§ 3.51 p.m.
§ The Chancellor of the Exchequer (Sir John Simon)
When I opened my Budget at the end of April the estimated expenditure of the year for which I had to provide amounted to £1,322,000,000. The Defence expenditure included in that vast total was at the time taken as £630,000,000. That, therefore, was the total which we had to face in April. The Budget proposals were calculated to raise from revenue £942,000,000, and consequently at that time £380,000,000 was left to be borrowed within the financial year. That was in April. Before the Finance Act was passed, towards the close of July, the figures for this year's expenditure on Defence, owing to acceleration and further plans, had grown to at least a total of £730,000,000, and, consequently, if the revenue contribution remained unaltered, the amount to be borrowed at that time, at the end of July, came out at something like £480,000,000. I remember that I said at the time, on the Third Reading of the Finance Bill, that as things stood the amount of borrowing that would be involved by way of supplement to what was being raised by taxes would not fall far short of £500,000,000. As the Committee will see from the White Paper which will be available when I sit down, those figures at thattime were almost exactly right. The total expenditure authorised when Parliament rose in August was £1,453,000,000, of which £502,000,000 was to be borrowed. Those totals, vast as they are, were, of course, arrived at on the basis that whilewe were forced to undertake increasing Defence expenditure for the protection of the country, we remained at peace throughout the year. But on 3rd September we found ourselves at war, and a Vote of Credit, as the Committee will remember, for an additional £500,000,000 was promptly proposed and adopted. I must tell the Committee that I cannot guarantee that this first Vote of Credit will be sufficient to cover all our requirements up to 31st March next, but 1362 even if it is, the need for a further Budget as promptly as possible is self-evident, since we shall be facing, in this financial year, a total outlay of nearly £2,000,000,000. On the other hand, the original estimate of revenue from existing taxes, which, as I reminded the Committee, was £943,000,000 and which was, up to the time of the outbreak of war, giving every sign of being realised and indeed exceeded, must now be revised. In the new conditions, as hon. Members will readily see, this revenue is likely to be reduced, and,from the figures with which I am furnished, the yield from existing taxes is not likely to exceed £890,000,000. Those are the main figures which form the framework of any budgetary proposals that I have to make this afternoon.
War makes inroads into our finances and consumes our resources in a way which far exceeds even the most elaborate and costly programme of Defence carried out in time of peace. Not only does it upset peace-time estimates of what taxes will produce, and completely alter the scales in which national effort and national sacrifice must be measured, but a great war in which this country is engaged sets for us a special economic problem of immense urgency and gravity which I will try briefly to define. If this problem is not promptlyfaced, if it is not boldly handled, then our power to carry the war through to a victorious conclusion is very gravely weakened and the damage that may be done to our national life after the war is won, may be irreparable. As I have said, nothing, of course, can prevent war waged on the frightful scale of destructiveness which modern war involves from being the most potent instrument for the destruction of human wealth—[An HON. MEMBER: "And life "]—that can be conceived—and life, but for the moment we are looking at the financial side. Finance, as has been sometimes said, is the fourth arm of Defence, no less important than the other three, for if finance failed, then the prop that sustains the whole of our war effort would collapse.
What we have to do, therefore, in this essential department of our national effort is to deal with the economic and financial problem of war in the way which will make the best use of our productive resources. There are two obvious ways, both of which have to be examined.
1363 There is taxation, and there is borrowing, and no doubt we shall have recourse to both. The Exchequer will need money on an unprecedented scale, and to that vast need over the period of the war as a whole, whatever that period may be, taxation will have to make its maximum contribution. But, on the other hand, it is obviously impossible that the whole of our expenditure in a war like this should be provided from the proceeds of taxation, and the Committee will, of course, have anticipated that it will be necessary to supplement that provision from revenue by National Defence loans on a large scale.
§ Sir J. Simon
It follows—I am addressing the Committee, but in a sense, I am also addressing the outside public generally—that the payment of taxes, even heavily increased taxes, will not exhaust the duty of the private citizen. It will also be his duty to contribute to the greatest extent possible to these loans when they are announced, and all the more so for this reason: Let us always remember, in all the efforts we have to make on the financial side of this war, that except in so far as war is financed either out of the proceeds of taxation or from the proceeds of loans which come from thegenuine savings of the nation, it can only be financed by methods or out of sources which are essentially inflationary. That, all will agree, is a course which we must strive by all means in our power to avoid. Inflation leads, as is well known, to a general increase in price level, and, what is worse, it leads to disparities which in the long run, and may be even in the short run, create great hardships and inequalities which any Government must do its utmost to try to avoid.
As regards borrowing, the time has not yet come for the issue of new National Loans, but I wish to make a brief statement of a general kind about it. When that time does come it will be found that various types of loans will be offered, appropriate for great institutions, for institutions of whatever size, and others appropriate for individuals of whatever means, small or great; and here and now I would wish most earnestly to appeal to all citizens and institutions in the country
1364 to refrain from unnecessary capital expenditure, and to put by whatever savings they can make with a view to devoting them, when the new loans are issued, to the prosecution of the war for the benefit both of the nation and of themselves.
This economic problem of war has another aspect and I venture to dwell on it a moment before I come to what may prove to be the less pleasant but more precise parts of my speech. The economic problem of war, as I said, has another aspect. War enormously expands the Government's demands on industry— enormously. TheGovernment, therefore, must secure a corresponding reduction in civilian demands on industry. If it does not, then the Government and civilian demands compete against one another, jostle against one another for labour, equipment, material, freight space and everything else. It is quite true that under the stress and intensity of national effort industrial production can be increased; it must be increased, for example by the increased use of woman labour, and in other ways. But even after you have allowed for that you must set against it a further fact, that war conditions take away from industry a material proportion of man-power. Broadly speaking the situation that will arise, if prompt and adequate steps are not taken to meet it is that the civilian demand, unless restricted, competing with an immensely increased Government demand, brings about a competitive scramble in which prices rise and the value of money falls. It follows therefore, I think, that it is the first duty of the Chancellor of the Exchequer to use the instrument for which he is specially responsible to help to curtail civilian demand and to make sure that civilian expenditure is directed as far as may be into proper channels. Prohibitions directed against wasteful or unnecessary use of resources, restrictions which limit the consumption of a long list of articles, the strictest economy all along the line, all these things are most valuable, and indeed essential, and I shall have something further to say about economy and waste before I sit down.
Apart from Government demands for armaments and the like there are two other branches of activity which in war time have a first call on our national resources. There is the need to increase the production of food from our 1365 own soil, and we mustlikewise throughout the war bend our energies to the uttermost to promote our export trade. The maintenance and extension of our export trade is, as all hon. Members know, vital to the successful prosecution of the war in order that we may earn the meansto purchase across the seas those essential materials, and goods, including foodstuffs, which we cannot produce or make ourselves. The Government intend to do all that they can, consistently with over-riding war needs, to enable traders to fulfil export orders and to ensure that this country's export capacity is used to the best advantage.
But the business of to-day is to propose additional taxation, both because we must gather in by this means the largest possible amount to help war expenditure, and because this course helps to secure that the spending power in the hands of individuals is not used for unhelpful purposes. The Committee will see, therefore, that the emergency Budget which I now have to open and present must call for severe sacrifices and will make heavy additional demands.