HC Deb 28 September 1939 vol 351 cc1529-610

Considered in Committee [Progress, 27th September'].

[Colonel Clifton Brown in the Chair.]


Question again proposed,

" That —

  1. (a)where the profits of any trade or business arising in so much of any accounting period as falls after the thirty-first day of March, nineteen hundred and thirty- nine, exceed a certain standard, there shall be charged on the excess a tax of sixty per cent.;
  2. (b)armament profits duty shall in no case be chargeable and the national defence contribution shall only be chargeable if it is higher than the tax chargeable under this Resolution;
  3. (c)the tax chargeable under this Resolution in respect of a trade or business for any period shall be allowed as an expense for Income Tax purposes incurred in that period but any repayment of the said tax allowed by reason of a deficiency of profits in a subsequent period shall be taken into account for Income Tax purposes as if it were a profit of the trade or business arising in that subsequent period;
  4. (d)special provision may be made as to the tax payable in the case of inter connected companies."

3.58 p.m.

Mr. Pethick-Lawrence

The issues raised by this emergency Budget far transcend in importance those of ordinary times. Finance can win a war and finance can lose a war. It can make or mar the civilisation which follows at its end. There is much to say on these topics, but I am conscious that our time is very short and that many hon. Members wish to take part in the Debate. I shall, therefore, economise my words, and I hope that I shall be forgiven for my unvarnished speech and that the Committee will follow me if I make my points in rapid succesion.

I will start with the general background. The key word is "re-adjustment." The whole economic life of the nation has to be re-adjusted to new conditions and finance is the instrument through which this readjustment must be imposed. Let me for clarity put the matter into rough figures. Suppose the total income of the country is roundly about £ 5,000,000,000.

Last year the expenditure of the State was a little over £ 1,000,000,000, or say one-fifth of the total income of the country. This year the Chancellor of the Exchequer has forecast a State expenditure of some £ 2,000,000,000, or say two-fifths of the income of the country. Who shall say that next year it may not reach £ 3,000,000,000, or say three-fifths of the total income of the country. I am well aware that if idle capital and idle labour be re-employed, apart from any question of a rise in prices, our income next year may increase from £ 5,000,000,000 to £ 6,000,000,000, but also it may well be that the expenditure of the State may surpass £ 3,000,000,000, and even if it does not we must contemplate at least half the whole national income being ordered by the State. Though the after-effects will be widely different, this re-adjustment in the national life will equally have to take place whether taxation or loans provide the major part of the money used by the State. It means the abandonment of superfluities and the sacrifice of many comforts by all the better-off sections of the population. Those who look back to the last war, to the years that went before and the times that came after, will remember that the lives of the rich and the poor in the Army were to some extent assimilated and that all classes came to understand one another better. So in the present war there will have to be an approach to equality in the life of the civil population, a scaling down in the better-off classes and a scaling up in others. Evacuation has brought many people who were ignorant before to realise in an unpleasant but forcible way the dire poverty of some of their fellows throughout the country, and this experience will not have been in vain if it compels a drastic change in our attitude to these matters.

This brings me to the Budget of the Chancellor of the Exchequer. In my opinion the right hon. Gentleman is right in deciding to start at once with heavy new taxation. He has imposed unprecedented burdens for the current year and these will cause all households very seriously to ponder over their own personal budgets for the coming year. Yet we cannot disguise from ourselves the fact that even so the Chancellor is meeting only a very small fraction of the expenditure. After allowing for expected short- falls of revenue, to which he referred, he is providing a net increase of only some £60,000,000 over his Budget estimate of April, leaving several hundred additional millions to be borrowed. As to next year, as the momentum of war expenditure increases, so every section of the community which has a margin of private expenditure will progressively have to curtail it. Unpalatable as it may be, I am forced to the conclusion that the Chancellor's prospective taxation for 1940-41, of which he spoke yesterday, cannot be his last word. I shall return to that question later.

As to the division of the burden, with one major and with a few minor exceptions I think the Chancellor has decided well. The new direct taxes are heavy, but they are recognised in all sections of the Committee, I believe, as necessary. I shall say only one thing with regard to them, and I could have wished that the Chancellor had said it himself. The rich part of the community will be compelled to make considerable changes in their way of life. One way to set about doing it is to dispense with the services of some of those whom they have already employed. I beg them not to rush into this course before it is absolutely necessary. After a while the rising demand of war economy will create fresh employment, and if they will wait a little hardship will be largely averted.

Turning from the direct taxes to the indirect, unpleasant as they may be, I think they must also be borne with fortitude, and they will be, but I except from this category the Sugar Duty, which is in many cases a direct attack on the nutrition of the childhood of the nation and the helpless classes. There is one section in our population that has no superfluity, no comfort, and not even necessaries. I refer to the old age pensioners. Of course it is easy to say that the sugar tax is only a 1d. a lb., but that kind of thing has been said time after time. One thing after another is put on the backs of these people. There is no doubt whatever that, however well the finance of this country has been conducted there will be some rises in prices —one of the Ministers admitted it quite definitely—it must be clear to everyone that where our imported foods are concerned that, with a fall in the exchange value of the£, there must be a certain increase. I have therefore to say that I am convinced that even in spite of the growing difficulty in time of war there will have to be some advance in the amount paid to the old age pensioners, even though it is smaller than what might have been expected had no war intervened. We cannot go on piling up burdens on these people and expect a united country. Their unanswerable demand will have to be met, and the sooner it is met the better.

I propose now to leave the field of taxation and to turn to a section of the financial problem about which the Chancellor did not say very much—the method of borrowing and the rate of interest. I am glad to see that this morning the Bank Rate has fallen back from 4 per cent. to 3 per cent., but it is still 1 per cent. above the rate at which it stood before the war. I say emphatically that it is still too high, and that the sooner it goes back to the 2 per cent. the better. I am one of those who think that whatever justification there was for putting it up in the first instance, and I am inclined to believe that even for this purpose it is an outworn instrument and that far better modern equivalents are available, there is no justification for keeping it at a higher level.

Even in the short time it has been raised there have been very dangerous results. Quite obviously it affected directly the Treasury Bill rate. There was, I believe, a rise of fully 3 per cent. in the rate at which the bills were discounted. I do not need to remind the Chancellor, though I would remind the Committee, that every 1 per cent. rise in the rate of Treasury Bills means an apparent or gross expenditure of some £10,000,000 a year to the Exchequer. Even if certain allowances are made, the net loss is probably at least £5,000,000 for each 1 per cent. rise, provided it continues throughout the year. Therefore, if there were a 2 per cent. increase in Treasury Bill rates, and it were to last over a whole year, it would mean at the minimum, after all allowances have been made, another £10,000,000 expenditure to the Exchequer, equivalent to the full cost of the Sugar Duty during the current part of the year or, alternatively, 2d. or more on the Income Tax; and that sum is simply a present to certain banking houses for which they give practically no additional service.

That is the direct effect of the increase in the bank rate; and undoubtedly it may have a very considerable indirect effect at the same time. I am perfectly well aware that there is no direct connection between the short-term rate and the long-term rate, but there is no doubt, I think, that a high bank rate encourages the belief that all-round rises will take place in interest rates and therefore brings down the value of gilt-edged securities and makes it harder to borrow cheaply.

This brings me to the wider question of how much the Chancellor will have to pay for his long-term loans when the time comes to float them and the method of floating them. This is a matter of very great importance, is perhaps even more important than the precise magnitude of the taxation itself, and therefore I hope the Committee will give it very careful consideration. Yesterday we had two very interesting speeches, one from the hon. and gallant Member for East Willesden (Captain Hammersley) and the other from the hon. Member for Lowestoft (Mr. Loftus), in which they pointed out that what happened in the last war was deplorable, and I believe the Committee and the Chancellor will agree that that was the case. We allowed the rate of interest to go up and up, whereas it can be kept down if proper means are adopted. We encouraged loans of bank money which were pure inflation. Moreover, we allowed the banks to make fortunes by increasing their advances to customers on what was really Government credit, and owing to the precise wording of the law we failed to catch their profits under the Excess Profits Duty.

All those things are avoidable. We can if we like limit the amount of the advances that the banks make, or, if we prefer to allow them to increase, we can ensure that the additional profits come not to them but to the Exchequer. There is a perfectly straightforward technique of floating Government loans at a low rate of interest. That is a matter of financial detail into which one cannot go to any great extent in Committee at the present time, but there are means, and no doubt the Chancellor is aware of them. Broadly speaking, what we have to do is to go on issuing Treasury Bills and to induce the brinks, after a time, to give added support to gilt-edged securities, and when the public has saved money as a result of restriction to float a loan at a low rate of interest and appeal for support. I am not one of those who believe that rich people are so devoid of patriotism that they must be bribed to do their duty.

There are several other questions of considerable importance which I propose to touch upon briefly. I am not very clear about the levy on capital. If I understand the Chancellor aright it is not to be imposed until after the war, and is only to be levied on increases in wealth during the war; but I presume that the first valuation is to be made at once, and I think I am entitled to say that apparently it is not now regarded as quite so difficult as it was represented to be when I put forward the suggestion in April last. I cannot help saying, further, how much better it would have been if my proposal had been adopted at the time and we were now well on the way to getting the valuation carried through. I do not know, but possibly we shall hear more about it in the Finance Bill. As to the merits of the matter, I will only say that the levy on war-increases in wealth does not in my view fill the bill, and I am convinced that as the war progresses, probably even next year, the owners of land and other capital wealth ought to be called upon to pay a special annual contribution. Even if this does not produce much cash it will be an offset to the inevitable increase in Government debt. This is all the more important if the proposal of the Chancellor to reduce the earned income allowance from one-fifth to one-sixth, which would otherwise be quite unjustifiable, is to be allowed to stand.

Turning to the Surtax and the Death Duties, I have some misgiving that the high rates which are to operate may tempt people to further efforts at evasion. I was glad to hear the remark which the Chancellor made at Question Time to-day, that he had proposals in mind, though I quite recognise that any complicated procedure for trying to check evasion must take time to prepare and that we can hardly expect it to be introduced in the Budget of the current year. If the Chancellor has already made preparations, so much the better, but I cannot expect him to produce them in an emergency. I still think there were merits in the proposal I made earlier this year that information might be re- quired as to settlements and other trusts which the prospective taxpayer had entered into.

There is one final point, which is rather technical and relates to machinery, but in spite of that I hope that the Chancellor will give it very careful consideration. The Royal Commission on the Income Tax in 1919 strongly recommended, on the ground of efficiency, that the duties of the Clerks to the Commissioners, in connection with the preparation of assessment books and duplicates, should be transferred to the offices of His Majesty's Inspectors of Taxes. Those proposals were embodied in Clauses 11 and 13 of the Revenue Bill of 1921, but that Bill was opposed on other grounds and the Clauses fell. It is urgently necessary that the next Finance Bill should re-embody those Clauses, for two reasons. In the first place, the frequent transfer of books from one office to another is very undesirable in time of war. I am sure that the Chancellor of the Exchequer will realise the importance of that fact. There is a second reason of a financial character which I will stress even more, and it is that quite unnecessary delay, as the report showed, results from the present archaic procedure. In the case of an autumn Budget it has a particularly disastrous effect, because it renders it exceedingly difficult to ensure that the proper notices of assessment will be presented before the date when payment is required. I hope that the Chancellor will even at this very late hour—it is quite a simple matter—reintroduce those two Clauses which appeared in the Revenue Bill of 1921.

I do not want to close this speech on a mere technical note. None of us can forecast the future. We all must hope that before another Budget is over a brighter day will have dawned, not merely for our own people, but for the world as a whole; but if that is not the case and war is still raging I am confident that our people will face the grim financial prospect then with no less fortitude than they are showing to-day towards the burdens which the Chancellor is proposing to put upon them.

4.23 p.m.

Mr. Graham White

I would say at once that I could not agree more than I do with the right hon. Gentleman who has just spoken, in his observations with regard to the question of interest rates. I observed to-day with satisfaction that the Bank Rate has been reduced to 3 per cent. I have never been able to understand why it was put up to 4 per cent. It seemed to be a sort of reflex action from bygone days which is quite unnecessary at the present time. I agree with what the right hon. Gentleman said about general interest rates, with regard to our prospective borrowing. I hope that the Government will, at the earliest possible and convenient moment, tell us just exactly what their policy is to be.

This is a matter of some immediate consequence because, as a matter of practical machinery of business, it is important that the gilt-edged market on the Stock Exchange should be made to function as soon as possible. Many people will require funds—still more to-day than yesterday—in order to meet the requests of the Chancellor of the Exchequer. Many others require funds for the purpose of purchasing capital equipment and other objects of that kind. I hope that it will not be long before a definite policy will be announced which will let those who are concerned in these matters know exactly where they are. On the subject of interest rates, it is inconceivable that the Chancellor should proceed to raise our war expenditure by offering continued and increased advantages to lenders, because increases of that kind will result in an impossible burden at the end of the war and will make repudiation in some form or another inevitable.

In the latter portion of his speech, the right hon. Gentleman went on to refer to the interesting speech which he made in the course of the Second Reading Debate on the Finance Bill earlier this year with respect to a tax upon wealth or a capital levy. He said he presumed that something of the kind was apparently to be included in our present finance proposals and that the necessary valuation was considered to be easier than it was when the question was mooted by him earlier in the year. I had an opportunity of taking part in the Debate on that occasion, and, while I agreed that some such proposal as that of the right hon. Gentleman seemed to be necessary, I did say that it could be carried out only in peace time. I cannot conceive, with such knowledge as is available to me, that if the valuation was difficult in peace it is not much more difficult now that we are at war. I will go so far as to say that it is impossible at the present time to arrive, whatever it may be in some months' time, at any effective and satisfactory valuation on which a computation of the kind desired could be satisfactorily based.

I think the Chancellor of the Exchequer has no cause to complain of the reception which his proposals have had. I do not know, but I should think his task has been lightened by the fact that there has never been a time when people had a better understanding of the necessity for making sacrifices which must descend into every home in the land. The Committee will, no doubt, forgive me for relating a personal experience. When the right hon. Gentleman was speaking yesterday, my mind went back to my early childhood days and to one of those terrible pictures that used to appear in seme family Bibles. We had such a Bible, and no doubt the right hon. Gentleman had one. The picture showed a terrifying conflict taking place between the Israelites and the Amalekites, and Moses surveying the scene from the top of an adjoining hill. As the battle raged, when Moses held up his arms the Israelites won, and if he dropped his arms the Amalekites got an advantage.

Mr. George Griffiths

When did the Simonites win?

Mr. White

On that occasion Moses became fatigued, and Aaron and Hur, who happened to be conveniently at hand, held up his arms. While the Chancellor of the Exchequer was speaking yesterday I believed that many hon. Gentleman on both sides of the Committee would have been willing to hold up his arms in order to sustain him in his efforts.

I should now like to mention a matter which has, perhaps, been overlooked in the course of this discussion, and it is the fact that this is the first war in which this or any other country has been engaged which has been recognised from the start to be a totalitarian war, in which all sections of the community and all their resources are engaged from the outset. In this war, we and our Allies have no immediate, and possibly no prospective, superiority in man-power, but we undoubtedly have an unquestioned preponderance of material resources, especially when we take into account our ability to import. If we can mobilise and deploy all these resources and bring them into action we shall, indeed, have an overwhelming superiority. That is the task on which the Chancellor of the Exchequer, and indeed all of us, are engaged, to mobilise our resources and bring them into action, by diminishing peace-time demands on labour and services. I and my hon. Friends certainly approve in general the proposal of the Chancellor to raise as much as he can now by taxation. That, in the long run, will make the burden on the country easier, and it will make it easier when the war is over to return to a normal method of life.

There are two proposals, however, which give rise to some misgivings in our minds. The first is the proposal to reduce the children's allowances. I do not want to take up any time on this point now, further than to say that the survival of a nation depends on the number and quality of its children. This proposal has an impact on problems of population which are of a very serious character, and we hope that some further consideration may be given to the proposal. Also we deprecate anything that is going to interfere with the opportunities for education and development of the age group 14 to 18. In the very short run such interference may prove disastrous to the country. The other proposal to which we take objection is one to which attention has been already called by the right hon. Gentleman above the Gangway—the Sugar Tax. This undoubtedly, as the right hon. Gentleman said, in effect if not in words, is a cumulative blow on the very poorest section of the community. It falls on those whose incomes are measured in shillings and pence, those whose only reserves at the present time are the kindness and consideration of their friends and whose only banker is the public assistance committee—which is not always a very accommodating institution. In the case of old age pensioners, it is clear that this tax can only have the effect of putting a further burden on local finance, the difficulties of which nobody wishes to see increased at the present time.

We have heard with satisfaction the Chancellor's proposals with regard to economy. I would appeal to the Government to do something more than they have towards directing public attention on this matter and giving greater precision to public efforts towards achieving economy. It would be of great value if the public were informed what should be done in order to achieve economy and if the public were warned against using such products as take a great deal of space in ships' bottoms. I think the Home Secretary has done something in this regard, but more requires to be done. It is essential, if these heavy exactions and impositions are to be borne willingly, that the taxpayer should, as the Chancellor of the Exchequer said yesterday, be convinced that he is getting 20s. value for every £1 spent. The general ideas of the Chancellor for raising money were, in the main, negative proposals. It is Important that everything conceivable should be done to maintain the revenue and fortify it in every possible way. I am generally in favour of the method of conducting the business of this country which appears to be the policy of the Government to encourage at the present time, namely, that industries themselves, through the employers' and employes' organisations, should be responsible for the day-to-day conduct of those industries. People engaged in an industry will be less likely to make tactical mistakes inside the industry than anybody coming in from outside. We have already had an illustration of that in the case of the fish trade, and I hope nothing of that sort will occur again. But the industries themselves are not able to see the strategic position of the nation as a whole.

Mr. Silverman

Does the hon. Member mean that the muddle in the fish trade was the fault of some civil servant? Many of us have been led to believe that that scheme was devised by a business man brought in from outside because of his supposed special knowledge.

Mr. White

I do not wish to discuss that particular point with my hon. Friend. My argument was directed to the fact that if the various organisations within a trade were left to carry out the ordinary day-to-day business they would do it in a satisfactory way, but that it was in regard to matters occurring outside that trade that blunders would be made. I know that these are early days, but I should not be exaggerating if I said that the Ministry of Labour having fixed up reserved occupations, there are other Departments actually taking action which will put out of work people who are in those reserved occupations. That is a question which urgently requires consideration. I should be glad to hear how that sort of thing is being worked out.

I was concerned with the statement issued some 10 days ago on the authority of the Ministry of Supply that it was not proposed to issue priorities over the whole field of industry. It was not even proposed to issue them over the whole field of Government contracts but only to issue them when difficulties had arisen owing to lack of labour or lack of availability of material. I hope that is merely an interim policy which will not be pursued, because a policy can hardly be commended which in effect says it does not propose to issue priorities unless and until difficulties have arisen in some particular field. I hope that at no distant date there will be brought into effect a general and effective scheme of priorities. In the bastard economies of to-day a very high degree of efficiency and skill in direction is called for on the part of the central Government. It requires a higher degree of skill than in conducting the economy of the nation under the conditions that we have known in the past. I trust that in this matter we shall adopt the same standards that we adopt in relation to the fighting Services and that, if inefficiency or incompetence is found, it will be dealt with in the same way as on the field. This is a conflict in which every one of us is taking part and in which the full resources of industry must be engaged.

I should like to say a few words about the importance of developing and maintaining the export trade. That is, indeed, one of the few remaining ways in which industry can make a direct contribution to the winning of the war. A week or so ago it was stated that the export trade would receive a very high order of priority. That is a satisfactory statement as far as it goes, but a great many things are arising to-day which are, in fact, hampering the export trade. I will simply mention the fact that the granting of licences and priorities is in the hands of far too many authorities. I have had instances brought to my knowledge of permits being required from no fewer than six Departments and of being obtained from five, but the whole transaction had broken down through failing to obtain a permit from the sixth. No doubt that is due to the transition period in which we are at present. We are on the way from peace-time to war-time economy and no one can expect that these things will pass through without a hitch, but it is essential that these difficulties should be got over at the earliest possible moment. Again, the export trade is being handicapped through the great difficulty of communicating with customers, especially abroad. The impossibility of telephoning or communicating by wire —

The Deputy-Chairman

We are not discussing the export trade as a whole. The administration of the Department which deals with it is not in order in this discussion.

Mr. White

I should be reluctant to go beyond the proper field of discussion. The argument that I was addressing to the Committee was that it is important that we should maintain the export trade and the value of our currency. My intentions, I hope, were impeccable if my methods were at fault. There is one matter that I should like to mention. It would be of general assistance to business of all kinds if the Government would promptly pay for all contracts as they become due. We are exhorted individually not to exact an unwilling moratorium from our creditors, but to pay cash whenever we can. What is sauce for the goose in that respect may also be said to be sauce for the gander. One sometimes speaks of the task of the Chancellor as being his burden and his task, and it is said of a battle that it is a soldiers' battle. The contest in which we are engaged cannot be said to be a only a soldiers' battle. We are trying to secure the right to live our lives in peace free from the fears and menaces of a merciless tyranny. In that contest we all have a part to play in the economic sphere.

4.47 p.m.

Sir John Wardlaw-Milne

It is a pleasure, after the shock that the House received yesterday, to be able to say that there is much that has been said in the speeches from the right hon. Gentlemen on the Front Bench and by the hon. Member who spoke last with which we must all agree. One remark that the last hon. Member made, however, impressed itself upon me at once. He said that, speaking for himself and his friends, that he entirely approved of the Budget. I prefer to say that, speaking on behalf only of my own constituents—I am sure, without consulting them, that I am expressing their view—and on behalf of myself, I do not approve of it at all, but I accept it with deep and heartfelt resignation. That is I think a truer expression of opinion. I was further struck by a remark of the right hon. Gentleman who opened the Debate. I entirely agree with what he said as to the necessity of the Chancellor of the Exchequer considering at once the position that he would be in and the large amount that he would have to borrow in the near future and the desirability as soon as possible of letting financial circles and the public know what his policy is to be. The whole country is anxious to help the Government in every way it can and I am certain that, when the offer of loans is asked for, the country will endeavour to meet the Chancellor's wishes, but the sooner they know what his policy is the better for business as a whole. I also agree that perhaps there was no necessity—one can only speak with out the expert knowledge which the Treasury has—for the sudden rise in the bank rate at the outbreak of the war but, whether that is true or not, I am certain that it will be of great benefit if the rate can be reduced, not only from the point of view of the Treasury but of business as a whole.

There was, however, one passage in the right hon. Gentleman's speech which gave me the impression that he still labours under the strange delusion that you can make the poor richer by making the rich poorer. It would surprise me if the right hon. Gentleman himself, at any rate, whatever views some others may hold, held that belief.

Mr. Pethick-Lawrence

I never said that, nor do I think it.

Sir J. Wardlaw-Milne

I certainly do not attribute these words to the right hon. Gentleman, but merely suggest that the course of one part of his speech rather gave the impression that the burden proposed to be placed on the rich could be still heavier with advantage to those less well off. That was the impression I gathered from the speech of the right hon. Gentleman.

Mr. Silverman

That is quite a different thing.

Sir J. Wardlaw-Milne

One thing is definitely certain; the burden on the direct taxpayer now is heavier than it has ever been before, and is probably as heavy as it is possible to bear without upsetting entirely the source of most of the income of the country. There is no doubt whatever that this new burden will be very difficult to carry and still produce the income which the Chancellor of the Exchequer requires for his Budget. My main difficulty in connection with this Budget, therefore, is, how are we going to produce the income with which to pay these taxes? That is the problem which must be facing most people in every walk of life almost in the country to-day. The hon. Gentleman the Member for East Birkenhead (Mr. White) spoke of the necessity of doing everything to facilitate trade. I do not for a moment intend to go into details of the restrictions, some of which are very necessary as a result of the war, upon trade at the present time, but there is no Member in this House who does not know that trade is restricted in many ways some of which no doubt are necessary—but not all. The Government as a whole—it is not only in one Department—must turn its attention at once to the freeing of trade as far as it is possible to do so in order that the incomes and profits can be made from which in the end these large sums of money must be found. When I realise how restricted is the field in which private enterprise can function under war conditions, I am a little fearful of the ability to pay and to lend the enormous sums which will be required in the next few years if the war goes on. I do not doubt that the country can do it. This is probably the only country that can do it, but, all the same, I think that throughout every Department the Goverment must set themselves to examine to what extent trade can be freed from restrictions and enabled to flow in such a way that returns can reasonably be made. Every restriction is a blow to the Exchequer and every successful effort to promote it, a gain to the Chancellor.

My right hon. Friend the Chancellor of the Exchequer in his Budget speech spoke of the appointment of officials and officers from outside in two great spending departments to consider and go into questions of possible sources of wasteful expenditure. That is not enough. I do not here to-day want to discuss the question of whether the appointment of a House of Commons Committee or some other body is the right course to adopt, but in order to satisfy the people of this country, and even the Government themselves, there will have to be some sort of body to make an inquiry into every Department of the Government in which waste is taking place at the present time. I suggest, merely as an example of the kind of thing I have in mind, that Lord May, whose occupation and very valuable services to the country as chairman of the Imports Advisory Board have now finished, and whose services in that respect are not now required, might be available with certain colleagues to descend upon any Department of the Government and demand an explanation of expenditure and see whether waste could be eliminated. The hon. Gentleman opposite took an example from a Biblical quotation, but I prefer to take one from history and to say that I am inclined to think that what we want in this country is a sort of lion's mouth into which not denunciations of our fellow-citizens should be dropped, but denunciations or examples of waste which come to the knowledge of citizens all over the country. Something of that kind is required. There are examples which have come to the knowledge of many of us here, and probably to many people outside, into which the Government might well inquire to see where economy can be made.

Mr. Ellis Smith

Can the hon. Gentleman give a few examples in order that we may follow him?

Sir J. Wardlaw-Milne

This is hardly the time to do it. Perhaps the hon. Gentleman was not here when another hon. Gentleman was called to order for going into details in respect of one Department, and I do not wish to err in a similar way. They have been referred to by the Chancellor of the Exchequer himself.

There is another point in connection with the raising of this money which is important, and it also deals with the possibility of freeing our trade as much as possible. A tremendous number of new officials and officers have had to be appointed. It is inevitable that the liaison between these officers should be incomplete at a time like the present. Many of them may have had little responsibility in their lives before. In some of these cases there will have to be an examination to see whether a better working arrangement between the different Departments is possible. The only point I want to make in general is that, if these enormous sums of money have to be raised, they can only be found by freeing our trade to the very utmost extcnt possible considering that we are at war. It is inevitable, perhaps, in the first few weeks of the war that things have not quite gone that way. If anything, they have gone the way of putting on restrictions, some of which have not proved to be absolutely necessary.

I do not think that there is any doubt that the country can meet the strain of this Budget, terribly heavy as it is. It will be a strain which, as the right hon. Gentleman said, will be felt by every household in the country, and by everyone of us individually. It will undoubtedly bring Socialism a little nearer, if Socialism brings everybody down to one common plane. Whether that be so or not, there must be common effort on the part of every section of the people. I am certain that that will be made, just as I am perfectly certain about the result of the war. But I do not doubt, all the same, that we are all going to feel it very heavily, and this House should do its utmost to ensure that this money can be raised by the people by removing any unnecessary interference with individual freedom and the sanctity of family life, and by enabling the producer and the trader to carry on with as little interruption as possible to his daily avocations.

4.59 p.m.

Mr. John Wilmot

The hon. Gentleman the Member for Kidderminster (Sir J. Wardlaw-Milne) attributed words and sentiments to my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence).

Sir J. Wardlaw-Milne

I specifically did not say that those were his words.

Mr. Wilmot

Shall I say "opinions"? The fact remains that in the construction of this Budget the Chancellor of the Exchequer has taken peculiar pains to load the heaviest weight of the new burden upon those least able to bear it, and to temper the weight of these burdens on those most able to bear them. In the circumstances in which we find ourselves there could be no more serious criticism of the structure of these proposals than that. I am very glad that the Chancellor of the Exchequer has faced up to the magnitude of the financial problem at the beginning. It is very much better that it should be done in that way than by piecemeal and progressive increases in taxation. While I entirely agree with the plan by which that is brought about, I do not agree with the manner in which the impositions have been fixed upon the individual incomes of different sections of the community, because there is a great deal of injustice. An examination of the tables which the right hon. Gentleman was good enough to circulate with the White Paper shows quite clearly that the largest proportionate increases come from the poorest classes of taxpayer. It is true to say that of these Income Tax increases the smaller the family income the larger the proportion of increase. That, surely, is a tremendous and unanswerable condemnation of the main features of the Budget.

I ask hon. Members to turn to the tables and they will find that the very hard-pressed and poor taxpayer has to meet the largest proportion of increase, and I ask the right hon. Gentleman when he replies to explain how it is that he has taken as the guiding principle of his wartime taxation, the getting of the most increase from the poorest. Let us examine some of these things in detail. The increase on earned income is larger than the increase on unearned income. Surely, nothing can justify that. If there is one kind of rich less desirable than another kind of rich in wartime it is the idle, un-earning rich, yet the Chancellor of the Exchequer has chosen to discriminate against the earner of wages and salaries in favour of the rentier and dividend-drawing class. That applies right through the scale from the poorest taxpayers who is a wage-earner to the very largest salary-earning, essential business executive, who pays more than his counterpart who lies at home and draws his dividends. Why is it that the Chancellor of the Exchequer has chosen to make that discrimination as well as the other?

Let us take the indefensible proposal that an extra burden shall be put upon the fathers of families. Why at this time should the right hon. Gentleman choose to revise the allowances for children in a downward direction, the effect of which is to lay a smaller proportion of war tax upon the childless person than is laid upon the family? I am a childless person, and other hon. Members will appreciate even more than I do the very heavy burden that mere fatherhood involves in these times. In every class of the community the extra charges which fall upon the family income by reason of the need of maintaining children is great. One would have thought that in framing this Budget, having regard to the circumstances in which we find ourselves, the Chancellor of the Exchequer would have been particularly careful to make provision for the children; but he is choosing to do the exact opposite and to say: "IfI must impose an extra burden, it shall fall particularly hardly upon those who have the largest number of children." These criticisms seem to me to be fundamental. There is no one in this country who does not realise that the struggle in which we are engaged is a struggle for the rights and the individual liberty of every person, whatever his station and whatever his situation, and it will not help us to prosecute the war if people believe that at the very outset the Chancellor of the Exchequer has so framed his Budget that it is pressing most hardly on the poorest, and the least hardly on the rich.

I was very interested in the remarks made by the hon. Member for Kidderminster. He was talking about the crushing taxation on the rich. I want to talk about the heavy taxation on the poor. At this time there is not a Member of this House who will question that the utmost productive capacity should be used for war purposes and that it is a crime against the national interest to divert any productive capacity for personal luxuries. If hon. Members agree with that view, then they will agree that we should adjust our taxation, having in mind not so much what is taken from the individual but what is left after the tax has been collected. This is not a punitive argument. Hon. Members opposite must not think that those of us who urge this kind of consideration do so because we enjoy punishing the rich. Not at all. We do it because we believe it is necessary to make the maximum effort to win the war, and the maximum effort to win the war means the minimum expenditure upon personal luxury.

The quickest and easiest way to restrict expenditure upon personal luxury is to wipe out that margin of income which is spent upon personal luxuries. These taxation proposals will leave the very rich section of the community, numerically small though it may be in the aggregate, wielding a colossal amount of purchasing power by the possession of incomes which they will continue to spend on luxury purposes. Upon what else can they spend them? These are the personal incomes of individuals, not the incomes of commercial undertakings. It is true that, after all these taxes have been collected there will be left in the hands and in the absolute disposition of individuals, five figure incomes. We are not going too far in saying that five figure incomes in war time cannot be justified, and that the Chancellor of the Exchequer would have been perfectly right if he had put an upper limit and had said that all incomes over that figure would be taken for the purposes of the community.

I was disappointed to find that in regard to one department of taxation, which, although it was contested when it was first introduced, has now received almost universal approval—Death Duties. The Chancellor was particularly modest. Death Duties seem to me an almost ideal form of taxation. They inflict the minimum of hardship, cause the minimum of upheaval, and are very easy to collect, and there can be no theoretical injustice in disinheriting the unborn. I am sorry to see that, whereas the taxation of the smaller Income Tax payer, the skilled artisan, who has to make his contribution to the war in a very real and substantial degree, and the small salary drawer has increased by almost 100 per cent., the taxation on big fortunes, even at the top, has increased only 5 per cent., from 55 to 60 per cent. How does the Chancellor of the Exchequer justify these Death Duty proposals? He still leaves 40 per cent. of all great fortunes in the hands of the legatee. Surely at this time he would have been justified in saying that when great fortunes pass by death the nation is entitled to take 90 per cent. of all such figures over a reasonable amount. So much for the direct proposals in the Budget. I am not complaining about their magnitude or about the weight of the burdens which we must bear. I am complaining about their incidence, and the fact that at this time the Chancellor of the Exchequer thinks it is proper to discriminate in favour of the rich as against the poor.

I should like to say a word about the indirect taxation in the Budget. Nobody will complain about the increase in the taxes upon spirits and wines, but I am not so sure about the beer tax. I think all reasonable people will recognise that beer is a stable article of diet of most British workmen, and to put one penny per pint on beer is a pretty heavy tax upon those who are already heavily taxed, and who will feel to the maximum the rise in the price of commodities with which we are faced. But far more serious, and in my view utterly indefensible, is the increase of the tax upon sugar. I would appeal, as I did on the occasion of the last Budget, to the Chancellor of the Exchequer to think again about this sugar tax. Sugar is an essential article of food, playing a very important part in the diet of the poor, and especially of the children of the poor, and to put an increase of 50 per cent. on the tax upon sugar seems to me to destroy the whole moral foundation of the Budget. I would ask the right hon. Gentleman to consider this elementary truth. A tax in any circumstances upon an essential article of the diet of the poor is a most unjust and unjustifiable tax, because the smaller the family income the larger the percentage of the income which is spent upon the necessities of existence. You get a most inverted sort of morality, an inverted kind of taxation theory; you are taxing heaviest those who can least afford it. I do not wish to go into the scales and percentages. Hon. Members will find by a careful examination of the rather complicated alterations, that it is true that the smaller the income the higher the percentage of increase of tax. That is bad, but that there should be an increase in the tax upon a necessity like sugar is worse, and I ask the right hon. Gentleman to reconsider it.

5.16 p.m.

Sir George Schuster

I do not propose to follow the hon. Member for Kenning-ton (Mr. J. Wilmot) in all his arguments, but I should like to say at the outset, as one who in other places has had to handle budgets and taxation, that I sympathise with the Chancellor of the Exchequer in having a criticism based on percentages put before him. I have no doubt he will be able to deal with it adequately. From my own experience I can only say that if one was proposing to increase the man on a 1s.rate to 1s. 3d. and the man on a 5s. rate to 6s., one was always blamed for increasing the poor man's rate by 25 per cent. and the rich man's by only 20 per cent. But if, on the other hand, one were to come forward with a proposal to reduce the 6s. to 5s. and the 1s. 3d. to 1s. there would always be a perfect howl that 1s. is to come off the rich man and only 3d. off the poor man. In fact, of course, you can deal with percentages in any way you like. Apart from this, I put it to hon. Members opposite, or at least to those who feel like the hon. Member for Kennington, that if any of us on this side think it necessary to speak words of caution or suggest criticism about any levies which have now been imposed, it is not because we resent the burdens that have been put upon us. We are all looking at this matter from the point of view of the effect on the country, and I put it to the Committee that that is what we have to consider in discussing the Budget proposals. The Chancellor of the Exchequer to whom we are grateful for the clarity in which he put forward his proposals also did us a service in putting the financial proposals in their right perspective, for he said, to quote his words: 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. That is the essential point. Finance is recognised as only a means to an end, the end being, as the Chancellor put it, to make the best use of our productive resources. My right hon. Friend went on to elaborate what he meant by this, and he dwelt on three points: First, the danger of inflationary competition between civilian demands and the immensely increased Government demands; secondly, the need to increase food production from our own soil; and thirdly, the need to maintain and extend our export trade. We must all agree that those are three very important purposes, and I dare say the Chancellor will on his side agree that what he gave us was neither an exhaustive nor an exactly logical classifica- tion of all the needs. It was on the first point that the Chancellor chiefly dwelt. He said: 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." — [OFFICIAL REPORT, 27th September, 1939; cols. 1362-4, Vol. 351.] He went on to say that wasteful and unnecessary use of resources must be stopped. While I entirely agree with those statements, I want to make two comments on them. First, I would comment on the rather negative aspect, the negative emphasis. There is another side. If the Government are to curtail demand and employment in certain fields, they must be ready with something to take its place. These taxation proposals may —I think one must say, they will—swiftly and drastically curtail civilian demand and make idle certain industries which feed that demand. What we have to ask is whether the Government are ready to fill the gap. Yesterday, the right hon. Gentleman the Leader of the Opposition said: It is no use getting an economy in which you are going to throw people out of the jobs in which they are now unless you have jobs in which to put them." — [OFFICIAL REPORT, 27th September, 1939; col. 1383, Vol. 351.] I agree with that, as I think all hon. Members will. That is an aspect of the matter on which I want to say a few words later. The second comment I would make on the Chancellor's remarks is by way of a question. Is the increased taxation now proposed sufficiently discriminatory for his purpose? Is it sufficiently accurately aimed at his particular target? His words were: '' to curtail civilian demand and to make sure that civilian expenditure is directed as far as may be into proper channels. It seems to me that the effects of these increases will be very wide and general. My right hon. Friend has not armed himself with weapons which would enable him to say, "This particular demand must be curtailed" or "As regards this particular demand, we may let it go unimpeded." His proposals will have a general effect on everything. I have no doubt he is considering elaborating his machine and adding further weapons to his armoury. I should be glad if he could give us a little enlightenment on that point. Will he tell us whether he is considering taking power at a later date—perhaps discretionary power—to impose special taxation, say, a sales tax on certain articles, or to increase import duties on certain articles, so that his purpose of directing expenditure into the right channels may be accurately applied?

I turn from this to the chief question which we have to consider in recording our opinion on these proposals, namely, as I have already said, what will be their effect on the productive power of the country? We must recognise that if the Government are, at the very outset, taking these measures which have so direct and drastic an effect on curtailing activity in certain industries, that does throw a correspondingly greater responsibility on the Government to have a well-developed policy for mobilising the resources of the nation where it is necessary that they should be developed and drawn on. Therefore, the question we have to consider is not so much whether the Chancellor's proposals are right or wrong—he is going to have his way anyhow, and I, for one, am very glad that he should—but rather whether the other Government Departments are going to live up to their responsibilities and play their parts properly in the roles which his plan casts for them. His plan will be wrong if they do not do that. It will not be his fault. It seems to me that a corollary to the line of policy which the Government are now adopting is that there must be proper planning and efficiency in the other Departments, and that is what concerns us.

I should like to approach this particular question from another side. I feel somewhat concerned when I consider how we are going to handle our policy in this war. There is a very general feeling in the Committee and throughout the country which I would put in this way. Everyone is saying, "We must not make the mistakes we made in the last war, we must start adequate taxation earlier, we must control prices, and stop that inflationary chase of the cost of living and wages, and we must have no profiteering." All that is very wise and true, and I entirely agree with it; but let us be sure, if we are going to scrap the methods of the last war, that we have something better to put in their place. After all, we did win the last war, and by the end of the war we had mobilised a terrific effort, an effort which was the admiration and marvel of the rest of the world; and although we criticised our own financial methods, they were generally agreed in other countries to have been a performance on the whole of outstanding merit. All the time the wheels went round. Perhaps the motive power was to an undue degree that of private gain, but it did drive the machine and the masses of human beings were at work. I think it is worth while reviewing what happened in the last war. I am sure many hon. Members would find it very interesting to read Lord Stamp's book on Taxation in the War—one of the Carnegie series. There is one passage from his conclusions which I would like to quote to the Committee. After commenting on the fact that our methods were admired in all other countries, he went on to deal with the controversy as to whether less money should have been raised by loan and more by taxation, and whether the inflationary process should have been curtailed and the possible making of profits also curtailed. He went on to say: Speaking from long observation of the effect of this upon manufacturers and business men "— that is the inflationary process and the rise in prices—. '' I should say that the pride of profit-making even though the bulk of the profit is taken away soon after by almost penal taxion, is greater in its net effect upon total effort and production than the limitation of prices and profits, with the absence of such taxation. It may be illogical but it is human nature. It was often urged that they ought not be allowed to make such profits and then no taxes would have been necessary. I think that the evidence of a necessary incentive for output was overwhelming during the war. The existence of the illusion of war profits, not only increased production and made a greater contribution to taxation possible but it also, as soon as resentment against luxury expenditure set in increased the incentive to lend heavily. The other side of the argument is that the inflation that brought all this about also increased the costs of war and created a vicious circle. This is true in alarge measure but the argument that in a wiser and more patriotic world the illusion and incentive would be unnecessary—that the whole costs of war could be met by taxation, or certainly by taxation and loans with no movement of the general price level must be answered by the statement that, in fact, men are yet neither wise, nor in the final sense patriotic enough for this course. I think opinion has moved a great deal since the days when Lord Stamp wrote that passage. I think the approach of business men to their task in war is one which, at least in all the principal cases, may be described as a desire to serve the national interest. I believe there is a trenendous desire to-day to co-operate in the national interest and not to consider profit-making as the primary motive. But if we are to take advantage of that desire, if we are to mobilise that spirit of good will and patriotism, it is necessary that we should have a proper plan and I think there is very great danger that, if we start thinking of nothing but control, we may stop those wheels which it is essential for the country should be allowed to go round with increasing velocity.

What is going to drive the wheels? Who is to mobilise this national effort? What Department of the Government is responsible for it? Who is responsible in the Government for economic policy as a whole? I suppose when one is considering the subject from this point of view, one must look primarily to the Minister of Supply. He has told us that he is concerned with purchasing the needs of the Army and with certain other things such as his special control over raw materials, and he also told us the other day that he was already taking steps to help the development of the cotton industry. But when we ask who is to make the wheels go round if they are impeded by all these controls, I say to myself, and I am sure hon. Gentlemen opposite would agree, that as far as the Ministry of Supply is concerned the Minister and his 13 area officers under their Engineer Rear-Admirals, are not going to make the wheels go round. In putting this point, I find myself in almost exact agreement with the right hon. Gentleman the Deputy-Leader of the Opposition in the speech which he made the other day, and the sense of which he repeated in an article in the "Daily Herald." The right hon. Gentleman wrote: Nothing short of the complete mobilisation of industry as a whole is required. An expensive bureaucracy, national and regional, cannot effect that organisation. It can only be brought about by industry itself. It will never be brought about by the new Munitions Council with its staff of regional bureaucrats. Employers and workers in industry are capable of self-organisation and self-control, subject to general national policy. The spirit of service and constructive co-operation will yield far better results than the overloaded machine which the Government demands. I put this point to the Government. I know that this is not the essential sphere of my right hon. Friend the Chancellor of the Exchequer.

The Deputy-Chairman

I am afraid we cannot repeat the Debate which we had the other day. We cannot discuss the Ministry of Supply on these Resolutions.

Sir G. Schuster

I was resting myself on the authority of the Chancellor himself who said that the essential function of his Department now was: "to deal with the economic and financial problems of the war in the way which will make the best use of our productive resources." — [OFFICIAL REPORT, 27th September, 1939; col. 1362, Vol. 351.] I thought I was only saying what was strictly germane to that subject but after your reproof, Colonel Clifton Brown, I shall not deal further with the matter, except to say that I hope what I have already said has conveyed clearly to the House the sense which I intended to convey, and that everyone will appreciate the grave importance of the matter. Perhaps I may be allowed to add this. It is important that the Government should take advantage of all the good will which exists in the country to-day and the great desire of all to work for the national purpose. But it is extremely difficult for the ordinary managing director or chairman of a company, whose normal duty is to do as well as he can for his shareholders, to convert himself into a public servant, disregarding the interests of his shareholders and working only for the common good. It is extremely difficult for him to fulfil that role unless the Government say to him, "This is what we want you to do in the public interest." Then he can go to his shareholders and say, "This is what we were asked to do and we thought it was in your wider interests to do so, and we felt entitled to disregard profits at a time like this." I put that point to the Government with all the emphasis at my command. I feel it is of great importance that the Government should help to organise the whole effort of the country in this way by calling out voluntary co-operation.

It is also, if I may turn to another point, of tremendous importance that in its own efforts in those things for which it is directly responsible it should set a good example to the country of efficiency and economy. That is why those points which have been raised on other occasions regarding the Ministry of Information or the Ministry of Food are so important. We are all willing to make sacrifices to pay these taxes but we sometimes have to consider, as the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) said, that the paying of the taxes may mean the dismissal of people from our service. That is very unfortunate and I am sure everyone will do his best to keep people going until the public demand for their services increases. Everyone is ready to undertake steps of that kind and even to sacrifice such things as educational plans for their children in the interests of the public purpose. But if they feel that the need for them to pay up this extra money is simply to help to pay for some of the 999 officials in the Ministry of Information, or make good some expenditure that might easily have been curtailed, then you cannot maintain the good will and support of the country.

I want to refer at the end to two special points. I had intended to speak at some length on the question of the Bank Rate, but the right hon. Gentleman will recognise that a good deal of the fire has been taken out of what I had to say by the reduction to 3 per cent. to-day. I hope that is only an earnest of a further reduction. A good deal has been said to-day to the effect that it is bankers who profit by an increase in the Bank Rate. Speaking, if I may, as a director of one of the "big five" banks, I should like to tell the Committee and also the Chancellor that the policy of doubling that Bank Rate was not at all popular round our table, and I would like to put it to him that in all sections of the City where I have been, I have been unable to find anybody who could give me any convincing reason justifying the putting up of the Bank Rate and maintaining it at that high rate for so long. We look abroad and see that the Bank of France has been able to get through this crisis with out altering its official discount rate of 2 per cent., and we wonder whether this holding on to customary practices does not involve a failure to recognise that we are living now in an entirely new era, when different considerations apply and when the Government have much greater powers than ever before.

I will only say that I hope my right hon. Friend will continue this policy of reduction and that he only reserved himself for a week or two in order to produce the psychological effect of a reduction in the Bank Rate coming just after his own Budget proposals. I appeal to him to use those vast powers that the Government have to keep down that part of our expenditure on war which depends on the interest which we pay on our loans. I would ask him to remember that marvellous adjustment in 1932, when the situation was prepared for the conversion o£the old war loan, when almost overnight the psychological expectation of interest on Government securities was reduced from 5 to 3½per cent. merely by the utilisation of the powers that the Government have to-day.

There is only one further point to which I wish to refer, and that is the question of old age pensions. The Chancellor said, and I entirely agree with him, that his weapons of taxation were to be used to ensure that "civilian expenditure is directed into proper channels." I feel, and I must express this feeling, that the maintenance of minimum standards of living, subject only to supplies of necessaries being available to the country, cannot be regarded as an improper channel for expenditure. I do believe that in these days, now that we have come to regard finance in its true aspect a; a means to an end, as something to produce certain conditions in the coun-try, and not as a question of having just so much money in hand, we cannot escape from the obligation to give some consideration to the position of old age pensioners merely on the ground of an empty till.

In conclusion, I would say this: This is a very unpleasant time for everybody, but difficulties are opportunities, and I think that if the present difficult situation is properly handled we may, as has been suggested by a speaker on the other side, find that we emerge from this struggle with a better interpretation of civilisation and with a better sense of fellowship between all classes in the country.

5 46 p.m.

Mr. Benson

The speech of the hon. Member for Walsall (Sir G. Schuster) commended itself, I think, to the whole House, not only on account of his very human remarks at the end, but for the deep and fundamental problems which it raised from beginning to end. I was particularly interested in his quotation from Sir Josiah Stamp as to the necessity of supplying a motive for industry in war time. Sir Josiah suggested that the only possible motive was the profit motive. That may be true under normal circumstances, but I think the suggestion of the hon. Gentleman himself, that if the Government go to the captains of industry and say, "We will regard you as civil servants for the time of the war at any rate," the psychological effect of that will be just as great as the profit motive. But I cannot agree with him if he carries that one step further and suggests that there is no necessity for a very wide extension of checks and controls over profits. It may be true that you can go to some great technical director of some big concern and say, "You must regard yourself as a civil servant," but that technical director is only one cog in our industrial machine, however big he may be and if we are going to make our industrial machine function under war conditions, not only with its old efficiency, but with a newer and higher efficiency, we must have some form of national control, some form of national guidance, and checks applied where necessary, in a way that no industry can do within itself and which can only be done by a national view, backed by the national power to achieve what is desired.

Unless we make a very drastic change from the last time, not only in our industrial conditions, but in our methods of financing a war, we shall not be able to carry it through. The circumstances to-day are fundamentally different from what they were at the beginning of the last war, so far as both taxation and debt are concerned. In the last war we started from practically zero, with Income Tax at 1s. 2d. in the £and a National Debt of £800,000,000, but we start this war with a National Debt of £8,000,000,000 and Income Tax and Surtax running up to 13s. 9d. in the£, even before war taxation is imposed. Those conditions are entirely different from those under which we started the last war, and if anybody is under the impression that we can finance the present war as we financed the last war, he is under not merely an impression but a delusion.

New circumstances will demand new methods. It is no use, as the hon. Member for Kidderminster (Sir J. Wardlaw-Milne) suggested, longing for a greater freedom in industry. If this war is a long war, industry will not be progressively freed from the comparatively minor checks and controls of to-day; it will be essential, for the purpose of co-ordinating and increasing the efficiency of industry, steadily to assume greater and greater control. You cannot have efficiency in industry unless you have a co-ordinated industry, and you cannot get co-ordination practically unless that co-ordination is insisted upon from the top. Take one example. The Government have already demanded that there should be an increase in the production of coal. What is the condition of the coal industry? Everybody knows that it is the most disorganised and recalcitrant in the country.

Mr. Tomlinson

It used to be.

Mr. Benson

It is still pretty bad. We require not only a large increase in our coal production, but a large increase in the efficiency of the coal industry. The industry has been examined half a dozen times by different commissions, and each one has recommended unification and nationalisation. The need for increased efficiency will compel the Government to take over industries and put them upon an organised, co-ordinated and efficient basis. That is a large problem to discuss on the Budget and I had better get back to more immediate problems.

The one thing which the Government must deal with is the question of prices. In the last war prices doubled between 1914 and 1918. That is of fundamental importance to the Government because in war time the Government are far and away the greatest consumers. In 1914 it was estimated that our national income was £2,300,000,000. In 1916–17–18 the Government's purchases alone were more than that figure. In 1917 the Government's purchases were £2,600,000,000. I admit that there had been a jump in prices in the meantime. With the enormous scale of Government purchases, however, it is essential that there should be no rise in prices as there was in the last war. If we are not to finish the war with a national debt of £15,000,000,000 to £20,000,000,000 the Government will have to put prices into a strait jacket. There must be no increase in prices. That will not be achieved merely by a few orders from the Ministry of Food. When the Government get into their swing and hand out enormous orders there is bound to be a tendency for prices to increase, apart from any question of inflationary loans.

Under war conditions at home and abroad the tendency will be for prices to increase, and unless the Government are prepared to organise the control of prices efficiently and upon a wide scale, it will be impossible to avoid a sharp increase which will return upon the Government themselves. I will not go into the action of the Government in raising their Treasury Bill rates against themselves from 14s. per cent. to £3 14s. per cent., but take their activities in connection with butter. Having raised the price, they made £250,000 on the transaction. Is it worth while making such a profit by the raising of prices? It is one of the most fantastic pieces of war finance I have come across. For a similar reason I object to the tax on sugar quite apart from the question of the human element and the old age pensioner. It will raise by nearly 25 per cent. the price of an essential food. That means that, whatever the Government may get as a result of the tax, the raising of the price will sooner or later return like a boomerang on the Government.

The problem of prices will have to be met by drastic control. There is the problem not only of internal prices, but of external prices, and it is equally essential, if we are to stabilise prices, that the Government should not merely do what they did in the last war and purchase a number of important articles in bulk, but they must become the prime importers of this country. They must import, not for the purpose of making a profit, but for the purpose of maintaining a stable price level.If necessary, they must sell their imports at a loss. They will probably have to sell a number of imports at a loss, but whatever they may lose they will gain in the long run. If there is a 10 or 20 per cent. increase on an article coming in at the ports, of which probably the Government will be the largest purchaser, by the time it has gone through various hands and the Government purchases it the rise of 10 or 20 per cent. will probably be doubled. The Government have to aim here, as everywhere else, on a rigid control of prices. It is no use allowing prices to rise and then hoping that you can skim back by high taxation the profits which a rise in prices brings. Taxation is a necessary instrument, but in certain circumstances it is very fallible. We had the example of the Excess Profits Duty during the last war. It was a stringent and drastic tax, but I sometimes wonder whether it did not cost the Government more than it saved them.

The hon. Member referred to the private profit interest as the motive in industry. If you allow individuals to run industry with the motive of profit and then the Government takes something like 80 per cent. of the profits back, you are leaving industry without its motive, because you destroy the one motive for which it is run. The result is, as in the case of the Excess Profits Duty, that it leads to unparalleled extravagance. It is not worth being economical or worth saving. Money was splashed about because the Government paid; it came out of Excess Profits Duty. This time, realising the ineffectiveness of the 80 per cent. Excess Profits Duty, the Government have limited their new Excess Profits Tax to 60 per cent. in the hope that 40 per cent. will be some motive for economy. The Government will not get economy or limit the cost of this war to the community by allowing profits to be made and then attempting to get them back by taxation. That has failed in the past and it will fail again. They must fight high profits and rising prices, not by taxation, but by a large and vigorous extension of the costing system. Costings must be applied throughout industry. If it is attempted, as it will have to be attempted and carried out, I know that it will mean a lot of interference with industry and complaints of waste of over-staffing of expensive Government Departments, but if we do not keep down profits and prices what is the alternative? A national war debt of £15,000,000,000 to £25,000,000,000, which everybody knows will never be paid and probably will be repudiated.

We have to face very grave times. We shall have a large Army on the war front, but we are fighting this war not merely on the war front, but on the industrial front, and we want a second army of costing clerks and accountants who will be able to check the waste and extravagance which is inevitable if we try to rely on reducing profits by heavy taxation. We cannot expect an industrial system whose very mo five, whose life-blood, is private interest and private profit to continue after we have taken away that motive. We have to supply some other form of drive and some other form of check, and that can only be done by developing and expanding the costings system which we have already applied to the immediate suppliers of war materials. There is no other way. The alternative is a fantastic war debt which will bring toppling down the financial system of this country. We must either fight this war economically or we shall lose it. We could afford to be extravagant in the last war, because we started from zero. Our present national debt is as high as can reasonably be carried and we have to find some other method of financing war than the almost unlimited borrowing of the last war.

6.3 p.m.

Sir Irving Albery

The Budget Speech to which we listened yesterday has been approved of in some directions—painfully, because it certainly cannot have given anybody cause for great personal cheerfulness. The speech of the hon. Member for Chesterfield (Mr. Benson) to which we have jus' listened, though interesting, was not particularly cheerful or exhilarating. There is no doubt that, in a general way, the proposals of the Chancellor will be considered throughout the country to be wise proposals and brave proposals in the circumstances, and that is the sense in which they will be accepted by the public. On the other hand, they will put a very grievous burden on the whole of the population, not merely upon the richer section. It happens to be the case, whether one likes it or not, that we cannot put burdens upon the richer section of the population without their falling to some extent upon the poorer section. The Chancellor's Budget may be described, I think, as a deflationary Budget—in any case, it is quite definitely an anti-inflationary Budget—and if it had been imposed under normal conditions and not in a time of war it would have created enormous unemployment, and possibly have given great satisfaction to some hon. Members on the other side of the Com- mittee through the fact that it would have gone a long way to destroy the system under which this country has lived up to the present time. Owing to the fact that we are at war, owing to the labour which will be required for the war effort, the conditions are quite different, and undoubtedly the slack in the unemployment which otherwise would have been caused will be taken up.

The country will bear the burden, but there is one thing which must be taken into account. There is already a widespread feeling that in certain directions expenditure has not been and is not being adequately controlled. There have been great difficulties. There are the air-raid precautions services, under the Department for Home Security. I do not think it is disputed anywhere that there has been uncontrolled expenditure on those services. The very steps which are now being taken to put things in order are an admission that that has been so. Then we have the Ministry of Information. There, also, there appears to have been uncontrolled expenditure, because there also radical changes are apparently about to be made. With reference to air raid precautions I should like to say that nobody admires more than I do the really wonderful organisation which the Minister concerned has put up in a comparatively short time. That was his principal object, and I am sure nobody wishes to find fault with him over details and some extravangances here and there. The Ministry of In formation does not fall into quite the same category. I understand the Ministry have been going only three weeks, and possibly they had to move very quickly, but the case does not seem to be on all fours.

The point to which I want to come is that I think the matter goes deeper than either of the Ministries concerned. What we have to consider is whether the Chancellor himself—I am sorry that he is not now in his place—really has adequate control over the spending in the country. I do not know what the Cabinet arrangements are. I take it that he must have known these Ministries were going to be set up and must have given consent to expenditure. What limitations did he put upon that expenditure? What precautions did he take to see that the money was properly expended? I do not know whether he has the necessary machinery, especially in a time like this, and it may be that he needs even more assistance. He is very ably assisted by my right hon. and gallant Friend the Financial Secretary to the Treasury, who is on the Front Bench at the moment. From my personal experience of him during the long time when I sat next to him on this bench, when he also was a poacher—he has now become a gamekeeper—and my experience with him also on the Public Accounts Committee, I know that he is interested in financial matters and interested in economy, and not only interested but quite capable of handling those difficult questions. But I sometimes wonder whether, with this greatly increased expenditure, and with all the various Departments which have to be catered for in war time, some further control of expenditure is not needed at the Treasury.

I do not think the fault, if there be a fault, lies entirely with the Chancellor of the Exchequer. The Members of this House themselves are to some extent to blame. They take singularly little interest as a whole in financial affairs. I do not say this in any party spirit, but, after all, the Opposition, who have the choice of subjects on Supply days very rarely use those opportunities to investigate or discuss finance. Supply days are usually used for raising matters in which their constituents are interested. I sympathise with them for wanting to do that. It is natural that they should want to do so, and that they should take their opportunity. Nevertheless, they might also make an occasion, at any rate every now and again, for a real financial Debate in the House of Commons dealing with the spending Departments.

I have had the honour for some years to sit upon the Public Accounts Committee, but its work is practically never discussed in this House. It is known to few people and its reports are read, I should think, by comparatively few people. No doubt all the senior civil servants in the Departments concerned read it and take suitable action, but I have very great doubt whether many Ministers of the Crown ever read it, even when it concerns their own Departments. I should be glad to be contradicted in this later on, when the Chancellor of the Exchequer comes to reply.

Mr. E. Smith

I would draw the attention of the hon. Member to the fact that the reports must have been read during the past two years because of the number of questions that have been placed upon the Order Paper arising out of them, particularly in regard to machine tools.

Sir I. Albery

I was not suggesting that the report was not read at all. There are certain Members in this House who are careful students of it, and they are mainly responsible for the questions which have been put down. It is not easy to find a cure for lack of control. Many suggestions have been made and committees have been mentioned. I am doubtful whether these would be useful in present conditions. Everybody is working at high pressure, especially all civil servants, and they have not time to be harried with a lot of questions and cross-examinations. The impression which I have gained, largely upon the Public Accounts Committee in the last few years, is that probably the most useful and convenient way of improving control over the spending Departments would be a greater and stronger co-operation with the Treasury in those Departments.

In explaining what I mean by this suggestion, again I shall be glad to be corrected if I am wrong. I will give an example. Take the case of the Admiralty. The Public Accounts Committee brought to notice some very clear examples of lax expenditure in the Admiralty. I gained the impression that the officials of the Admiralty who are more particularly responsible for the financial side had not been given or had not acquired sufficient status in the Department adequately to represent the Treasury when dealing with what I may call the executive side. I do not know whether their appointments are as high as the other appointments, but if they are not they ought to be.

We want a system which is more like that which exists in the Army where you have a G. staff and a Q. staff, with the Minister at the top. They have not an adequate Q. staff in the Departments. They have a good G. staff, with whom Ministers are constantly in touch, but I do not know whether there is an adequate Q. staff in every Department. That is what is wanted if the financial side is to be put right. There must be a stronger staff on the financial side and the Ministers concerned must be more directly in touch with them and pay more attention to that side of their Departments. I have not had an opportunity of working in one of the Government Departments, and therefore I cannot claim to speak with any intimate knowledge of the way things are worked. These impressions have come to me when I have been working with the Public Accounts Committee. I have not offered any of these remarks in a spirit of criticism, but because I feel that nothing is more important to-day than very careful control of public expenditure. I hope I have been able to say something which may be of assistance.

6.16 p.m.

Mr. Stephen

In the circumstances which led up to the war my colleagues and I took a line which was in opposition to that which was pursued by all the other parties. Perhaps the Committee will bear with me while I recall that we were in opposition to the guarantee to Poland, that we challenged a Division on the issue of peace and war and that we challenged a Division also on the conscription for the Army of the men of this country. When it comes to the question of this Budget, my colleagues and I still find ourselves in opposition fundamentally to the attitude pursued by other parties in this House.

The country finds itself in a very difficult position to-day. I have noticed that hon. Members generally, though they accept the Budget, do so with a certain measure of regret. The hon. Member who has just spoken commented upon the remarks of the speaker who preceded him in the Debate and said that the speech, while interesting, was rather gloomy. I must say that I do not think the speech of the hon. Member himself was specially cheerful. A great deal of the gloom and foreboding is perhaps unjustified, in spite of the proposals which the Chancellor of the Exchequer brought forward yesterday. Modern war has resulted in the development of a great deal of camouflage. In all the belligerent countries the painters are busy indulging in transforming things into the appearance of something else. Camouflage is going on upon a great scale. I think there is a great deal of camouflage in the present Budget and in the proposals brought forward yesterday by the Chancellor of the Exchequer.

It seems to some Members a terrible thing that Income Tax has been raised to 7s. 6d. in the£, that the Surtax has been increased and that the Estate Duties have been raised. The hon. Member who preceded me said that if those things had been done in peace time they would have caused a tremendous amount of unemployment, and there would have been very great repercussions. But this is war time. I would remind hon. Members of what happened during the last war. The Budget of to-day corresponds, in some degree, to the budgets then. Income Tax rose to 6s. before we got out of the struggle and the country was left with a debt of £8,000,000,000 at the end of the war. It was also left with a greater productive capacity than had ever existed in this country before. After all those years of high Income Tax, Excess Profits Duty and all the rest of it, the rich of this country were richer at the end of the war than when we entered the war. Is it not a very wonderful thing that there were all those budgets and the poor country was left with a debt of £8,ooo,ooo,ooo, and yet the capital value in the country was ever so much greater than it had been in 1914? It was a mystery that members of the Labour party spent a great deal of time in trying to solve, how, after all this expenditure, there seemed to be so much more capital in the country. That resulted in a vigorous campaign for the capital levy, to which the party above the Gangway were placed. I cannot see why hon. Members opposite should be the least bit gloomy about this Budget if—there is a condition—they can ultimately get out of the war on anything like the same terms financially as they got out of the last war.

I do not examine the Budget from the point of view of whether it is one of the instruments which are going to help us in the efficient carrying on of the war. Hon. Members, knowing my attitude, would not expect me to. I look at it from the point of view of how it is going to affect the great mass of the people in this country. We have had the introduction of conscription. Millions of men will be called upon to give up everything and go into the Army and serve for 2s. a day. Men with good incomes will be taken holus-bolus into the Army; their homes and practically everything they possess will have to be given up. Many people have been plunged into poverty through no fault of their own. Keepers of boarding houses are practically penniless, and there are all those people who have lost employment. Journalists, printers and many other members of the working class have lost their work, and lost practically everything. They see their homes going.

I may be told that this Budget is an attempt at equalisation of sacrifice because the people with resources are to be asked to pay 7s. 6d. in the £ Income Tax and the people with bigger incomes are to have their Surtax raised to 9s. 6d. in the£.I do not think that this method is adequate. The people in possession of those big incomes are in control of the industry and the wealth of the country, and they will be able to see that their incomes are increased, so that the increased taxation will be negatived. I do not think that the mood of the country is such that ultimately the Government are going to get away with this. Possibly the hon. Member who preceded me was justified in his gloom, because I think the people will not allow the financial system to go on the basis of the Chancellor of the Exchequer's present proposals, and that the Government will be called upon ultimately to devise a system of real equality of sacrifice.

Just look at the Government's proposals. It is contemplated that expenditure for 1939-40 shall be at about £2,000,000,000, although, as the Financial Secretary points out, that is only a rough figure. The Government certainly are contemplating proceeding to carry on the war on the basis of this increased taxation, and also by obtaining loans. In view of the statement of the Financial Secretary, no one can doubt, while it is impossible to give exact figures, that the borrowing will amount to £1,000.000,000 each year, at a very conservative estimate. Where is this £1,000,000,000 a year to come from? It must come out of the yearly savings. It cannot come out of past savings; they are already embodied in various securities, and those securities are necessary for the financing of the concerns in which they are employed. The £1,000,000,000 will have to come out of the savings of that year.

So that there are to be people who will have incomes which will allow them, in spite of the increased taxation, to save £1,000,000,000. I wonder what the people who have lost everything will think about that small section in the community who are to have £1,000,000,000 of savings to lend to the Government. What are they going to think of a Government which allows the system to go on—the people whose sons have been taken into (he Army to serve at 2s. a day, and the others being allowed to get incomes from which they will be able to make savings to the extent of £1,000,000,000, which is practically the income of the whole of the 40,000,000 industrial workers of the country. I do not think men are going to give their lives and give up everything in this war, as they did in the last, and allow the profiteers to have the opportunities that they had in the last war.

A distinguished financier on the other side of the House examined the position and quoted eminent authority to prove that the financing of the last war was not as bad as some people seemed to think. He said there had to be this profit motive to keep the wheels of industry going. In the last war you had a great voluntary response to the appeal for recruits, but the day came when the voluntary response was not sufficient and the State came and took the men away compulsorily. If this war goes on anything like the time the Government contemplates, the country will be faced with a demand for the conscription of wealth. When I pressed upon the Prime Minister the need of old age pensioners and the injustice being imposed on people conscripted for the Army, I was told that we practically had conscription of wealth, but I notice when I went outside the House that I had as big a chance of getting knocked down by an expensive car as was ever the case. It is different to-day. That is not due to conscription of wealth but to the limitation of petrol supply. I would appeal to the Government, when there is all this pressure being put upon them to secure economies in the Departments, to deal with the position of the old age pensioners, the spinsters and the people with small fixed incomes who, face to face with ever-increasing prices of commodities, are put in an impossible position. It is absolutely shameful that there is nothing in the Budget to give a word of hope to these people.

I can also see that, in spite of the collaboration between the Trades Union Congress and the Government and the assistance that hon. Members above the Gangway are willing to give in carrying on the war, the people in the workshops, faced with these rising prices, are going to demand big increases of wages, and there is going to be industrial strife throughout the whole of the country in the days lying ahead. Unless the Government are prepared to deal with the question of finance in the same way as they dealt with the question of securing recruits for the Army, unless they are going to put the person in ownership of property and wealth in the same position as they have put ordinary men under conscription, we shall have ever so many great problems to face. I do not think the Government will do it, but I would ask the Chancellor whether he is going to respond to the appeal made to him from all sides of the House for something to be done now for the old folks to be taken out of their intolerable poverty and the increased hardships which are coming upon them. I regard this as the inevitable Budget, coming from the present Chancellor in the circumstances of to-day, but it is only one of a number of fundamental changes which will be necessary and which will end ultimately in sweeping away the present system of robbery and extortion which has brought us into the war, the same robbery and extortion which has brought other countries into conflict with Britain.

6.39 p.m.

Sir Arnold Wilson

If the war lasts any considerable length of time, the financial systems of all countries now at peace, as well as of countries now at war, will collapse, and the basis of this Budget will disappear with the collapse of the system upon which it is based. To that extent this discussion is academic. The hon. Member for Oxford University (Mr. A. Herbert) in a play called "Derby Day" once thus referred to the racehorse: It is an instrument by God designed, To redistribute wealth among mankind. That is regarded in normal times as the proper function of the Budget, but in war-time its object is to redistribute not wealth but consumption. The Budget will fail in its object if it does not transfer consumption from those who could without detriment consume less to those who could with advantage to society consume more. If money spent by well-to-do persons on consumable commodities is spent, as the result of taxation, by less well-to-do and poor persons on consumable necessities, there is on balance, a social gain. If money which would have been invested or spent on capital goods is spent as a result of taxation upon consumption goods, it is another step on the road that we are travelling to a general economic debacle. If we transfer too much money from capital goods to consumption we shall be doing ourselves grave injury.

Mr. Wilmot

I am sure that the hon. Gentleman will agree that it depends upon the nature of capital goods bought for consumption.

Sir A. Wilson

I entirely agree that it depends upon the nature of capital goods, and that is why I agree with my hon. Friend the Member for Walsall (Sir G. Schuster) that the tools of the Treasury should be flexible and rapidly adjustable to the requirements of the moment. This is an emergency Budget, and there has been, obviously, 'no time for the Chancellor of the Exchequer to make some of the delicate special surgical instruments required for painful, difficult and delicate operations. I hope that by the time the next Budget comes he will have elaborated a tax on cosmetics as well as on patent medicines and medicaments of all sorts, which will enable him to net a revenue of not less than £5,000,000, to the great advantage of mankind at large. There are few of us to-day who would not welcome a tax on medicines, and even if healing medicines were included, provided some small sum could be earmarked for the medical health services of the nation, the House at large would not grudge it. It would improve our health and good looks, it would improve our national morale, it would show decisively that the opinion of this House corresponds with that of Oliver Wendell Holmes when he said that if the whole of the materia medica was sunk to the bottom of the sea, it would be all the worse for the sea and all the better for mankind.

We all welcome the Chancellor's references to waste, and I hope that the House itself will begin by examining the possibilities of waste in our own procedure. We are to have ration cards. I suggest each Member of Parliament should have a ration of not more than four Questions a week. I believe that each Question costs between £2 and £3. Let us waste less print. The Division List for instance need not be printed in the Votes. Let us have a careful scrutiny of our own procedure and set an example in economy. We might encourage the skilled reporters upstairs to summarise our speeches rather than report them verbatim. I do not doubt that the Official Report would be even more carefully scrutinised than it is at present.

I hope that the Government will consider refusing rebates of Income Tax for charitable trusts which no longer perform the objects for which they were devised. Rebates are automatically given to charities, many of which are very wasteful, and to educational trusts, which are only nominally educational. The Charity Commissioners should be authorised to inquire whether any given charity or educational trust in respect of which rebates of Income Tax are allowed is necessary and desirable in the public interest, and whether it is economically administered. There are at least 300 charities for the blind at the present time, and if they were reduced to 50 or 60 it would probably be a very great advantage to the country. If we are to avoid waste, the Chancellor of the Exchequer should use the instrument of Income Tax in order to promote efficiency in charities, many of which have an expense ratio of 50 or 60 per cent.

I am sorry that the Chancellor of the Exchequer has not imposed an even heavier duty on certain luxury foods and other commodities, the importation of which it is not yet considered desirable actually to prohibit. Duties may be better than prohibitions, and I cannot believe that trade treaties would be. invoked by exporting countries under present conditions. I accept with profound reluctance, echoed from several sides of the Committee, the extra 1d. on beer. The late Mr. Joseph Chamberlain, when giving evidence in 1899 before a Royal Commission on old age pensions, of which he was a member, said that he regarded a certain amount of alcoholic refreshment as being a necessary concomitant of hard work. On the National Register we are to have a record of heavy workers who are entitled to a little more meat. I should like to see such persons entitled to a little more beer as well. To the men in really heavy work, beer is the best way of making bread and cheese, particularly the vile stuff which is modern baker's bread, a little more digestable.

I do not regret the extra tax on sugar. This country is at the present moment consuming per head much more than twice as much sugar as is consumed in any other country in Europe. Doctors tell us that there are many diseases of childhood and later directly due to the over-consumption of sugar; we can safely consume much less. In any case, at the present price of sugar, the extra taxation will bring it to a price which will still be considerably lower in England than in any country in Europe.

To revert to beer, a penny is heavy enough, but I would beg of the Chancellor of the Exchequer to remember that the Robinson case, which has recently been decided in the courts, has resulted in great increases in assessments on public houses from one end of England to the other without any notice whatever. Unless legislative action is taken to restore the legal position as regards the assessment of licensed houses to their old basis, the Chancellor of the Exchequer will find that his interests and receipts will suffer. The Robinson case has had an extremely up-setting effect upon industry as a whole.

When on 1st January, 1920, the old age pension was fixed at 10s., the cost-of-living index was 249. In 1924 the means test for the old age pension was revised by the first Labour Government, and on 25th June, 1924, the late Lord Snowden —Mr. Philip Snowden as he then was— said that the new scheme would "remove every reasonable grievance" of old age pensioners. The cost-of-living index in that year was 175; it is less than 160 today. It may well be that legitimate grievances will arise as a consequence of the increased cost of living, but it cannot fairly be said that they have risen as yet.

Mr. Magnay

Has the hon. Member forgotten a factor which was not present some years ago, that the old age pensioners on the average live longer now? As a result of their greater longevity a great deal of their savings have gone. That condition was not present at the time of which the hon. Member is speaking. I know, and most hon. Members know, old age pensioners who have used up all their savings because they have lived longer than was the case a few years ago. That is a factor which ought to be borne in mind.

Sir A. Wilson

I do not regard that as a legitimate reason for a general extension of old age pensions. Old age pensioners, normally speaking, either have their money in some investment which brings an income which will not cease at their death, or in annuities. The point that I was making was that in 1924 the means test limit was greatly increased. A married couple to-day with 20s. from earnings, 10s. from property and 6s. from some benevolent fund, a total income of 36s., are still entitled to £1 a week from the State as a charitable allowance, bringing up their income to 56s. a week. A married couple with 20s. a week from savings, 25s. a week from a superannuation allowance, and 5s. from odd jobs, amounting to 50s. a week, are entitled to a further £1 a week from the State, without deduction.

Mr. James Griffiths

Does the hon. Member realise that there is another new factor to-day as compared with the past, and that is the increasing number of men who have reached the age of 65 after years of unemployment, during which period their savings have been completely used up? Therefore, when they reach the age of 65, in my country for example, in most cases what happens is that whereas the man before 65 together with his wife got 26s. from the Assistance Board, they drop to £1. Is not that a grievance?

Sir A. Wilson

That is a new condition, and that is why I am inclined to suggest to the Treasury that they should carefully consider, even at such a time as this, transferring the administration of old age pensions from the Commissioners of Customs and Excise—who in 1908 were the only body representing the Central Government which covered the whole of England, Wales and Ireland—into the hands of the Unemployment Assistance Board, who would be able to assess pensions far more skilfully and quickly and at a far less cost than under the present system, which is about £350,000. I should like to see a few changes made, and I hope the Chancellor of the Exchequer will not rule out any further consideration of the treatment of the old age pensioners. One change that I should like to see will be a modification of the schedule. The jumps at present are in sums of 2s. to 1os.

Mr. Tomlinson

The hon. Member is dealing with two entirely different circumstances. The people of whom he is speaking do not come into the pension scheme until the age of 70. Now that the pension age is 65 a totally different set of circumstances controls the lives of the people.

Sir A. Wilson

The people who are worse off are the non-contributory pensioners, of whom there are some 670,000 on the books. It is better to have a pension at 65 than at 70. I should like to see pensions graded on the lines of the Unemployment Assistance Board allowances, and Workmen's Compensation weekly payments to the nearest 6d. If the cost of living rises substantially above the 1924 figure of 175 I hope the Chancellor of the Exchequer will consider the advisability of adopting the Treasury scheme of 1916 (Cd. 8320) which without generally raising old age pensions permitted certain modifications in the lower grades and in cases of hardship. That system worked well and smoothly. May I remind the Committee that 97 per cent. of the non-contributory old age pensions are given at the full rate of 10s. and that seven out of ten old age pensioners to-day are women, who are far more often accommodated as guests in the houses of their friends and relatives than the older men, who as a rule, are more crotchety.

There is one further aspect of the old age pension question to which I would briefly refer. Most local authorities take the pension books from old people and go round to the post offices and collect the 10s. to which the old people are entitled in relief of the rates, bribing the old age pensioner with the promise of half a crown a week for comforts, providing they will let the local authority do the collecting of the pension. That was not intended by the Act; it is extra-statutory. It is not illegal. The Treasury is being mulcted unfairly by the local authorities, and the pensions which ought to be in the pockets of the old age pensioner or in the hands of the Treasury, are used to reduce the local rates. Steps should be taken to prevent this abuse.

Whatever the defects of our financing of the last Great War it was followed by shorter hours of work, better working conditions and, speaking generally, a higher standard of living than we had enjoyed before the war. There is a real danger lest this Budget should have opposite results and that it should so paralyse commercial enterprise that we shall stifle that spirit of initiative and enterprise that is the mainspring of all human activity, whether Governmental or private.

The profit-making motive is not quite as important as the hon. Member for Walsall (Sir G. Schuster) suggested, but pride in production motive is of immense importance. Anybody who has had the management of great commercial plant knows that the manager and foreman and the deputy-managers are interested in production rather than in profits. But if there are no profits there can be no development. There is no such thing as making both ends meet. Either the plant is working at a profit or it is working at a loss, and the plant which helps to win the war is the sort of plant which on liberal depreciation is necessary. The Chancellor of the Exchequer has the good will and the co-operation of everybody, and I beg him to make his weapons as flexible as possible. Much will turn on the permissible rate of depreciation.

7.2 p.m.

Mr. Muff

The hon. Member who has just spoken has said that the Debate has been very largely academic, and I must say that he has managed to put some academics in his own speech. He appears to be looking forward to the speech which he will make on the Budget of next April. There was one point he made which was of interest to myself and to those who represent industrial constituencies. This Budget is to raise the sinews of war. It has also been charcterised by one newspaper as a black-out Budget. I have tried to see as much light as possible in the darkness and the gloom, and the only comfort I can get out of it is that there appear to be money and good will on the part of the nation. The reason I have intervened is to dwell upon the plight of local authorities, and especially those on the East Coast, like Newcastle and Hull. Various Departments of State, the Health Department, the Lord Privy Seal's Department and the Home Department have placed almost intolerable burdens upon local authorities in the matter of Civil Defence services. Only last week an education authority wanted to open schools in a neutral zone and the Government said that they would have to find £40,000 in order to build air-raid shelters for the children. That is quite a proper thing to do; but I sugest that this should be a national charge on the Treasury, and that they should find not 50 per cent. but too per cent. of the cost.

The Chairman (Sir Dennis Herbert)

I am afraid that the hon. Member's proposal is one which is not strictly in order.

Mr. Muff

I thought that this Budget of £2,000,000,000 was to find money for guns, for respirators for the children, and a certain proportion of money for funk-holes and dugouts; also for balloon barrages, which I see in my own constituency. I also thought that all this was under the direction of the Treasury, that the Treasury would have the disposal of this colossal sum of money. But the Treasury, like Pharoah, are hardening their hearts and will not allow a certain amount of the money to be spent in certain ways on Civil Defence. I ask you, Sir Dennis, if I am in order in touching upon matters of Civil Defence as they affect a constituency like mine?

The Chairman

The hon. Member has covered a great deal of ground in what he has just said, but I must remind him that the Budget Resolutions are being discussed in Committee of Ways and Means and that the matters to be discussed are the methods of raising the money. When we get to Committee of Supply the hon. Member will have an opportunity of airing his grievances and discussing whether the money should or should not be spent in a particular way. But that does not arise now.

Mr. Muff

I bow to your Ruling. The few remarks which I had proposed to make are unnecessary. It appears that I can talk about lipstick and pills and medicine, but that I am not to talk about the plight of the old age pensioner who has to go to the local authority for relief. Nor can I talk about the intolerable burdens placed upon constituencies like my own. Seeing that this is only a Committee of Ways and Means my own constituency has to find the ways and means itself, and the net result is going to be a breakdown of the first line of defence at home. I have myself signed 600 summonses for rates in one morning, 20,000 summonses in one year, as a result of the niggardliness of the Treasury and its parsimonious attitude. I close my remarks by protesting that the various Departments of State are placing these intolerable burdens upon us and that the Treasury does not lift a finger to help us.

7.8 p.m.

Sir Stanley Reed

I intend to take up only a few moments in briefly putting one point to the Committee. We listened with respect and appreciation to the passages in the Chancellor of the Exchequer's speech which dealt specifically with excess profits, or what is commonly called profiteering. Hon. Members on all sides are agreed that in the grievous years which lie before us anything that can be done to deal with profiteering must not be left undone. I am not quite so certain that we are clear in our minds as to what we mean by profiteering. We often talk of profiteering as if it was a struggling tradesman trying to get another farthing per pound on sugar or another ½d. per pound on tea. I think that the most grievous offence against the body politic, the worst and the most damaging form of profiteering, indeed the most oppressive form of profiteering, is the deplorable scramble by people who are comparatively well off for posts under the various Ministries. The Committee has had a dreadful picture of the Ministry of Information, where in three weeks the personnel of the Ministry has gone up to 999–330 per week. At that rate of progress in a short time the Ministry of Information will far outnumber the armies in the field. That is only one side of it. In every direction, in air raid precautions work, for instance, one finds the same principle abroad, and it is not only imposing an intolerable burden on the community, but it is a demoralising influence of a most pernicious character, because it is breaking down and sapping the voluntary spirit which ought, as far as possible, to be the backbone of our war preparations.

The Chairman

I congratulate the hon. Member on the way in which he introduced this subject, but I am afraid that I cannot allow him to pursue the matter.

Sir S. Reed

I bow to your Ruling, Sir Dennis. I was coming to the arguments of the Chancellor with regard to excess profits and profiteering, and the measures he has promised to take against them. I venture to ask the Chancellor, through the Financial Secretary, to realise that those measures have not attained the aim he meant to attain. Treasury control has not so much broken down as failed to expand to meet these abnormal conditions. The Chancellor has promised to give attention to extra measures, and I ask him to believe that if this Budget is to achieve the object it is intended to achieve—to endeavour to use all our resources for the development of the means of winning the war and not shaking the foundations of our society—there must be an infinitely stronger control over expenditure in all new Departments than has been possible under the existing system.

7.12 p.m.

Mr. Sexton

I noticed just now that the attendant was going round blacking out the daylight. I think this Budget may be well named a black-out Budget. Although it blacks out luxuries, if it ensures that the light of liberty shall go on shining undiminished, and even to a greater extent, there will be no just cause for complaint. Yesterday, the Chancellor, as chairman of the national finance, made an interim declaration. It is true that he did not declare an interim dividend, but after all, his statement revealed that so far this country is a long way from bankruptcy. The severity of this first war Budget only emphasises the immensity of the task to which we are committed, and it is pleasing to note that, to a large extent, the luxury of war is to be financed by taxes on luxuries. But there are still some chinks in the black-out. There are still some luxuries which up to now have escaped taxation, but in this expected long-term struggle, the Chancellor will be compelled to rope in more and more of these luxuries in future Budgets.

On the question of indirect taxation, much has been said about the increase in the Sugar Duty. I will not repeat the arguments and protests that have been made, except to say that this increase will hit very hardly a poor section of society. I was interested to hear the Chancellor give an account of the receipt of bangles and trinkets to be sold to aid the financing of the war, but in the case of many old age pensioners, they have long since sacrificed their precious jewellery to aid in financing a war against poverty. Their wedding rings, their simple brooches and the like, were long ago sold or pledged. The increase in the cost of sugar, and incidentally sugar products, such as jam and treacle, will be seriously felt by those whose weekly budget has to be finely drawn, because pennies and even halfpennies have to be seriously considered.

The increase in the cost of sugar will be felt by those honourable citizens of this country who have taken evacuees into their homes, because the 8s. 6d. allowed where more than one child is present is not sufficient as it is, and if the price of sugar and sugar commodities is to be increased, that 8s. 6d. will be insufficient to provide a good supply of food. I wonder whether, when the rationing scheme is introduced, it would not be possible for old age pensioners and widow pensioners to be allowed to have 1 lb. of sugar per week at 1d. less than the price paid by ordinary consumers. The cost of this to the nation would be small; I estimate that it would be £250,000 a year—one-thirtieth of the expected yield from additional taxation. As an increase in old age pensions seems now to be indefinitely postponed, this rebate would be a gesture of generosity to those old people.

On the question of direct taxation, the increase in Income Tax and Surtax are, as we all recognise, pretty severe but an examination of the table submitted by the Chancellor shows that it will be a long time before any of these Surtax payers stand in public assistance queues, because after all, it is what is left that counts. Those with an income of £10,000 a year will still have £86 a week after paying Income Tax and Surtax. Those with an income of £20,000 a year will still have, after paying Income Tax and Surtax, £114 a week, and the lucky owners of £150,000 a year will still have, after paying Income Tax and Surtax, £500 a week. It is a pity that in this Budget some levy could not be imposed on those who have been making profits out of supplying Germany with war material—those who have supplied pig iron, nickel, copper, lead, and so on. Even during August, 1939, 17,000 tons of rubber and 8,000 tons of copper, valued at £1,700,000, were exported to Germany. I should like to give a short quotation from the "News-Letter" of 26th August, 1939: Meanwhile, it would be well if the names of the exporting firms, with the amounts of their exports, were given headlines every morning. There are people who hold shares in companies in this country, which companies have also large holdings in German armament firms. It would be a good thing if they could be taxed in the Budget far more than they are going to be, and it would be a good thing if their names could be published, too. I understand that a well-known commercial firm in this country has large holdings in German armament factories. I hope that no persons in high places in this Government are interested in profits drawn from enemy arms manufacture. We on this side of the Committee believe that in this severe Budget there are still some loop-holes whereby those who are able to pay can escape their obligations. We want as far as possible to close up those loop-holes and to see that all those who are able to face an obligation for the defence of the country shall face it nobly and well. We want them to remember that, while they are asked to pay their money, the young men are being asked to pay their lives. We want them to remember that wives are giving up their husbands, that children are giving up their fathers and that mothers are giving up their sons in this great struggle. In that remembrance of the tremendous offerings of others, let those who are being mulcted in heavy taxes do as the Forces are doing—pay the price of liberty. I emphasise what Sallust says in "Catilina": It is not now a question of taxes nor of injuries to our allies; our liberties and our lives are in danger. We are fighting for that liberty which Horace described as more valuable than precious metals. For it, this country must be prepared to accept this and similar sacrificial Budgets.

7.22 p.m.

Admiral of the Fleet Sir Roger Keyes

In his Budget statement the Chancellor of the Exchequer stressed the vital importance of equality of sacrifice. It was with that end in view that in March, 1938, some of my hon. Friends and I urged the immediate preparation of a National Register in order to take stock of the manhood of the country, so that, in the event of war everyone could be called upon for national service and could be ready to play the part most fitted to their sex, age, capabilities and physical qualifications, to enable the maximum of effort to be made by the nation with the least possible delay. There has been a magnificent voluntary effort, and at length the long overdue National Register is about to appear. But there is no equality of sacrifice in the present voluntary national effort and there is not likely to be unless national service is introduced and the payment for national service is revised.

Mr. G. Griffiths

Revised which way?

Sir R. Keyes

I think if the hon. Member will allow me I will develop my own argument. National Service should include service in the Army or the Navy or the Air Force, in the munition factories, in the Civil Service, in transport, in mines, in agriculture and other essential services, including that which the Chancellor of the Exchequer stressed as important, namely, production for the export trade. As I reminded the House when the Military Training Bill was introduced, in the last war men came back from the trenches after having fought and worked on unlimited shifts, and from dangerous patrols at sea, where they had little rest and found their contemporaries of both sexes at home getting 10 and 20 times as much wages as they were receiving—people who were working in munition factories and sheltered industries. Despite that experience of the last war, inequality of sacrifice under the existing system is still painfully evident.

The Chairman

I think I must warn the hon. and gallant Gentleman that the equality of sacrifice referred to by the Chancellor of the Exchequer was equality of sacrifice in the matter of bearing taxation and not in the matter of receipt of remuneration.

Sir R. Keyes

I bow, of course, to your Ruling, Sir Dennis, but the argument which I was leading up to was that the burden on the Chancellor of the Exchequer would be lightened by equality of sacrifice such as I am about to suggest.

The Chairman

I congratulate the hon. and gallant Member on an ingenious attempt to bring his remarks within the bounds of Order, but I am afraid he has not succeeded.

Sir R. Keyes

Is there any other occasion on which I can raise this very important question?

The Chairman

I cannot answer that question now.

Sir R. Keyes

The point which I wished to make was that the man who does all the fighting receives a very small wage compared with that of the man who is working at home and who does not run the risks which the fighting man is called upon to undergo. If the proposal which I am about to make is one which lightens the burden of the Chancellor of the Exchequer in finding money, would it not be in order?

The Chairman

The hon. and gallant Member would be in order in proposing alternative methods of taxation.

Sir R. Keyes

I am afraid I cannot propose alternative methods of taxation but I can propose an alternative method of payment for work which would lighten the taxation to be imposed by the Chancellor.

The Chairman

That, I fear, would be what we should call too remote from the question before the Committee. The hon. and gallant Member's proposal, to be in order, would have to deal with the machinery of taxation and not with wages.

Mr. Rhys Davies

May I intervene on a point of Order? It would be, I take it, in order for the hon. and gallant Gentleman to argue that provided general national service were introduced, those employed in it would be more capable of paying the taxes which are now being imposed?

The Chairman

In view of all the gallant attempts that are being made to bring the hon. and gallant Gentleman's remarks within the bounds of order, I shall have to summon all my ingenuity to keep the Debate on the proper lines. I must rule that the hon. and gallant Member is not in order in the argument which he has been pursuing up to now.

Sir R. Keyes

Politics is a new business to me, but I think I can keep within your Ruling, Sir Dennis, and bring out the point which I wished to make. Equality of sacrifice in relation to wages is a very difficult but not an insoluble question, and I suggest that under a real system of national service basic payments should be made at the same rate for each grade of employment during the war and that there should be family and rent allowances and arrangements to meet any contractual obligations undertaken prior to the war, so that those who have been thrifty and provident in peace-time, should not be penalised by their war service.

Mr. J. Wilmot

Is the hon. and gallant Member advocating that the able-bodied seaman should be paid the same rate as the admiral?

The Chairman

That intervention illustrates what I said just now. We are now getting away from the Resolutions before the Committee into a discussion on the payment of wages and salaries.

Sir R. Keyes

In conclusion, I would like to say that I believe the working man of this country, at any rate, would welcome a system of national service which would enable the weight of the Budget to be lightened by making their contribution to an equality of sacrifice which would bring the fighting man's wage more into relation with that of people who are working at home without running the risks and dangers that the fighting men are facing so gallantly.

7.31 p.m.

Mr. Gordon Macdonald

The hon. and gallant Member for North Portsmouth (Sir R. Keyes) has spent nearly a lifetime at sea, but he gave me the impression of being on this occasion more at sea than ever. I have listened to a number of Budgets—I should think 10 or a dozen in the last 10 years—and I do not think I ever enjoyed any Budget better than I did that of yesterday. That is not saying much, because the Budgets of the last 10 years have not been of a very encouraging character, but I was impressed by yesterday's Budget for many reasons. There were some provisions in it with which I whole-heartedly agree, there were a few that I should have preferred to have been more definite, and there were some to which I took whole-hearted objection. This is the first war Budget that I have listened to, and it is a war Budget in this sense, that it is intended, 1 believe, to help us to win the war. I cannot believe that it has any other purpose than not only to pay for the war as we go along as best we can, but also to give an impression to this country and to other countries too that Britain is in a financial position to face the very heavy cost of a war of this character. In so far as it does that, it is an asset.

I believe that financial soundness today will help whichever side can show it, and I think the Chancellor was right in contrasting our position with that of Germany. It is well for the world to know that we in this country are strong enough financially to face the obligations of this terrible conflict. But if it is to assist us in the prosecution of the war, it must do a number of things. In addition to convincing the world of our financial stability and soundness, it has also to satisfy the people of this country that the impositions contained in the Budget are of a fair character, that the people who are asked to subscribe are the right people, and that no one is asked to subscribe who ought not to be asked. I agree that the substantial increase in the Income Tax might create consternation in many circles. It did not for me. We on this third bench were discussing yesterday what the increase in the Income Tax would be. Some said 6d. others 1s., and others 1s. 6d. I was all alone in saying that it would be at least 2s.," I was the only one on this side who anticipated that increase to 7s. 6d. I could not see any less increase being of much use. After all, it is a colossal burden that we are facing, and we do not yet know its size, but we had the other day a Vote of Credit for £500,000,000, and, keeping that in mind and remembering that it is likely tc be dissipated in a few months, one realises that the Income Tax must go up substantially.

What earthly good would it be for the Chancellor to go about this matter piecemeal, with 1s. now and 1s. next April? It is far better to have faced the issue at once, and I think the nation and the Income Tax payers themselves would prefer to know now what they are expected to do during the next few months or years. I do not think there is any real cause for complaint among the Income Tax payers. I think my hon. Friend the Member for Kennington (Mr. Wilmot) put his finger on the spot when he said that, while a substantial slice is being taken away, a substantial slice is being left too. These Income Tax payers are not being left in poverty, and let it be understood by hon. Members opposite that we do not support an increase in the Income Tax or Super-tax because we enjoy troubling the rich people. There is no feeling of vindictive-ness or of jealousy, but there is a feeling that something of this kind has to be done. This country has to be run as it ought to be run, and they can well afford a substantial increase. The Surtax payers, I suppose, can afford it still better. A Super tax payer was travelling in the train with me this week, and he said, "What will happen in the Budget?" I said, "I do not know." He said, "An increase of 1s. in the Income Tax and 1s. in the Surtax will result in my paying to the State five times as much as remains in my possession afterwards. Out of every pound it will mean that I pay 16s. 8d., and only 3s. 4d of the money that I possess will remain in my personal possession afterwards." I said, "That looks very substantial." But I happen to know this gentleman, and I know that he will be drawing after all that more than £100 per week at least. After all, no one can complain of a Budget that inflicts a burden which leaves behind £100 a week for the individual.

I compliment the Chancellor on his courage in facing at once this issue and raising the Income Tax by 2s. I think it was the right thing to do, and I agree also in regard to Surtax. I was rather pleased with his reference to the capital levy, but that was a part of the Budget speech which I thought was not quite firm enough. I was afraid that the loopholes referred to by my hon. Friend the Member for Barnard Castle (Mr. Sexton) remained. There is no difficulty—and my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) put it very clearly—in dealing with this question far more effectively and, in my opinion, more expeditiously than I am afraid the Chancellor is going to do. I hope he will not let any time be wasted here. Last time we were told that there would be a capital levy when the war was over, and then those who had advocated it during the war said, "It is too late now; it ought to have been done during the war." I hope the Chancellor will see to it that it is done during the war.

I want now to refer to one objection-able feature. I know that a penny per pound on sugar does not look very substantial, and I expect that the average consumption in the country is little more than a pound per head per week, so that it looks a not very big contribution for which to ask. Even if the average consumption is two pounds per head per week, it is only 3d. a week, and surely the sugar user should have no objection to that. But I would remind the Financial Secretary to the Treasury that it does not work out quite so simply as that. He must remember that sugar is the raw material of many things, and it means that it will enhance the price of many commodities. The same gentleman who travelled with me on Tuesday of this week told me that he gave a ton of apples for the villagers where he lived for their use, free of cost, on the condition that they made from those apples apple jelly. I need not tell the Committee that this increase of a penny per pound must mean that the making of apple jelly for those poor people will cost a substantial increase. I have no idea how many pounds of sugar it takes to make a pound of apple jelly, but I understand that it takes more pounds of sugar than of apples, and the result is that this additional impost of a penny means a further substantial increase in the commodities in which sugar is the raw material.

Now let me refer to the things on which I think a tax might have been put. I think the Chancellor has overlooked certain sources of revenue. He still claims to be a member of the Liberal party, which has taken a great interest in the land question for over a quarter of a century. I should have thought he might on this occasion have become a Liberal in reality and remembered some of the things that he himself said in pre-war days, when he made some reference to the fact that there were people who were making substantial amounts from land, but who made no contribution to the taxes. The value of land is increasing enormously day by day. The demand for land by the War Department is very heavy to-day and prices have increased in -consequence. I should have thought that a Liberal, whose interest in the land question before the last war is well known, would have had some regard to it in this war and placed a small tax on land values. The right hon. Gentleman would be perfectly entitled to take the whole of the increased value, but suppose he had said that he would not be extortionate but would take 2s. in the£that would have left 18s. for the landowner.

The right hon. Gentleman was an eloquent advocate for the taxation of land values and now he has his opportunity of imposing it to meet the serious difficulties with which he is faced. He has had to revert to all kinds of devices to find the necessary money, and he will have to revert to more in future. In pre-war days he himself felt that there was a certain section of the community taking more than its fair share of the wealth of the country and making no contribution to create that wealth. Will he tell the Committee why he did not go to that substantial source for money now? I am told that a 10 per cent. tax would bring him in £50,000,000 a year. He cannot afford to disregard such a source of income. He may tell me later that the people about whom I am talking are the people he is taxing and who in the main will pay the increased Income Tax and Surtax, that they are also the people on whom he may call for a capital levy. He may say that he has not forgotten them but that he preferred the direct way of dealing with them. They will not need any human sympathy or have to queue up for public assistance even if he imposes this tax. The Chancellor may not be able to do it now, but this may not be the last war Budget, although I hope that victory will come soon so that we shall not have to have another. I would like the Chancellor to look into this question when he is looking for additional income. This is a good nest-egg, and when the Chancellor goes to it he will give real satisfaction throughout the country, except to the individuals who will have to pay. There are powerful influences against the land tax in this Chamber and the other, and I am some- times afraid that those influences keep the Chancellor back.

A substantial slice of expenditure is left to be borrowed. I spent the last war as a miner working underground, and owing to the substantial increase in the cost of living, which I am pleased the Chancellor is taking steps to prevent, miners' wages went up, although they lagged about 20 per cent. behind the cost of living. Our leader of those days, Mr. Robert Smillie, told the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) that the miners would forgo any increase in wages throughout the war, provided the Prime Minister would see that there were no increases in prices. The miners of today would make the same offer if the Government controlled prices as they ought to do. The Chancellor ought to see that nobody is better off financially as the result of the war. I examined this Budget from that point of view. Will its provisions safeguard us against the possibility of some people making substantial fortunes from the war? You cannot justify the tremendous sacrifice of life on the one hand when, on the other hand, there are thousands of people who can show substantial bank balances as a result of the war. I hope the Chancellor will keep a careful eye not only on the floating of loans, but on the interest rates.

I think that the right hon. Gentleman might have budgeted for a little more. He made some reference to waste. I agree that waste must be stopped in every sphere. What worried me yesterday was the ominous cheering from the other side of the Committee when reference was made to local authorities. The biggest cheer the Chancellor got was from the Members behind him when he referred to the curtailment of the expenditure of local authorities. There were long faces throughout his speech until this reference. I want the Chancellor to make his own definition of waste. Members behind him look upon all kinds of social expenditure as waste, and the Chancellor should make a liberal definition of that term. Does this Budget place the burden of expenditure equitably over every section of the country? Does the Chancellor think that the old age pensioner should be asked to pay anything extra? Will he toll us why he is making them do so? Here is a section which has served this nation well, whose work has largely made the nation what it is, and I want to know why their burdens are being increased by this Budget. Why did he not ask for a few extra pounds to enable him to increase the old age pension? I have every sympathy with the Chancellor in his tremendous task, but I ask him to arrange his finances, if he cannot see his way to do it this time, in such a way as to give an extra 5s. to the old people. Such an increase would give such satisfaction not only in this country but abroad, for it would show that Britain at a time like this, when we have to make so much financial provision for the war, is strong and sympathetic enough to provide an increased pension for old age.

7.50 p.m.

Mr. Higgs

This Budget is undoubtedly a reminder that we are at war, and we shall get very many more unpleasant reminders, of a much more serious character, before the war is ended. We have to accept it in the same spirit as the troops are accepting their duty; and what is the burden compared with what the loss of the War would mean? Wealth production in this country and throughout the world is greater to-day than ever it has been, and undoubtedly there will be a margin, even after we have paid our dues under this Budget. If we get through the war on these sacrifices we shall undoubtedly be lucky. Taxation is the only alternative to inflation. I have no doubt that we shall have a little inflation, but, on the other hand, the more we raise by taxation, the more we pay for this war out of revenue, the sounder the country will be at the conclusion of the war. In 1914 we believed that Germany would have to pay for the war. We are under no such misapprehension on this occasion. We know very well, as the Prime Minister has said, that there are no winners in war, and whatever the result may be we shall have to foot our share of the bill.

As things are, we have an opportunity to offer criticism. We anticipated when the war broke out that bombs would be dropping by this time. Fortunately for us they are not, and I hope the Chancellor will accept some slight criticism in the spirit in which it is advanced. The Chancellor is not altogether responsible for expenditure. His responsibility is to find the money. Every Member of this House can bring pressure to bear on indi- viduals who are responsible for expenditure and in that way have a far greater effect upon expenditure than the Chancellor can. With regard to the provision in connection with Income Tax under which a person whose income this year has fallen 20 per cent. is to be given relief, I cannot quite see why he has chosen that figure. There will still be border-line cases and the argument of the man whose income has been reduced by 19 per cent. that if only he had lost another 1 per cent. he would have got relief. I cannot see why the Chancellor should not give the relief if a person's income has fallen by any amount.

The Chancellor of the Exchequer (Sir John Simon)

Perhaps I might answer that rather specific point now. When the Finance Bill is produced and my hon. Friend examines the Clause he will see that I have included a grading which will prevent there being a clean jump from the condition of getting relief to the condition of getting no relief, as is done, I think, in some cases, in connection with Estate Duty. It is a rather detailed and technical matter, but I think my hon. Friend will be satisfied when he sees the Clause.

Mr. Higgs

I am very much obliged to the Chancellor for that explanation. Of course, there are alternative forms of taxation which the Chancellor could have applied, but he had to choose taxes that are easy to collect. The one item in the Budget with which I do not agree is the increase in the taxation upon sugar. I am exceedingly sorry to see that he has chosen a commodity the use of which is spread over the whole population. Very hard cases have been pointed out. I should have preferred to see an increase in the tax on petrol rather than sugar. The hon. Member for Kennington (Mr. Wilmot) referred to vast incomes which are spent upon personal luxury, and said, what else could they be spent upon? That is a point on which hon. Members opposite make a mistake. Men with big incomes do not necessarily spend all their money on eating and drinking and on their clothing. They are the men who save and re-invest; they are the men who find the necessary lubrication for industry. It is a great mistake to think that men with big incomes spend them on luxuries.

The hon. Member also said that he did not think the effect of the Death Duties was serious, although they have been considerably increased. But let me cite an example of what happens to men who have built up big businesses, businesses which are owned more or less by one individual. There are such businesses valued at £50,000, or £500,000 or £1,000,000. In the case of the £50,000 business, it has to pay 18 per cent. over to the State, and that position is not so serious, because the bank will always provide that amount. In the case of a business worth £1,000,000—and there are some few throughout the country, businesses practically owned by one man— the business has to pay about 50 per cent in Death Duties. The man who made the business, the man in whom the bank would put confidence, has gone, and those who are left to run the business say that it is doubtful it they could obtain £500,000 overdraft from the bank, which is practically the only source from which they could get the money. And the difficulty is far more prevalent with businesses valued at £300,000 or £400,000. I am not asking the Chancellor to make any modification in the taxation. I am just pointing out to hon. Members opposite, who do not seem to realise the position, that cases of that kind do arise. It does not affect the individual but it does affect the business, the business community and the nation.

The case of the old age pensioner has been referred to, and I support a moderate increase in the amount of the old age pension and would remind the Chancellor that 100 per cent. of the cost need not fall on the Exchequer. Commodity prices are going to rise and undoubtedly we shall have to do something in that direction. Whatever our expenditure, serious consideration should be given to granting a small increase in the amount of the pension. The hon. Member for Ince (Mr. Macdonald) suggested 5s. If we cannot get that what about 2S. 6d.? It would be of great benefit to old age pensioners, with prices rising as they are.

Of course the Chancellor of the Exchequer is well aware that our securities overseas will be a great asset and will probably enable us to win this war. We are going to win. We have won the war already, although it may take a couple of years to convince Hitler of the fact. In this connection I am wondering whether the Chancellor could not consider some concession to the export trade. Although prices are rising in this country that does not necessarily mean that prices are rising throughout the world, and if in his next Budget he could give some consideration to the taxation falling upon goods which are exported I think it would be very beneficial to the trade of this country and probably assist us very considerably at the conclusion of the war.

Another point which will have to be seriously watched is the position arising from the change-over of plant from the production of peace time commodities to manufacture for war. purposes. A lot of firms are in that position; they are being entirely reorganised and are buying new plant in order to be in a position to make some article which will be of no use at all when war is finished. I hope the Chancellor will be reasonably generous to firms who have to make such a change in production. Many firms had already entered into capital expenditure before they knew that the taxation was to be so greatly increased. It will come very hard on them. I know they will have to pay it, but would it not be possible in certain cases to allow it to be paid by instalments?

Also, it is not a question of how we can make more revenue but of how we can make the present revenue go far enough. In industry competition makes for efficiency. Unfortunately, there is no competition when it comes to State expenditure. It is public opinion that will have to be brought to bear upon it. Putting the importance of economy to the forefront, I consider that there is considerable scope. I would like to refer to two cases of excessive expenditure, one of which is the vast army of unqualified inspectors that are going about our factories to-day. They are far worse than having no inspection at all. In industry, one firm cantrade with another, but when it comes to Government purchases our commodities have to be inspected, very often at greater cost than the cost of production. Then there is the question of evacuees returning home again. Something ought to be done to prevent that kind of thing when the cost is falling upon the State. Another item of expenditure is the detestable prin- ciple of giving a percentage on cost. The more the commodity costs the greater is the profit received by the firm. It is better to fix a bad price than to purchase with a profit on cost.

In conclusion, I would refer to something which may have been overlooked by the Chancellor of the Exchequer. Interim dividends have already been paid by certain firms, and it therefore follows that Income Tax will have to be deducted at 8s. 6d. in the £ in the second half year. Perhaps the Chancellor might consider payments by instalment or in two instalments on this occasion, and I should be very pleased to hear that he could give favourable consideration to this suggestion. My last word is that I advocate absolute prohibition of unnecessary imports, or that they should be taxed to the point of prohibition—even imports from France. When imports are unnecessary they should be taxed to the extent at which it does not pay to import them.

8.3 p.m.

Mr. Tomlinson

I have been interested particularly in the reactions to the Chancellor's speech rather than in the speech itself. Listening yesterday, and seeing the look on the faces of hon. Members as the right hon. Gentleman proceeded, I thought he was going out of his way to make the war unpopular. Up to the stage at which he announced increases in the Income Tax everybody had treated the question of war and war finance rather lightly. When they were brought face to face with the reality of an increase of 2s. in the£as a first instalment, hon. Members began to realise the seriousness of the situation. I was interested in what followed. The speeches which followed yesterday began, and have continued through to-day, by contrasting what took place on the last occasion with what ought to take place now-rather, I should say, an awkward thing for a Chancellor to be faced with, in having to budget for a war in the presence of a generation which went through the last war, because of the difficulties created by the things which were done and which ought not to have been done on that last occasion.

The hon. and gallant Member for East Willesden (Captain Hammersley) referred to the way in which the last war was financed and he contrasted it with what ought to take place on this occasion. The Chancellor had only hinted at it in his Budget, but everybody realised that it would be necessary to find a lot of money by borrowing, in spite of the fact that a good lot of it is being found from taxes. He referred to the necessity of that borrowing being on a different scale to what it was on the last occasion. I remember well, after the Great War, that the reaction of most people to it was that we should never get rid of war as long as it was such a good paying game as it had proved on that occasion. Largely because of that outcry, people at that time determined that never again should the same kind of thing happen. I want to ask the Chancellor of the Exchequer what steps are being taken to prevent banks, in particular, from doing the things that were done on the last occasion.

Let me use the illustration given by the hon. and gallant Member for East Willesden. He said that if a man had £20 and was good at the bank, that bank would allow him to take up a loan of £100, which meant that the bank was providing a credit of £80 out of the £100. Everybody knows that the £80 never existed and that it was credit which was given because of the standing of that man. From where had the credit come? From the bank? No, from the community. The point I am making is that if this war is to be financed on credit it is the credit of the community which will be used. The community has the right to the benefit of that credit, and we should not wait until the war is over before we skim the cream off the credit which has been created. We should not let it go to individuals who are not entitled to it. We have to remember the debt which was created on the last occasion and which forms part of the Chancellor's Budget to-day. A great portion of the ordinary Budget of the Chancellor of the Exchequer is devoted to finding interest for money which was lent at that time and which never had any existence. What does it amount to? It amounts in toto to a levy on the future labour of the working classes of this country. A war debt and every other debt can be expressed only in terms of hours of labour in the workshops of the country.

I was interested when the hon. Member who has just sat down suggested that Estate Duties brought difficulties in their train Although they are stiff he did not want them altered. One of the reasons why I have been anxious to see a capital levy introduced is that I have some sympathy with the hon. Gentleman. It is a shame that a man should die before he realises that he has been doing a great service to the community. He gets no pleasure out of death duties, although he has provided them. If you take the death duties from him before he dies he will have some satisfaction in knowing that he had contributed something towards the national wellbeing. After all, he is entitled to that satisfaction. I am not suggesting that you should abolish the death duties which provide the money, but until you have introduced a capital levy which will bring in a greater amount you ought, in fairness to the individual, to give him the satisfaction of providing the money before he dies. Then he will know something about it. Now he does not. The outcome of the death duties is that you leave a lot of people, who imagined that they were going to get a goodly sum, with a constant and continuous grouse because they have been deprived of about train train £ 500,000, which they would have had if the duty had not been in operation. We can meet the point of the hon. Gentleman, and also the case which has been put from these benches, by levying capital now, rather than waiting until after men have died.

The suggestion is made that we shall levy only a tax on war fortunes. That springs from the natural desire that we all feel that nobody should benefit as a consequence of the war. I would like to ask the Chancellor of the Exchequer two or three questions with respect to this matter. From when is the assessment to be made and upon what is the amount to be levied? These questions apply not only to levying on money made during the war but also to the Excess Profits Duty. What is to be the position, for instance, of those cotton firms which since 1921, at any rate, have been suffering a slump? I question whether one in ten of the cotton companies in Lancashire has been making money in the last ten years. Now there is a demand for the things which they are making. Any profits that they make will be in excess of what they have been making, in not only the last three, but the last ten years. Will 60 per cent. of that be taken as excess profit? Yet alongside those firms there may be a company which has been making on an average 25 per cent. for the last five years. Unless something is done to average out these things anomalies will be created with regard to the amounts payable by the different companies.

The same thing applies to the increase in the fortunes of people during the war. It was suggested after the last war that, if the levy had been placed on the capital then, people would have responded to it and the whole country would have been in favour, but that after the war it could not be done because it would mean dislocation of industry. The hon. Member for East Birkenhead (Mr. White) suggested that this would be a difficult time to begin assessing values, and that we might not be in a position now to impose a levy because we were at war. On the last occasion it was not opportune because we had waited until the war was over; now it is not opportune because the war is on. I have never found a time which was opportune to take something from people which they did not want to give up but which they ought to give up. The hon. Member for East Birkenhead referred also to an illustration in the Old Book at home. If he will turn on a little further in that old family Bible I expect he will come to another illustration of the Day of Judgment. I want to know not only how the people are holding up the hand of Moses but when the Day of Judgment is coming on which the people will be made to give up their ill-gotten gains. On the last occasion they got away with those gains.

I come to the question of the tax on sugar. I was interested, I admit, in the portion of the Chancellor's speech which dealt with this matter, because, although in the realms of high finance I am lost, in the realms of lower finance I am very much at home, particularly with regard to sugar. When the Chancellor increased the Sugar Duty in the first Budget which I had the privilege to hear him introduce, 1 reminded him that the tax was something more than a tax on sugar. I was amazed to hear the speech of the hon. Member for Hitchin (Sir A. Wilson) today, in which he suggested that we ate twice as much sugar as we ought to eat. Had he gone on to tell the House that we drink only half the milk we ought do, he would probably have discovered the reason for that lack of vitamines of which he spoke. The Chancellor and every other hon. Member who has sought to justify the tax has lost sight of the fact that the tax does not apply only to sugar.

Sugar is the most important commodity in the workman's budget. It goes into almost everything he eats. It is difficult for some hon. Members in this House to understand that the workers and their families generally do not have bacon and eggs every morning for their breakfast — that is only an occasional week-end treat. Jam and bread is the staple diet of the workers of this country and their children — sometimes butter with it, but not often. Everything that goes into the worker's home as a treat contains sugar. You are talking about keeping down the cost of living, and you begin by taxing this most important commodity. Think of the number of things containing sugar that the worker and his family consumeit would be difficult to think of many things that they consume that do not contain sugar. Tea, coffee, cocoaI know there are some miserable people who attempt to drink one or all of these stimulants — if they are to be called stimulant — swithout sugar. [Interruption.] I apologise to my hon. Friend the Member for Hems-worth (Mr. G. Griffiths). Ho did take sugar until it was shown that he ought not to do so, and now he does not take it. But the majority of people take sugar in everything that they drink except alcoholic liquor. The sweets of the child, the jellies that are made on Sunday as a special treat, the cakes that are the only thing that, generally speaking, the child asks for, are all dependent on sugar.

Think of the old age pensioner, and the plight into which he is put as a consequence of this tax. Someone said, "Leave out the human element." You cannot leave out the human element when discussing a Budget. The hon. Member for Hitchin went all wrong. You can study the figures in the Library with relation to old age pensions, but you do not understand the subject if you look only at those figures. You have to go into the homes of the old age pensioners before you know anything about the subject. Whatever the hon. Member may prove from the figures for 1924 and 1929, neither he nor anybody else in this House — not even the Chancellor, with all his knowledge and his skill in balancing Budgets — could make 1os. do the work that is required of it to-day by the old age pensioner. What the Chancellor has done is to make a difficult task more difficult. I know that one could do without tobacco and do without beer. I heard a man say once, "You can live without beer, you can live without tobacco, you can live without whisky; but oh, what a life." Unless the Chancellor is prepared to grant them a little more relief, the old age pensioners can live, but oh, what a life he has condemned them to.

8.20 p.m.

Sir J. Simon

I think we are reaching the end of this discussion and it is customary, when the Chancellor of the Exchequer replies, before the Resolutions are put to the Committee, for him briefly to review the Debate and, if circumstances permit of it, to say that he has no reason to be dissatisfied with the reception given to his Budget. This is an emergency Budget designed — I avow it — to help the Nation to face the realities of the situation, and I am not surprised that Members in all parts of the Committee have recognised that that is the nature of the task on which we are engaged.

So far as any body of men can express at least a modified consent to what must be very serious burdens, penetrating, I know, in all sorts of directions and raising, as the hon. Member who spoke last said, many very human issues, I feel that I have some reason to be grateful to my colleagues in the Committee for the way in which they have received these proposals. Perhaps, taking this side of the House, no one put it better than the hon. Gentleman the Member for Kidderminster (Sir J. Wardlaw-Milne) who, being asked what he thought about it, declared that he did not approve of any of it but that he accepted it with resignation. I am reminded of the reply given by an ignorant prisoner who was informed, when he was charged with some crime, that he should attend to the names of the jury because he was at liberty to object to them or any of them as his name should be called. He immediately replied, with an epithet which I will not repeat, "I object to the lot." The other way of looking at it, which I think is also very widely shared, was expressed in the speech of the hon. Member for Consett (Mr. David Adams), who said that there never was a cause for which the people of the country were more prepared to pay the full measure of the burden that is called for. It is the fact that that feeling lies deeply behind the sentiments of us all, and all whom we represent, and is the principal ground for our determination at this time.

I thought it right yesterday, when I opened my Budget, in connection with these very severe impositions which I thought it my duty to propose, to say something also about economy, and I want to say a little more on that subject now, for it has been, naturally, a topic dealt with by several speakers. I laid stress on the urgent need for economy and the avoidance of waste in every direction and I told the Committee that the Treasury is sending special and stringent instructions to all Departments to avoid unnecessary expenditure in every sphere. Now I want briefly to expand that and, adopting a phrase of the hon. Member for East Birkenhead (Mr. White), to give it greater precision. The hon. Member for Gravesend (Sir I. Albery), for example, emphasised the importance of having adequate staffs for financial control within the spending Departments. This is a subject to which I have given a great deal of attention since I have been Chancellor of the Exchequer. When I first went to the Treasury I raised the question whether the better form of control over finance was to have people inside the Department who were especially connected with the Treasury or to follow the regular system of having Treasury control exercised, as it is exercised constantly and most thoroughly, from outside. But, at any rate under war conditions, when there has to be so much expenditure decided, it may be very quickly, I have no doubt there is a great advantage, as far as may be, in strengthening the control inside. On that point the Treasury heartily agree with what the hon. Gentleman said and in a number of cases in recent months, one or two within the last week or two, the finance branches of the Department have been strengthened to enable them to maintain their control over their greatly increased expenditure.

This is particularly important, perhaps, in the planning of new Departments, because there we get a machine which has only been put together recently to meet the stress of war. In the planning of the new Departments we are attaching the greatest importance to providing that strong finance element. I am proposing to institute special inquiries into those Departments, or sections of Departments, where there is a case for investigation and I am hoping to call in the help of qualified and experienced men of business, acting in conjunction with officials of the Treasury and representatives of the Department concerned. An investigation of this sort has already been set on foot with regard to the Ministry of Information. [Interruption.] It is as well to strike while the iron is hot. In connection with that investigation, Lord Macmillan is engaged now in examining both the organisation and the staffing of the Department and the number of those employed. I have been in contact with this in the last day or two and I am confident that the result of those efforts will be to secure a practical application of the general principles which I stated in my speech yesterday. We must naturally wait for a day or two and, no doubt, the House will be informed.

The Minister of Home Security, in collaboration with myself, is taking immediate steps to secure a review of the war establishment of local authorities in the light of the experience already gained.

Mr. Gallacher

I should like to ask the right hon. Gentleman if he would direct the Minister for Home Security to an investigation into the number of persons who have been retired and are enjoying quite large pensions and who are now drawing salaries from local authorities.

Sir J. Simon

I was present when the hon. Member put that point to the Minister and I am sure what he has said will not be overlooked. But do not let there be any misunderstanding as to the distribution of the parts. The Chancellor of the Exchequer has a terrible lot to do and he does his best to secure that these investigations are made, but, of course, they must be carried out by the appropriate Minister and, in the case to which the hon. Member is referring, it is being done very thoroughly. While the system of special investigation which I have in mind will be directed to new and expanding Departments more particularly, I do not mean it to exclude the older Departments.

Having said that — that is probably the way in which the Committee wants that to be dealt with — I think it is right to give one word of warning. Here we are preparing to fight with great intensity a terrible war, and anyone who sees the working of the machine sees every sort of official working in a way which is the greatest credit to our Civil Service. Nobody dreams of ordinary office hours. Officials in my Department, to my certain knowledge, have been working hours and hours of the 24, which seem incredible, and I am very greatly concerned, as one must be, to see that we do not have a breakdown because it would be a very serious matter. It is exactly the same with regard to local authorities.

This is the word of warning I want to give. Do not let us lose our sense of proportion in this matter. An investigation of this kind — going into a Department and asking what is the meaning of this, that and all the rest of it — inevitably requires the help and co-operation of senior officials in the Department concerned. I am sure that hon. Members appreciate fully — I see they do by what they are indicating — that every one of these senior officials is more than fully occupied in getting on with his actual job, which is a far heavier job than anything in times of peace. I must, therefore, be careful, and it is in the public interest that we should be careful, that these investigations should not impede the rapid and efficient execution of the tasks with which the Departments are specially charged. When it comes to matters of policy — let me proclaim it once again here, because it must never be forgotten — we must not hold officials, whoever they are, responsible for matters of policy. Matters of policy are for Ministers, and the Government as a whole must be responsible, and we must take responsibility at this Box and try to improve public policy in the light of what is said. I wanted to say that on the subject of the Departments.

Mr. G. Griffiths

Before the right hon. Gentleman leaves the question of economy, I want to point that that I have seen to-day a form issued by the Food Controller to the effect that he is appointing in all the food areas in the country a cooking fats distributive officer who will have to do with margarine and other fats but not butter. These officers are to be appointed in every food control area in the country The form to which I refer is O.F. 240.

Sir J. Simon

That is a precision of reference which will enable my right hon. Friend the Minister to look into the matter. The other matter with which I wish to be allowed to deal briefly before we end to-night is one, which, I confess, I find difficult, and I am not at all disposed to speak as dogmatically and confidently as perhaps some people do, but I will do my best in simple terms to explain what I believe is the true position on the subject of the Bank Rate. My hon. Friend the Member for East Birkenhead, who always speaks with such moderation — I think it was he — said he never could understand why the Bank Rate was put up at all. Let me put the way in which it appears to me. It is a very difficult and technical matter and involves a great many considerations, not only the particular one which one thinks of at first, and the Committee perhaps, would like to have a few observations from me about it.

Mr. E. Smith

It was the hon. Member for Walsall (Sir G. Schuster) who said it.

Sir J. Simon

It may have been the hon. Member for Walsall. I am much obliged. Let me give one or two of the essential facts. In this matter I think we are all learners, and I will try to explain it as clearly as I can, having had, naturally, to give a good deal of attention to it. I do not claim in the least to be one of the great technical experts. Down to 24th August last, the Bank Rate, the Committee will remember, in this country had remained for seven years at the exceedingly low figure of 2 per cent.

That was the rate at which the Bank of England had announced it was prepared to discount bills. As the Committee knows, the putting up of the Bank Rate tends to limit borrowing, whether from joint stock banks or from other institutions. In other words, the lending of money for the borrower to use in business, for the support of all sorts of enterprise or whatever it may be, is thereby restricted. Why was the Bank Rate raised to 4 per cent.? It became a very important matter a month ago The policy that was recommended at Ottawa, often called the cheap money policy, was designed to deal with a world slump in commodity prices. The object was that by encouraging the supply of money at the cheapest possible rate and making it easy for people to borrow it and to use it, world production would be stimulated, wholesale prices would rise and all those results would follow which, I think, make ail of us, in principle, strong supporters of a cheap money policy.

What was the situation at the end of August? The situation which faced us then, when the Bank Rate was for the time being raised from 2 to 4 per cent., was not that of a world slump or anything of that sort, but a situation in which the clouds were gathering, and we felt obliged to allow the sterling-dollar exchange to go free. Speculation in sterling became particularly attractive to those who go in for that sort of thing. But instead of encouraging conditions which might lead to an upward bound in prices it was necessary to demonstrate at once that we intended to keep a firm grip of the situation. There were already fears that prices would go rapidly up and those apprehensions in some degree were not unfounded. Those were the circumstances in which for the time being the Bank Rate was put up.

What does putting up the Bank Rate do? It is, I agree, an instrument, a process, which acts generally, without discrimination, on rates of borrowing. It does not distinguish between the just and the unjust, and therefore it is less discriminating in effect than is desirable. For example, it increases for the time being the rates on Treasury Bills. But it immediately checks what might otherwise be very dangerous developments and might result in the whole thing getting out of control. The putting up of the Bank Rate gave us time to devise and apply further and more discriminating methods for controlling inflationary tendencies. That was one of the results of the raising of the Bank Rate. In the last week or two we have got into working order the complete control of capital issues, the control of foreign exchanges, the control of imports, and we have made a great number of regulations to stop various unnecessary forms of trading and also to bring about the rationing of com- modities. All these things have the effect of what I may call canalising expenditure; enabling people to borrow and use money for useful purposes and stopping the useless or unsocial or dangerous use of these facilities. They, therefore, prevent borrowing for purposes which under the stringent conditions of war are not in the national interest. That was the position yesterday when I produced the Budget, which will also have restraining effects on spending in certain directions.

Mr. Wilmot

Has the right hon. Gentleman used the interval to make positive arrangements for controlling lending?

Sir J. Simon

I think that when the whole arrangements are examined — the hon. Member will appreciate that I have to be a little careful — he will find that we are really devising a system which will satisfy him that we have really been making good use of our time. There is a further point on which I must say a word. When complaint is made that the rate of 4 per cent. has continued until to-day do hon. Members recall that in the period of the last war the Bank Rate moved to 4 per cent. on 30th July, 1914? It then moved to 8 per cent. for one day, and then to 10 per cent. for six days, moved back to 6 per cent. for one day, and then moved to 5 per cent., and remained at 5 per cent. and never came below that figure until February, 1922. We have to keep a sense of proportion, and I think we may look back and say that we have been pretty active for the last three weeks and if we succeed in getting a better and more discriminatory system of control — as the hon. Member for Kennington said just now it is a question of quantity and quality — I think it may turn out that in the end we shall look back to this and not feel so confident in condemning a temporary step.

We have taken a further most important step to secure what is so essential if we are to discourage and, as far as we can, avoid any inflationary tendency. That is the thing that matters. Nobody wants to pay more than they need for Treasury bills more sincerely than I, but I have to look at the main result, and if we can so devise matters as to counteract and avoid these inflationary tendencies, then I think that a certain amount of inconvenience and loss may be well justified. We are imposing very heavy taxation which is one of the ways of preventing the misuse of the spending power of our people. It is no accident, therefore, that, the day after the emergency Budget has been proposed, this situation, combined with other methods of control which we have been fashioning, makes it possible to reduce the Bank Rate. I say that by way of explanation and not wishing to speak with dogmatism. But I would like the Committee to appreciate that there are many considerations in these very technical financial matters, and I hope they will understand that I and my advisers, to the best of our intelligence, have been trying to understand them and to act accordingly.

There is another highly technical and very difficult question which may be asked. It is this. Has the higher Bank Rate any influence on the rate of long-term loans? That is a point on which economists dispute. It may be that there is a certain very indirect connection, but what I know of the practical matter is this. Let us take recent experience. We have had a uniform bank rate for seven years and during that period there have been extremely sharp fluctuations in the price of long-term Government stocks. The price of 2 ½ per cent. Consols, for example, rose from about 67 ½ to about 94 over several years, and then declined over several years from 94 to 64. Of course, it may be that many influences were operating, but it is plain that there must have been factors of enormous importance at work on long-term interest rates which were not concerned with the bank rate at all. In any case, the bank rate is back at 3 per cent., and that, so far, is in the direction which hon. Members hope to see.

The right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) put to me expressly the question, "What about your method of borrowing when the time comes and the rate of interest at which you hope to borrow? "Here, I have, in the public interest, to speak with great caution. Quite deliberately we are not making an announcement of the borrowing scheme until the Budget is through. I have no doubt that is the right order of events. People will then see what is in front of them and make their arrangements, as I hope they will do very thoroughly, to help the national loans; but as regards future loan policy, although it is planned to get the Budget out of the way first, I also said that the time was rapidly approaching when our borrowing plans must be announced. Although I cannot answer the right hon. Gentleman's question by figures, I can say this here and now. While I cannot anticipate the proposals we shall make, I can say that our policy is to borrow from the genuine savings of the people — that is very important — at the lowest rate that we can. That is an essential part of the elaborate financial plan which is one of the most important parts of our arrangements in connection with winning the war.

At this hour, I do not propose to deal with a number of other points that have been raised, some of them of great importance — I shall have other opportunities of doing so — and if I fail to give an answer to any hon. Member, I would point out that I have made a note of what has been said, and I shall do my best to deal with those points in the Debates that will follow. However, I would like to make an observation on one point made by the right hon. Gentleman the Member for East Edinburgh, which I am grateful to him for having formulated. Sometimes an hon. Member makes a suggestion that he or his friends or associates understand better than other hon. Members how the shoe pinches in this or that direction. I have heard many speeches, which have moved me very much, about the hardship that is being faced in many humble homes. As a matter of fact, I do not think we quite do justice to one another over this. I think we all understand that. I would venture to say also that it is equally important that we should all understand the nature of the burden that is being put on some other homes that may seem very comfortable.

I think I speak quite impartially when I say that the direct taxation which I had to propose yesterday, and which was, I think, received so well, must inflict a terrible blow upon a great many homes, which may seem very comfortable and well-appointed, but which, none the less, are very often the centres of a great deal of public-spirited and useful service and which, incidentally, help to give employment to great numbers of people. I think at a time like this we should do everything we can to understand the point of view of our fellow-citizens, even though they may not be of our own particular and immediate experience. As the right hon. Gentleman the Member for East Edinburgh said, there is no doubt that the richer classes, under this most drastic direct taxation, will have to revise the scale of their lives in many cases materially, and I would make this appeal to them, and I hope it will be heard outside the walls of this House.

No doubt these proposals will in many ways reduce their scale of occupation, of pleasure and of useful service, but there is one thing which I hope people will not do. Do not let them begin to economise by dismissing their staffs. This is an awfully bad time to turn people off. We shall get to a point later on in the war, no doubt, when there will be a demand for all sorts of labour and when it may be easy to find places and to fit into them people who are at present part of the establishment of, it may be, a great estate or a large home in the country. I think it is right to make that appeal to those people, many of whom, no doubt, are feeling very sore because of the difficulties into which they are going to be put, who are surveying their restricted incomes and wondering how they can continue to maintain, it may be in a large number of cases, useful occupations in their own areas. I would suggest that as far as possible the last thing that should be done at this moment is to turn people adrift. I am sure that if we carry this thing through, as we mean to carry it through, together, some of these difficulties will be removed and there will be a time later on when it will be much easier for many of these people to get employment than it is now.

I thought I would take the opportunity of adopting what the right hon. Gentleman opposite said, because I do agree with it most heartily, and so I hope that what I have said may not fall on deaf ears. I hope I may be pardoned by some of the hon. Members who have made speeches to-day and whose points have not been dealt with explicitly, but I would ask that the Resolutions should now be adopted. I do claim that this emergency Budget, whatever criticisms may be made of it, has the great advantage that it has plainly and fairly stated the actual situation to our fellow citizens and if we tell our fellow countrymen the truth — and they are not afraid of it — the reward of that form of courage will always be their support and their confidence.

Sir S. Reed

May I ask my right hon. Friend whether his economy machinery, for which we thank him, and his determination to economise, which we appreciate and recognise, will extend to some of the new offices which are unexpectedly springing up all over the provinces, if not exactly like mushrooms, at least like fungi?

Sir J. Simon

I must not follow my hon. Friend into those metaphors. I am not sure whether they are horticultural or agricultural. At any rate, I hope the surveys which will be undertaken will extend to the provinces as well as the capital.

Mr. Tinker

The right hon. Gentleman said he would consider many of the points put forward in the Debate. Will he give due consideration to the appeal for the old age pensioners?

Sir J. Simon

I know well the point that the hon. Gentleman and others have made to-day and on other occasions, and I make this observation, that this is necessarily an emergency Budget, not a regular Budget, and naturally it has to be devoted entirely to the subject of raising large sums of money.


" That —

  1. (a) where the profits of any trade or business arising in so much of any account- 1610 ing period as falls after the thirty-first day of March, nineteen hundred and thirty-nine, exceed a certain standard, there shall be charged on the excess a tax of 60 per cent.;
  2. (b)armament profits duty shall in no case be chargeable and the national defence contribution shall only be chargeable if it is higher than the tax chargeable under this Resolution;
  3. (c)the tax chargeable under this Resolution in respect of a trade or business for any period shall be allowed as an expense for Income Tax purposes incurred in that period but any repayment of the said tax allowed by reason of a deficiency of profits in a subsequent period shall be taken into account for Income Tax purposes as if it were a profit of the trade or business arising in that subsequent period;
  4. (d)special provision may be made as to the tax payable in the case of interconnected companies,"

put, and agreed to.

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

The. remaining Orders were read, and postponed.

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