

A point arising from this argument relates to the time when this levy should commence. I think the time is almost defined by the needs of the levy itself. It obviously cannot be made in the course of the war and it cannot be made long after the war. I suggest it would have to be made within the first six months after the end of the war, before the new economic situation had cry stalized and when we were all in process of some economic reconstruction. In that time a substantial capital levy would be both practical and desirable, and I trust that between now and that date the Chancellor of the Exchequer and the Treasury will give attention to a scheme of that kind.

6.27 p.m.

Brigadier-General Sir Henry Croft

We have listened to a very interesting speech from my hon. Friend who has just sat down. I feel that when we discuss these questions we are probably not doing the great service that we should when all this annual drain is taking place upon the fluid wealth of this country and when at the end of that time some great attack will be made upon capital itself. I put this view because I think that what we hope for above everything else at the end of the war is that we shall have resources with which to carry on our productive industry and that we shall still remain the financial centre of the world. If we continue debates week after week making it clear to the rest of the world and to other countries, from which money has so frequently come in the past, that we are going to adopt the same kind of system that obtains in Nazi Germany and in Italy where last week, I believe, they adopted 50 per cent. of the proposals which were mentioned by the hon. Gentleman the Member for Bishop Auckland (Mr. Dalton), that will not help to induce the confidence which is vital if we are to recover from this staggering Budget and, perhaps, succeeding Budgets which we shall have to face

No one on the benches above the Gangway will deny that, whoever may suffer in the meantime, ultimately all taxes came back upon the workers of the country. That was stated clearly by the late Lord Snowden in this House. However much one may hope for distribution of wealth, we must realise that any grave disturbance or drain upon the fructifying sources of revenue will ultimately affect employment throughout the country. Let us echo the words which I heard recently from these benches, that we all desire to see national unity. We can see that even in contemplating this Budget. I do not criticise the reference by one hon. Member to the sleeping scorpion; my only criticism is as to whether something could not be done to use something less harsh on the employed classes in this country. We have to realise that, on the day that we made this great Budget, never in the history of the world had any country made so great a contribution towards the social services and the general running of the State. That was before this Budget. Let us take this comfort to ourselves: Let us also realise that under this system, in spite of high taxation, the money saved among the poorer classes of the country amounts to three or four thousand million sterling. We should not encourage at this moment the possibility that all these large numbers of people in this country, who by their thrift have built up these small fortunes, should have to contemplate some great levy or form of taxation in the days to come. I agree with the right hon. and gallant Gentleman the Member for Newcastle-under-Lyme (Colonel Wedgwood) when he said that we must do everything in our power to increase our export trade. One need not go into the old fiscal arguments. Some of us have always felt that if we are to keep our home market we must try to obtain renewed strength for our export trade. That has been true in recent years, but the fact remains that, if we are to maintain our credit and buy from the rest of the world, we must encourage our export trade to the highest possible extent at the present time. I rather wondered, when the Chancellor of the Exchequer made his Budget statement, whether there would be suggestions to relieve exporters of some of the great burdens they are bearing at the present time. It might be worthy of consideration, if not this year, next year. At the same time, is it not desirable, when he tells us to buy only the things we must have, definitely to exclude what are really luxuries? An hon. Friend mentioned cosmetics. That is not such a small thing, really, but is something well worth consideration; more so than the other alternative of bicycles. A tax on bicycles would be an entirety new burden on a very large section of workers who are finding it very difficult to get about at this time.

I agree with what has been said from every side of this House—that we must economise. We are going to ask the right hon. Gentleman although we may not approve of everything he does in this life, to be Gladstonian in demanding absolute economy in all Departments of State. At the same time I want to enter a protest at the tendency, since war began, of trying to find scalps for economy at the earliest possible moment. Perhaps it can best be put by referring to A.R.P. workers who are drawing £3 a week. Do not forget that large numbers of these people have been training for a year and-a-half while we have been talking and have fitted themselves to perform a most important function. Do not let us criticise, as did the right hon. Gentleman, I think, a little unjustly, the large number of firemen in London. Surely the lesson in Poland has taught us that this is a simple measure of defence. It may be that the Lord Privy Seal and his organisation should not have called up such a large number of workers and that we might. have saved a lot of money to the Exchequer in that way. I am not sure that with respect to a great many of these workers the engine might not be reversed in the quieter districts of this country, but the Government would have been definitely culpable if they had not mobilised these workers in London and vital parts of the country at the earliest possible moment. Although we ought to see what economies can be effected in this direction we ought not to be guilty, because these people were paid the sum granted, of letting them feel that their services were not recognised in the country as a whole.

Let us exercise every kind of economy, but let us realise that because we have had a month's quietness it does not mean that we shall not go through a veritable hell in parts of this country, such as has been seen in Warsaw and other open towns in Poland. Therefore, let us exercise every economy, but let us not belittle the services rendered by this vast number of our fellow-countrymen and women. Let us do everything to see that we keep down unnecessary expenditure, but we must not cut down the essential safety measures of this country by dismissing people who are doing such valuable work.

6.36 p.m.

Mr. Collindridge

I am sure the House will not expect me as one of the lesser experienced Members to follow the hon. Members from the Government benches who have recently addressed the House, but with regard to the remarks of the hon. and gallant Member for Bournemouth (Sir H. Croft), perhaps I may be permitted to make this brief comment. When I heard him give vent to the argument, often expressed by a good many folk, that taxation ultimately goes back to the workers, I wondered how it is that he and other hon. Members on the Government benches oppose any taxation at all. How does it happen that they resist the plea that we make from these benches in favour of direct taxation as against indirect taxation if they themselves know that ultimately the burden of that taxation comes back to the workers and does not fall on themselves?

Sir H. Croft

I used the word "ultimately." Unfortunately many thousands of people are bound to lose all their em- ployment to-day because of this direct taxation, and it is on account of that that the worker is ultimately going to suffer. Nevertheless it is true, and we have to realise it.

Mr. Collindridge

The reply of the hon. and gallant Member to my suggestion does not alter the position at all. If ultimately the workers carry the burden of taxation, I fail to see why the non-workers oppose the suggestions we make. I cannot be expected to follow the subtle humour of the hon. Member for Central Leeds (Mr. Denman) in the speech which he made a few minutes ago. Before I came to the House of Commons I was a coal miner, and I gather that the hon. Member for Central Leeds, perhaps not personally, is very much interested in the position of those who own the coal that we get. On that account it may be that among the coal owners you have a more subtle form of humour than the broad humour of the miners, but when the hon. Member makes the suggestion that in the matter of the price that was ultimately fixed at which the nation could buy its coal measures, was against the former valuation, may I mention this fact? The hon. Member for Newton (Sir R. Young) — perhaps not by experience in the matter of drink taking, for he would know as well as others who speak from experience—realised "that wisdom cometh in the morning." Perhaps it might be that with the knowledge that the nation at a later stage would come in to own its coal measures, it was decided that the price on second valuation was enough without paying any excess figure made on a previous valuation.

I have been interested in some of the arguments put on all sides against the proposals which the Chancellor of the Exchequer has brought forward. I was particularly interested in the suggestions for new taxation made by the hon. and gallant Member for Ayr Burghs (Sir T. Moore). He argued that we should impose a tax on cosmetics. I am afraid that some of those ruby lips that are not closed now would be opened much more, and that the voices of those ladies would be heard more vigorously if a tax of that description were to be imposed. The hon. and gallant Member also suggested that there should be a tax on bicycles and that if it were fixed at £1 the farmers and landowners might be disposed to pay the tax that might fall on the agricultural labourers who use cycles. I am afraid, from our experience of the way that section of the community treat their workers in regard to wages, that they would not be generous towards them in regard to such a tax. I am particularly alarmed about any suggestion for a tax on bicycles, because in my constituency of Barnsley the bicycle is a very popular form of transport in the early hours of the morning, when transport facilities of the ordinary kind do not exist. Bicycles are used by workers for travelling long distances to the mines. Therefore I deprecate the suggestion of a bicycle tax.

Comparisons are made between the conditions that exist in this country and those that exist in the country with which we arc at war. I do not complain of that, because it is necessary at times to make such comparisons, not only for the purpose of giving our own people ideals for which they should fight, and to prevent the worsening of the conditions imposed upon them, but also to give examples to the enemy country showing that their conditions might be improved under a better system of government. It is not, however, sufficient to suggest that there is a bad standard of life in the enemy country as compared with the conditions of life here. I hope we shall have a better standard of life in Great Britain than that of comparing the condition of an aged inhabitant in Berlin, having to exist on cabbage and black bread, when we are confronted with the fact in our own country of old age pensioners having dry bread, or perhaps bread with a little butter or dripping on it as a consequence of inadequate old age pensions. We must have regard to a higher standard of living than that.

We can show an example to the enemy country in regard to our system of Government. Here in Britain, we can agree on the main issues of the war and we can have useful debate, even of a controversial kind on the main idea as to how the war can best be prosecuted and victory achieved. I am, however, sorry to note that this Debate reveals the fact that there are hon. Members opposite who, despite the circumstances of the war, have not changed their ideas from those which they held prior to the war. I have been sorry to hear views expressed by hon. Members opposite that in regard to our getting of the necessary finance with which to wage the war to a victorious issue, we must retain the profit motive. I would ask hon. Members to contrast that retention of the profit standard with what took place when we took the step of getting the men. There was no proposal at that time about the grave readjustments that many of our young people would have to make in their peace time standards now that war had come.

I suggest that in this matter of financing the war we are committing a very grave inconsistency. In regard to manpower we had regard solely to those who had the physical power to give in the nation's interest. Without any disrespect to hon. Members who have taken part in this discussion, I say that, looking at the physique of some of us, we were never within the pale of consideration about having to take up arms in defence of the State. It was on the ability to give service that the man-power question was decided, and we took the men most capable. Surely, then, the same principle should be applied in regard to the necessity of our getting finance. We should have more concern as to where the money is to be found, rather than seeking to get it where difficulty exists in finding it. In doing that, we strain the loyalty and the patriotism of many of our people. In our ideals in this war we stand for the crushing of aggression and we say that it is not only for our own sake but for the sake of those who are weaker than ourselves. If that is our high ideal in foreign policy, then it should be our guiding inspiration in regard to domestic affairs. We try to protect the physically weak from the violence of war effect. Holding that ideal, we ought to seek to protect those who have lower physical and economic standards—the very poor.

In my constituency during the past week-end I have tried to get the opinions of all sections of the community in regard to the proposals in the Budget, and the concensus of opinion was that the poorer sections of the community ought to be spared from the financial inflictions that the Budget seeks to impose upon them. It was felt that we should spare the old age pensioners from these tax inflictions. I have heard hon. Members opposite—I say this in no party spirit of rancour—say that they desire that the Chancellor of the Exchequer should give a better opportunity to the old age pensioners to have an increase in their standard of living and better pensions. I have heard that from at least four hon. Members opposite this afternoon, and I wondered how many of them at their party meetings have tried to induce their Government to come forward with legislative proposals to put into effect the platitudes and sentiments which they expresson behalf of old age pensioners. The old age pensioners will be hardly hit by this Budget, as will also the injured workers of industry, by the increases in the sugar and tobacco taxes. Other sections of the community who will be affected are the unemployed and their families, the recipients of public assistance and, in addition, a new class which has been created in the last month, whose conditions were settled before the war came about—I refer to the dependants of serving men. I suggest that these five classes of the community, representing many millions of people, will be sorely put to to find the few coppers a week which are necessary to meet the taxes that are being imposed.

I have noticed in the case of one hon. Member opposite that when the Sugar Tax has been referred to there has been a certain degree of levity. I wonder whether that is a consequence of the hon. Member never having had a low standard to live upon and a total unawareness of what a copper or two a week means in an already low standard of living. This House has a great responsibility towards the first two classes I have mentioned, the old age pensioners and the injured workmen of industry. Before the war this House set up commissions of inquiry into both these cases—old age pensioner and compensation people. There was an awareness then that there was a great need for their standards of living to be improved, but because of the war it appears that we are going to allow a set of conditions to prevail under which the condition of these people will be seriously affected so far as the future is concerned. I stand for the major question, that we should have as much unity as we can in the prosecution of this war to a victorious conclusion. You cannot measure patriotism and loyalty by merely body needs. I do not think it is a question only of "bacon and beans," but you must have regard to this fact, that as the war advances you will have a kind of discontent which it is the job of legislators to remove, because you may have the adverse comparison made that low standards of living are not worth "fighting for." I do not hold that point of view myself but still it will have to be considered. I can still conceive a system of aggression which would impose conditions upon us which would make our already low standards even worse than they are, but at the same time, if this country has the wealth, as we feel it has, it should at least give protection and help to those who are financially impoverished just as it does to those who are not physically fit to take up arms in the nation's defence. We should apply that to our localities also.

I listened to the hon. and gallant Member for Bournemouth and my mind went back to the conditions of peace. If our industrial communities have had to suffer because of too low standards of pension payments and the inadequacy of compensation for the industrial workers, you throw on to the backs of these industrial communities a burden which should be nationally borne, and not locally borne. You increase local taxation. The hon. and gallant Member for Bournemouth resides in a district where industry does not exist, I am told, but where people who have done well out of industry retire. I contend that by this taxation burden you are striking a blow at that unity which we all desire. You must remember that the soldier of to-day was the worker of yesterday and will be the worker of tomorrow. I was at a camp a week ago where my boy was in khaki, and other boys like yours, too. They were discussing the question of war. Their main concern was not the possible dangers of the future affecting themselves but how their people at home were managing under the stress of conditions and what the future may have for them. It is the duty of this House to increase the morale of our lads whom we have decided shall be taken into the Army, and it is our duty to remove the injustices from their people at home. I believe that the nation wishes that while we are at war, and in fact because of the war, the poorer and weaker sections should not be subjected to these tax inflictions. I contend that if the Chancellor would take back these taxes which are likely to put burdens on to those who are already overburdened, not only would he help to improve their standards, but he would help that unity and morale which is necessary to bring the war to a victorious conclusion.

7.1 p.m.

Sir H. Williams

I will not follow the remarks of the hon. Member for Barnsley (Mr. Collindridge), because they seemed to me to be rather vague and general. I hope my right hon. Friend the Chancellor will not waste too much time on suggestions for a capital levy, because it is a hundred to one that he will not introduce a capital levy, and at least two hundred to one that hon. Members opposite will not do so. In 1922,the party opposite asked for a capital levy, and within 15 months they were in office, but they took great care not to mention a capital levy again. It is a waste of time to talk about it, because nobody will ever introduce it; everybody knows that if it were introduced, it would produce a disaster. Therefore, these proposals for a capital levy do not matter, for the Government will not introduce one, and nobody will be sorry about that.

There is a great appeal for national unity from hon. Members opposite, who seem to be busy cashing-in politically, if they can. Let us be frank about this matter. National unity, to hon. Members opposite, means that we on this side should agree to everything they say, however silly it may be. On that basis, we shall not advance very much. To them it also means this. None of the people -for whom they profess to speak shall pay one penny piece under this Budget. That is not national unity. Hon. Members opposite are perhaps more in this war than are the Government, for it expresses their ideology even more, from some points of view. Therefore, they are committed to it far more deeply than any other political party. Yet the burden of their speeches is that they and those for whom they speak shall not pay one penny piece. We shall not get national unity on that basis.

Mr. Ridley

We have never said that.

Sir H. Williams

That is what the speeches of hon. Members opposite have implied. We shall not get national unity if hon. Members opposite think the way to get it is to ask us all the time to agree with them, and if Ministers in the Government think the only way to secure national security is rather to bend a knee to their opponents.

Mr. Leslie

Do try to be fair.

Sir H. Williams

I am trying to be fair.

Mr. Leslie

You never are.

Sir H. Williams

It seems that sometimes people do not like being hit, but only like hitting.

Mr. Leslie

You hit below the belt.

Sir H. Williams

Let me take a case to illustrate the argument I am making. Like many others, I am the father of comparatively young children. Selfishly, I regret the fact that children's allowances have been diminished, particularly because of the circumstance that the day schools in London to which my children were sent, stimulated by the activity of the Board of Education, have hopped off elsewhere, and it now costs me more to maintain my children. Nevertheless, the Chancellor is taking a bit away from me. I do not grumble. But if we are to have a war and pay for it, if there is to be sacrifice all along the line, it is not reasonable that that sacrifice should fall merely on those who are called very rich. The equality of sacrifice should be such that every section of the community should make some contribution to maintain us in this struggle. I am not going to listen quietly to people who profess their intense patriotism, provided that they pay nothing. I say this because of what I have heard in this Debate.

Mr. Ridley

The hon. Gentleman really has no justification of any kind for making a statement of that sort. The new Income Tax rates will fall, not in the same measure or quantity, but in some measure or quantity, on hon. Members on this side. No hon. Member on this side is objecting on personal grounds to the new Income Tax rates. The hon. Gentleman has no right to suggest that we have objected, when we have not.

Sir H. Williams

There has been objection to the sugar tax. On what ground? On the ground that it will fall on a number of people who, because they are not as rich as others, would otherwise pay nothing. It is on the ground that they are not very well off.

Mr. Stokes

May I correct the hon. Gentleman? Surely, the objection to the increase in the sugar tax is not on the ground that some people are better off than others, but that the people who are worst off are going to be hit hardest.

Sir H. Williams

The people who are worst off are the people to whom this tax is particularly applied It is because they escape all other taxes that this tax is proposed, and quite rightly so.

Mr. Stokes

I hope the old age pensioners will pay attention to that.

Sir H. Williams

I am sorry to introduce a note of controversy, but I have done so because of the speech that was made by the hon. Member for Clay Cross (Mr. Ridley). Others have followed in his footsteps. I would not have read out the note which I have in my hand if the hon. Member had not intervened. This is the short note: ''When Clay Cross talks ' tripe,' we must all cheer." That is the brief summary which I made for the purpose of this Debate. I did not put it as crudely as that when speaking, but as the hon. Member intervened, I thought I would let him know how I summarised his speech. This Budget represents a colossal burden.

Mr. Montague

The hon. Member's remarks are colossal cheek.

Sir H. Williams

Hon. Members opposite preach national unity for most of the day, and then proceed to say offensive things. They must understand that is not the way to create national unity, and it does not do them any harm if they get a little of their own medicine occasionally.

Mr. Montague

Who said offensive things?

Sir H. Williams

I have heard a lot. This Budget represents a crushing burden, and it will raise many grave difficulties of all sorts. The one thing that worries some of us is whether these burdens will not make rather more difficult that revival of general industry which is so vitally necessary. At the moment we still have—I do not know the exact figures—probably 1,400,000 people registered as unemployed. In addition, there are some 600,000 or 700,000 paid air-raid precautions workers, the bulk of whom inevitably will have to cease to be paid within a measurable period of time. We have to absorb into industry about 2,000,000 people, and many of them will have to be absorbed not into the armament industries, but into other industries the prosperity of which will have to finance the armaments. One of the things that perturb me about the Budget is whether the Chancellor has not gone a little too far and is not holding up the extension of the trade revival in certain directions which is so vital if we are to carry this burden.

The Excess Profits Duty has been introduced under the new title of Excess Profits Tax. I have always hoped that we could have avoided that particular tax. It is only two and a half years ago that, amidst applause from every party in the House, we abandoned the Excess Profits Duty—it bore a different title, but it was an Excess Profits Duty—because we all realised the evils which it produced during the Great War. My hon. Friend the Member of East Aberdeen (Mr. Boothby), who has now left the Chamber, was delighted with it, because he wanted profiteering in order to tax it. I think that is a fair summary of his attitude. He wants inflation to produce great profits, and then to tax them; that is the way we are to finance the war. I hope we shall not do that. I hope we shall stop the profiteering at the right point. The first people to stop it are the Government contracts departments. All the contracts which are placed on the basis of costs plus a percentage are a crime against the community, because under them the more wasteful you are, the more profit you get. If you want to find out where you are paying too much for the goods you have ordered, the right place to start your investigations is in the wages sheets. I have not the slightest doubt that profiteering begins in the abnormal payments that are made to unskilled workers. It is a very evil thing in the long run from the point of view of the great mass of manual workers in the country.

I remember when the present Chancellor of the Exchequer became Minister of Munitions. He went to the Ministry at a time when there was grave industrial unrest because skilled workers, members of the Amalgamated Engineering Union, were very angry at seeing unskilled people who had just drifted into the works taking away twice as much as they were getting after their long training. There was a proposal that there should be some compensation for members of the Amalgamated Engineering Union and other skilled workers in the engineering trade and that they should have an increase of 12½ per cent., but within three months all the other people got the 12½ per cent.

Mr. E. Smith

No, 7½ per cent.

Sir H. Williams

The increase was 12½ per cent. I remember it very well.

Mr. Smith

It was 12½ per cent. for skilled workers and 7½ per cent. for unskilled workers.

Sir H. Williams

Yes, it was 7½ per rent. for the unskilled workers but the only reason for giving the increase to the skilled workers was because the unskilled workers were getting too much. I would take my courage in both hands and if I found that any firm, making aeroplanes for instance, was drawing people away from other factories by higher rates of pay, I would suspend deliveries from that firm even if I took the chance of depriving ourselves of a certain number of aeroplanes for a fortnight. Stop the profiteering at the wage sheets. If anybody is paying too much in wages, then you know that you are paying him too much for his goods. I think the contracting departments themselves could stop it and if you stop profiteering in munitions, you will not get the profiteering example followed in the other industries, most of which are engaged, directly or indirectly, in the export trade. So, I say, stop the evil fit the beginning. Do not let the Chancellor of the Exchequer be the accessory before and after the fact of profiteering, which is what he intends to do—and I speak without any disrespect to him—by his proposed Excess Profits Tax.

If the Chancellor of the Exchequer is to have an Excess Profits Tax, remember that real difficulties will arise. Let it not be thought that it will all be easy going. This Finance Bill has been produced, naturally, in a hurry. It has been examined in a hurry by all sorts of interests which are affected and nobody has had time to consider all its implications. Let us assume that we pass into law, as we shall do next week, this Bill containing the Excess Profits Tax. It cannot produce any revenue for many months because obviously the charging and accounting periods have to come to an end. In some cases I think they have already ended but the problem of assessment will be difficult in many cases. I doubt whether the Chancellor will get a penny piece of revenue from this tax in the present financial year. He may, but I think it is doubtful. Therefore, it will not become immediately operative and if some of its features which are unsatisfactory are not amended now, it will not matter very much, provided that the Chancellor of the Exchequer undertakes to examine his own proposals with great care and to listen with great care to representations made to him from any quarters, so that when we come to the Finance Bill of next year he will be in a position, himself, to propose those Amendments which the preliminary experience of the tax shows to be necessary. I hope that the Chancellor of the Exchequer, in winding up to-night, will be able to make a declaration of that kind. I know that if he can make such a declaration it will relieve the legitimate anxieties of many people who remember the evils of the old Excess Profits Duty and fear a repetition of some of them in the future.

There are technical problems to be considered. I ask hon. Members to look, for example, at Clause 13, Sub-section (7), dealing with the question of deciding what is to be deemed the capital used in a business. This proposal may be good or it may be bad, but to the best of my recollection it is not the proposal which was contained in the Finance Act of 1915 —I think in Section 40, Sub-section (2). Most people to whom I have spoken who have studied this question and who are expert on these matters think that the Finance Act of 1915 was rather better than this proposal. Then, again, in the same Section of the Finance Act of 1915 there were provisions with regard to depreciation. The hon. Member for Stoke (Mr. E. Smith), who is an engineer, knows what happens in an engineering works when you bring in large numbers of unskilled workers and work double shifts. The damage to machinery is colossal and the depreciation may be twice as great as it would be normally. If it was found necessary in 1915 to have special rates of depreciation, is it not necessary now? The hon. Member for Ipswich (Mr. Stokes) is also familiar with this problem. It is one of the things which will have to be dealt with. If you set out to tax excess profits you should tax only the actual excess profits and not a profit which does not really exist, because the money is needed to replace machinery worn out as the result of undue pressure.

These are practical considerations which must be taken into account. I do not think that it will be possible to examine this Bill properly in the Committee stage on Wednesday and Thursday. There will not be enough time, but, as I say, it does not matter very much because it cannot come into serious operation for some months. Therefore, I hope the Chancellor of the Exchequer, in regard to these two matters, will undertake to look into the problem and discuss it with those people outside who are more expert on the subject than I am. I only mention it because I have met and spoken to those who have given a special study to the problem, and I know that such an undertaking would relieve a great many anxieties. One other very difficult problem which arises is that of the valuation of stocks. Some people carry a fixed stock of raw material. Its value is of no significance from one point of view, yet if you say at the end of a period of war that that fixed stock is worth three times as much as it was worth at the beginning and then when a year has gone by prices collapse and that fixed stock is back to the old value, you are levying a tax on something which has no real existence. That will have the deplorable effect of preparing the way for a grave industrial slump when the war is over. I mention that as an illustration of some of the problems which have to be faced.

There is one other subject which I wish to mention and in regard to which I find myself to some extent following the example of the right hon. and gallant Gentleman the Member for Newcastle-under-Lyme (Colonel Wedgwood), who made a strong plea against the abnormally high expenditure on what is called A.R.P. I have made a rough calculation which shows that the whole revenue which the Chancellor of the Exchequer proposes to raise during the current financial year by the Budget proposals, will not be sufficient to finance A.R.P. In other words there will not be one penny extra avail- able for the fighting forces. I think A.R.P. ought to be a voluntary service. It was conceived as a voluntary service and I do not think there is the faintest necessity for having nearly 4,000 people on duty in my constituency, mostly in two shifts, for 12 hours a day, doing nothing —just rotting. Rember that the bulk of these people could be at the post of duty within 15 minutes after an air-raid warning had been given. There would still be in existence a police force nearly three times as large as the normal force and a fire brigade which, between them, could meet the first shock of the first few minutes of any conceivable air-raid.

I learn that the Home Secretary has announced to-day a certain pruning but that pruning will not do. I am deluged with communications and complaints from my own constituency. There are 700 men in my constituency—and the same thing is true in other constituencies—in demolition and rescue parties. There are 70 parties of 10 men each playing darts and "rummy" and other games, in order to prevent extreme boredom. They are spread all over the borough for the purpose of rushing in, if there is a bit of trouble and some bombs are dropped, I presume to complete the work of destruction, as they are called demolition parties as well as rescue workers. This is a function which, normally, the fire brigade could do to a substantial extent. These men all live in Croydon and they could get to their posts of duty in a comparatively few minutes. I do not think there is any justification for the payment of £80,000,000 a year in wages to people to be idle, simply in order to have them at their posts about 15 minutes sooner than would otherwise be the case.

Yesterday I walked around certain areas, and I went to a fire station, or, rather, stood outside it. I counted 10 motor cars with "A.F.S." on them. I saw quite a lot of ladies in a very attractive uniform, and by good luck one of them knew me, so we had a little chat about the system. I said, "What do you do? Do you use your car to pull one of these fire engines about?" She said, "No, I drive the chiefs about." There were 10 people hanging outside one fire station in London to drive the chiefs about. While I was talking to her an elegant young man on a brand new motor cycle drew up, and I said to her, "What is he doing?" She replied, "Oh, he is taking despatches." I said, "What about?" She replied, "They are forms." I said, "Is there not a telephone?" She said, "It might be bombed." I said, "It has not been bombed yet. Isn't there a letter-box?" This thing is crazy, and we have got to stop it. I have written to the Home Secretary and used language that I might be reproved by Mr. Speaker for using in this House, but we are entitled to speak in a friendly way when it is not to be published. We cannot go on like this. We are not entitled to ask the public to bear these intolerable burdens to finance the most wasteful enterprise that I have ever seen, either in this country or in any other country.

7.22 p.m.

Mr. Stokes

I do not propose to follow the hon. Member for South Croydon (Sir H. Williams) in regard to his experiences with the A.R.P., except to say that they are pretty well my own. I will only comment on the earlier part of his speech by saying that if it was made to promote national unity, it was a ghastly failure. He referred to the desirability of limiting costs by tackling the wage sheets. I understand quite well what he was referring to. In these cost-plus contracts, or semi-cost-plus contracts, the system is rotten, but it is not the men's fault. The fault is that it pays the contractor or the responsible authority—and sometimes I find myself in that position—to make the job as expensive as possible. I do not blame the men if they ask for more wages; it seems to me only natural that they should share in the swag.

Sir H. Williams

I did not blame them, but I thought we should stop them joining in this conspiracy with their employers.

Mr. Stokes

I have called the attention of the Secretary of State for War to a perfectly glaring case of the most appalling extravagance going on in connection with Militia camps, and it is six weeks since I wrote giving the right hon. Gentleman the full particulars. I have investigated the job on the spot, but the Treasury do not seem to be in the least interested, and the Chancellor of the Exchequer is even going out of the House at this very moment. I hope he will come back, because I want to talk to him; but nothing whatever is done, and the most preposterous things are happening. I had a case brought to my notice yesterday, where a particular surveyor in charge of a job was supposed to be employing a car in carrying people to and from this particular contract. He bought the car for £65 in June, and a fortnight later he traded it for a Chrysler. The car no longer exists, but he still continues to draw £11 a week for carrying people to and from the contract. It is an outrage, and the sooner the War Office get down to it and investigate it, the better.

May I ask the Financial Secretary to the Treasury why it is that they will not stop all this form of profiteering on Militia contracts by auditing contracts at their source? In this House I have time and again suggested that there ought to be a proper audit of completed contracts, but nothing whatever is done. I have even got on to the Chancellor and his staff, and still nothing is done, and the conclusion that I am driven to is simply this, that, as in other things, they are afraid to tackle the main vested interests. They are afraid to say to Vickers and Company, "You present me with a statement of costs on this contract when it is finished and tell me exactly what profit you have earned on it." It simply is not done.

May I now draw the attention of the House to the McLintock agreements, because probably if there is any gross profiteering going on, it is with these Air Force contracts. I have in my hands a memorandum that was sent to me by the Air Ministry trying to keep me quiet with regard to the racketeering in Air Force contracts. From the concluding paragraph, if you did not know anything about it, you would take it that manufacturers were only making 5 per cent. It reads like this: Under the old (McLintock) agreement a rate of profit appropriate to the relevant circumstances of each case was negotiated when a fixed price was agreed, and in actual practice this has varied from 10 per cent. to 6 per cent. It goes on to explain that under the new agreement it is impossible for any aircraft manufacturer to make more than 6 per cent. In my trade, the engineering trade, the aircraft racket, as we know it, is the biggest scandal that there is going on, and, without wishing to east opprobrium on any particular person, I would ask the House this question: Who is it now who is able to afford or quite recently was able to afford, to carry on the races for the America Cup? Where the money is flowing in rearmament contracts in the main is in these aircraft contracts, and something ought to be done to stop it.

Now I want to refer to an entirely different point which has been under discussion in the last few days, and that is the question of interest. I asked the Chancellor in the last Budget Debate to explain this point. I see financial pundits sitting opposite who know more about it than I do, and I do hope the Chancellor will find time to answer this evening what he did not answer in April last. I understand it when you go as a private individual to the banks to borrow money, and they say, "I am willing to lend to you. I believe you are moderately honest and that your credit is fairly good, but we want a premium, and you must pay a certain amount on the loan." That is easy enough to understand, but I do not understand why the nation should have to pay interest on its own credit. What in effect does the Chancellor do when he decides to raise a hundred or a thousand millions, or whatever it is that he requires? He goes in effect to the central authority and says, "I want this money." What does the central authority say? It says, "Very well, what is your credit?" He says, "The whole resources of this country, all the people, all fixed assets, everything there is I will absolutely pledge in repayment of this loan." The central authority then says "That is all right. We think that is good enough, but, of course, for the privilege of writing your name in our books for a thousand million pounds you must pay us 3½ per cent. or 5 per cent. per annum." I wish— because the ordinary man in the street does not understand it and I doubt very much whether hon. Members in this House really understand it—the Chancellor could explain why it is that we should have to pay these exorbitant sums to moneylenders on our own credit. I raised the matter in a supplementary question the other day in connection with Treasury bills, and I asked what the Government proposed to do to stop the racketeering of the moneylenders.

Mr. Boothby

I quite agree that they should not ask for an exorbitant rate of interest, but I think it is quite legitimate to suggest that they should be given 2½ per cent. at least for their money.

Mr. Stokes

I realised that I should no doubt get a lecture from the other side, but nobody yet has satisfactorily explained to me why a Treasury bill at 15s. per cent. is profitable on Wednesday and on Thursday you must get £3 15s. per cent. before it is so. It may be said that the Bank Rate has gone up, but I reply by asking why has it gone up? It is wrong that there should be this appalling profiteering at the expense of the community. This difference costs £900,000 a week, and I should like to inquire what the Chancellor proposes to do to check that most gross form of profiteering. I hope that he will put a 100 per cent. tax on the difference gained by the moneylenders in those two weeks. If there is any real difficulty about it, it is about time the Chancellor took over the Bank of England.

I would like to comment, on behalf of a great number of Members of the House, on the absence from this Bill of any taxation of land values. The House should recognise, as a great number of Members on the other side do, that this is the justest tax that could be introduced, especially at this time. I will not go into all the merits of it, but there are four particular reasons why I think that this job ought to be tackled at the present moment. The first is that it will have a tremendous effect on the cost of the war. Land 1s required for everything. Up to the end of this year the Air Ministry expect to spend some £2,000,000 on 40,000 acres of land. That is roughly £50 an acre for land which has hitherto been regarded as useless and valueless, and has not contributed in any way to the State.

Sir Arnold Wilson

Why does the hon. Member say that it has been valueless?

Mr. Stokes

I can only say that it is considered so because it does not pay any contribution to the Exchequer.

Sir A. Wilson

It is good agricultural land.

Mr. Stokes

I agree that it is at £20 an acre, but to pay £50 when it has been derated during its previous ownership seems preposterous. The 130 acres of land required for the Nuffield factory at Birmingham cost £84,500, that is, at the rate of£650 an acre. For educational purposes 105 sites comprising 290 acres were bought for £220,000, or an average of £800 an acre for land which hitherto had made no contribution and could be regarded as agricultural land at £20 an acre. My second reason is that the land tax, unlike any other tax, is the only one that will stimulate trade. A tax on manufactures checks production; a tax on houses and buildings prevents development; a tax on commerce prevents international trade, and it is the taxes on commerce and the operation of the ridiculous nonsense which we have gone through in the Ottawa Agreement which are largely responsible for the present tragedy. If a tax is put on capital the price of production goes up. I would like to quote to the Chancellor some of his own words on this subject. When he was asked what was the difference between taxing boots and taxing land, he said: If you tax such a thing as boots you make boots more expensive, because the more we tax boots the fewer boots will be produced, fewer people are able to buy them and fewer people will be employed to make them; but if my friend will think this over for only one minute he will see that you an tax land until you are black in the face and you cannot make land any less than before. The third reason why such a tax would be of great assistance to the Chancellor is that it would get him out of the rating difficulty. All over the country the rating system is breaking down. I would like to quote an instance where the land monopoly in my constituency is adding pounds to the rates. The local council decided to build a power station, and naturally did not put it slap in the middle of the most desirable residential district. They choose a place between an artificial manure factory and a sewage works. They required 84 acres and had to pay a sum which worked out at an average of £150 an acre for land that was utterly useless except as agricultural land. When complaint was made, the local valuer said that they were very lucky to get it at that price. My fourth reason is that this tax is the surest and best way of dealing with the main problem with which the country will be confronted when the war is over. Sooner or later we shall have to change over from a war to a peace economy, and the way to do it is to see that the resources of the country are put to their best advantage in the shortest possible time. The tax will stimulate the use of land. Listening to the Chancellor the other day I could not feel anything but despair. It seemed to me that he was snooping round the dustbins of taxation like a pi-dog looking for bones with bits of meat on them and terrified to penetrate into the larders of the rich where the big joints were. I hope that when he introduces his Budget next year he will have the good sense and courage to return to his old convictions and do away once for all with the land monopoly in this country which is the main cause of the evils we are facing.

7.38 p.m.

Sir Ralph Glyn

I was interested in the remarks of the hon. Member for Ipswich (Mr. Stokes) about the system of contracts which prevails in the aircraft industry. I think that, perhaps, the Government do not appreciate how very great is the discontent in the country with various things that people notice in their particular neighbourhoods. Nothing exasperates a taxpayer more than the wilful waste that is going on, especially in Government establishments. Surely, as the result of this Debate the Chancellor must realise that he has Members on all sides with him in his appeal that waste should be stopped. The other day I quoted in the House the case of three stable-boys, entirely untrained, who asked leave to be dismissed from their employment in order that they should take up work at a Government depot. I was astonished at the number of examples that reached me from all over the country as the result of people having read my statement. If one-half the things are true that have been told to me in letters from every part of the country, the time has come when the Financial Secretary should make it his business to set up some sort of organisation to watch the expenditure and to stop what is becoming a public scandal.

A certain number of men are inevitably out of work owing to the change-over from peace-time to war-time output of factories. In my constituency 4,500 men have been idle for three months owing to the change-over in the Morris motor works and the pressed steel works from peace-time to war-time production. It is a question of putting in the moulds wanted for the war work and taking out the moulds the Pressed Steel Company used for making motor car bodies. As a result of the petrol restrictions and taxation the demand for motor cars will, obviously, be very much reduced, and, therefore, those artisans find themselves unemployed. I went to the Ministry of. Supply and asked that somebody should go down to see the works. I asked that priority might be given to certain work in order to shorten the interval that must elapse between peace-time and wartime production. Nothing has happened. I asked the other day whether somebody could be sent down to check over the men who were wanting to get work temporarily, so that their services could be re-employed in the factories where they can handle this plant, instead of allowing them to drift away and be absorbed into other factories. The worst offenders in drawing men away are certain Government depots. It the Government are really so callous and so careless, what right have they to preach to other people about poaching labour when they do it themselves?

The time has come when one has to speak very plainly about this. I believe the Government are quite unaware of how strong is the feeling against them in many parts of the country. I am much concerned about it. In my own constituency I find people are saying "If this sort of thing is going on after one month of War, what sort of situation will develop after a few years of war?" They would rather not contemplate the situation. Therefore, I make a suggestion, which has been made before in the Debate, that we should profit now by the experience of 1917, and set up a committee of Members of all parties in this House such as was set up in 1917—not exactly on the same model. As records show, the investigations of that committee in 1917 were extremely useful, and a committee ought to be set up to-day, because the scale of expenditure is so terrific that hon. Members opposite who may think the present taxation will hasten the Socialism they so much desire to see may find that the country as a whole has become so impoverished that from no source whatever Shall we be able to maintain the standard of life and comfort we all desire to secure. The quickest way to improve the position is for the Government to see to it that all waste is eliminated.

Waste could be supervised under four headings. First, there is the actual production work required by the Services, which is terrific in volume. The expenditure now is about six times greater than in 1917, per man in the field, or at sea or in the air. The next area of investigation should be the normal administrative expenses of the Ministry of Health, the Board of Education and the rest. Another useful area of investigation would be Civil Defence. We have heard a great deal about that to-day. While I agree that a great many of the trained men who volunteered and got their experience 18 months ago are much to be commended, I am convinced that the effect of seeing people hanging around doing nothing is extraordinarily demoralising. The whole psychology of teaching people to think more about a hole into which to run than the work which is being done to keep the enemy away from this island is extremely bad in its effect.

The fourth field of investigation would be the local rates. I am sure we are heading for disaster in regard to the local rates. A great many houses are shut, businesses are suffering and the rates will not be forthcoming in the next financial year. Many county areas are, perhaps, relatively better off than some municipal areas, but the whole country will find it exceedingly difficult to raise the money. For years past this House has been inaugurating legislation, very largely with political motives, and passing the burden on to the local authorities. The whole position is changed by this war and it is high time the House investigated what the effect will be rather than ignoring the danger until we are confronted with a very serious position.

The Chancellor told us that we must make the best use of our resources, and something ought to be done to encourage our export trade. All of us know that, for some reason or other, it is almost impossible for firms to get quickly the necessary licences to do business abroad, and it is high time there was somebody in the War Cabinet with sufficient authority and power to give the necessary permission to the various Departments concerned, so that quick decisions can be reached. At the moment an exporting firm has to consult the Ministry of Economic Warfare, the Board of Trade, the Department of Overseas Trade, and many other Departments. All that takes time, and when a firm is after a contract which will give employment to our people it is necessary to act with speed and certainty. In this field there is plenty of room for improvement. A question regarding shipping arises in connection with the export trade. We know-that convoys are bringing in the necessary supplies, thanks to the efficiency of the Fleet, but we do not hear of any arrangements whereby the bottoms which have been used to bring those supplies to this country can be used in the reverse direction to maintain a steady flow of exports, free of the war risk insurance which adds to the burdens of our manufacturers in competition with the rest of the world. If the export trade also can have the advantage of the convoy system it will reduce the risk, and that will bring down the rates of insurance which add to the high prices of our goods which are to be sold in competition with goods abroad.

There is one other aspect of the Budget proposals to which I would draw the attention of the Chancellor. I happen to be on the governing body of a large public school, and it is a matter of grave concern to us to feel that present legislation may lead to the removal of boys from the school owing to the fact that their parents cannot possibly afford the present fees, though the fees are not excessive. Very often there is a tradition about a school, and while I agree that we; are in an atmosphere of tremendous changes—I think the old order will pass for ever and that we shall have to face a completely new situation—I feel that in This transition period we should do everything we can to avoid damaging the prospects of the rising generation by withdrawing them from the surroundings in which they have started their education. There are many boys—and girls, too, for that matter—whose parents will not be able to keep them at school if this taxation has the effect that is anticipated. Already there are signs that many of them will be taken away. It may be that in the future the Board of Education will be able to take over all the public schools of England, but we ought to realise that by passing this Finance Bill in its present form we may unwittingly be doing harm to young lives.

Many of us who have been in the House since 1919 cannot look back with much pride at what we have accomplished when we see this country again plunged into war. I am sure that many of us are living in a fool's paradise about what the country is now thinking. There is a tremendous change of opinion and we should be doing ourselves and the people a great injustice if we, an expiring Parliament very near to the end of its proper period, assumed too much. Democracy can commit no greater crime against democratic theory than to assume something which totalitarian governments take for granted. If we are truly democratic, we act in the way that people really want. I have said something which I know is unpopular and which will be jeered at, but which I believe to be profoundly true. The time has come when each of us, in his constituency, should take account of the effect of all these matters upon the psychology of the ordinary voter in this country. There is, first, the complete shock to the senses of a great many people in the rural areas about the conditions that prevail in the towns and a great longing to set that matter right. There is a great desire to try to correct what we have now discovered, by a sort of searchlight or spotlight, to be wrong.

Then there is the appalling and depressing effect of this fantastic black-out, which may be all right up to a point, but which has been carried to such an extent that on the railway you cannot even see the lines. What right have you to ask a man who works in a goods yard to do so in almost total darkness, with winter approaching? It is marvellous what the railways have done. The service which the men have given has been terrific. It is my business to go round and see some of this work, and I say that it is ridiculous to assert that the men should not have more light in which to do their work. What is the use of saying that you are supporting your Army overseas when we are carrying on with daylight on our side? What is to happen in December and January if we cannot read the ticket on a truck and the truck gets sent to Inverness instead of to Southampton? It is stupid—and I do not think we are such stupid people as that. The effect of the black-out is deplorable and stupid. On top of that, you have the fantastic secrecy imposed on people by this Ministry of Information, but now is not the time to discuss the matter. Also, we have the heavy taxation.

The combination of all those things has very little spring and life about it, but it seems to be something which is very much our business. I feel that the Finance Bill has been framed by the Chancellor on the only possible lines, but it is a Bill which we can pass only in the belief that we are in contact with the feelings of our constituents and are really representing them. We are condemning Hitler and the totalitarian system while we have abolished all by-elections and can take no soundings of public opinion by means of by-elections. By the taxation imposed in the Bill everyone will be affected, but I believe all people in this land are united in their desire to stop aggression, although they are puzzled to see how it is to be done. They are wondering whether' the people who are handling the matter are doing it in the best way. The contacts that they have in their homes, the muddle and what they know to be the graft and the excessive payments in many cases for unskilled work, give them no confidence that the finances of the country are being handled in a way that can have their full support. Therefore, I feel—although one does not want to be a Cassandra—that we should not be ostriches with our heads in the sand and that, before letting this Finance Bill have its Second Reading, we should be sure that the unity about which we talk so much does, in fact, exist all through the country.

7.55 p.m.

Mr. R. Gibson

I am sure that hon. Members will have listened with great thankfulness to many parts of the speech of the hon. Member for Abingdon (Sir R. Glyn). With regard to other parts of it, right hon. Gentlemen on the Treasury Bench must have heard something about which they will sit up and pay very close attention. The finances of the country, at this time more than at any ordinary time, require very careful handling and most anxious husbanding. I was much interested when the hon. Gentleman spoke about the waste in Government establishments. The people of our country set a very high standard when they look at a Government establishment. In my own constituency there is such an establishment. It has been in existence for a long time now, and I know something of the searchlight in which it is viewed by people in the constituency who are well able to judge. I have been in the establishment, and I know the very high standard of excellence maintained in the different Departments.

But it surely is a matter of the gravest concern to the Chancellor of the Exchequer that he should pay some attention to the remarks which the hon. Member made about men standing idle. At a time when we are requiring so much material there is surely work for everybody to do, yet men have been thrown out of their jobs with little likelihood of being taken back into employment. It is a pity that these men have not the opportunity of enlisting in the ranks which they would have had under a voluntary system of recruiting, but now have not under the highly mechanical system of military service that we have adopted. It would be in the public interest for the Chancellor of the Exchequer to consider carefully with the Minister of Labour and the Secretary of State for War whether it would not be possible to modify somewhat the system of conscription, so as to allow of men who are out of jobs, and who feel that they cannot get jobs, to take up military service as they would most willingly do.

I was interested also in what the hon. Gentleman said about export licences. I find a good deal of concern in my constituency about the delay there is in obtaining export licences. The Chancellor of the Exchequer pointed out, the other day, how desirable it was that the export trade of this country should be kept going at the fullest capacity, but the situation to-day is what the hon. Gentleman stated. It is very difficult to get export licences and the delay in issuing them is a very serious matter for the exporters in our country. There is grumbling in my constituency because of the annoyance and the loss that this is causing. I prepared a question on this subject because it was pointed out to me in my constituency that, during the last war, there was not the great delay in obtaining export licences that exists at the present time. I hope that the Financial Secretary to the Treasury will take note of that point. I join with the hon. Member for Abingdon in pressing the matter on the Government in order that we may get on with our business, and in particular with our export business.

There is one part of the Budget proposals which interested me particularly, and that is the increased duty on sugar. Greenock handles at its docks a great deal of sugar in the year and, through its refineries, it deals with very large quantities indeed. Those who are working in the refineries and in the docks are at present well employed, and it is hardly likely that, even with this increased tax, they will be less well employed. But these workers, on the other hand, are consumers, and it is a pretty serious matter that sugar at 3½ a pound should have an additional penny put on. I was rather interested at the way in which the Chancellor of the Exchequer introduced this increased duty. He explained in his Budget statement how he was going to add something to the tax on alcoholic liquor. He passed from that to the increased tax on tobacco arid then he said: Those who neither smoke nor drink nor pay Income Tax would be making no special contribution to this emergency Budget. For my part I cannot think that would be right."—[OFFICIAL REPORT, 27th September, 1939; col. 1373. Vol. 351.] Then he increased the Sugar Tax by Id. on the pound. There seems to me to be a non sequitur there. Surely the whole sub sumption of taxation is that there is a surplus from which taxation can be drawn. In contrasting alcoholic liquor and tobacco on the one hand with sugar on the other we are dealing with quite different things. The first two fall into the category of luxuries. Sugar is not a luxury but a necessity. Accordingly the Chancellor of the Exchequer was hardly fair in making that contrast or in making sugar appear to be on the same level as alcoholic liquor and tobacco. Sugar is a very valuable food. Like the potato, it is a carbohydrate. It has, however, this great advantage that it is a soluble carbohydrate, whereas the potato is not. Then again, as a food, sugar has this most estimable quality: it is easily assimilable.

Sir Arnold Wilson

Like alcohol.

Mr. Gibson

It may have that quality in common with alcohol, but I am sure the hon. Gentleman would agree that alcohol must be regarded as a luxury while sugar is a necessity. That distinction is a most important one.

Sir A. Wilson

I hope the hon. Member will bear in mind that, even with this tax, sugar is still cheaper by 50 per cent. than in any country in Europe.

Mr. Gibson

I take things as I find them in my own country. I shall deal later with the incomes of certain people who have to use sugar. Sugar is a substance which is amazingly pure. It has a purity of 99.8 per cent. and, when one thinks of milk, one knows what very great efforts have to be taken in order to make it pure and to keep it pure. Sugar, again, is a very valuable raw material. Surely there are other things that might have been taxed instead of sugar. What about matches? They are very cheap. It is possible to economise in connection with matches as it is not possible to economise in connection with sugar. It was stated on Friday, and it seemed to be accepted, that the increase in the Sugar Tax would amount to 2d. per head of the population. In a year that amounts to 104d., which is perilously near one week's payment of the old age pension and, when one reaches that, one has got to a very important point indeed. In my submission sugar was not a proper subject for increased taxation and, in any event, the increase of Id. in the pound is too much.

A good deal was said earlier in the Debate about taxation during the war 1914-18, and my hon. Friend the Member for Bishop Auckland (Mr. Dalton) said something about war loans. I think it is worth while reminding the Financial Secretary that in November, 1914, when the first supplementary Budget was introduced, the first War Loan was announced. It was a 3½ per cent. loan issued at 95, which was approximately at the rate of 3⅔ per cent. interest. £350,000,000 nominal was called for and it was over-subscribed. The second War Loan was issued in June, 1915. It was a 4½ per cent, loan—a very considerable increase—and it brought in £570,000,000. of new money. There has been a good deal of searching of hearts over the increase in interest of these successive loans. The third loan was issued at the end of 1916. It brought in £2,000,000,000 and was issued at 95, bearing 5 per cent. interest, and that has been described by the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) as "a penal rate." I was interested to refresh my memory as to what he said about that war-time finance. He said: There can be little doubt that the Government could have continued to obtain as much money as it required by voluntary investment without raising its interest rate beyond the level of 3⅔ per cent. It is the case that alternative methods of investing savings were cut down. The foreign market was closed as far as British investments were concerned. The right hon. Gentleman continued: Investors would have had to take this for lack of an alternative and, if they had been unwilling to do so, there would have been a clear and popular ground for the conscription of capital for war purposes, a step which would have been an appropriate corollary to the conscription of man-power. We have conscription of man-power again. One listened with some surprise to the many interruptions of the hon. Member for South Croydon (Sir H. Williams) with regard to the capital levy. The cost to the country of that extravagant borrowing was grievous. It meant a dozen years of remorseless deflation and —here I would look at the subject from a different angle from that adopted by the hon. Member for Lewisham (Sir A. Pownall) —it resulted in a needless addition of £100,000,000 a year in taxation to meet debt charges.

A capital levy during the last war would have been welcomed. I speak from experience on that. I remember a friend of mine, a contemporary, who was prevented because of his physical condition from going into the Army. He had had rheumatic fever half a dozen times and was left with a heart which made every medical officer turn him down at once. He was in business and made a tremendous amount of money, and was moving among men similarly making money. He said to me when I was with him in uniform, "I wish the Government would bring in a scheme for a capital levy. We who cannot get away into the Army would be delighted to hand over a big slice of what we are making as our contribution to the general sacrifice." At this time, when a readjustment is taking place, we are looking forward, as the hon. Member said, to a new order of things entirely. That was a very interesting observation coming from the benches opposite. The right hon. Gentleman the Chancellor of the Exchequer should even things out at the bottom.

This additional Sugar Duty means, in effect, one week's payment of the old age pension. Is it not possible to help these old age pensioners to meet that increased duty and the other additional costs that they have to bear owing to the general rise of prices? I would join with my hon. Friend the Member for Clay Cross (Mr. Ridley), who spoke about the means test. Cannot we abolish it now that we are calling for a united effort? Cannot we make it possible to meet the situation on a much more equitable basis than at present? In Greenock we know a great deal about the ill-effects of the means test, and how it worked out so detrimentally on family relations and broke up homes. The hon. Member for South Croydon said that a slump would come when the war was over. That was the idea in my mind a couple of years ago when I addressed a number of questions to the Prime Minister and the Chancellor of the Exchequer. It surely requires planning ahead, and if we are to plan ahead, towards the condition of things suggested by the hon. Member who has just spoken, one other thing that we shall have to set right, apart from the question of old age pensions, is the question of the means test. If our effort is to be the best possible we must have a common unity, and it would be most unfortunate if our poorerbre then and sisters should feel a sense of oppression because of the impositions that the Chancellor is making. I ask him to weigh these matters carefully and make the appropriate adjustments at a later stage of the proceedings on this Bill.

8.16 p.m.

Sir A. Wilson

At a moment like this it ought to go on record that this great Finance Bill was the subject of a Debate in the closing stages of which there were present two supporters of the National Government, one Liberal and five Members of the Opposition, apart from those whose duty it is to appear on the Front Benches. I am not going to make a debating speech, because it is clearly useless to do so when so few people are here to listen to or refulte one's arguments. But, as I said last week, at the present moment the old age pensioner's 10s. a week goes further than it did in 1924, when the cost of living index was 175 and when the late Lord Snowden, as Chancellor of the Exchequer, said that he was introducing a Bill to amend the Old Age Pensions Act which would remove every reasonable grievance of old age pensioners. The time may come, before long, when the cost of living index will rise substantially above 175, and, our financial position being what it is, I should not like to see old age pensions increased above 10s. a week before then; but I think the time is already ripe for an increase in the scales of workmen's compensation. They have not been altered since 1923, and there is virtual agreement on both sides about the necessity. I believe there would have been an interim report in the hands of the Government

Mr. Deputy-Speaker (Colonel Clifton Brown)

The hon. Member must not discuss workmen's compensation on the Finance Bill.

Sir A. Wilson

I beg your pardon, Mr. Deputy-Speaker. It was mentioned by a previous speaker, but I will not go further into the matter. The hon. Member for Ipswich (Mr. Stokes) has given us an address on money, moneylenders, bankers, and land, which reminded me of a saying of the late Lord Rothschild, "Beware of women, beware of gambling, beware of engineers." The hon. Member for Ipswich is an engineer, and he has made me understand for the first time what Lord Rothschild meant. He was referring to the views of engineers upon the relative value of money and of a good job of engineering. I agree with what my hon. Friend the Member for Abingdon (Sir R. Glyn) said about the administration of Government Departments. That matter is causing the greatest resentment, and I cannot too strongly urge upon the Government the importance of going into it as soon as possible. The civil Departments are doing more at the present moment to hamper the fighting Services than the enemy are doing. We are in a very dangerous position.

I want to deal now with the provision under this Bill that we are to be assessed on actual income instead of last year's income. I hope this provision will apply to next year as well, as in practice many incomes will not be affected much this year and next year they may be nil, and it is important for the Chancellor to consider in good time whether this concession should not equally apply to next year so that it will be available when the pinch comes in January, 1941.

My other strictly practical point relates to the increased taxation on whisky and beer. British wines, m my submission, have come off very much better than should have been the case. Two years ago, after some experience on the local bench and elsewhere, I reached the conclusion that British wines are responsible for far more drunkenness than all other forms of alcohol put together. I made some remarkable calculations. British wines have been raised from 1s. 6d. to 3s. 6d. per gallon irrespective of strength; whisky diluted to the average strength of British wines has been raised from 18s. 11d. to 23s. 11d., an increase of 5s. as against 2s. on British wines. The revenue from British wines has been raised from £450,000 to about £1,050,000, but if they paid at the same rate as whisky relative to average alcoholic strength, the sum raised would be over £7,000,000. During the past 10 or 11 years there has been a spectacular increase in the production of so-called British wines which are prepared practically exclusively from imported materials and are therefore doing no good to the national Exchequer. Prices work out as follows: British wines are 5d. to 6d. a quarter bottle of proof spirit, 29 per cent.; whisky is 4s. a quarter bottle proof spirit, 70 per cent.; cider, which pays no duty, is 6d. a pint proof spirit, 8 per cent.; beers—mild ale 7d., 6 per cent.; pale ale 8d., 9 per cent. It is clear that British wines will yield a far more economic source in future under this Budget than they have done before, and I hope that before next year the Chancellor of the Exchequer will consider whether, in the present state of sterling, it is desirable to encourage a commodity or a beverage, made entirely from imported materials, which is, I believe, the cause of by far the greater amount of drunkenness to-day, in certain areas almost exclusively, and which is paying very much less than its share of revenue.

The third and the substantial point is that of children's allowances. If the Chancellor has left any room at all for himself in which to give way, he would be well advised to consider the possibility of giving way on children's allowances. When we raised them we were in great financial straits. It is of importance that we should help the younger generation as the hon. and gallant Member for Abingdon said. Childless people are much better off under this Budget than people with children. Nobody expects to be able to keep a child on the £50 or £60 per child which is allowed, but it will be impossible for thousands of parents to keep their children at a public school and in some cases even at a day school. T have no doubt that a dozen public schools will close their doors during the next three years, and I have little doubt that half a score of girls' schools will close down completely during the next three years. The virtues and values which members of every political party appreciate will go by the board, because parents are unable to bear the expense.

It would be politic—I do not say politically, but politic in the old sense of the word—for the Chancellor not at this moment to put a further tax upon those with children. The House of Commons is not a good place in which to discuss children's allowances. We have far less than the average of children per head in this House. I have seen a rough calculation to the effect that we have between us fewer than two children apiece, whereas the average family among the public at large—that is, our constituents —is more like three and a half per head. A good many people who speak on this subject do not realise how much self-sacrifice goes towards having a family at all, particularly keeping them at a good school, and how severe are the economies necessary during the school age. There are hundreds of thousands of homes where children are just growing up. They have been sent for their first year to a school in which they are now "grounded in." Are they to be pulled out of their schools and sent to another simply because their parents cannot possibly pay? That is certainly going to happen and there is nothing that the Chancellor can do to stop it. But he may let us have the children's allowances at the scale at which they existed before.

Now I come to the importance of encouraging savings. There is now more money spent in the form of wages than in any previous time. It will be much easier for the great number of artisans to save than it was before. The ordinary channels for savings are the trustee savings banks and the ordinary Post Office Savings Bank, but there is not much inducement, and there is little being done by way of advertisement to induce men and women who are earning more money than they have been earning be- fore, or will earn again, to put it into savings. I suggest that the National Savings Committee should be encouraged, authorised and required to go far more energetically than they have done into the savings business. Let them be as energetic as they were during the last war and let them advertise and encourage further savings and devise different methods by which people can be encouraged to save. I suggest the offer of annuities, of a guaranteed old age pension of 5s. a week at 65 to any men who, let us say, at 21, 25 or 30, can put down a capital sum. of £1oo, £150 or £200 in cash, in monthly or weekly instalments. I believe a large number of persons would leap at that possibility. It used to be done —

Mr. A. Edwards

You first said "in cash" and then you said "in instalments."

Sir A. Wilson

Either in cash or instalments at varying rates. It can be done by the Post Office far more economically than by a commercial office. Let them offer terminable annuities over a period of one, two or three years. Let them exhaust all the simpler methods used by the commercial offices and let it be done through the Post Office and through the National Savings Committee. There is now a vast field for savings. The only people who will be able to save in future are the working classes who are employed and who are drawing £5 a week or over. They will save, and they want to save. I ascertained from a dozen Post Offices which I visited last week, that the savings banks are prospering; that more money is going into the Savings Bank now than ever before in these Post Offices. I have made these inquiries personally and I believe the statement to be well founded. Three or four postmasters have said that it will not go on; that people will get tired of piling up money in the Savings Bank and will want to do something more with it. This is the time when the National Savings Committee and the savings banks should get busy. We ought to do the business as a Government. There is no insurance company dealing with working-class insurance in this country which has an expenses ratio of less than 25 per cent. There is no friendly society which has an expenses ratio of less than 40 per cent., and the average is nearer 50 per cent. The expenses ratio of the Post Office Savings Bank is more nearly 2½ per cent. There is no reason why the Government should not do this and make it a great success.

If we want to increase savings there are worse ways of doing it than by taking our courage in both hands and raising the scale of contributions for old age pensions under the National Health Insurance Scheme by a 6d. or is., for which, I believe, the Trades Union Congress were prepared, and to say, "You will get nothing in return for it at all except, in 30 years' time, an old age pension." You can promise an old age pension in ten years' time, or whatever period it may be. Give nothing now, but say, "If you will increase your contributions now, in ten years' time you will have your old age pension." It is no good asking people to go on saving their money unless there is some definite object, not too far distant, for them.

Finally, may I urge the Government and the Chancellor of the Exchequer during the next six busy months that are before him to endeavour to look at the whole question of Income Tax on rather broader and more dispassionate lines? This is an emergency Budget. The need for decision has conflicted with the duty of deliberation, and the latter has gone by the board. We have made no attempt —we can make no attempt—to deliberate until the Government have had time to consider and take decisions. The Income Tax, as it has been imposed, is a crude, clumsy and cruel weapon. It does not distinguish between the different classes of taxpayers and Income Tax payers as it ought to do. The Income Tax payers and Surtax payers who are dispersing large sums in wages ought to have some consideration as against those who pay little or no wages. There is a difference in the social value of an employer of labour who is doing his best and has commitments to his employés compared with that of one who has no interest whatever but is simply playing with money and living in a service flat. There is a difference in the social value of a man. whose capital is largely in land, when it comes to Estate Duty, and equally in one whose capital is largely in actually productive machinery—I do not greatly distinguish between land and productive machinery—and that of a man whose property is entirely in stocks and bonds.

It ought to be possible to distinguish between them. If no attempt is made to distinguish between them, those who will emerge from the fiery years ahead of us will be the least desirable section of the community, namely, those to whom money is just money, and whose property is exclusively in stocks and shares and mortgages, and who have no stake in the country in factories and in land, and who employ only perhaps a few servants. It is anti-social to tax land, factories, workshops and employers equally with the rather unpleasant people, parasitic upon society, whose god is money, and who frankly admit that they have no stake in the country except a flat or two and a country cottage, and who are content to make what they can by playing with money. The wage payer, the employer, and, I would add, the ratepayer, are in quite a different category from that type of person. The parasitic element which is larger probably in Britain now than it was 20 years ago, is growing in strength, and in control here, there and everywhere. It has secret control of more than one newspaper, and of a good many distributive enterprises, but pays less relatively in taxation to its income than any of the persons who will be heavily and disastrously hit by this Budget.

I agree with my hon. Friend the Member for Abingdon—I never heard him at better advantage than to-day—that the old order has been destroyed almost at a stroke. It has been destroyed largely and unnecessarily by the shameful and grotesque extravagance with which we entered the war, with these over-organised Departments which have killed initiative and taken the spirit out of tens of thousands of young men, and have landed us, in the first month of the war, in an expenditure as great as that which we incurred in the second year of the last war. That cannot be helped and is beyond repair, but we can endeavour to make the next Budget as neat and delicate a surgical instrument as was ever required by a surgeon for a delicate operation. That requires full consideration, and, I hope, a readjustment in as many directions as possible, in order that one class of the taxpayer, particularly the married man with children, may have some mercy shown him even if it means a yet heavier tax upon the childless, the bachelors, and those who no longer have children dependent upon them.

8.38 p.m.

Mr. Edmund Harvey

The House has listened to a characteristic and extremely interesting speech from the hon. Gentleman the Member for Hitchin (Sir A. Wilson), and that speech, and the very remarkable and far-reaching speech of the hon. Gentleman the Member for Abingdon (Sir R. Glyn) will, I hope, be read by many Members who have not had the good fortune to hear them. Both those speeches called attention, as have many other hon. Members, to the waste that is going on. That is one of the points upon which Members on all sides of the House are agreed and which they desire to press upon the Chancellor of the Exchequer. There has been no complaint about the immensity of the burden that is being placed upon the citizens of the country in the terrible and exceptional emergency which we are facing, but there is grave anxiety about the waste that is going on, the people all over the country who are being paid for doing nothing, and the buildings which are being kept idle when they might be used. On different sides of the House the earnest request has come that some machinery for checking. this waste should be set up as quickly as possible.

I think of one place in the home counties where a great number of poor children have been brought in, needing medical care. They have not had doctors or nurses sent there from their own local authority, yet there is close by a whole hospital staff, nurses and doctors idle at the present time. There is no co-relation between the needs of the children and the fact that there you have specialists and trained nurses being paid for remaining idle. That, surely, is a scandalous instance not merely of the waste of money but the waste of human talent and of the desire to serve that there is in all parts of the country. I give that as a single instance and one might give many more.

There is another case of a well equipped school in the Eastern counties built specially for dealing with delicate children who need prolonged care under skilled nursing supervision; with teachers of their own. The whole building was emptied and the children sent back to their homes in evacuation areas from which they may have to be sent out again into more suitable conditions. All the tune that school is waiting, idle. It is not to be used for surgical casualties but for other sick children from the rural county in which this place is situated. And it is idle because there are not the sick children paper scheme. There was the school staff, with all the proper equipment, doing the most valuable service for children who greatly needed this help, and this school was stopped in its work, and the children have been distributed to other parts and in many cases to unsuitable and possibly dangerous conditions, while the building is idle. Other hon. Members could repeat the same sort of story. I hope that one result of this Debate will be that the Government will determine that energetic measures shall be taken for the stopping of the financial waste and, still more, the human wastage and the discouragement and dissatisfaction that are spread in consequence.

There is one further point I wish specially to mention, and that is the incidence of this great burden of taxation upon the educational services of the country and also upon the social services, in so far as they are carried on not by national and municipal effort but by voluntary effort. Incomes which have been supporting a great deal of this necessary philanthropic and social work will be dried up. I think of hospitals, nursery schools, and all kinds of social experiments that backward educational authorities have not undertaken for themselves. That work was being done by voluntary effort by means of subscriptions. I think of settlement work in our large towns, boys' clubs, girls' clubs and similar social work which is absolutely dependent on the financial support that cannot come in future from many of those who have been giving it gladly hitherto, because their income will have largely disappeared. I am sure that there are many citizens who will cut down their luxuries and even their comforts in order to keep up their subscriptions for work of this kind and, still more, for the religious work, which cannot go on as it should if it does not get this support.

These things are of the very life of our country. We cannot simply leave them to State institutions, however much we may look forward to the time when the State and the municipality will take on many of these functions. That time is not yet, and in the meantime it is essential that these voluntary services should be gone on with and that the machinery should be kept up by voluntary subscriptions. I would ask the Chancellor of the Exchequer whether he will consider some means by which this great need of the voluntary social services of the country can be met. A great step was made some years ago by the introduction of the covenanted subscription; but the covenanted subscription, freed from Income Tax, involves a covenant for seven years. How many people now, except the very rich, would dare to make a covenant for seven years, in view of the present rate of the Income Tax? That period ought to be reduced. There ought to be some way found to make it possible for these subscriptions to continue. I would ask the Chancellor of the Exchequer whether he would agree that where subscriptions for social and charitable work at present allowed as covenanted subscriptions have been given for a period of years in the past, and proof of that can be given, allowance might be made for the forthcoming year for similar subscriptions to church, chapel and charitable societies or whatever the institution may be. That would enable a very large amount of social and religious work, which otherwise is in danger of being shipwrecked on this terrible rock of finance, to go on.

Lastly, I would support the appeal made with regard to the allowance for children. In our universities there is at the present time uncertainty as to the number of students who will come up, in consequence of the Budget. There are a great number of parents, many of them in humble positions, some of them clerks, some shopkeepers, some professional men, teachers and others, who have made great sacrifices to send their children to the universities. They can only just manage it and the difference in the Income Tax, unless there is a corresponding allowance made for the child receiving education, will make it impossible in some of these cases for that education to continue. It will make it impossible also in these cases for the parents to enter the child for a university career.

The same thing applies not only to our old public schools and the larger famous schools, but to all secondary schools.

This matter affects thousands of homes. Therefore I beg the Chancellor of the Exchequer to reconsider the question of the allowances for children, especially as regards cases where the allowance is extended on the ground of education. If consideration could be given to that point, as well as to the plea that has been made on behalf of the poorest section of our fellow-citizens, the old age pensioners, I feel sure that the country would accept with a very much greater sense of justice the very heavy burden which it is called upon to bear.

8.50 p.m.

Mr. A. Edwards

I share with the hon. Member for Hitchin (Sir A. Wilson) a feeling of resentment that the greatest Budget of all times should be discussed before such a disgracefully small House. There was, however, one thing he said with which I did not agree, and I think he completely misled the House He quoted Mr. Snowden, as he then was, saying that all the legitimate grievances of the old age pensioners had been removed when he introduced the Act of 1924. Mr. Snowden on that occasion was referring to contributory pensions and not to non-contributory pensions. I know that the Chancellor of the Exchequer in framing his Budget has not set out to see how mean he could be, but I wonder whether he has really considered the effect of what he has done? On the occasion of the last Budget I pointed out that the effect of the Tobacco Duty was to put 6d. on the old age pensioner, and we have been told that by this Budget he has deprived the old age pensioner of one week's allowance in the year; he is going to get nothing at all in that week. If we weigh up the effects of other items I think the Chancellor of the Exchequer will not deny that the old age pensioner is 1s. 6d. worse off than he was a year ago.

The hon. Member for Abingdon (Sir R. Glyn) made what I consider a remarkably good speech. He referred to the allowances being reduced and to the effect it would have on education. We know something of what it cost in human life and money during the last war, but nobody can possibly frame an estimate of what it cost this nation in the loss of some of its best brains, and it is a terrible thing that the Chancellor of the Exchequer should take the least risk with the young people of this country and jeopardise in the slightest degree their opportunities for education. It would have been much more logical if he had done something to enhance their prospects in life rather than reduce them. I have not listened to the whole of the Debate but I am sure that the question of the Bank Rate has been discussed. Will the right hon. Gentleman explain what benefits accrued to anybody, anywhere, by raising the Bank Rate?

Sir J. Simon

I did that most carefully the other night.

Mr. Edwards

I am sorry. I will take the opportunity of reading it. The question of waste has been dealt with perhaps rather much, and it may be that the House is getting a little bored in listening to it, but there is no doubt that waste has reached the extreme height of folly. I had occasion to visit one of the Departments the other day and found it was not where it was supposed to be. The finest building in Europe in recent years was taken by the Air Ministry at a colossal rent— £100,000 was mentioned. Without a moment's notice the Ministry-disappeared. A man came to me the other day and said that he had been trying to find the Air Ministry because he had some further factories to put up for them to increase production, which was very urgent. He was not able to get in touch with the Ministry for quite a considerable time. I cannot tell the House where it is, but I can say that it is a most comfortable place indeed. I wonder whether the Chancellor of the Exchequer can tell us anything about that £100,000—it is a very considerable sum.

There is one other matter I want to raise. I hope to be able to get a reply from the right hon. Gentleman regarding the increasing profits of the shipping industry, or rather I should say the increasing market value of the shipping industry, who are gambling on profits to come. I asked whether the Government could not give a warning to the investing public that it is extremely dangerous to invest in shipping shares in the hope that they will rise in the way in which they did during the last war. Such a warning has not been given. On a previous occasion, when other shares were rising, the Prime Minister gave a warning to the investing public. I think it would be a good thing if the Chancellor would tell the innocent investors that they are taking an extremely dangerous course if they invest in shipping shares, because there has been a rise in them recently. in the hope that shipping will make colossal profits as in the last war. May I also ask whether the right hon. Gentleman has again looked into a question that was raised on the Air Estimates, when the Secretary of State for Air justified—

Mr. Deputy-Speaker

I would remind the hon. Member that we are discussing the Finance Bill, and not the Air Estimates.

Mr. Edwards

Of course, I shall not transgress your Ruling, Mr. Deputy-Speaker, but hon. Members have been discussing the profits of a great many industries, and I wanted to point out that the justification which has been given for shipping profits and the profits of aircraft manufacturers is that during the last 10 years they have not made very great profits, and, therefore, they are entitled to make the profits which they are now making as a compensation for the bad years. Does the Chancellor subscribe to that doctrine? There is another matter of a different sort of which I think the Chancellor ought to take note. One does not often find oneself in agreement with the hon. Member for South Croydon (Sir H. Williams), but he raised a very important point regarding the valuation of stocks during war. I happen to know that during the last war some people suffered tremendously from that. They were taxed on excess profits that were represented only within stocks which, in a year or two, were worth nothing. I hope the right hon. Gentleman will look into that matter. I know some very hard cases of that sort.

I hope the Chancellor will also tell us something on the point that was raised by my hon. Friend the Member for Ipswich (Mr. Stokes), who referred once more to the methods of raising loans during the last war. Will the Chancellor tell us whether he considers that those loans during the last war were raised in a fictitious way, or does he claim that it was genuine and honourable new capital loaned to the Government? As far as I understand it, when people said, in response to the bank manager's invitation that they should invest in war loans, that they had not the money, the bank manager said that did not represent the slightest difficulty. People borrowed money from the bank and loaned it to the Government, and both the people themselves and the bank made profits. There was a great deal of ill feeling about that sort of thing, and the country wants to know that that kind of loan will not be raised on this occasion. If the right hon. Gentleman has not dealt adequately with that matter in a previous speech, I hope he will give us a little information on the subject. With regard to the point that was raised by Mr. Keynes—perhaps the Chancellor has also dealt with that matter in a previous speech—will the right hon. Gentleman tell us whether he agrees with Mr. Keynes' estimate that the difference between borrowing at 2½ per cent. and 4per cent. would amount to more than the whole of the taxes which arc now being raised in the Budget? I would also ask the Chancellor of the Exchequer whether he considers that there is now any justification at all for the continuance of the De-rating Act, and whether it is the intention of the Government to repeal that measure. I hope that these questions will be answered by the right hon. Gentleman when he replies.

9.0 p.m.

Colonel Ponsonby

I wish to make a brief reference to the question of waste and to offer a suggestion to my right hon. Friend the Chancellor of the Exchequer. I do not agree with the last speaker that the question of waste is unimportant, or that too much can be said about it. When taxation is reaching such astronomical dimensions, I think the manner in which the money is to be spent is of vital concern to the community. In France during the last war we used to collect the solder from the bully-beef tins and collect pieces of iron from the trenches and bring them back, in order to save money and prevent waste. When I came on leave to this country I was appalled at the waste which was taking place here. Now is our chance to nip waste in the bud. Hon. Members have already given various examples of waste on both the large scale and the small scale, and I may mention two. One is the case of a borough where sand-bags were being filled and then transported by taxi-cab a distance of 200 yards to the place where they were to be erected. In another case in a small country town I was told of the case of a lorry of a small trader, the only means he had of conveying his goods, which was commandeered as an ambulance. It was standing there at a place which was as safe as most places in England, and was, so to speak, "eating its head off," while the trader who owned it was unable to carry on his business. That is the sort of thing which is going on all over the country, and nobody knows to whom to go in order to have it stopped. The Chancellor of the Exchequer said the other day: It is more important than ever it was that we should get full value for our money, that all expenditure which is wasteful or unnecessary should be avoided, and that these principles should be applied not at the end of the war but at the beginning."—[OFFICIAL REPORT, 27th September, 1939; col. 1374, Vol. 351.] He is, obviously, on the side of the public in this country, but he speaks like a god from Olympus and the poor mortals down below are still wondering how they can bring their individual complaints to his attention, how it is possible to fix on the offenders at once, to bring home cases of waste to individuals and to see that the offenders are punished at once by the stoppage of promotion or in some other way. We want to know how it is possible for these cases to be dealt with immediately and on the spot, and I put forward this suggestion to my right hon. Friend. There are, I think, 14 regional Controllers in different areas of the country.

As we have been told, these Regional Controls do not really come into operation until London is bombed and it is necessary to transfer the seat of Government to these different areas. In these Regional Controls there are exceedingly good business men, and if there are cases in which that is not so, they could be obtained. My suggestion is that it should be widely advertised that in each Regional Control there was an officer whose one duty it was to deal with all questions of waste, to investigate them, if possible to stop them on the spot, and anyhow to bring them to the notice of the authorities in London, so that waste, whether small or great, can be immediately avoided. I am certain that that would do a great deal towards allaying complaints, and if waste is stopped at the top in Whitehall by means of a Geddes Committee, or whatever you like, and in the country by means of these officers at the Regional Control centres, then I am certain that it will be some comfort to those who are supplying the financial life-blood for the sinews of war.

9.7 p.m.

Sir J. Simon

I am interested in the suggestion which has just been made by my hon. and gallant Friend the Member for Sevenoaks (Colonel Ponson by), and I should like to consider it. If what he has suggested should lead to a better mechanism for the purpose, which we all of us, I am sure, wish to see in operation, so much the better. I get, myself, quite a number of communications from private citizens complaining of instances which they consider show unnecessary outlay, and my own practice has been, first of all, to give all the attention to them that I can myself, and then to make sure that they go to the Department especially pointed at, and I always do my very best to see that they get an answer on each question. I think a similar practice in serious cases—frivolous complaints should be excluded—is a good practice for all Members of the House. I do not think any Government Department should complain of it, and I am sure they will not do so, for, after all, we are all of us here concerned both in the spending of the money and in the raising of it, and it is quite certain that, unless we do secure effective means which will make it sure that the money is properly laid out. and not wasted, we shall be faced with a financial situation which it will be exceedingly difficult to deal with.

I am grateful to hon. Members, therefore, in this Debate who have made much of this point. I believe it to be a point of the very greatest importance, in which every private Member in the House has his part to play. But it is only right to add that some of the things which have been given as examples of over-organisation, or it may even be of expenditure on items which do not seem justified, are entirely due to the fact, in itself a blessed fact and in some ways a rather unexpected fact, that there has not been an aerial attack on this country. If we had had a very severe assault from the skies, probably many of us would be blessing the arrangements that have been made, and it is almost inevitable that, in so far as we have not had that experience, the foresight which has been exhibited and the arrangements which have been made will rather attract criticism which may not perhaps in all circumstances be justified. But that is no reason why we should not try, as we all ought to do and as I do whenever I have a well-founded case and believe the system is wrong, to get the matter examined in the proper way and the proper quarter. I am pretty sure that, at any rate in some directions, an improvement has been made.

The key, I think, to our Debate to-day is really to be found in the fact that this is an emergency Budget. It is not an ordinary Budget prepared months beforehand after examining all sorts of alternatives and then maturely projected at the ordinary time. It is a Budget, terrible in its total, that has been put together in the course of something less than four weeks, and I think the fact that it has been received with so large a measure of good will, though not, of course, without criticism, is largely due to that fact. It is better for the country to have an emergency Budget promptly presented to it than that we should allow so long a time to elapse as elapsed in 1914, when there was more than three months of war before an emergency Budget was presented. It is better that we should be faced with the real gigantic size of this thing, although we have not in every particular adjusted our plans, than that we should go on in an optimistic sort of paradise not appreciating that we cannot spend £2,000,000,000 in a single year in time of war without having terrific financial questions which have to be faced and dealt with.

It is largely because it is an emergency Budget that it has not been possible to consider and make use of some of the novel suggestions that are made. Several hon. Members have referred, for example, to a tax on cosmetics. Hon. Members may not appreciate that one of the first things that was done in the war was to put cosmetics on the prohibited list of imports. No licences have been granted for the admission of foreign cosmetics since the war began. There still remains the question whether they should be subject to domestic taxation. But I think that the prohibition of imports is a material fact, since I am informed that the source of many of these aids to adornment is foreign. Various other wide-reaching forms of taxation have been suggested in the course of the Debate. Although it is an emergency Budget, the criticisms on Second Reading are likely to be addressed either to the things which are to be found in the Finance Bill or to the things which are not to be found in it. All criticism on this occasion falls into that simple classification. May I say something about each.

The hon. Member for South Croydon (Sir H. Williams) referred to the fact that a considerable part of the Clauses of this Bill deal with the Excess Profits Tax, and he said truly that it must be a complicated machine which affects trades and businesses of all sorts and kinds in various ways. He made the suggestion, which I think was a reasonable and helpful one, that it might well be that, at this stage, at any rate, we might as well agree to postpone detailed examination and criticism until we come to the regular Budget in the spring. For reasons which nobody can help, this particular part of the Finance Bill cannot be expected to produce anything but trifling sums of money until the next financial year. The hon. Member invited me to say whether I was prepared to consider that. I reply at once that I will. But I must add that although this part of the Bill has been drawn up without much loss of time, it has been put together carefully. It is based almost entirely upon the scheme which we adopted earlier in the year for taxing the excess profits of armament firms, and as at present advised I am clearly of opinion that it is a better scheme than the old E.P.D., avoiding some of the difficulties of the tax of 25 years ago; but at the same time it may well be found on examination that steps should be taken to introduce changes.

Mr. Pethick-Lawrence

Would the right hon. Gentleman explain what exactly it is that he is offering to us and where we stand in this matter? Do I understand that he is suggesting that the main discussion of this proposal should be postponed until next April? That is what I want him to make clear. The normal opportunities for considering it would be the Committee stage of this Bill; obviously there will be no further opportunity of Parliamentary discussion. What I take it that the Chancellor means, and I for one offer no objection whatever, is that even though Parliament does devote its best endeavours to considering this tax now and improving it if necessary, he will still be willing after that to consider any emendation which may be thought desirable after there has been a longer time in which to get to understand the proposal.

Mr. Stokes

-May I point out to the Chancellor of the Exchequer that his Excess Profits Duty does not deal with the profiteering that normally goes on with armament firms? He has made no provision to deal with that.

Sir J. Simon

I heard the hon. Member's speech, or most of it. I am not quite sure that the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) was here when the hon. Member for South Croydon made his speech. He was pointing out that when we are applying such a scheme to the whole of industry a great many questions will arise which will probably not be finally disposed of in the course of our discussions during the Committee stage, and he thought that more time would be needed to consider it than was likely to be found during the Committee stage. He did not believe there would be prolonged or detailed discussions on every Clause now, but he assumed that when we come to the ordinary Finance Bill next Spring there would still be an opportunity of considering amendments to those Clauses, as of course there would be. Of course I am not trying to stop anybody from discussing any of the Clauses on the Committee stage of this Bill.

Mr. Pethick-Lawrence

I am not disagreeing with what the Chancellor has said. I gather from him that if Amendments to the proposal are put down on the Finance Bill, or if suggestions are made for other Amendments, he will give them his careful consideration both now and before the next Finance Bill comes on, and to that I take no exception.

Sir J. Simon

I think that is a practical way to look at it. I am not seeking to cut anybody out from any discussion they may think well to raise in Committee.

Mr. Stokes

May I ask for an answer to my question? The Chancellor was not present when I spoke. He was here for the early part of my speech, but left the Chamber. I want to know what steps he specifically proposes to take to deal with what I call the genuine armament firms.

Sir J. Simon

I am afraid that I cannot deal further with that now. I did not hear the whole of the hon. Member's speech—

Mr. Stokes

About 15 seconds.

Sir J. Simon

—because I had to go before he had finished, but I shall see it, and I have no doubt that I shall hear from him again.

There is another example of criticism about which I should like to say a word. The hon. Member for Bishop Auckland (Mr. Dalton) and other hon. Members mentioned it to-day; it is on the subject of children's allowances. I do not propose to discuss the subject fully now but I might make one or two observations. The first is that, in so far as the appeal is based on deep sympathy with education and a real desire to do what is right and just by the children, I hope that nobody claims to have those feelings more deeply in him than I have; but I am not quite sure that everybody who spoke on this subject so sympathetically this afternoon —it is very natural that they should—has informed himself very precisely of the history of this matter or of how much difference my proposals really make. I will not argue the matter now, but, perhaps, hon. Members will allow me to indicate—

Mr. de Rothschild

Is not the right hon. Gentleman aware that this cut is the only one which remains from those which were imposed in the Finance Act, 1931, and that the proposed children's allowances now are those to which they were driven down?

Sir J, Simon

It is necessary, apparently, to give a little further information to the House. Children's allowances used to be £10 a year, but when the Royal Commission on the Income Tax considered the subject they recommended that the deduction should be £36 for the first child and £27 for other children. Those were the actual figures year after year from 1920 to 1927. In 1928 they were increased to £60 for the first child and £50 for the second and other children. The crisis Budget of 1931, to which the hon. Gentleman was referring, reduced the allowances to £50 for the first child and £40 for children that followed. The House will observe that the proposal I have made is not as drastic as that. In 1935, the allowance was made £50 for the first child and £50 for any subsequent children. That is the proposal in the present Finance Bill. It was only in 1936 that, for the first time in the history of children's allowances, there ever was an allowance of £60 a child at all. Whatever the views of hon. Gentlemen who have spoken, they have not quite appreciated that story. I am as anxious as anybody alive to make proper provision in this matter.

I should have thought there was, at any rate, just as strong a case against reducing the married allowance from £180 to £170, which I considered for a very long time before I would consent to propose it. Only quite recently, at a time when there happened to be—I am very glad there was—some money in the annual accounts to spare, was the allowance for each child ever at £60 at all. When I propose it should go back to £50 a child I am proposing something which is better than the emergency Budget of 1931, and which is the allowance actually approved in this Parliament in 1935. Take the White Paper; I ask hon. Gentlemen to look for themselves and see what is the nature of the additional burden which is being proposed. I agree with some critics who say that, as regards the individual case, it might seem quite small, but that when we add it up all together it is very considerable indeed. This is not an allowance limited to people with small incomes. A millionaire gets the allowance like everyone else. If hon. Members, at their leisure, will look at the White Paper issued in the ordinary way after the Budget speech and take the page "Married couples with two children" and see what is the measure of the importance of this, I really think my hon. Friend, for instance, will not imagine that this adjustment is one that is fundamental to the education of boys going to school, and things of that sort.

Of course, it is a burden. All Income Tax is a burden. It is a horrible fate for a Chancellor of the Exchequer to have to put it on people, and no one dislikes it more than I do, but I am trying to arrange a scheme which, by altering slightly the adjustments right along the scale, is going to produce a large sum of additional money, and anyone who says, "Give way on this or that," is really saying "Increase the amount that you have to borrow this year. "Take a man with £500 a year, and look at the married couples with two children. Does everyone realise what is the effective rate of tax which such a man is required to pay? He has to pay tax at is. 1d., and the amount of tax he has to pay is £27 10s. Suppose we made this concession and said that, instead of two children giving him the right to deduct £100, they should give him the right to deduct £120. I quite agree that the reduction of £20 is material, but it is not assessed at 7s. 6d. in the £ and, though everyone of these things tend to add to the burden, these various family allowances are so many devices by which you reduce the effective rate of the duty at the lower end of the scale so that, for instance, a man with £500 pays is. 1d. in the £, whereas people with greater incomes will be paying 7s. 6d. I do not want to argue it out to-night, but I want hon. Members to look at it afresh, because I should be very sorry to be doing anything that was harsh about children who have to be educated.

May I now turn to one or two things which are not in the Finance Bill? The hon. Member for Bishop Auckland referred to some communication from the Ministry of Information on the subject of not reporting things about inflation of currency and credit in British or Allied countries. Of course every Minister of the Crown is answerable for everything which the Government do, or which is done in their name. Therefore, I am making no point about that. I have made an inquiry and I think the situation is something of this kind. First, no censorship could apply in any case, of course, to reports of Parliamentary Debates or comments on what anybody says in Parliament; and there is no question of any attempt to obstruct, or stifle or water down such reports.

Mr. Dalton

The right hon. Gentleman is, of course, a great legal authority, but I should have thought that the plain meaning of the words which I quoted is that if, for example, he were to state that lie much regretted that the currency had suffered some inflation, his statement could not be quoted in the reports in the Press next morning without the approval of the Minister.

Sir J. Simon

I should say that what applies to me applies to everybody else. Whatever the comment may be, no one is going to suggest that what is stated here in the Commons House of Parliament is not reportable—though at one time the House of Commons itself objected to being reported. What a different sort of chamber we should be if our proceedings were conducted on the principle that none of us, in any circumstances, was to be reported outside. I draw this second conclusion. I think the general object of what is called a censorship will not be a matter of dispute. I suppose the only purpose of it could be to prevent the enemy from getting information or encouragement which he would not get in the absence of the censored matter. I imagine that that is the sort of purpose for which the communication was made. But, in the third place, while we all would wish to discourage the publishing of anything likely to undermine public confidence in either British or Allied currencies, the Government have no desire to avoid Parliamentary criticism or other fair criticism of their financial arrangements. We must rely on the good sense and patriotism of those who comment. If what I have said is not precisely in line with the document which the hon. Gentleman has in his possession, I will see at least whether my colleague at the Ministry of Information finds that what I have said coincides with his view, and if there is any difference between us we will settle it outside if necessary.

Mr. Dalton

The Chancellor used some such phrase as "Parliamentary comments or other fair comment elsewhere." Is it to be understood now that the responsible financial editors and other journalists of repute are entitled to comment with reasonable freedom upon an inflation of the currency if they should think that such a thing has occurred? For example, the hon. Member for East Aberdeen (Mr. Boothby) argued this afternoon that inflation could not be, and ought not to be, avoided. Suppose it was thought that inflation had occurred and that it was beneficial, could that be stated without fear of proceedings under this Ministry of Information order?

Sir J. Simon

I do not think I should fear proceedings myself. It should be done with a desire to serve the public interest and not with any indirect or unserviceable motive. People will realise, as they always have done, that there are different opinions about different things. They certainly have different opinions about the policy of the Chancellor of the Exchequer.

The other matter about which I wish to say a word is what was stated to be the omission from the Finance Bill of any provisions which would lead up to some capital tax or levy. That was in accordance with what I said in my Budget speech. In my Budget speech I quoted what the Prime Minister had said, and called attention to the fact that he declared that the matter was very difficult and called for investigation. I informed the House that that investigation was proceeding, and I reaffirmed on behalf of the Government what the Prime Minister has declared. That was all I could do then, and it is all I can do now, but I will occupy a minute or two in drawing a contrast between three quite different things. First of all, there is what is popularly called a capital levy, and I am using the word in its dictionary sense as the right hon. Gentleman the Member for East Edinburgh suggested just now. I understand that a capital levy is a conception not of some annual or recurring tax, but of a contribution obtained by reference to ascertained valuation of capital, as, for example, was considered at the end of the last war in order to pay off at a single blow a very considerable part of the debt that had accumulated.

I appreciate the argument which might be used in relation to dealing with the matter at a time when there is great inflation—the argument in favour of paying off the debt at the same standard as that at which it had been incurred. The principal consideration against such a proposal, if it is made at the proper time and in the proper way, is that if you once do it there is no guarantee that some foolish people will not try to do it again. That is always a grave consideration for anyone who looks at it seriously. Hon. Members opposite are among those who urged this remedy at the end of the last war. In developing their proposals now it is evident that to them at least a repetition of the dose is nothing but a matter for enthusiasm. I was surprised when the hon. Gentleman who opened the Debate to-day said that my Budget was one which, on the whole, had given him and his friends an agreeable surprise. "Agreeable" was about the last word that I expected. I think what he meant was that it was extremely stiff, and he was delighted that it was so stiff.

Mr. Dalton

What I said was that I was agreeably surprised by the new revenue which the Chancellor was proposing to raise, contrasting this with the situation in the last war when a large amount was borrowed and a relatively smaller amount was obtained as we went along.

Sir J. Simon

If the hon. Gentleman finds my proposals "agreeable" I must leave him to the luxury of his own sensations.

There is a second and quite different conception which has been laid before this House more than once with great ingenuity by the right hon. Gentleman the Member for East Edinburgh, and, I think, by one or two other hon. Members opposite. It is not to be an operation which takes place once a tall; it is to be an annual affair. I think that sometimes there is a limitation to the period of the war. Anyhow, every 12 months it is to come round like Christmas, and the idea is that there is to be a tax, which is sometimes described as 1 per cent., sometimes 2 per cent., and I think I remember the figure going up to 3 per cent. in some of the earlier discussions, on the capital values of the country. As the hon. Member for Central Leeds (Mr. Denman) said if we were going to do this every 12 months it would be a pretty big job. I should think that the valuation for one year would not be finished before the next year came round.

I always think that one consideration to weigh in the matter is this. Death Duties, which are terrifically severe, are a method by which at intervals you get great contributions from the owners of capital. The valuation is an elaborate process, if it is a big estate, and we may get from an estate contributions which may be as much as 60 per cent. under the present Finance Bill. It is convenient to do it that way because when a man dies there are reasons why his property has to be collected together, valued and administered. It has nothing to do with Death Duties as such but with executors, heirs, successors and administrators and things like that. Therefore it is a very convenient plan to do it at death. It is quite possible to argue that you could get rid of Death Duties and substitute for them a series of annual contributions from capital though it might not be very convenient, because the valuation would come rather too often. In some cases it might be argued that it is more scientifically fair, because it equalises the case of the man who lives a very long time before he dies with the case of the estate which passes through several hands within a very short period. I have always supposed that this second proposal was really in the nature of a substitute, and not, I think, a very practical substitute for Death Duties. But it is quite certain that you cannot have both. If you apply this thing every 12 months, the 2 per cent., 3 per cent. and all the rest of it, each time the rest of the property will be reduced in amount. If at the end of all that when the owner dies you are to have the Death Duties into the bargain, I cannot help thinking that we should very soon get into minus quantities.

But my main point is this. Neither the first proposal, which, if I may borrow the dictionary again, is properly called capital levy, nor the second proposal, which my right hon. Friend called a capital tax, neither the one nor the other, is the thing about which the Prime Minister was speaking. He was speaking about a levy on war time increases of wealth, which is a different conception altogether and is based upon the principle, which I think most people would embrace, that there is something which does not seem right if, in a period when most people are losing their lives or their property or their standards of life and lots of things, there are other people who come out of the war immensely more wealthy. That feeling I am certain is shared on all sides of the House and by men of all parties, and it is the thing to which the Prime Minister was referring. He was saying that it was a very difficult thing to work out, but at the same time he thought it was well worth investigating whether it was possible to impose a levy on war-time increases of wealth. As I told the House of Commons when I made my Budget speech last week, we had in fact been investigating this before the war broke out, and investigations are still going on. It is a far more difficult thing than would be imagined at a first sight.

I will give this example. Take the case of land which is settled land. There is the tenant for life and the remainderman—the tenant for life, the father, and the son who is to succeed him. As time passes, every day and week and month, the father's interest in the value of the life tenancy gets less, because he is getting nearer his death. On the other hand, the value of the interest of the son, the reversioner, is getting greater every day, and if you add to that the possible complications of distribution and so on, anyone can see that it is not an easy thing to work out. As the Prime Minister said, we have been and we are still examining this case, and I do think there is a very great deal of justice in the view that if you could devise a practical scheme of getting a contribution from war time increases in wealth, it might very well be a most suitable addition to our fiscal armoury. That was the statement that I made, and it is the statement that I make now. Whether we can devise such a scheme or not, remains to be seen; but I hope that I have made it plain to the House that it has nothing to do with the capital levy, so called, or with the capital tax. My hon. and gallant Friend the Member for East Willesden (Captain Hammersley) examined this question with great care in a speech the other day, and the hon. Member for Central Leeds has pointed out some of the difficulties in his speech this afternoon.

Mr. A. Edwards

The right hon. Gentleman has put some difficult cases, and I admit that there are extremely difficult cases. Will he allow me to put an extremely simple one? I would refer to the ships which have changed hands in the last few months, where the value has multiplied. Will the right hon. Gentleman deal with valuable unearned increment of that kind?

Sir J. Simon

I have told the House the exact facts, which are being examined in many aspects. I am unable to go further now.

Mr. Edwards

Those values are doubling week by week.

Sir J. Simon

That may be so in some cases, but I should not think that it was generally so. I thought that many of them were working on Government account.

I will not say more about the Bill at this stage. We shall be examining it in Committee. I should, however, like, in conclusion, to say that I am deeply impressed by the indications, both in this House and outside, of the determination with which these fearfully severe imposts are being faced. It would be absurd to suppose that they would be generally welcomed, because they are excessively severe. They are going to alter the standard of living of all sorts of people in this country, poor people as well as rich. It is a very sad thing that "we have to do it, but I believe it to be necessary to do it as a real contribution towards the work to which we have set our hands. If we can do it, and at the same time we can contribute all that is within us to restrain wasteful expenditure and get money's worth, I hope that the day will still come when I shall be forgiven for having introduced so drastic a Budget.

Sir T. Moore

May I ask my right hon. Friend what he proposes to do about getting the £15,000,000 from a tax on bicycles, which are no longer the trans- port of the poor, but have become the transport of some of the rich?

Sir J. Simon

How many millions?

Sir T. Moore

£15,000,000 was the estimate that I made in my speech.

Mr. Stokes


Mr. Deputy-Speaker

The hon. Member has already spoken, and, therefore, has exhausted his right to speak.

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

Bill read a Second time.

Bill committed to a Committee of the Whole House, for To-morrow.

The remaining Orders were read, and postponed.

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