Question again proposed,
That it is expedient to amend the law relating to the National Debt, Customs, and Inland Revenue (including Excise), and to make further provision in connection with finance."—[Sir J. Simon.]
§ 3.53 p.m.
§ Mr. Pethick-Lawrence (Edinburgh, East)
The longer I live the greater grows my admiration for the British people. We have our faults, but for tenacity, for courage, for a refusal to be put back, the British people uphold a tradition that extends over many centuries, and hold a forefront place in the whole world. When in September last the Chancellor of the Exchequer asked for £1,000,000,000 in the financial year that was then in progress there were many people who supposed that his hopes would be frustrated, but, on the contrary, he was able to tell us yesterday that the British public had responded in full to his demands and had exceeded them by over £50,000,000. The Chancellor is asking for a further £200,000,000 in the current year, £100,000,000 arising out of the extension of the September taxes to a full year and £100,000,000 from further new taxation, and I am confident that if these proposals go through this House, the money will be found. The public will respond in spite of the fact that the Chancellor's proposals are individually open in some ways to grave criticism. As to the totality of this taxation which the Chancellor is proposing, some voices will be raised to the effect that it is too severe. Such critics would prefer that we should continue along the easier path of light taxation, considerable borrowing and a large measure of inflation. My voice will not be raised in support of that point of view. Indeed, had the Chancellor found it appropriate to raise a still larger sum, say, at least half the whole estimated expenditure of the Budget by taxation, I would have given him my support.
230 The fact is that the problem which confronts the country is how to turn a peace economy into a war economy, and it was, and remains, the business of the Chancellor of the Exchequer to create the financial machinery necessary to achieve that object. Unless great sacrifices are made, sacrifices of the method of life of the great bulk of our population, we shall not be able to give to the forces which are fighting overseas our battles for freedom that support which they ought to receive. We dare not for their sake, we dare not for our own take, hold back the full measure of supply which they ought to have from us, and there is no surer method than that of taxation for enabling that to be carried through.
I criticise the Chancellor not because he imposes severe burdens upon the people in order to divert expenditure from their individual needs to those of the country as a whole, but for his failure in his capacity of controller of the Government economy. We all recognise that at the outset of a great war a good deal of dislocation is necessarily brought about, but we are not now at the outset of a great war, for this is the eighth month since the war started, and I do not need to remind the Committee that we still have more than 1,000,000 persons unemployed. And that is not by any means the whole of the picture. We have not brought back into industrial life large numbers of men who had retired because they thought their work was done, but who, in this emergency, are anxious to come back into industry and help to increase the flow of production.
Then, too, there are the women. What of the places for the 1,000,000 women of whom the First Lord of the Admiralty spoke many weeks ago—indeed, I think months ago? They are all ready and willing to take their part. The Government have found no use for them so far, but they tell us that the time will come when jobs will be looking for men, instead of men looking for jobs. Now this is not merely a cause of complaint to the persons whose services are not being used. It is a grave cause of complaint to the taxpayers who are being asked to give up so much of the products of the country's labour and who see our total production being limited and curtailed by the failure of the Government to utilise the manpower of the country to its full capacity.
231 I pass from that aspect of the Budget to the character and nature of the new taxation, and, in this regard, the criterion which I propose to apply is that of equality of sacrifice. Our people, as I have said, are fully prepared to bear their burdens. They are fully prepared to undergo great hardships. They are fully prepared to forgo much of what, in peacetime, they regard as the normal activities of their lives. But they demand that if they are to make sacrifices, then sacrifices shall equally be called for from other sections of the population. If, in the days before the war, there had been anything like equality of income throughout the country, the task of imposing taxation which would involve equality of sacrifice, would have been a comparatively easy one. But we all know that, in fact, there was great diversity. At one end of the scale there was a small section of people living in great luxury. At the other end there was a section living in dire poverty. According to Sir John Orr, no less than 30 per cent. of the people of our country and their families are so short of purchasing power that they are ill-nourished and their health falls far short of what it might be. Between those two extremes which I have mentioned, there is an immense number of people of moderate means.
In view of this situation, what do we mean by equality of sacrifice? Should the very poor make any contribution at all? Last September the Chancellor of the Exchequer maintained that they should and he imposed an additional tax of 1d. per 1b. on sugar. We on these benches opposed that tax, and if I understand the later pronouncements of the Chancellor of the Exchequer, he repents him of that deed.
§ Mr. Pethick-Lawrence
The right hon. Gentleman shakes his head, and I am very sorry to see him do so, because I had hoped that he had repented. Let me tell the Committee why I supposed that the right hon. Gentleman had done so. In the first place, he certainly has promised not to repeat it. He tells us that in his new taxation he has been most careful to avoid any additional tax upon the necessary foods. In the second place, 232 he tells us that he is drawing from public funds at the rate of no less than £60,000,000 a year in order to prevent further rises in the cost of the necessaries of life, mainly if not wholly food. If the right hon. Gentleman really means that he does not repent of having imposed that increase in a tax on food, what is the sense of first putting 1d. per 1b. on sugar and then preventing a rise in the price of sugar and other things by giving a subsidy in order to keep prices down? At any rate, if the right hon. Gentleman does not repent him of that action, we realise that he is at least taking steps to prevent the evil of his action producing serious fruit.
I shall have something more to say on that subject when I come to the question of the sales tax, but I wish to pass from the consideration of the poorest section of the people, on whom the Chancellor now says he does not propose to place additional burdens, to the other end of the scale, to the people of great wealth. Last September, the Chancellor of the Exchequer put up Surtax and increased Income Tax to 7s. in the £ in a full year. At least that is how it was described. In point of fact, it was something considerably different from that as it affected receivers of income, in the great majority of cases. What it really meant was that in the five or six months of the financial year which were left after the Chancellor's Budget statement on that occasion. Income Tax payers had to find, not 7s. in the £ but in a great number of cases 8s. 6d. and in some cases 10s. in the £ on the amount of income received by them during those months. I have always realised that that was a very substantial increase and though it is true that very few people other than Surtax payers, pay anything like the full amount of Income Tax that would appear from the flat rate to be payable, nevertheless it must be evident that large numbers of well-to-do people would have great difficulty in cutting down their expenditure at such short notice to the extent required by the Chancellor of the Exchequer. Many rich people have great responsibilities and liabilities which they cannot get out of quickly. I shall return to that point presently.
As announced in September last, the Income Tax has now gone up, as it is commonly said, to 7s. 6d. in the £, but in 233 reality, compared with the months which immediately preceded the beginning of this financial year, the present proposal is a reduction of the taxation imposed in September last. I do not think that statement is open to dispute. The amount of tax which the Income Tax payer had to bear from the date of the September Budget onwards, that is, in the last six months of the last financial year, was greater than the amount which he has to bear under the new proposals. As to the people of moderate means, ranging from the workers who are just above the poverty line to those whose incomes just fall below the Surtax level, they are the people who are mainly attacked by this new Budget. They pay the largest part of the increases in direct taxes and nearly all the indirect taxation. Further, as between the members of this class most of the taxes are regressive, that is to say, the taxes on the lower ranges of the moderate incomes are heavier in proportion to those incomes than the taxes on the higher ranges of moderate incomes. I refer particularly to indirect taxation.
I do not want to go in detail into the individual merits of the right hon. Gentleman's proposals. All taxes are naturally resented, and these taxes will, no doubt, be resented in the same way as others, but that is not necessarily to condemn the selection which the Chancellor of the Exchequer has made. I would, however, question the economy of the proposed postal changes. The postal service is really a commercial service, and I am doubtful whether it is a sound principle to make a commercial service of that kind contribute substantially to revenue. I was never in agreement with what was done before in this respect and I am still less in agreement with what is being done now. Even if some increase were to be imposed, I think the amount chosen is too large. It will affect great numbers of small people and impose a severe burden upon them.
Now I come to the sales tax. By the way, the right hon. Gentleman called it a Purchase Tax. I do not know why he has chosen the longer name when the term "sales tax" is so much better understood. Before I heard the Budget speech, and when thinking over the Keynes proposals and the possibility of alternative proposals being brought forward, I was rather favourably disposed to the idea of a discriminatory Excise and 234 Customs Tax. What we want to do in our economy at the present time is to sustain the life of the people, which is dependent on necessaries and to induce them to forgo what I may describe as unnecessaries, and to shut off all expenditure which is of a completely luxury character. One way to do that, is to put on discriminatory taxation which will influence people in that direction. When the right hon. Gentleman paused in his speech yesterday and said he had a further proposal to make, I thought he was about to propound something of that kind and, as I say, I was not unfavourably disposed to the idea. But when the right hon. Gentleman came to explain his sales tax and when in answer to a specific question which I put to him, he said that it must be at a flat rate, I began to realise that my hopes were not likely to be realised. For if it is to be at a flat rate, there can be no distinction between luxuries and the other articles which will form the subject of this tax.
On the other hand, he says that there will be certain exclusions. I understand that all necessary foods are to be excluded. I understand also that articles at present heavily taxed in other ways are to be excluded. The Chancellor said something in another connection about not taxing anything included in the cost of living. Does this apply to the sales tax? Are clothes to be excluded, and household requisites like crockery, pots and pans, dusters, brooms, brushes, and so on? If these are not to be excluded from the tax, what becomes of the Chancellor's boast that he is doing nothing to raise the cost of living? If they are to be excluded, we shall be interested to know what remains inside it, and how much the tax is likely to yield. I am not complaining of the Chancellor for not being more explicit for he spoke for over two hours, on many subjects which were all extremely interesting, but we have, in fact, very little data to go on as to this sales tax, and I certainly do not propose, therefore, to form a final judgment upon it to-day. I am sure that, in all parts of the House, there will be an intention to listen carefully to any further statement on this important matter. If the tax be a sound one, it will be supported, but if it be otherwise and if, as I very much fear, it tends further to aggravate the unequal distribution of taxation in the Budget, I am 235 afraid that we shall have to give the Chancellor of the Exchequer a critical time.
Let me revert once more to the question of the taxes on the people in the higher range. I said just now that I recognised that at the outset of the war they could not contribute more than a certain part of their income. I always thought that what was done in September was as much as could reasonably be faced, but, as the war goes on, habits of life and the whole structure of society will tend to change and the time will come when very much more drastic direct taxes will have to be imposed, because it will only be in that way that the luxurious spending of a certain section of the population can be checked and their incomes adequately brought into hotchpot for the purpose of promoting the prosecution of the war. I would sum up this aspect of the matter by saying that I recognise that it is important to limit expenditure on unnecessaries, but I think this should apply most to luxuries. As I see it, the proposal of the Chancellor of the Exchequer will apply least to luxuries. In general, the reductions will take effect in inverse proportion to the size of the income, and that is a matter for grave criticism. In our Debates on this matter we shall, as an Opposition, try to see how far we can remedy the worst effects of this inequality.
Passing from that matter, I would remind the Committee that the Chancellor of the Exchequer covered in his speech a wide range of subjects, and that it would not be right for me to take up time to-day in going into all of them in detail. Incidentally, he touched on the question of the limitation of dividends and the prohibition, during the war, of bonus shares. Offhand, I would accord a favourable reception to these proposals, but naturally, in common with other Members of the Committee, I shall want to have further details, in order to judge whether the proposals are equitable and whether they go far enough to cover the whole ground.
Two matters to which the Chancellor did not refer yesterday have been the subject of a good deal of controversy in the course of the last few weeks. The first is the question of the prohibition which the Treasury have imposed and the Chancellor has, up till now, sustained 236 upon conversions by local authorities. I presented yesterday in the form of a Question to the Chancellor of the Exchequer, a special case, in which the Exchequer has to contribute part of the cost of the interest on one of these loans. I was told that there were larger considerations influencing the matter, and, of course, I recognise that that is so. One larger consideration undoubtedly is that the Treasury do not want anything done to queer the pitch of the Government for obtaining loans from the public, but I cannot help feeling that this reason is not conclusive.
In the first place, what is the difficulty of fixing the price of the conversion sufficiently high to make it reasonably certain that in every case the present holder will choose to convert? It would only be a matter of a very small extra percentage over that which the Government are giving to borrowers. If local authorities are told that they can convert, but that they must not fix a price so low that there is likely to be left a number of stockholders who refuse to convert, I think that would be a very simple matter. I cannot see where the difficulty arises. Even if it were otherwise, and a certain number of stockholders insisted upon being paid out, all the money would find its way into investments of one kind or another. It is very difficult for me to see how the Treasury will lose. On the contrary, it seems that by taking the more reasonable course and freeing local authorities from the very heavy and incapacitating burdens which are forced upon them at the present time, the Chancellor will really be benefiting the public revenue instead of injuring it.
I pass from that subject to another, affecting the question of free exchange. I have no hesitation in saying that I do not claim to understand fully the ramifications of this complicated subject, and perhaps the Chancellor of the Exchequer will not mind if I express a doubt whether he himself can say that it is all fully clear, even to his pellucid mind. As the right hon. Gentleman knows, I have a great respect for many of the pundits at the Treasury, but I doubt very much whether those who have control of this matter there have all the wisdom on this subject which exists at the present time. It may very well be that there are people who have constant handling of these matters and who are acquainted with facts 237 which are not present to the mind of the Chancellor of the Exchequer, or even of his expert advisors. At any rate, I have been told that the decisions of the Government are not always wise. Some of my informers put the matter very much more strongly than that. I will put before the Chancellor of the Exchequer one case that has been put to me, regarding Indian shellac. A Canadian firm requiring Indian shellac goes to an English dealer, and he quotes them 116s. per cwt., having paid the Indian in sterling or in rupees. An American dealer is able to quote 100s. per cwt., having bought rupees with United States dollars on the free market. When he gets paid in Canadian dollars he can convert it back into U.S.A. dollars at the official rate. My informants may be wrong in their information or wrong in their conclusions, but this is what I am told goes on in quite a large number of cases. I think the right hon. Gentleman should look into that side of the matter.
Another informant tells me that it is an open secret that there are holding companies abroad with a nominal share capital, and that they control foreign securities amounting to many millions of dollars, and yet no steps have been taken to secure the surrender of those securities. I do not pretend to know how far these criticisms are justified, but I have a definite proposal to make to the Chancellor of the Exchequer, and I hope that he will give it consideration. As I said, the experts at the Treasury are not in possession of all the information that there is, as they have not had the handling of these matters as many specialists in exchange matters have; and my suggestion is that the Chancellor of the Exchequer might appoint a committee, not to decide, but to advise the Treasury, on these intricate matters. I believe that if he found it possible to appoint such a committee, he might obtain from it information that might at any rate modify his present attitude and might have the result of saving the Exchequer a very considerable amount of foreign exchange which at the present time is lost to it.
§ Sir J. Simon
I do not at the moment understand the second example which the right hon. Gentleman mentioned as to the foreign exchange.
§ Mr. Pethick-Lawrence
These holding companies, as I understand, hold foreign exchange, and they are able to dissipate it to the disadvantage of the Treasury.
§ Mr. Pethick-Lawrence
They are dollar securities. Now, I will revert to two themes which formed part of the speech of the Chancellor of the Exchequer. The first is the matter of the Keynes proposals. I would like to say straight away that the attitude taken by the Chancellor of the Exchequer receives my full support. I gave full consideration to the Keynes proposals, and I came very much to the same conclusion to which the Chancellor himself apparently came. I think they would be administratively exceedingly difficult; I do not think they would work out justly as between one individual and another; and, finally, I do not think they would yield the results which Mr. Keynes apparently thinks they would. I believe that they would so injure the system of voluntary savings that their net result would be comparatively small. I therefore support the line taken by the Chancellor of the Exchequer, and I welcome most heartily the promise which he gave relating to the assessment of means and the exclusion of the first £375 of new savings in that assessment.
The only remaining point relates to post-war conditions. After the last war ending in 1918–19 the country was left with a very heavy burden of debt. We have it to-day. At that time I was not in this House, but I pressed very strongly for a capital levy on all wealth for the purpose of sweeping away at any rate a very large part of that debt, and I believe that there are many people who opposed it then who have since come round to the view that it would have been a good plan for the country as a whole. Before this war started I urged the Chancllor of the Exchequer to impose a different burden—a war tax on wealth to make a contribution towards the cost of the war. He resisted that proposal then, and he resisted it when I put it forward later. But the Government have said—and the Chancellor repeated the statement yesterday—that it is their intention, if they are in office when the war is over, to impose a levy upon increases of wealth during a war. That levy, of course, will not be imposed on those who have not increased their wealth during the war, as I understand the Government's proposal.
239 The first comment that I wish to make upon it is that it is quite inadequate to meet the requirements. If the debt is increased during the war by several additional thousand million pounds, I cannot see that a levy bringing in a few hundreds of millions, will really achieve the purpose. The Government, of course, are anxious to apply this tax because they say people ought not to make money out of the war. That is quite right as far as it goes, but what the Government are in effect saying is, "We want to restore the position which existed before the war," that is to say the position in which certain people were extraordinarily rich and certain people were extraordinarily poor. That is just what we on these benches do not want to restore after the war, because we believe that that was an ugly structure of society, an unstable one, that it was already decaying and that it will not be possible to restore it when the war is over. The new twentieth century wine cannot be put into the old nineteenth century bottles, and I believe that there are Members in all parts of this House who know that when I say that I am speaking the truth.
§ 4.37 p.m.
§ Mr. Graham White (Birkenhead, East)
In the opening sentences of his speech the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) expressed his admiration for the fortitude and courage with which the British taxpayer has responded to the demands of the Chancellor of the Exchequer as expressed in the Budget of last September. I would like to say that I agree with the right hon. Gentleman in his expression of admiration. When he went on to say that if further burdens had been imposed he would have supported them and that he believed the public would respond to them, my comment is that the courage of the Government is somewhat behind the determination of the taxpayers of the country.
As the Chancellor of the Exchequer unfolded his Budget yesterday many emotions passed through my mind and no doubt through the minds of other hon. Members. Those emotions varied. One impression in my mind was that the lot of the Chancellor of the Exchequer in these times, at all events, is a highly unenviable one. When he sat down the 240 only thing which I envied the right hon. Gentleman was the mastery of exposition and pursuasion with which he placed the facts before the Committee. We have learned in past years to admire him for that. I am bound to say, after such thought as I have been able to give to the Budget, that the general reflection in my mind now is whether it is adequate for the scale of events in which this country is moving at the present time. In war-time one finds oneself doing strange and unaccustomed things. I never thought I should live to see the day when I would be questioning the wisdom of a Budget, on the ground of the possible inadequacy of the total expenditure proposed. I am not by any means convinced however that the general outlay of the Budget is such as will achieve the essential purpose which we must face at the present time. We must realise that we have not yet reached our maximum production; that the capacity upon which the civilian is able to draw is fixed and that we can only reach maximum production at the expense of somebody else. I come at once to that vast figure of £2,667,000,000 at which we are aiming. I am profoundly disquieted that that figure should be selected at all. It might have been better if the Chancellor had not taken any fixed figure. After all, what is this Budget for this year? It is not a normal Budget. It is, in fact, a profoundly important statistical review of the situation at the present time, but nothing more.
The Chancellor yesterday mentioned one condition on which the taxpayer would be willing to share the burden, and I will say a word about that later on. There is another condition which applies to the attitude of the taxpayer and the people as a whole. I think they will respond willingly while they are satisfied that the maximum effort of this country is being made. If we adopt a figure of £2,667,000,000, surely that figure could only be accepted on the assumption that the amount of unemployment is to remain somewhere about the figure at which it is to-day. It could only be accepted on the assumption that the million women, to whom reference was made by the First Lord of the Admiralty in a speech some little time ago, will not flow into industry, and that, in general, our preparation for the war will proceed on the same basis and with the same slow progress which 241 we have experienced since the last Budget. I do not think that that situation can be regarded as satisfactory.
The Budget, of course, presents an opportunity for surveying our domestic affairs and enables us to measure the inconvenience and hardship, if any, that we shall be called upon to undergo. But it is also an instrument, and a most effective instrument, for measuring our war effort in relation to that of other countries. This figure of our total expenditure, of which some £2,000,000,000 is for war expenditure, leaves me disquieted. It is difficult, we know, to make estimates of what may be the efforts of other belligerent Powers, but estimates have been made and have been published, and criticised, and, so far as I know, they stand. One of these estimates is that Germany at the present time must be spending on war purposes a sum of the order of £3,000,000,000, and there are some who would put the expenditure higher. In these circumstances I cannot believe that it is satisfactory to acquiesce in a figure of £2,667,000,000 for the present 12 months. We must have greater efforts than that and the country will, not be satisfied unless it sees clearly that they are being made.
If we are not reaching our maximum output of war materials and the like it is simply because our resources have not been adequately mobilised or with sufficient rapidity. There is no doubt, without taking into account our Colonial possessions, that we and our Allies have an overwhelming superiority over Germany provided that it is brought into the field and mobilised as rapidly as possible. The present difference between our effort and that of the Germans will remain until our resources are fully mobilised. There is no doubt that the joint production of ourselves and France might reach a maximum of £4,500,000,000 expenditure on war alone. We know now that Germany is at her peak expenditure, probably at a figure moving between £3,000,000,000 and £3,500,000,000. That is the setting in which we have to regard this matter.
In regard to the £1,234,000,000 of Revenue to be raised from taxation this year, it is indeed, as the Chancellor said, a formidable figure, in excess of anything which we have attempted to raise in previous Budgets. It is not helpful to make comparisons with the past, because we 242 are living in a period which bears no comparison with past periods, but most people, I think, would have hoped that there might have been an attempt to raise an even larger proportion of the expenditure from taxation. I hope that the Chancellor has it in mind, following the precedent of the last war and of last year, to have a second Budget in the autumn, so that we may review the situation then.
I turn to the actual proposals of the Chancellor. With regard to the luxury taxes, everyone expected them, no one was surprised, and I think no one will be any the worse. The reduction of the limit of the Surtax and the alteration in the Income Tax are fairly stiff, but they might have been stiffer, and they are certainly fair. With regard to the Purchase Tax, that, again, might possibly be a useful weapon in the fiscal armoury of the country. Like the right hon. Gentleman who preceded me, I can say little about it, because we have been told so little. We do not know what will be the rate of the tax or the field that it will cover. We do not know whether it will suffice to fill an important part of the gap between war revenue and total expenditure. On the assumption that the rate is 5 per cent. and that the field is of the order of from £600,000,000 to £675,000,000, it might be estimated to produce somewhere in the neighbourhood of £35,000,000. That, clearly, will be of little help in checking inflation. If, on the other hand, it is proposed to have a really heavy tax, which will raise several hundred million pounds, even then I shall not be satisfied that that might not also lead to inflation, because, as the tax is to be levied on the wholesale prices, it seems to me likely that the retailer will be driven to impose a somewhat higher addition than the actual rate of the tax levied, and demands for wage increases will arise.
This tax requires very careful consideration. It is true, I think, to say that, in effect, it is the exact opposite of a system of family allowances. The right hon. Gentleman the Member for Spark-brook (Mr. Amery) in a recent speech stressed the fact that in hundreds of thousands of working-class families the important thing is not the actual cost of living but the number of mouths that have to be fed. I think it is true to say that two-fifths of the field over which the sales 243 tax might be expected to operate, consists of boots and clothing. There you have just the opposite of the scheme of family allowances, which has so much support in this House for it will fall most heavily on the families with children—in the absence of other measures. If it is the object of our war-time taxation, as it ought to be, to see that there is no injustice in the sharing out of the burdens, I see great difficulties in devising a sales tax which will not have such an effect. In the Budget, as a whole, I do not see any safeguard against inflation. We should have liked, in the interests of justice and the efficient carrying out of this war, a system of family allowances in substitution for the heterogeneous mass of allowances made in connection with Income Tax, unemployment assistance, dependants of soldiers and so on Most people are convinced that no further sacrifices should be placed on the rising generation of this country. They have already made a heavy contribution in the interruption of their education. I do not think the country would tolerate any further burden.
I think the Chancellor of the Exchequer is relying for defence against inflation on the great increase in the results of the voluntary savings movement. We cannot speak too highly of that movement, and there is nothing we can do to encourage that movement that we should refrain from doing. I hope it will be successful in an even greater degree than it has been up to now. But when it is put forward as a defence against inflation, I am bound to question whether it will be adequate. The savings of the people of this country, taken as a whole, in any one year may be put at a sum of the order of £600,000,000, of which possibly as much as half is institutional savings of one kind or another. If the gap is to be filled by voluntary savings, the present rate of saving would have to be multiplied at least three times, and I very much doubt whether, in the economic position of the country and the other facts of the case, that can be done. Nevertheless, let us encourage the National Savings Movement, which must be always a valuable support to the country.
I said that we regretted the absence of a system of family allowances. I do not 244 overlook the fact that if such a system were provided, in isolation, it would be a contribution towards inflation. That applies equally to the £60,000,000 which the Chancellor told us is now being spent on subsidising food prices. That £60,000,000 is merely setting free a considerable amount of expenditure which otherwise would not be available. That is why I feel that the Budget does not really hang together. It does not take account of the fact that we are waging a totalitarian war.
It is said in some quarters that this Budget will bring the war home to us, but I hope that when we are thinking of the inconveniences we shall suffer as a result of the Budget, we shall remember that they cannot so far be ranked very much higher than inconveniences. I think it is better that we should do what, as an island people, we are loth to do: that is, to relate our affairs to those of other countries. This country has been an island so long—it is almost an island still—that we tend to look at things here without taking account of what is happening outside. It will enable us to look at the picture more truly if we consider the hardships which are being endured in other countries. There is no question that life is very much harder in Germany and in France. In Germany there is no limit to the hours of work except the physical endurance of those who work. Actual wages have been reduced, and a proportion of all wages is paid straight into the State in actual taxation—gone for good. Practically everything is rationed; everything is controlled—except falsehood, which is in free supply. These things they endure because it is a slave State. Their lot is to listen, to obey or, if necessary, to die. But they endure those things because they want to win the war—let us not forget that.
We cannot, either for our safety or for our honour, be satisfied with any effort that we are making unless we are convinced that it is at least equal to the effort which is being made by our Allies across the Channel. The majority of the people in this country hardly realise the nature of that effort. In September 6,000,000 men between the ages of 18 and 49 marched to the colours, laying down their tools, their spades and their pens, and at the same time the women flocked to take their places. Some 300,000 women have been recruited into Government service. 245 That is something to bear in mind. It is a greater man-power effort than we have yet made in this country. Turning to the financial aspect, taxation there is very much heavier than it is here. The general taxation is very considerable and there are a number of other taxes superimposed upon it. But there is one tax by which a contribution of 15 per cent. is sought from every individual of military age who is not in the Army—who is in a reserved occupation. I think there is a great deal to be said for that tax, and I believe it would be welcomed by the people of this country, because it is related to the system of family allowances and the payment of a veterans bonus for our soldiers and sailors on their return.
I hope, when we consider whatever inconveniences and hardships we are called upon to bear, we shall not be unmindful of those which are being borne by our Allies across the seas. I believe the courage of our people is greater than that of the Government. I say to the Government: Do not be frightened. Do not say, "Sufficient unto the day is the evil thereof." I believe that anything the Government propose in the way of increased burdens, will be borne cheerfully by the people, if they are convinced that the money is being properly expended and that there is no waste. I could not support more cordially than I do the words of the Chancellor on that subject yesterday. Subject to the fact that the nation is convinced that we are making our maximum effort, I believe that any burden that the Government may place upon them will be shouldered cheerfully as a method of expressing their will to victory.
§ 5.3 p.m.
§ Mr. Amery (Birmingham, Sparkbrook)
We all greatly admired yesterday the ability and clarity with which the Chancellor of the Exchequer dealt with a vast and complicated subject. His speech was listened, to with profound attention, and also with growing contentment and relief in more than one quarter of the Committee; on this side, perhaps, when he made it clear that he was not, at any rate in the immediate future, going beyond the steep increases in direct taxation which he had foreshadowed in September, and on the other side even more profoundly when he nailed to the mast the flag of voluntary borrowing and 246 voluntary borrowing alone. All the same, I think there must have been many in the Committee, and still many more outside, who will have shared the disappointment just expressed by the hon. Member for East Birkenhead (Mr. White) at the general character of that speech. We were, I think, entitled to look forward to a statement which would have clearly and boldly indicated the measure of the effort imposed upon us, if we are to win a war fought against an opponent whose whole economic structure is organised on totalitarian lines, and organised for war. We might have expected, at any rate, some outline of the general prospective programme, not only the programme for to-day or six months' hence, but for the duration of the war, by which the Chancellor hopes to make his contribution to the achievement of that result. Instead, he confined himself in the main to a forecast of what the fighting services might be likely to demand at their present rate of expansion, a rate which both the hon. Gentleman and the right hon. Gentleman who spoke for the Labour Opposition clearly showed to be inadequate, and not to what ought to be our rate of expansion, how it might be raised through the pressure of taxation and in other ways.
More than once he referred to the fact that the figures he was introducing were unprecedented, that is to say, unprecedented in our own history. I quite agree with the hon. Member for East Birkenhead that that is really irrelevant. What is relevant is a comparison, both quantitatively and relatively to our resources, with the effort which France and Germany are making, and, last but not least, with the effort that we could make if we set ourselves to it and organised ourselves as we might. Let me take first of all the case of Germany. After all, it is Germany that we have to defeat. Figures which have not been challenged or contradicted show that Germany is spending at this moment on war purposes alone something in the nature of £3,200,000,000 a year. We have been spending during the last six months at the rate of £1,500,000,000 a year—less than half. We are at this moment spending at the rate of £1,800,000,000, and all that the Chancellor hopes we shall be sufficiently well organised to spend during the coming 12 months is at the rate of £2,000,000,000—not so very much more than half. Even 247 if you add the total effort of France and put it at £1,000,000,000 a year, it is at most equalling what Germany is doing.
That brings me to another fact which is very vital to the consideration of the whole subject and that is the flying start which Germany has obtained by her past expenditure. In the five years before the war she had spent—the figures have been calculated to allow for differences in rates of wages, in the cost of raw material, and so on—the equivalent of something like £5,000,000,000, as against a total expenditure by France and ourselves of say £2,800,000,000. You have to remember, too, what Germany has acquired, in addition to her expenditure, by her military victories. Think of the addition to her armament power which was acquired by her victory at Munich, the Skoda and Vitkovitz works and the whole engineering and productive power of the slave-driven Czech people. Think what she acquired in Poland. Think even of what she has acquired in the shipbuilding and engineering works in Denmark. All that is additional. In virtue of that previous expenditure on equipment the money that Germany is now spending goes almost entirely into direct war output. A great part of ours is still going into factories, into things which will only produce munitions many months hence.
My right hon. Friend the Prime Minister argued recently that it is a great advantage to us that Germany is nearing the limit of her economic power, and that we still have all this vast margin to make up. That may be a very good argument some day, but at the moment we are faced with the fact that the margin between Germany and ourselves, so far from growing less during the last six months, has widened and, on the figures that the Chancellor gave us yesterday, unless they are drastically changed, will go on widening. In another year from now, that is to say 20 months after the beginning of the war, we shall in our actual productive war effort be further behind Germany than we were when the war started. Surely that suggests that the effort that we should make ought to be on a far greater scale than anything that the Chancellor envisaged yesterday.
248 I need not repeat all that the hon. Member for East Birkenhead said about the war effort of France. France, as compared with us, saves £400,000,000 a year on the pay of soldiers alone. She fixes all her wages and allows no man to be tempted away from munitions work, as they are being tempted here the whole time, by offers of higher pay in other factories. She taxes every workman for the benefit of the Army, for dependants and for war veterans, and imposes a double tax on any man in a reserved occupation who is of fighting age, a thing that we might well imitate in order to emphasise the fact that men who are reserved are reserved only because it is in the nation's interest to reserve them and that they have no moral right to be in a better position than men in the fighting line.
So much for the comparison with other countries. What about the possibility of a greater effort in this country? The right hon. Gentleman who spoke for the Opposition very truly emphasised the fact that we have not begun to deal with the problem of the statistical unemployed and the vast area of the black-coated unemployed outside that, and the still vaster area of employables who might be brought in—unemployed women and men and women employed in unessential occupations—a tremendous task of organisation. I know quite well that that is a matter, not for the Chancellor alone, but for the Cabinet as a whole. I put it, not as a criticism of my right hon. Friend, but of the Government as a whole, that the fact that he can envisage at this hour a war expenditure of some £2,000,000,000 is a grave reflection upon our capacity to reorganise ourselves. The figure we must aim at achieving, and as soon as possible, is much more like £3,600,000,000 instead of £2,600,000,000, if we are to draw level in war output with Germany within the next 12 months and then begin to gain upon her. That we have to give Germany all that time is indeed gambling with the life of the nation. We cannot afford to go on in a leisurely fashion. We cannot afford to hide from the nation the sacrifices that are wanted. In any case the gap between what we have done so far, or are contemplating doing, and what somehow or other we have to do, and do very quickly, is something far wider than the Chancellor suggested yesterday; and because it is so much wider—perhaps 249 twice as wide—it throws a very different complexion upon many questions, including that vexed question of compulsory borrowing and compulsory saving. I agree with my right hon. Friend, and the whole Committee would agree, that, while we demand more expenditure as a consequence of increased war effort, we do want, all the time, value for our money. My right hon. Friend will have the whole-hearted support of every Member of this Committee for everything that he does to see that not a penny is spent unnecessarily or uneconomically.
If I may say something about the particular items of the Budget, let me turn first to the indirect taxes. My right hon. Friend has raised indirect taxes on a number of articles of luxury. I wonder whether he has raised them sufficiently. He has estimated that that extra taxation will bring in substantial extra revenue. I suggest to him that at a time like this the best test of whether the taxation is producing the results desired is that it should reduce consumption, for if consumption is reduced, importation is reduced, and the use of shipping is reduced. We want not so much to get more revenue on tobacco, beer and spirits and such like things, as to see that the nation consumes substantially less of them, and I am by no means certain whether he has raised these duties sufficiently.
I will turn to the motor duties. There again my right hon. Friend seems to be satisfied with the increased yield, but I would suggest that that ought to be a cause for disappointment to him. In that connection I was disappointed myself that he made no reference whatever to the possibility of some effective change of taxation to bring about the substitution for petrol-driven lorries of gas-propelled vehicles. There is a great field there for substituting domestic raw material in our transport industry for imported raw material. Germany is compulsorily turning the whole of its domestic lorries on to gas. Why cannot we do the same? A little rectification of the weight reckoned for purposes of taxation to compensate for the extra weight of gas containers is not enough. What is wanted is some substantial bonus that will directly and immediately encourage every type of lorry to go off petrol and on to gas.
I would say a few words about the Purchase Tax. Like the right hon. Gentleman who spoke for the Labour Opposi- 250 tion, my first inclination was to wonder whether an Excise Duty, with corresponding Customs, whether flat or discriminatory, and coupled with a corresponding drawback upon exports, might not have been simpler in operation. But it may be that there are reasons connected with our international trade agreements that would make that difficult. Anyhow I am not disposed to differ from the Chancellor of the Exchequer as to the particular method, which after long consideration, he believes to be easiest to administer, though I must say that difficulties do present themselves very naturally to one's mind. There is the problem of the small producer who sells direct to the customer, the dressmaker, the shoemaker and so on; and there is the problem of co-operative and multiple shops. However, I am not disposed to pursue any line of criticism. On the contrary. I think that in an emergency like the present we cannot have a fairer tax all round than a general Purchase Tax. It is true that indirect taxation as we have known it in the past has mainly been taxation on the poor, because it has been confined to a few articles which are the necessities or the almost necessary luxuries of the poor, and therefore they have been consumed in a larger proportion to their total income than is the case with the richer classes. That is not true of a general tax on all consumable goods. In their case consumption is the measure of income available for expenditure, and in many respects that is an even fairer standard of taxation than actual gross income.
On the other hand, I am wondering what this tax is likely to produce. My right hon. Friend says that "boldly applied" it is capable of producing a larger additional sum than any other immediately practicable form of tax. But he gave us no indication of how bold he proposes to be. I wonder very much how far his courage will take him. Clearly this tax will not be of any real value unless it both substantially reduces consumption and also brings in a considerable revenue. What is the statistical position? It has been calculated that the wholesale value of the articles he proposes to tax amounts only to something like £600,000,000; in other words, his tax will give only £6,000,000 for each 1 per cent. of the rate of tax. Is he going to make it 5 per cent. or 50 per cent.? I 251 do not know, but I suggest that a low figure, such as 5, 10 or 15 per cent. is quite inadequate for the kind of purpose the Chancellor of the Exchequer has in view. Something like 25 per cent., bringing in, say, £150,000,000, would, on the other hand, be a real contribution to the problem. He has left out the whole field of foodstuffs. Is that altogether wise? There are many foods which are luxury foods and can bear at any rate some rate of sales tax, especially as the Chancellor of the Exchequer is already spending a great deal of money in keeping down the cost of certain essential foods in the interests of the poorest of our population.
On that point I need scarcely say how wholeheartedly I agree with the hon. Gentleman the Member for East Birkenhead in saying that that policy will remain ineffective and in large measure stultified, unless it is accompanied by some scheme of family allowances. To-day there are hundreds of thousands of children, if not millions, in this country who are not able, even at the prices at which my right hon. Friend keeps down meat and milk and certain other essential commodities, to enjoy these commodities which are so vital to their growing health. Surely at a moment when we have all frankly to face bearing our burdens, all of us, every class, there is at any rate one class whom we want to spare, and that is the children, the hope of our future. In connection with the taxes to be imposed on home consumption, my right hon. Friend pointed out that they would help to encourage the export trade. In a certain sense they do, but it is also necessary to remember that in many instances the export trade can only profitably be conducted on the basis of a substantial home trade, and to cut down the home trade, as you must, then you must have recourse to other and quite unorthodox measures in order to make sure of your export trade.
I would like to say a word in that connection, following what was said on behalf of the Labour Opposition, about the external financial problem. While it is not immediately relevant to the Budget, it is ultimately a very relevant matter as to how far our adverse balance of payments is to be allowed to swell and what effect that is to have upon our exchange, and so 252 ultimately upon our whole trade structure. On that subject the Chancellor of the Exchequer, very naturally perhaps, said nothing. But it is worth while saying a word or two. I am making no complaint against our having fixed the exchange rate at four dollars. I have never been one of those who thought that there was any real merit in "making the £ look the dollar in the face." We did it after the war with disastrous consequences to the country. In ordinary times and with an uncontrolled exchange there is a good deal to be said in favour of a low rather than a high exchange rate. But to-day there are very considerable objections to allowing the exchange to drop further. For one thing, it means a heavy loss in the value of our sterling securities abroad. If it goes too far, it may imperil the whole structure of the sterling area, that is the Empire and other countries which are on the sterling level. It is vital that we should keep the sterling area solid and together. As long as we do that, smaller fluctuations of exchange will not affect our price level. Once we have a controlled exchange and clearing arrangements with other countries, is there any reason why we should not do what Germany has done so successfully, namely, have different rates of sterling in different markets, and even for different transactions? In any case, I hope that the Chancellor of the Exchequer will listen to those who warn him that there has been an undoubted leakage in various directions through the exchange, and that only a part of the foreign exchange which our exports earned has been reaching the Treasury. It may very well be that the suggestion made from the Opposition Front Bench, that an advisory committee should be set up on this question, ought not to be despised.
I come back for a moment to direct taxation. That undoubtedly may have to go higher yet, and the minimum at which it begins may have to go lower. Those are matters which we may have to face before long. I think that business people generally will thank the Chancellor of the Exchequer for the alterations he has promised to make with regard to Excess Profits Tax and more particularly the needs of depressed industries and industries in process of development. We shall know a good deal better when we hear the details. At any rate, whatever we 253 can find by taxation, a vast balance remains to be found by borrowing. My right hon. Friend gave no definite figure yesterday, but taking the £100,000,000 that he has got from the 3 per cent. Loan, and something like £300,000,000 from foreign assets that he hopes to liberate, there still remains on his own figure a net £1,000,000,000 to be raised during the year, and possibly a good deal more—I would say, much nearer £2,000,000,000. That difference does enormously affect the whole question of whether we can finance this war without disastrous inflation. We did finance the last war very considerably by moderate inflation, because, owing to the time lag between rising costs and rising wages, and the big profits accumulated, we were able to tap these profits, both through Excess Profits Duty and voluntary lending, to such an extent that we were able to carry on, with the help of credits abroad, for four years of war. Is it really possible when a far larger and more rapid scale of expenditure is required, when the public is much more price-index conscious and much more opposed to profiteering, to think that we can follow the same policy without running the risk that inflation might completely run away with us and destroy the whole basis of our economic life?
How are we to find this great sum by non-inflationary borrowing? Let me just remind the Committee what is the essential difference between a loan and a tax. In both cases the Government take a man's assets for no immediate, tangible, material return, and the immediate result, so far as the burden on the people and the effort of the nation are concerned, is exactly the same. There is no such thing as a "burden on the future" in borrowing; there is a burden on future Chancellors of the Exchequer in having to take money from one set of taxpayers in order to repay another set, but there is no burden on the nation as such. Where, however, the difference lies in the case of a loan is that the lender gets in exchange a legal asset, not a material asset, but a claim on his fellow citizens for ultimate repayment and for a certain rate of interest meanwhile. Undoubtedly that enormously diminishes the hardship on the individual, and it is only because it does so that it makes voluntary lending possible and even, within certain limits, attractive. What I would like to 254 suggest is that that same reduction of hardship occurs also in the case of a loan, even if it is a compulsory loan, as compared with a tax; for the man who is made to lend is given in return for the assets he has surrendered an asset which at some time or other will be fully repaid and which therefore has an immediate value. The fact is that compulsory lending is really a compulsory conversion, at the bidding of the Chancellor of the Exchequer, of one kind of asset for another.
Is that altogether a new principle? We adopt it to-day in the case of anyone whose assets happen to be dollar securities. Such a person has to surrender them compulsorily to the Chancellor of the Exchequer. Even the Chancellor of the Exchequer's decision to stop dividends beyond a certain point is really an indirect compulsory loan. He hopes that the bulk of the money not distributed will go into war loans. There is no real question of principle in it. Personally, I would sooner have seen the Chancellor, instead of limiting dividends, raise the Excess Profits rate still further, dividing it between Excess Profits Tax and Excess Profits Loan. My right hon. Friend says emphatically that compulsory lending must kill voluntary lending. I am afraid that is no argument at all if voluntary lending fails to get us the amount required, just as it is no argument against universal military service to say it might interfere with voluntary military service—it has not in fact done so. When I heard the Chancellor of the Exchequer take that view yesterday his arguments reminded me of the arguments which he and other Members of Parliament used in 1916 against the introduction of universal military service. If it is necessary, we have got to have it, and it is less unfair and less cruel than the same amount of money taken irrecoverably in taxation.
On the other hand, does it necessarily kill voluntary lending? In the case of compulsory lending the Chancellor can fix his own rate of interest. What would be the effect on voluntary lending at 3 per cent.—I understand my right hon. Friend does not want to go beyond that—if he announced that if he could not get the money he required voluntarily he would raise it compulsorily at 1 per cent. or no per cent.? I think he might find compulsory lending in the background might be a stimulating influence on voluntary lending. As to compulsory lending or 255 saving by wage-earners, I do not think for one moment that the administrative difficulties are any more insuperable than those which we have to face every day in connection with our existing insurance schemes, or those which thousands of patriotic firms are facing to-day in the organisation of their group schemes for the voluntary lending of money by their workers.
I hope I shall not be doing an injustice to my right hon. Friend if I say, frankly, that in my opinion, at any rate, he has failed to face, or make the House of Commons face, the scale of effort required or the drastic nature of the methods which will become necessary. It seems to me that his Budget is essentially provisional—a stop-gap Budget, one that will not even stop this year's gap but will require to be supplemented before the year is over. I think there is still in it too much of the note of "Sufficient unto the day is the evil thereof" and "Time is on our side." I think that in that respect his Budget has only reflected the general outlook and limitations of His Majesty's Government in the whole field of our war effort. I fully realise that the Chancellor of the Exchequer can only make his contribution to that effort, but it should be a contribution in the light of a clear and comprehensive Cabinet policy. I cannot feel that that clear, comprehensive and whole hearted policy has yet been attained, and that is why this Budget, admirable as it is in many respects, still seems to me to be in essence a Departmental, a Treasury Budget, rather than the manifestation, on the financial side, of a policy of all-out national effort. My criticism is not so much of my right hon. Friend as of the present Cabinet system, which as a whole is—as I have said so often—a congeries or standing conference of Departments and not yet an effective instrument of clear, far-sighted and unshrinking policy.
§ 5.40 p.m.
§ Mr. Stokes (Ipswich)
The right hon. Gentleman the Member for Sparkbrook (Mr. Amery), towards the end of his able speech, in which he used certain expressions which I do not understand, referred to the relative merits of taxation and interest-bearing loans. While I can appreciate the unattractiveness of direct taxation, it is as well to remember that interest on interest-bearing loans eventually has to be found by working people 256 and that we on this side would prefer substantially increased taxation rather than that a large proportion of the money needed should be raised by interest-bearing loans. We listened to the Chancellor yesterday putting further taxes on beer, tobacco, matches and spirits, and we have heard him and other members of the Government talking about equality of sacrifice. I propose to devote my attention to illustrating one or two ways in which that equality of sacrifice is not being demanded and in suggesting ways in which he might make the equality of sacrifice more equitable, either by relieving some of the taxation he imposed yesterday or, at least, obtaining a further contribution to the cost of the war.
I and others have been wrestling with the Chancellor of the Exchequer for some time over the question of Treasury bills. The Chancellor told us that from the outbreak of war up to 17th February the extra cost of discounting Treasury bills was £4,130,000 and that that sum was divided into two portions—just under £1,000,000 due to the bigger volume of bills discounted and just over £3,000,000 due to the higher rate of interest. He was unable to explain, however, why, with the Bank rate at the same level, that extra cost should be incurred. I will give a comparison of figures. The average rate of discount for the first half of 1939 was 15s. per cent., and the average of the first 11 tenders of 1939 was only 11s. per cent. In both cases the Bank rate was only 2 per cent. I asked the Chancellor a question to which I received noanswer—perhaps I shall get one now—and suggested that the reason why the rate was so high was that there was a syndicate in the City which keeps the rate up at an artificial level. The Chancellor said that really was not the case, but I would like to quote two authorities to him. I have not brought the matter before the Committee without taking some trouble, and I will quote first the financial correspondent of the "Observer" for 19th November:What the rate would be without the strong control of the circumstances governing the issue by the banks and the bill market can only be conjectured. Under this regime a system has been developed during the past 5½ years that has replaced the competitive tender by a virtual monopoly. Despite the existence of this monopoly, however, it is a fact that with a 2 per cent. bank rate before the war Treasury bills were being issued at around an average of 15s. per cent. discount 257 and many people are wondering if the higher rate the Treasury is now being forced to pay is justified.I will quote a further authority, the "Scotsman"—and the Scots are usually right—for 18th December, 1939:In the first place, the banks keep out of the Treasury bill tender completely and obtain their bill supplies from the bill market. Competition is further stifled by the syndicate of discount houses, which by united action under strong leadership is able to dictate one price to be put in for the whole market.I suggest that there does exist a syndicate which seems to have a virtual monopoly in the discount of Treasury bills. I have their names, although I do not propose to give them, but they are headed by Seccombe, Marshall and Campion. It is generally recognised in the City that the Treasury discount bill rate is virtually settled by this syndicate. I do not know whether the Chancellor of the Exchequer will deny that such a syndicate exists. Apparently he declines to do so. It has been suggested that the rates might come down if the Bank Rate came down, and we have pressed the Chancellor of the Exchequer on that point. We have tried to find out who does settle this extraordinary business of fixing the Bank Rate on a Thursday morning. The Chancellor of the Exchequer says that he does not, but I find in the City that there are responsible people, including several directors of the Bank of England, who insist that the Bank of England has given it up during the period of the war and that the Bank Rate is actually settled by the Treasury and, therefore, by the Chancellor of the Exchequer himself. If the people who control the bill market cannot be persuaded to come down to a reasonable rate of 15s. or 11s., I suggest that the Chancellor of the Exchequer should exercise the power which the City says he has and bring the Bank Rate down to 1½ per cent. or to 1 per cent. It would lead to a great saving in the general financing of the war.
In regard to the Bank of England, I want to explode a myth which I believe is prevalent. Some people think that the Bank of England creates wealth. I cannot conceive of the Bank of England as anything more than a giant casino with Mr. Montagu Norman as the senior croupier, shovelling round the shekels. He occupies the same position as the croupier of a casino, and can stop the 258 game in exactly the same way as a casino manager by restricting the number of counters in circulation. I think it is time that the Chancellor of the Exchequer took back to himself and to the Government the power of creating money and took over the issue section of the Bank. There is no reason why it should not be done. May I remind the Chancellor of the Exchequer that in the Middle Ages anyone caught issuing financial credit or money outside the King's Mint was promptly boiled in oil, and I suggest that we should look upon this matter in that light.
There is another important point about the financing of the war which I want to raise. I cannot understand—and I have never had a proper answer to the question—why it is bad business to issue your own money free and good business to have to pay 3 per cent. on your own credit. Everyone is now saying that this is a 3 per cent. war. That is better than a 5 per cent. war, but I should like it to be a no per cent. war. I would recommend the Chancellor of the Exchequer to study what Signor Mussolini has done. He has introduced into Italian financial circulation what are called biglietto di stato, which are notes not issued by the bank but by the State in quantities comparable to the value of the work done in the recovery of the Pontine marshes. I think that we could run this war far cheaper by issuing money to keep pace with the productive capacity of the country.
Let me turn to another point. We are now in the paradoxical situation that we have a war on when everybody is being asked to work longer hours, some people getting more pay and some not, and yet, at the same time, we have a considerable number of unemployed skilled people who could in fact be used to produce real wealth. It is said that there is no money available. That is sheer nonsense. Let me take as an example the building trade. A large number of building operatives are out of work and a quantity of certain kinds of material available—I do not say all kinds of material—but the Government have closed down building development, and these men are out of work. I cannot understand it. About 75 per cent. of the population are busy making goods which are utterly useless except to blow other people's brains out. 259 There is plenty of money to do that, but when it is suggested that men who are out of work should be put into work to produce real wealth, then it is said that it cannot be done. I ask the Chancellor of the Exchequer to reconsider this matter and to see whether he cannot make some change in the policy of the Government.
I was distressed yesterday at the fact that there was no increase in the Excess Profits Tax. I cannot see how it can be suggested to the people who have to fight that there is equality of sacrifice when you allow people who are making excess profits to hold on to them. I should like to see the Excess Profits Tax put up to 100 per cent. There are a great many people like myself who think it is loathsome and detestable that anybody should make any profits out of the war, and it would have a most salutary effect if the Excess Profits Tax was put up to take the whole lot of excess profits for the financing of the war and thus bring about more equality of sacrifice. The Chancellor of the Exchequer has made up his mind that he will not allow people to make big dividends or allow them to invest their dividends in their own companies. In other words, he says that they must not distribute this money, they must lend it to the Government, and the Government will pay them 3per cent. I think it is better for him to take the lot in taxation rather than put additional interest burdens on the people.
I cannot sit down without saying a word to the Chancellor of the Exchequer about his own faith. It is a distressing thing to some of us that he has not tackled the question of the taxation of land values. On 15th April, 1924, the present Chancellor of the Exchequer made this observation:The present system of rating is one which discourages development and handicaps building, and at the same time it often fails to secure for the community that contribution which ought to be made from land value created by the efforts of the community as a whole and particularly by expenditure of money out of the rates.I wish we could get the Chancellor of the Exchequer into thinking that way again. Let me give an example to the Committee which shows the iniquity of a system which allows land to lie idle in time of war. I think the Government should 260 make it a penal offence for any man to allow valuable land to lie idle. In the borough of Ipswich there is a total area of 8,692 acres, an industrial area in which there is only one cow, and of this area 3,500 acres are absolutely unused, and, being derated, make no contribution to local rates. A statement has been made to the effect that the value of the empty sites for 1940 is equivalent to a 10d. rate, that is, £26,093. Had this been collected, the rates could have fallen from 15s. 10d. to 15s. 4d., but instead they have gone up to 16s. 2d.
There is a further example in the same area. The community has grown, and the power station is too small. The electric light authorities, in collaboration with the municipal authorities, decided to build another power station. They did not choose the most delectable site in the middle of a residential area, but they chose what was, in fact, the worst possible site. It was land which had never been used except to graze a few sheep, situate on the river bank. On the East side there are sewage works, on the North side a sulphuric acid factory, and on the West side gas works. They had to pay £13,000 for 84 acres when they wanted only about half that land, so that really they had to pay over £300 per acre for what they needed, as the landlord would not let one half of the area go without the other. It seems iniquitous that this should be allowed to continue. While we recognise the difficulties of the present situation due to the fact that land value has altered owing to evacuation and other things, surely we ought to make some provision for the period when the war is over. Nothing has been done in this Budget about that.
The easiest way to cure the unemployment is to force all this idle land into use, and the right way to do that is to put a tax upon it and collect its communal value for the community. But you have this absurdity—another example of the inequality of sacrifice. What is considered as useless land is being taken for camps, aerodromes and factories. It is a great secret: it is not in the public interest that we should know what has been paid for it! Does the Chancellor of the Exchequer propose to take back from the landlords the sums which the Government have paid? Does he propose to take 100 per cent. of their excess profits on 261 land sales for the benefit of the community? If not, the fighting men will say that while they have been asked to go and die for their country, they must first buy the land before they do so.
§ 5.59 p.m.
§ Mr. Craik Henderson (Leeds, North-East)
This is my maiden speech, and I ask for that indulgence which I know I shall require and which is always extended on these occasions. Yesterday the Chancellor of the Exchequer disclosed the enormous sums which we shall have to spend and collect this year and whether we feel that he erred on the side of severity or leniency, the country realises the great advantages which it was that at the earliest possible moment the Chancellor of the Exchequer should have let us know the heavy burdens we have to bear. The country will always face sacrifices willingly if they are told fully and early why and what these are to be. I think too we should pay a tribute to the extraordinary sense of patriotism which has been shown by all classes of taxpayers in meeting the very heavy burdens which unexpectedly they have to meet, and I was glad that yesterday my right hon. Friend paid a tribute to them.
I think my right hon. Friend will realise that, even without any additional taxation, the burden will become progressively more difficult for the ordinary taxpayer to meet. I appeal to him to consider whether methods cannot be evolved which, without loss to the Treasury, might make it more easy for the ordinary taxpayer to meet these very heavy burdens. For example, in the case of Estate Duty, if in the new loans which will be required a provision were made, as was done with certain loans in the last war, that they could be surrendered at par in payment of Estate Duties, it would confer a great benefit on trustees and executors, and I think it would also be of tremendous advantage to the Treasury. Incase of a large estate, where, say, a duty about 50 per cent. has to be met, the trustees may get an overdraft for the time being, but it is their duty to realise securities as quickly as possible and wipe out the debt. This has the inevitable effect of tending to depreciate the value of securities, with the result that the Treasury to some extent loses. I appeal to the Chancellor to consider how far he might ease the burden upon the taxpayers without involving a 262 loss to the Revenue. I think there are several ways in which this could be done.
Both yesterday and to-day a great deal of attention has been devoted to the necessity, as far as possible, of meeting our very heavy expenditure by taxation rather than by loan, of keeping the gap as small as possible; but I suggest that there is another direction in which this is equally important, and that is with regard to our external payments and receipts. My right hon. Friend the Member for Sparkbrook (Mr. Amery) referred to this in his speech. We all realise the importance, in the Budget, of keeping the gap between income and expenditure as narrow as possible, and although £1,433,000,000 cannot be regarded as small, our taxation does represent a serious attempt to keep the gap within reasonable limits. But I think that in the case of the balance of trade it is of even more vital importance that the gap should, as far as possible, be kept within limits. We must recognise that there will be a very large deficiency—the last Board of Trade figures give us some idea of what that deficiency will be. I am afraid—I should be glad to hear what my right hon. Friend has to say on the matter—there is a danger that this deficiency may tend to increase. In addition to our ordinary peace-time imports, we have now to buy abroad a great many articles for our war effort. We are, for instance, buying aeroplanes from America. This must increase our imports. The President of the Board of Trade is doing his best to encourage and increase our export trade, but I think we all realise that, to put it bluntly, he is batting on a very difficult wicket. Our exports to some countries might at any time fall into the hands of our enemies, just as some of our exports to Denmark and Norway will now be helping the German effort. I should think there is very little hope of our being able, to any very material extent, to increase our export trade.
There are, however, two other adverse factors which are important. We have always relied to a great extent on our invisible exports as credits. We have relied upon shipping and insurance. I do not know what the position is at the present time, but I think these and particularly shipping must have ceased to exist as assets. In view of the heavy payments which we have to make to neutral 263 shipping I imagine that we cannot regard shipping services meantime as a credit so far as external expenditure and receipts are concerned. Another adverse factor is that this deficiency in external trade can be met only in two main ways—by the transfer of gold, or by the sale of investments abroad. My right hon. Friend is already selling certain of those investments abroad. He has no option, but the result must be that the dividends which we would have got from those investments will disappear, with the consequence that another credit will diminish with each successive sale of our foreign investments. I do not know what the Chancellor calculates our investments abroad to be, but I have seen them put at about £3,500,000,000. That, strangely enough, is the same figure as our investments abroad were calculated to amount to in 1915. One would have thought that after the sale of investments in the last war, our investments abroad to-day would have been substantially lower. That does not seem to be the case, although I do not know whether they are valued by the same method as in 1915. It is obvious that we shall have to face very large deficiencies during the war years.
There is, apparently, only one way in which we can hope to reduce this deficiency, and that is by dealing with our imports. The Chancellor referred to this subject yesterday, and in his broadcast speech last night he made an appeal to people to buy articles manufactured in this country instead of articles manufactured abroad. Is he satisfied that more cannot be done to reduce imports? There are two aspects from which we can consider this matter. One is whether there are any articles coming into this country which are not absolutely necessary for our war effort, or which could be restricted, or done without, if necessary by the introduction of rationing. The other is whether any of the manufactured goods coming into this country could be replaced by substitutes. That is being done in Germany. Could we not apply our productive capacity in this country to the production of substitutes in order to ease the strain on our balance of trade? In peace time that might not be economic, but I suggest that in war time we ought to consider very carefully whether it can- 264 not be done. If my right hon. Friend does think that imports should be reduced, then I beg him not to hesitate. If he hesitates because he feels there is a danger that by restricting or forbidding those imports, he is likely to affect the morale of the country, I am sure he is wrong. I am sure the people of this country would accept any sacrifice in the way of rationing or restriction which they were shown was necessary for our war effort, and that instead of reducing their morale, it would tend to increase it. I beg my right hon. Friend to consider the subject, and if he is satisfied that it is advisable, I ask him to take his courage in his hands, as he has done with regard to our financial arrangements, and impose restrictions now as a matter of policy rather than later as a matter of necessity, as it might have to be.
§ 6.14 p.m.
§ Mr. Richards (Wrexham)
It falls to my lot to congratulate the hon. Member for North-East Leeds (Mr. Craik Henderson) on his maiden speech. We have all experienced the difficulty which he has experienced in the last half hour, and we all admire his courage in speaking on a very difficult subject. I am sure hon. Members will look forward to hearing him speak again on matters of this sort.
Before I listened to the very suggestive and original speech of the right hon. Member for Sparkbrook (Mr. Amery), I was prepared to speak of the Budget as being one of the greatest we have ever had. There is little doubt about its magnitude; it can only be described as colossal. But I am sure hon. Members were very much struck by the fact that the right hon. Member for Sparkbrook demanded still greater sacrifices than those which have been imposed by the Chancellor of the Exchequer. I think it is true to say that the figures of the present Budget were exceeded by the figures of the Budget of 1921. I know that prices were on a different level then, and I have no doubt that if a correction were made in respect of the difference in prices, the figures for this year would exceed those of 1921; but it may be well to remind hon. Members that in 1921 the total amount raised by taxation was £1,425,000,000, roughly £200,000,000 more than is to be raised by taxation in the present Budget. This shows, of course, the rate at which war expenditure has increased during the last 20 or 25 265 years, and I am sure that, unfortunately, we must agree with the right hon. Member for Sparkbrook that this does not measure the full extent of the effort we shall have to put forth sooner or later. The right hon. Gentleman's demand, with which I think most hon. Members agree, is that the effort should be made now, because we cannot really say that time is entirely on our side. We might find ourselves in a very difficult situation which would make the task more difficult than it would be if we undertook it immediately. One thing that has put the Budget out of joint is the global figure of £2,000,000,000, the estimate which the Chancellor makes of the cost of the war up to the end of next March. No one knows, and he was quite frank about it, whether that figure will be exceeded or not, but I do not think we can take any credit because it was not exceeded during the last seven months. The Chancellor of the Exchequer has told the Committee that he has not spent the whole of the Vote of Credit for £500,000,000, but that argument cannot apply if we are to put forth an extra effort next year. We may be faced consequentially with the possibility of another Budget before the end of the financial year.
I notice that one item in the Financial Statement has been omitted from the present Estimate. Last year there was an Estimate for Civil Defence of £28,691,000, but on this occasion it is included in the £2,000,000,000 which the Chancellor estimates will have to be spent on war services. I do not think it would give very much comfort to our enemy to know what is to be spent this year on Civil Defence. The sum spent last year included a great deal of capital expenditure, but I take it that the upkeep of Civil Defence will be nothing like the cost of its institution. We all know that there is a movement on foot to reduce the personnel and costs of the A.R.P. services in various respects, and perhaps the Financial Secretary will be able to tell us the reason for taking this particular Estimate out and including it in the grand total. If it gave any information at all to the enemy, it would be of a discouraging kind, because it would show that once we had established our Civil Defence, we were keeping it running efficiently at a much lower cost than the initial expense.
All these items in connection with the war are quite rightly surrounded in 266 mystery, and we are not able to discuss any of them. Last year the Sinking Fund did not quite cost £230,000,000, but I think the Chancellor of the Exchequer was right in still sticking to that figure. We must remember that with all this borrowing the National Debt is mounting up very rapidly. I take it that the services of the Debt next year will not be covered by the £230,000,000 budgeted for, but that the figure will very likely be considerably more. Another item to which I wish to refer is that of Civil Votes. I find that the White Paper says that there has been a reduction of £37,000,000 in this case from an Estimate of £442,000,000 last year to £404,000,000 for next year. That figure seems to me to be a little misleading, because, if I understand it aright, the actual cost last year was not £442,000,000 for Civil Votes but £414,000,000. That is to say that the Treasury saved last year £28,000,000, which, I think, ought to be credited to the year which has gone. Consequently the actual saving which will take place this year is not £37,000,000, as the White Paper seems to show, but £10,000,000.
There is £2,000,000,000 of war expenditure this year, and in addition to that the total services of the Consolidated Fund amount to £247,000,000. Then we have Civil Votes and Customs and Excise, giving us a grand total of £2,666,000,000. The staggering thought is that out of that grand total, £2,247,000,000 is in respect of war services either for present, future or past war expenditure—£2,000,000,000 is in respect of the war we are waging now and £247,000,000 is in respect of wars we have fought in the past—for all our social services we have a mere £419,000,000. If we attempt to convert these figures into percentages, we shall find that out of the taxation we are taking for this year 84 per cent. is in respect of war and only 16 per cent. in respect of social services. This is a very striking thought indeed. Of this colossal sum, involving as we hear from all sides of the Committee considerable burdens on the citizens of this country, 84 per cent. of it will be spent on wars either past or present. As the Chancellor of the Exchequer said, his first question is how is he to find this colossal sum of £2,600,000,000. I agree with him when he says that there is no ideal way of dividing this sum up, but we are all agreed that it has to be divided as between taxation and loans. The first question the 267 Chancellor of the Exchequer has to decide is what proportion is to be raised by taxation and what proportion is to be raised by loan.
Let us turn to another question for a minute or two. If we regard this Budget from the point of view of national income, if we take the annual national income—£5,300,000,000—a figure given by Mr. Clark, who is one of the greatest authorities on this very difficult question—we find that the Budget takes almost exactly half of that figure.
§ Mr. Richards
It is income to some people. I think the right hon. Gentleman the Member for Sparkbrook emphasised the fundamental difference between taxation and borrowing, which it is well we should keep in mind. When a tax is paid the money has gone so far as the individual payer is concerned, but when the money is lent to the Government, as the Chancellor of the Exchequer pointed out yesterday, particularly in his broadcast speech, the money is safe and sound, and is being kept for the lender until the war is finished. In addition to that the lender will be granted a bonus, because he did the good service to lend the money to the country when it needed it. The point I wish to make is that as far as loans are concerned—and I think this point was made by the right hon. Gentleman the Member for Sparkbrook—there is a very serious redistribution of wealth, and we find when we come to the end that certain people have benefited very greatly whereas other people have not benefited at all. The Chancellor of the Exchequer is making a great plea that the small man should save, but we on these Benches feel that the small man has not that surplus which he could lend to the Government. The rich people can lend not only out of their savings, but out of money loaned to them by the banks. This was done on a wholesale scale during the last war. It was not actual savings, but money borrowed by individuals and institutions from the banks for which they obtained more interest from the State by way of loan. The small man cannot do that because he has 268 not the surplus or the credit at the bank. This is a thing which gives rise to indignation.
We are all in agreement with the Chancellor of the Exchequer in trying to do all he can to keep down the rise in prices, but I do not think the Chancellor can help himself. All this money will be spent immediatey on an extra effort to carry on the war, and that extra effort will have to be remunerated. Consequently extra money will gradually flow into businesses of various kinds and into wages, and this money will be spent upon increased purchases. I am afraid the Chancellor rather too hastily dismissed the Keynes scheme yesterday from that point of view. I fully realize the many difficulties in that scheme, but it is a deliberate attempt to prevent money getting back by way of purchases, which inevitably, I am afraid, will lead to increased prices. I suggest that what we want to do is to increase productivity. The figure of £5,300,000,000 was computed at a time when 12½per cent. of the working population of this country were unemployed. If we get these men back into industry, it stands to reason that the productivity—the total amount of wealth of the nation—will be considerably increased.
Then there is the question of overtime and harder work being done by many people at the present time. That ought to result in a larger total amount of wealth produced. I have tried to arrive at a sum, and I find that one authority puts the increased wealth that might be produced as a result of using these people at about 17½ per cent. That percentage on £5,300,000,000 would bring the total to well over £6,000,000,000. The burden would be eased to that extent because we would be taking out of a larger national income than we were before. It is here that we feel the Government are not, as the right hon. Member for Sparkbrook said, doing all that they might. It is all very well to impose taxation, and we know that taxation is bound to impinge upon certain industries that we want to see thriving, but we want not merely to increase taxation but to put forward such an effort to increase the national income as will make taxation much easier to bear than it is to-day. The criticism which was made by the right hon. Member for Sparkbrook applies to the whole of the activities of the 269 Government They are really not doing all that they should to use the economic factors that we have in this country so as to make it easier to pay for the war and, at the same time, make it more certain that we win the war, as we ought to do because of the tremendous supremacy we enjoy in the economic field.
§ 6.32 p.m.
§ Mr. Hely-Hutchinson (Hastings)
I hope I may be allowed to express my appreciation of the sincere and thoughtful speech we have just heard from the hon. Member for Wrexham (Mr. Richards). Twenty-four hours is a short space of time in which to form considered views of what is perhaps the greatest Budget in our history, and it is an even shorter time in which to condense such views within the space of a few words; but, as several hon. Members who can speak with far greater authority than I have already expressed their views, I hope I may not be accused of rushing in where angels fear to tread. The outstanding feature of this Budget is the decision apparently implicit in its structure that we are to pay for at least a half of the cost of the war by borrowing. I say "at least," because even the most optimistic estimates which I have heard of the yield of the Purchase Tax do not exceed £100,000,000; while, on the other side, the figure of £2,000,000,000 for the war expenditure appears to some to be a low estimate.
It would, therefore, seem that in the year on which we are now engaged less than one-half of the expenditure will be raised by taxation and somewhat more than one-half by borrowing. I confess that this is a prospect which causes me considerable alarm. My own fear is that the Chancellor has not yet brought himself to take a sufficient amount in taxation to avoid the evils of what is commonly called inflation. In considering the actual amount we are to borrow, however, we should not allow ourselves to be frightened into thinking of it as a worse burden than it really is. The right hon. Gentleman the Member for Sparkbrook (Mr. Amery) explained that it is in a sense not a burden on the country; it is a burden which has to be borne by some parts of the community and which is of benefit to others. Let us suppose the war will cost something of the order of £10,000,000,000. If one-half of that 270 cost is to be met by borrowing, we shall increase our Debt by £5,000,000,000. That in itself is a frightening figure, but to-day everyone knows that National Debt, once it has been created, has come to stay, and we should look not upon the astronomical capital figure but on what its service will cost as an annuity. If it is the case that the sweet simplicity of the 3 per cents. is to govern our Government finance for ever, this means an annuity charge of something like £150,000,000 a year.
In considering this charge, it is important to consider not only the size of it but from whence the new money will come and who will be the recipients of that extra £150,000,000. The fact of the matter is that the bulk of the saving that is done throughout the country now is not the rich man's savings but the savings of the man of moderate means, and particularly the aggregate savings of the men of small means. That saving comes through directly in small amounts, but more particularly it comes through indirectly in institutional saving and in such forms as the money that piles up in periods of good employment in the Unemployment Fund and similar organisations. For this reason I do not think we need feel that the actual borrowing of a further £5,000,000,000 is in itself something which will cripple or seriously disturb the future life of the nation.
We must remember, too, that with regard to that small proportion of the £5,000,000,000 which will come from the well-to-do, the high rate of Income Tax and Surtax which they have to pay reduces the effective rate of borrowing of the Government, so that in the case of the highest class of Surtax payers who may happen to have a surplus to lend to the Government, the Government will be paying them only 3/20ths of 3 per cent. per annum, which is less than one-half of 1 per cent., for the use of that money. There is on the other side a rather more serious aspect, and that is the fact that a large proportion of the small savings which are now being collected through the National Savings campaign are being invested by the investors on demand loans to the Government. National Savings Certificates can be cashed at any moment and the 3 per cent. National Defence Bonds can be cashed at six months' notice. In other words, at any time the holders of these securities who may wish 271 to realise their capital for current spending can throw them on the market, and it may happen that the Government will have to pay them off at a time when they are not able to re-borrow at as favourable rate as 3 per cent.
As the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) has just come in, I should like to say with what great pleasure I listened to the speech with which he opened the Debate. It is always a pleasure to listen to views, even to those with which one disagrees, put forward with such weight of authority behind them in so unprovocative and so uncontroversial a manner. I would like to mention one point in the right hon. Gentleman's speech with which I find myself in whole-hearted agreement. That is that those who pay Income Tax and Surtax must expect that as the war goes on and increased opportunities arise for employment in war industries the rate of these taxes must increase still further. They must also expect the incidence both of Income Tax and Surtax to be widened. I also agree with the right hon. Gentleman in his suggestion that local authorities should be allowed to convert their loans. I cannot see how that can harm Government finance. On the other hand, I think it will help it because it will reduce still further the opportunities for investment on attractive terms elsewhere and so tend to reduce further the rate at which the Government can borrow.
If there was one part of the right hon. Gentleman's speech with which I found myself unable to agree, it was that part in which that hardy annual the capital levy came up. I realise that that reflected the high ideals of the right hon. Gentleman which lead him and some of his friends to hold an equalitarian view of life. If the ideals that lie behind it are high, I suggest that the ideal behind the opposite view is equally high. We seldom hear that opposite view stated in this House. I suggest to the right hon. Gentleman that in our eagerness to secure equality of opportunity, we are sometimes rather apt to overlook that there is no such thing as equality in capacity for taking responsibility. To those who have thought deeply on the subject of wealth it is impossible to conceive of real wealth except in conjunction with the idea of responsibility for administering it. I 272 know that there are scrimshankers among the wealthy, as indeed among the poor, but, broadly speaking, wealth is an incentive to and reward for taking responsibility, and it provides in the economic field a means of fulfilment of responsibility. Without any fear I suggest that that is just as high an ideal as that which lies behind the right hon. Gentleman's desire thatThe Lord High Bishop orthodox,The Lord High Coachman on the box,The Lord High Vagabond in the stocks,They all shall equal be.The Chancellor in his restrictions on spending, investments, dividends, exchange, and restrictions in a number of other directions has brought into effect means which tend to direct savings into Government securities. This is a very wise provision and I think it is correct to regard all these methods as part of a comprehensive scheme tending in one direction. In fact, the Chancellor says to those rare individuals who have a small amount of spare cash "Which would you rather do or go fishing? Would you like to lend me your money at 3 per cent. or alternatively would you like to lend it to me at 3 per cent.?" Some of the difficulties with which we were faced in the early part of the war with regard to spending and saving are beginning to pass away with the increased restrictions on the number of things which will be available to buy at a price which we can afford. The initial difficulty with regard to spending and saving was well exemplified by the man who asked what he ought to do if he had 16s. to spare. If he took it to the Government and bought a National Savings Certificate at the end of 10 years the Government would give him back 21s., whereas if he used it to buy a bottle of whiskey the Government got 10s. and would not have to give him back anything at all. A further consideration is that 6s. of the 16s. would go into somebody's taxable income—for instance, the distiller's—and the Government would get part of that as well. There are good reasons for doubt as to the proper use of the 16s., but, at least, it gives us some basis for virtuous reflection when we are in the smoking room.
The Chancellor referred to the Keynes, plan, and I agree most heartily with his conclusions and his decision not to adopt the exact suggestions made by Mr. Keynes. In so doing, I feel that the 273 right hon. Gentleman performed the difficult feat of reaching the right conclusion by means of a correct argument from a wrong premise. Not only the Chancellor, but Sir Robert Kindersley and even the right hon. Gentleman the Member for East Edinburgh shifted the ground of the discussion to a comparison between voluntary and compulsory borrowing. They were thus induced to assemble at the base of the wrong tree and join in a chorus of barks of orthodoxy. It may be said that Mr. Keynes was not up that tree at all, but had moved to a tree of a different name. Up the tree itself there was my right hon. Friend the Member for Sparkbrook, who responded with appropriate barks of his own. The reason for this false premise, I venture to suggest, is, in the first place, the unfortunate circumstance that Mr. Keynes started by describing his suggestion as a plan for compulsory lending.
Strictly speaking, there is no such thing as compulsory lending. There is taxation or there is lending. Compulsory lending or compulsory borrowing is a contradiction in terms. Its exact parallel is the phrase "the unmarried wife." Mr. Keynes himself realised the disadvantages of adopting the phrase, and later changed the description of his suggestion to "a plan for deferred pay." I do not know whether he consulted the Archbishop of Canterbury before he made the change. The essential alternative to Mr. Keynes' suggestions is a wages tax, and the only respect in which Mr. Keynes' suggestion differs from a wages tax is that Mr. Keynes proposes that the taxpayer shall have part of his money back at some, unstated time in the future. Both Mr. Keynes' plan and the ordinary orthodox method of taxation interfere with voluntary borrowing, because they reduce the sum in the hands of the taxpayer which is available for lending, but there is no proper comparison between the two in the sense of calling one voluntary lending and calling the other compulsory lending.
Further, in discussing Mr. Keynes' plan we ought to recognise how great a service he has done in fixing the spotlight on the one essential element in the whole situation which I fear the Budget does not wholly face, and that is the necessity for restriction of the spending of the masses. That restriction is the thing that is going to enable us to win this war 274 without inflation. The Purchase Tax in particular and all the various indirect and direct taxes are moves in the right direction to accomplish this end. Indeed, there is no tax in the whole Budget to which I object. I can only say that I wish my right hon. Friend had been bold enough to lay a heavier burden of taxation upon the nation at the present time. I believe this Budget will be politically acceptable. That will be so because it does not make the public face up to the enormity of the problem with which we have to deal. It does not make it face up to the essential point of application of Mr. Keynes' suggestion. I say again that I do not believe in adopting Mr. Keynes' suggestion, but I do think he has thrown the spotlight on the point of which we have to take account. I feel that the right hon. Gentleman's Budget will prove politically acceptable because it does not really face up to the problem. No individual taxpayer wants to face up to it any sooner than he must. For that reason this Budget will doubtless go through without any difficulty, but I am afraid that it is not bold enough to meet the very great requirements of the situation.
§ 6.49 p.m.
§ Colonel Wedgwood (Newcastle-under-Lyme)
In his excellent speech the hon. Member for Wrexham (Mr. Richards) said that this was the greatest Budget, but one, which he had ever faced. I think myself that, measured even in sterling, it is far the greatest. We must not take this Budget as being one to raise £1,234,000,000. It is a Budget where for we have to get £2,600,000,000. That is the size of the Budget. Some of that money we raise by taxation; the greater part we raise in the new way. I think it is quite time the Committee realised what that new way is. We have to get the money within the next year; it is coming from all of us, although it is not in the Blue Paper, by what is sometimes called inflation, that is, by a tax upon all our assets, or if not all our assets, the assets of most of us. There is no such thing, of course, as the non-inflationary loan mentioned by the right hon. Gentleman the Member for Sparkbrook (Mr. Amery). If the Government sell our American assets in America that is exactly the same as borrowing the money, and has exactly the same inflationary effect. If they export the gold 275 from this country, it has exactly the same effect. All these methods of trying to fill the gap or of necessarily filling the gap are inflation. Therefore, we ought to look at this Budget quite differently from the way in which we have looked at all Budgets in the past. It is one of those rare occasions when we must cut our coat according to our cloth. While inflation has been possible on this occasion we may well be faced, in the years to come, with the inability to inflate further. That is one of the difficulties.
The hon. Member for Wrexham spoke of a national income of £5,300,000,000. I asked him whether that included rent and he said that it did. I think he confounded his idea of national income with the national production of wealth. It is the national production of wealth which is vital to the future of this country, and not the national income. The national income includes all things, even rent. The national production of wealth, deducting from the value of the goods the value of the raw materials imported, is a true measure of the productive capacity of this country, and it is upon that, that we must fix our eyes, not upon the amount of inflation, or upon the amount of revenue produced by the taxes in this Budget. We have to cast our minds forward to the possible capacity of this country for the production of wealth. The hon. Member took £5,300,000,000 and added 10 per cent. for the unemployed and additional labour. Of course, we must do better than that. Looking forward, we have to insist upon everybody undertaking maximum production. I agree very often with the hon. Member for Evesham (Mr. De la Bère) who wants maximum production from agriculture. All of us will want that pretty soon. But take the factories. A factory working half-time or with half the machines standing idle is not at its maximum of production, and we must get the maximum production from all these factories. I am not talking about factories which are making armaments, but factories which are producing wealth, making that £6,000,000,000, or whatever it is, which is the maximum national production of a trained and intelligent people.
Then I want hon. Members to look at another question. I do not think the Government has even yet realised that this is an entirely different war from the one 276 which was expected at first. Half the expenditure in which we have been involved has been due, not to their misapprehension alone but the misapprehension of most of us as to what this war would be. Take the case of the little town of Stone, with 2,500 inhabitants. The last time I inquired they were still spending £100 a week in wages for A.R.P. and various other cognate things. That amounts to more than £5,000 a year, and is £2 per head of the population of that little town. Multiply that instance over the whole country, and we get some idea of what A.R.P. is costing us. As I work it out, it is nearer £80,000,000 than £70,000,000, and that in spite of the fact that in many country districts a great deal of the work is done voluntarily. That is a gigantic expense put upon this country through a misapprehension. There is now not one chance in a million of a bomb dropping on Stone in the next year, and if that millionth chance did come to pass, there is not one chance in a thousand of those A.R.P. people in Stone now, preventing anybody being killed then.
The waste of this system is colossal. Everyone on both sides of the Committee knows that this expense is going on because we have created a vested interest and fear to shut it down. If we look at this question, not from the point of view of what we should like to do, but what we can do next year or the year after, when we are no longer able to borrow, we shall see what we must do in order to carry on this war to a successful conclusion. We have got to cut our coat according to our cloth, to say to ourselves, "What is the maximum production of wealth in this country out of which we have got to feed the workers, produce armaments and out of which we must feed, supply and pay the non-producers?"
I think the Committee will agree that in this Budget we are raising £1,234,000,000 by taxation and £1,400,000,000 by inflation. I ask the Committee to consider what this inflation means. It means that everybody who has fixed interest-bearing securities, everybody whose income is fixed, not the ordinary shareholder but the man who has ground rents or a fixed income from the funds or who holds preference shares or debentures, is finding that his invest- 277 ment is being deflated. The pound sterling represented in that investment is slowly but gradually declining. He is being hit. But not everybody is being hit. The people who own the factories, who own the machinery, who own agricultural stock, are not suffering from inflation. As the pound goes down, in the pocket of the person who has saved it, the value of the stock and the machines keeps on going up. We are getting, by this system of inflation, an exceedingly unfair taxation. Most of all is it unfair when it is considered that the inevitable result of inflation in every country in the world where it has taken place is that, as the currency depreciates, the saleable value of land rises. Far more than the machinery, which wears out, or the stock, which dies off, the value of the land is rising all the time as inflation goes on. The owners of the land are in the blessed position of being able to improve their position relatively by inflation. They are in an ever better position to extort from the people who have to use the land, a higher price for the privilege of producing wealth from that land.
The hon. Member for Wrexham, whom I will quote again, pointed out that the State, in order to secure that maximum production, must force the people who own the means of production to use them to their fullest capacity, and must force the workers to use the machines to produce the maximum amount of wealth. Let us not forget that the State might also force the owners of land to allow people to produce that wealth. All the wealth about which hon. Members have been talking is ultimately produced belabour out of land. Unless you force the people who own the land and raw materials to allow the man who wants, can and knows how to produce wealth, to do so, the State is positively assisting, by inflation, to prevent the production of the maximum amount of wealth. We keep on coming back to the same point: If you want to win this war you must secure the maximum production. Do not bother about how your taxes are raised but direct your intelligence towards securing from the farmer and the manufacturer the maximum amount of production, and from the landlord, the minimum amount of interference with the possibilities of production.
§ 7.3 p.m.
§ Mr. Gurney Braithwaite (Holderness)
Listening to the right hon. and gallant Gentleman addressing the Committee with his usual vigour, I found it difficult to realise that to-morrow it will be exactly 25 years since I had to follow him in another sphere and another capacity. In those days he was an inspiring leader for all of us, and I would, if I may, say to him, across the interval of a quarter of a century, what a pleasure it is to see him to-day in such robust health and exhibiting all the qualities necessary for inclusion in a War Cabinet determined to carry this conflict on to a vigorous and successful conclusion. I hope I may yet see the right hon. and gallant Gentleman, my old commanding-officer, serving the country in that capacity and with the same success that he did so long ago.
It was melancholy for some of us to reflect, when listening to the Chancellor of the Exchequer yesterday, that it is only six years ago since the present Prime Minister stood at that Box and introduced the Budget in which revenue and expenditure balanced neatly at the figure of £734,000,000. My right hon. Friend announced to the Committee and the country on that occasion that we had finished with "Bleak House" and were entering upon the first chapter of "Great Expectations." A good deal has happened since that afternoon. The present Chancellor of the Exchequer appears to be engaged upon a composite work which might well be entitled "Bleak Expectations," but, such is the temper and mood of the Committee, that disappointment has been expressed today, not with the size of the proposed expenditure, but that it is not large enough to suit the requirements of the time. I imagine that although the Budget imposes burdens infinitely greater than did the Budget of 1934, it will enjoy a smoother passage through its various stages than was the case six years ago.
I imagine that such discussion and Debate as will take place will centre largely around the proposed Purchase Tax. My right hon. Friend was emphatic in drawing a distinction between a sales tax and a Purchase Tax. I am not criticising or disagreeing in principle with his suggestion, but I complain of the manner in which it was disclosed to the country. My right hon. Friend has committed what is always a mistake on the part of a 279 Chancellor of the Exchequer by introducing on Budget Day an abstract proposal, leaving trade and business in a state of complete uncertainty as to its incidence. I do not think that the public of this country would have complained if an announcement had been made that a Purchase Tax as high as 25 per cent. was to be imposed, and I doubt whether the effect on business would have been so serious as it must remain until my right hon. Friend clarifies his proposal. I hope that when the Minister replies to the Debate he will be able to give the Committee a good deal more detail about the proposal.
I am sure that the taxpayer will shoulder this and greater burdens willingly, provided he can be convinced by the Government he will get his money's worth, not only this year but in the years which lie ahead. The Committee owe a great debt to my right hon. Friend the Member for Sparkbrook (Mr. Amery) for the very realistic speech he made this afternoon on the subject of future expenditure. If the taxpayer is satisfied that, as a result of the very heavy sacrifices now being called for from him and likely to be called for again in the autumn, in a supplementary Budget, the result will be the thoroughgoing defeat of the enemy, a peace made this time in the enemy's capital, following the complete surrender of the Government or pseudo-Government which may represent Germany at that time, that those who have shrunk from the battlefield will not be found at the conference table, that we shall make peace in firm co-operation with our Ally, France, a peace free from trans-Atlantic interference, he will willingly put his hand into his pocket, realising that the Government this time will back up in conference the victory won with such difficulty in war. I would go further. I would say, because it is time that somebody said it in the House of Commons, since it is most certainly the mood of the country, that we must prepare ourselves in the years which lie ahead certainly to garrison, and possibly to govern, a disintegrated Germany for a very long period of years.
The right hon. and gallant Gentleman opposite who spoke just now emphasised that the era of camouflaged inflation is already with us. The Chancellor of the Exchequer is making a strong resistance, 280 but he is fighting a plucky but losing battle against inflation. The very fact that we are now spending £60,000,000 a year—a policy which I support—in an attempt to peg the prices of food is in itself an inflationary act and not altogether successful. I am informed that already rabbits, whether out of a hat or otherwise, have doubled in price since the outbreak of the war. Inflation is here. It is merely a question of how far the inflationary progress can be slowed down by active measures of the Government.
That brings me to the borrowing policy with which we are faced. The War Loan of £300,000,000 issued recently was a technical success, but it is not true to say that it was a success from the point of view of attracting the savings of the people as a whole. It was subscribed by the large institutions, which themselves, of course, in many cases represent collective saving, but there was no great rush on the part of the public to invest in that loan. I think the reason is not far to seek. It was launched at a very difficult moment for the taxpayer, when he was endeavouring to find his January instalment. When the Chancellor broadcast last night in admirable language about the necessity for saving, I could not help reflecting that we have not got our loan propaganda into any kind of swing or activity. It is really fantastic that in the eighth month of a desperate and total war His Majesty's Government should find themselves in competition with the Unity football pools for the surplus earnings of the people. I do not speak in any high moral sense. I would confess to the Committee that in happier times I have made many attempts to prophesy the results of the activities of certain football teams in these competitions, and invariably failed, but in time of war that sort of thing should not be permitted by the Government of the day; there should be no competition of that kind for the surplus earnings of the people. The desire of the people of this country for investment and saving for the benefit of the State can well be harnessed to their harmless indulgence in a mild flutter from time to time.
I will return to a project which I put forward to this Committee a year ago, that we might have a Government loan modelled on the Victory Bonds issued in 281 1919. The Victory Bonds were redeemable by drawings—which is a very respectable method of saying that they were a mild form of lottery—at par. I would like to see the Government issue this year on tap at the Post Office in 5s. unit Liberty Bonds carrying interest at 1 per cent., redeemable by drawings. I believe the Government would get £500,000,000 out of it with good propaganda. I believe that it would appeal to the people in their present mood, and it would certainly draw off from such organisations as football pools money which has no business whatever to be going in that direction.
There is one other point to which I wish to refer; I do so with some diffidence, but I hope the Committee will bear with me. The right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence), in the very excellent speech which he delivered to the Committee when this Debate opened, spoke of equality of sacrifice, and he spoke of it in terms in which we in the Committee generally think of it, in terms of direct versus indirect taxation. I would suggest that in time of war direct and indirect taxation are not the only criterion of sacrifice. Last January the Chancellor enclosed in the envelope containing the demand for the January instalment a printed slip bearing a quotation from his speech last September, in which he expressed his confidence that the taxpayer would play his part—I think I am quoting the right words—with the same courage and fortitude as the members of His Majesty's Forces. The members of His Majesty's Forces, of course, received that appeal asking them to conduct themselves with the same fortitude in their capacity as taxpayers as in their capacity as members of His Majesty's Forces. The Committee should seriously consider whether it is entirely equitable that the same people who fight a war should pay for it on the same scale as those who remain at home. There are a great many men serving in this war, all of them still on the right side of 50, who for the second time in their lives have voluntarily enlisted in His Majesty's Forces, leaving behind them businesses and practices while civilian rivals often of military age get hold of their customers and clients. When those men return from the war, as please God they will, it will take two or three years of extremely hard work to get their clients, customers and 282 businesses back to where they were before their voluntary enlistment.
The suggestion I wish to make to the Financial Secretary is this. Parliament has set up, with the universal approval of hon. Members, machinery for calculating excess profits on the part of individuals in the State. I suggest that the same machinery might be utilised for the calculation of excess sacrifices. A three years' average can easily be applied, and the gap between normal income and service pay can be calculated. The matter might be adjusted in the gratuities paid at the end of the war, but I would prefer a return to a principle applied in the last war, because I think it is a simpler method. There is a perfectly good precedent for it. A preferential rate of Income Tax should exist for service pay, a rate, let us say, of 5s. as against 7s. 6d. Let me make myself clear; it should apply to Service pay only, leaving income from investments or other sources to bear the full rate of 7s. 6d. In these days the Chancellor can hardly say that he cannot afford concessions. The days of balanced Budgets have gone. There is no magic in the figure of 1,234,000,000, even if it be the right hon. Gentleman's telephone number. It is a concession which would give great encouragement to His Majesty's Forces, and if the revenue must be made up, I would endorse the suggestion which almost fell from the lips of the right hon. Gentleman the Member for Sparkbrook when he was telling us this afternoon what happens in France. I believe that those of military age in sheltered and reserved occupations would recognise the justice of a Surtax to be levied upon them because of their good fortune in remaining in that capacity. Of course, there would have to be exemptions for those who may have endeavoured to enlist, but who were rejected on medical grounds; others who were on waiting lists would qualify for the reduction as and when they were called up.
When I receive circulars—and, like other hon. Members, I get a good many—asking for increased cost-of-living bonuses for civil servants and other people in reserved and sheltered occupations, I invariably reply that if and when the Government can spend more upon salaries or bonuses the first to receive them should be the rank and file of His Majesty's Forces. When I see the work 283 done by men on such duties as convoy patrol, and compare the remuneration they get with the remuneration to be obtained in civilian life, I do not think I am asking for anything which is not just. I would appeal to the Chancellor not to flog those willing horses. Many of them are serving voluntarily, for the second time in their lives. Of course, the country will receive the same loyalty and sacrifice from these men whatever their financial treatment from the Government. They may not lobby or demonstrate—in any case, they are not of that kidney—but I suggest that that very fact lays an obligation on my right hon. Friend the Chancellor and on all Members of this Committee.
§ 7.22 p.m.
§ Mr. Woodburn (Stirling and Clackmannan, Eastern)
I am sure we have all listened with interest to the hon. Member for Holderness (Mr. Braithwaite), but I think some of us regret the tone of his remarks, which, it seems to me, would tend to unite the enemy and to divide the people at home. This country has, very wisely, refrained from using a tone of menace towards the people on the other side of the battlefield. This country certainly never set out on this gigantic enterprise with any intention of wreaking vengeance upon the German people. The fantastic idea of this country assuming the tremendous task of garrisoning Germany after the war and holding down 80,000,000 people against their will, is deplorable.
§ Mr. Braithwaite
Might I ask the hon. Member—because this is a matter which might interest his constituents—whether he regards the complete defeat of the enemy in war as an act of vengeance; or does he wish the war to cease now, with an inconclusive peace?
§ Mr. Woodburn
We are in this struggle to prevent war, and to defeat the war-maker. We must prevent Hitler being successful. But our success will depend on the kind of Europe which emerges when the struggle is over. If the kind of Europe that emerges is that suggested by the hon. Gentleman, it seems to me that the war will have been fought in vain. We are discussing to-night, however, the problem with which the Chancellor is faced, of co-ordinating the 284 resources of the country in such a way as to make it possible for us to carry the struggle through to success. The task before us, as he has shown, is that of paying, next year, taxes to the extent of £1,234,000,000, which leaves a balance, not to be found from taxation, of £1,453,000,000. My right hon. Friend who spoke earlier evidently forgot entirely that a large part of that £1,453,000,000 is to be raised by transferring from the civil population to the Government, spending power in the form of loans. That £1,453,000,000 includes all the National Savings Certificates and Defence Bonds and all the reserves of industry which the Chancellor hopes to secure for the Government in the form of investment.
A very considerable part of that has to be deducted when we come to the question of what is to be borrowed. Let us take £1,000,000,000 as a round sum. Not all of that £1,000,000,000 will be inflation. It all depends on how much of that sum is used to bring into activity men and women who are at present unemployed. To the extent that it is used to bring into productive activity people who are now unemployed, it represents no inflation at all. It is a great mistake to assume that the mere creation of credit is inflation. The whole capitalist system has been built up, for the last 100 years, by the banks creating facilities for the expansion of industry. All that is happening to-day is that, instead of this being done for private enterprise, the Government are doing it for public enterprise. From that £1,453,000,000 there must also be deducted the foreign imports which we pay for with gold or by the sale of securities abroad. After all, that is using up past exports and drawing upon what we created in the past.
We expect, of course, that, as a result of the Government's attempts, a great sum of money will be lent to the Government, but there is another source of income for the Government which might not arise from that at all. To the extent that people are persuaded to abstain from spending, even if the money is not lent to the Government, they create a gap which may be filled without inflation. That is the purpose, I take it, of the Government's decision to prevent companies paying more than a limited dividend. It means that money that would 285 otherwise be paid out and become purchasing power goes into reserves. If the companies cannot spend it, because of the restrictions on the possibility of spending it—machine tools are licensed and materials controlled, and it is almost impossible for a company to spend money unless the Government are prepared to allow them to get materials—a large sum of money will be available from loan or from abstention from spending.
I am glad that the Chancellor has come in because the question of the issue of bonus shares, to which I am about to refer, is a part of this proposal to limit the use of reserves in the way of spending power. It is true that bonus shares were used in the last war, not to issue money which would not otherwise be used, but to cover up very high dividends. Actually, the only purpose of issuing bonus snares is to cover up the size of the dividend. It does not make any difference to the strength of the company. Let me give a simple instance. If I have a company with £100 in capital, and, in the course of some years, I am able to build up reserves amounting to another £100, that is shown in my balance sheet as £100 capital and £100 reserves. My £1 share will be worth £2 in the market. If I want to realise 50 of these shares, I can sell them for £100. The company; in its wisdom, might not wish to show that it is paying such a dividend, and it might, therefore, make an arrangement by which it transfers the £100 reserves into share capital. It now calls its capital £200, with no reserves, and gives out shares to the extent of another £100. Instead of owning 100 shares worth £2 each, it now owns 200 shares worth £1 each. But the value of my holding in that company is not altered in the slightest and, if I want to realise £100, I simply sell the 100 bonus shares instead of selling 50 £2 shares, and I get the £100 in the same way.
Therefore, the only advantage which will arise from the Government's proposal to stop the issue of bonus shares, is to make quite clear the profits which are being distributed in dividends but, as the Chancellor is to control the dividends as well, the question of controlling bonus shares has no effect at all. It does not prevent the dodging of Super-tax payment by allowing money to be put to reserve and later realised by the sale of 286 capital assets. If I sell my 50 shares for £2 each, I have £50 extra profit which is not liable to Super-tax. The Chancellor ought to look into the question. In his proposal to limit dividends, he is actually sacrificing a good deal of Super-tax because, if the high dividends were paid, he would collect Super-tax on them. If he does not allow them to be paid, they will spread the even dividends over many years and he will collect only the ordinary Income Tax on them.
One great suggestion that the Chancellor himself made is the reduction of waste. I suggest that he should look into some of the Government Departments which have been created. I instance the Ministry of Food. In the Inverness district, a livestock control has been set up and the man in charge gets £3,800 a year. Previous to that he was earning £500. I am informed that he is quite a capable man at his business and there is no reflection on him at all. I am told he employs a chartered accountant at £800 and four clerks at £2 10s. a week each to do the work. He is still the acting-manager of his own firm. I calculate that he must be clearing £2,000 a year—not that he ever asked for it, but evidently that is the standard rate of wage for that kind of job all over the country. I wonder how much more of that there is because it is very difficult for the Chancellor to appeal to people in that region to make sacrifices if they find what seems to them flagrant waste, at their own door. The head of that man's firm gets £700 for some other job in the livestock control. All over the place there has been the setting up of these controls, bringing people into jobs at what seem to be extravagant salaries. I think the Chancellor ought to conduct a strict investigation, because a considerable saving might be made in that direction. I am sure the same man would be prepared to do the work at much less and without any extravagant increase in his standard of life. That is in a small district where everyone knows everyone else and you cannot disguise these things. In a big town it might not be noticed. In the Highlands of Scotland, where people are careful with their money, they object to the Chancellor being careless, as they think, with the public money.
I should like to make one or two suggestions because, although many Mem- 287 bers have said we are not introducing nearly enough taxation, to many people I think it will be a very big wrench to part with what will be demanded from them in the coming year. Both for his own sake and from the point of view of the taxpayer's convenience, I suggest that the Chancellor should not wait until the end of the year before he collects his Income Tax. People are not all thrifty. They are not all members of co-operative societies accumulating dividends with which to pay their rent or taxes and, when the end of the year comes, some have spent the money which is supposed to be for the Chancellor. I suggest that he should pursue with the public, the very wise method which he pursues with Members of Parliament and civil servants and either arrange to deduct tax once a quarter or collect it monthly, or by instalments. The lump sum payment is a dreadful blow to people when they have forgotten all about the Income Tax. Even the workers would be better pleased if there was some arrangement by which the tax could be collected weekly or monthly rather than by a lump sum at the end of the year. It would have another advantage. The Chancellor is inviting people to lend money to the Government. If he arranges that and allows them 1 per cent. per quarter during the next nine months, he will get a loan at 3 per cent. or less, because he will get the money in this year instead of waiting six or nine months. I think Lord Snowden once indulged in the experiment of collecting the whole tax in January instead of in two instalments, and so brought it into the previous year in order to balance his Budget. In any case it is anticipating income and the suggestion is for the convenience of the taxpayer and also of the tax gatherer. It is a great advantage if a tax can be made simple, easy of collection and easy of payment.
I come to the real question raised in regard to bonus shares. That is the question of companies building up secret reserves at the expense of the Government during the war. I speak from memory, but during the last war I believe a very important coal company was working under Government control. At the end of the Government control it issued bonus shares to the extent of £250,000. The Chancellor would have been surprised to see the balance sheet, because it showed 288 exactly the same amount of reserves after the company issued the bonus shares as it had before. I looked with interest to see where they came from, and they came from the fact that the company had revalued their plant and machinery and were thus able to increase their capital. At the Government's expense they had been putting in coal conveyors and coal-cutting machinery and stocking the colliery. They simply revalued all the machinery and brought it out and called it capital. That is the real point in regard to bonus shares, and the decision of the Government will not interfere with that in the slightest. It is a thing that will have to be watched carefully, otherwise the Chancellor may lose a very great deal indeed.
The right hon. and gallant Member for Rye (Sir G. Courthope) told us last night very ingenuously that the railway companies had been practising this for some time. They have been building new carriages and new wagons and laying new rails, all out of revenue. Instead of railway capital being watered, it is now worth far more than the nominal capital. In other words, for a great many years, if the right hon. and gallant Gentleman's statement is correct, the companies have been evading payment of Income Tax by building up their capital from revenue which should have gone through profits into reserve and should have been charged to capital account. The Income Tax inspectors have the duty of seeing that nothing is charged to revenue which ought to be charged to capital. While, from the point of view of the railways as a national asset, we are all pleased to hear that they are being kept up to a point of efficiency, from the point of view of the Chancellor of the Exchequer it means that there has been a serious leakage regarding the payment of Income Tax on profits as undistributed dividend. Therefore I would suggest, as has been suggested already from these benches, that this evasion of tax and Super-tax must be carefully looked into by the Chancellor of the Exchequer.
I was very interested in the proposal which the Chancellor made—one with which I am in hearty concurrence—that at the end of the war there should not be people who had accumulated great fortunes out of the war, but I was unable to see how he could decide on that with- 289 out two valuations. I would like him, when he comes to discuss this matter, to be good enough to say whether that includes land. There was an increase in wealth of £5,065,000,000 as a result of the last war. A large number of people, taken together, had accumulated £5,065,000,000 more than they had when the war started. Speaking from memory as to the total figures, I believe that the wealth of landowners had increased to the extent of £1,000,000,000. I do not know how the Chancellor is to estimate that without a valuation of the land now and a valuation later, if it can be done by Income Tax schedules or something of that nature, but I should be interested to hear, because that seems to be a very sensible way to deal with the subject. There is another point which he might keep in mind. When I started fighting elections there was the question of the old increment tax, and it might be possible in a future Budget to consider some kind of increment tax which would prevent people gaining from community services. That would cover the idea of my hon. Friends that nobody should gain from the value of land which had been increased by the community method. It would also bring to the public the real advantage of public effort.
The speech of the Chancellor of the Exchequer yesterday seemed to be a model of exposition, but I am sure that the right hon. Gentleman is accustomed to being paid compliments on such occasions. I would not say that the taxation is not severe enough. He may be over cautious. I think he has made provision that will actually cover the effort, but that can only be a matter of conjecture, and no doubt he could obtain more, if more were required. But in spreading the burden over the people, steps should be taken to make it easier for them to pay, and I am sure that nobody in this country will grudge making the sacrifice, if, in the end, that sacrifice brings about the triumph of the principles for which we stand.
§ 7.44 p.m.
§ Mr. Loftus (Lowestoft)
The hon. Member for Stirling and Clackmannan, Eastern (Mr. Woodburn) worked out clearly the bonus share issue with mathematical accuracy, and if human beings always looked at things with cold mathematical minds what he indicated is what 290 would actually happen. Theoretically it would lower the value of the ordinary shares by 50 per cent. to issue an equal number of bonus ordinary shares, but actually that is not what happens. Generally, in a few months, in many companies, the new bonus shares are as high, or nearly as high, as the original issue was a month or two before the issue of bonus shares. That is how it works out in fact and not in theory. I suggest to the Chancellor of the Exchequer that in outlining this gigantic tapestry for us and for the nation and then filling in the details, there was one part of the tapestry that he did not quite fill in, leaving us with only the outline. I refer to the sales tax.
As I listened, I felt, as I think the whole Committee felt, that it was a gigantic, severe and decidedly drastic Budget, but on reflection I think that opinions have changed, and I wonder now whether it is severe enough. I certainly sympathise with and support very strongly the remarks made yesterday by the right hon. Gentleman the Leader of the Liberal Opposition and those made to-day by the hon. Member for East Birkenhead (Mr. White) and by my right hon. Friend the. Member for Sparkbrook (Mr. Amery)—that, compared with the sacrifices made by the French, even the sacrifices caused by this Budget do not bring our effort up to the same level as the French. I do not know whether hon. Members realise how much the French are doing. On an income of £200, before this Budget, taxation in this country was 6 per cent. and in France 19 per cent.; on an income of £600, in this country it was 19 per cent. and in France 28 per cent.; and on an income of £5,000 a year it was 41 per cent. in this country and in France 68 per cent. But that does not represent it all. France is spending on her effort this year very nearly as much as we are spending. Then there are the privations, the things which the French people do without. There is the French soldier with his 1d. a day and the British soldier with his 2s. a day. When I contemplate the gallant self-sacrifice borne by the whole French nation, I feel that anyone in this country who grumbles about this Budget being severe, should really be ashamed to do so. I feel with those in this country of all parties who have been looking at the reality of the 291 situation, that it is quite possible, as some speakers have already said, that in six months' time we must face yet another Budget, as we did last year. I do not propose to criticise the taxation, and I would like to thank my right hon. Friend the Chancellor of the Exchequer for the concession made to the merchant seamen and fishermen. It is a small thing, easily overlooked in these gigantic figures, but it means much to poor men, and I thank him most heartily for it.
In the case of the sales tax we must wait and see. The right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) suggested that it should be confined to luxury goods and asked whether cloth, pots and pans and so on would be taxed, but the whole point of the taxation which we have to impose to-day, is that we must restrict consumption on many desirable kinds of goods. Take the case of wool. We import less wool to-day than we did before the war. The Navy, Army and Air Force require gigantic quantities, and that takes the wool away from the civilian market. Wool is also one of our chief exports. We have to export more than we did in peace time, therefore the residue which is left to the civilian population must be diminished by an immense amount.
§ Mr. Pethick-Lawrence
I am sure that the hon. Gentleman does not want to misrepresent what I said. I did not say that the tax ought to be confined to luxuries. I said that it ought to be graded, if possible, so that luxuries would pay a higher rate of tax than other articles which are not luxuries, and I asked whether pots and pans were to be included? I wanted to know because it seemed to me that the Chancellor of the Exchequer was on the horns of a dilemma.
§ Mr. Loftus
The last thing I intended to do was to misrepresent the right hon. Gentleman, but I can see that pots and pans may be heavily taxed if we require tin and iron. The only criticism I have to make of the sales tax is this: that to produce adequate revenue we have to tax extremely highly, something in the nature of 30 per cent. I think it was the hon. Member for East Birkenhead who said that a tax of 5 or 10 per cent. 292 would bring in only a comparatively small sum. There is one thing which I regret about this Budget. When we are imposing necessary privations in war time on the whole population, we should take care to see that the children do not suffer hardship. I realise my right hon. Friend could not possibly carry out the whole plan of Mr. Keynes of 5s. for each child, which would cost about £100,000,000. But I would have liked him to have given family allowances to every family where there are more than three children under 15 or, if possible, where there are more than two children under that age. I think the cost would have been small—between £10,000,000 and £15,000,000. If more restrictions on consumption have to be imposed, I hope we will all agree that allowances should be given to children, beyond a certain number, under the age of 15.
The Chancellor has to deal in this Budget with the question of how to pay for our gigantic increase of imports. That is, alone, an immense and difficult task. We have to restrict imports of all kinds that are not essential for our war efforts and I regret that the efforts made two or three years ago by one or two Members of this House, to encourage the use of gas-producer vehicles, did not then meet with greater success, so as to limit our import of petrol to-day. We have, of course, to increase exports in order to pay for our increased imports. Then there is the export of our gold, but there is a limit to the gold absorptive capacity of the world. The only country absorbing gold is the U.S.A. and we must not attempt to overfeed them or they might get indigestion and refuse the diet.
Another method of paying for imports is by the export of securities. I understand that we are confining the requisitioning of securities to American dollar securities. I am a little nervous as to our control of the dollar sterling exchange. I put two or three Questions to my-right hon. Friend a week or two ago, to which he gave long explanatory answers, but these did not quite satisfy me. The position as I see it is this: We requisition dollar securities owned by British nationals, but we allow a free market in London for international sterling securities. My right hon. Friend, in answer to one of my Questions, said it would be a mistake to restrict the free 293 flow of foreign money to London which means, of course, that it is also a mistake to restrict the outflow.
I am assured that this actually happened. When the Treasury requisitioned the first lot of dollar securities they paid in sterling. Most of the holders were big institutions and companies which, with the millions of sterling paid them by the Treasury, had to find large blocks of sterling investments. The only investments available in large blocks in sterling are these international securities—gold, oil and so on. I am told that in one week, shortly after the Treasury requisitioned the first dollar securities, British investors bought, on the London Stock Exchange, £600,000 worth of British-American tobacco shares from American holders and that the Americans transferred on the unofficial exchange that amount into dollars. If that information is correct, we get this extraordinary position—that the Treasury requisitions dollar securities and pays holders in sterling; the holders buy sterling securities from Americans, using the Treasury sterling and the Americans take that sterling and put it back into dollars. If that occurs to any extent it nullifies to some extent the requisitioning of dollar securities.
There is another point as regards the sale of our foreign assets. We are confined, so far, to U.S.A. dollar securities, but we own vast sterling investments in the Dominions. We have in Australia to-day, I suppose, approximately £1,000,000,000; in New Zealand, I imagine, nearly £200,000,000 and in Canada, though it is hard to say, about £400,000,000 or, perhaps, £500,000,000. I confess that I am rather in opposition to general financial opinions in this matter which regard the sale, the decrease of any of these holdings, as something to be avoided at all costs. I would like to see the Dominions become so prosperous that they could pay for large quantities of these invested funds by sending us goods during war time and taking in exchange some of the bonds representing money that was lent them. I believe if a nation like New Zealand could get out of debt by supplying us with goods we would get a much healthier state of inter-Imperial trade. Their goods would come to us in genuine trade and all goods sent by the Dominions would demand corresponding exports of our manufactured goods to pay 294 for them. There would be no necessity for the Dominions to do, as they are forced to do to-day—keep up a high tariff barrier in order to get a large favourable balance of trade. I suggest that if the necessity arises we can get very considerable imports from our Dominions in exchange for selling them a proportion of the securities we hold.
The second task facing the Chancellor of the Exchequer is this. Can we take from national consumption enough national savings and enough taxes to pay for the cost of the war without inflation? That is an immense problem. The position as I see it is this. The hon. Member for Wrexham (Mr. Richards) in a most interesting speech gave the national income as £5,300,000,000. He pointed out that national expenditure was exactly half, and that the only way of lightening the burden was to increase national production. I quite agree. It is a great surprise that we still have such a large number of unemployed. Everyone will agree that after eight months of war we should have reached a stage at which almost everybody was fully employed. We have to speed up employment because it is the only way to raise the national income and decrease the percentage which we have to take away from the national income by war expenditure.
Let me put it in this way. If we increase national production by 10 per cent. and decrease national consumption by 10 per cent. we have £1,000,000,000 extra. It may be asked: How can we decrease national consumption to such a large extent? I think we shall have to do so. It would leave national consumption at a considerably higher level than it was in 1931. I notice that last year on the Vote of Credit we did not spend £91,000,000. I listened with great interest to the Chancellor of the Exchequer's speech explaining that that did not of necessity mean a lack in providing armaments and equipment for our Forces. I must confess that he did not quite remove from my mind the impression left by the many rumours I have heard about the Treasury being the dead-hand, slackening rearmament and holding it up, and in spite of the Chancellor of the Exquer's information, that suspicion still lingers in my mind. Of course, the Treasury has to guard the financial sys- 295 tem which is part of our war effort; that is its duty. It is foolish to accumulate great wealth in the city and neglect to keep the walls of the city in repair; that simply invites the barbarians to attack and loot the city. That I think has been to some extent the attitude of the Treasury.
The crux of the Budget is: Can we make up this gap of £1,400,000,000 without inflation? It will be at least £1,400,000,000 and may be a great deal more. How can we fill the gap? The Chancellor of the Exchequer has £100,000,000 balance due from the loan of last year. That leaves a balance of £1,300,000,000. He relies on the export of gold and the sale of securities for another £300,000,000. That leaves a balance of £1,000,000,000. The whole point, the vital and central point, is: Can we raise £1,000,000,000 by genuine loans out of genuine savings? Our national savings average about £500,000,000 to £600,000,000 a year. Can we suddenly increase these savings up to £1,000,000,000? I doubt it; and if we cannot do it there must be some degree of inflation. That is what we have to face. I feel that Mr. Keynes has done a national service of immense importance, whether we agree with his proposals or not, in making the nation face the full realities of the situation, face the fact that consumption has to be reduced, that savings have to be immensely increased, and that we have to make severe sacrifices to avoid inflation.
I notice that his plan has been turned down by the Chancellor of the Exchequer, the Labour party, by the Liberal Opposition and by the Trades Union Congress. The plan was new, strange and alien to our habits. We are a conservative nation, and it probably would involve immense administrative difficulties. The Chancellor of the Exchequer's criticism of the plan yesterday was extraordinarily effective, but although we reject Mr. Keynes' plan he has made us face the realities of the situation. Although we may reject his plan we have to tackle the realities he placed before us and tackle them by other means if we reject his plan.
I propose now to venture on a rather dangerous subject. We want to avoid inflation and we shall all do our best to 296 avoid it. But suppose some degree of inflation has to come? In that case I make one plea, that it should be as small as possible and should be strictly controlled by the Government. The right hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood) in his interesting speech about inflation pointed out many of the evils, but one he did not mention. Inflation is apt to kill liberty and instal tyranny. Inflation in Germany destroyed the savings of all classes and paved the way for the dictator. If we are to have any degree of inflation let it be different from what it was in the last war; do not let it leave a permanent burden of heavy interest on the nation. The procedure in the last war was rather baldly stated by the hon. Member for Wrexham. The technique of the banks' advances and methods may require many qualifications, but, generally speaking, you can say that inflation in the last war happened as follows. The joint stock banks advanced money to their customers who used that money to subscribe to Government loans, and the Government used those credits to pay for goods and to pay the workers. This in turn created additional deposits in the joint stock banks which in turn provided an additional basis for the creation of new loans to customers to be used to subscribe for new Government loans. The inflation in the last war was not merely the printing of currency; that was a consequence and not a cause of inflation. The cause was the creation of immense sums of bank credit. I think we are all agreed that that sort of thing must not in any circumstances happen again.
The "Economist" of 26th January last contained a most interesting article entitled "The Technique of Inflation," in which it pointed out that if inflation has to come, it must be strictly controlled; and it suggested a new technique, which was that—expressing it very broadly and bluntly—the Government should borrow directly from the joint stock banks and pay a mere book-keeping interest of one-half of 1 per cent. When I read that article in the "Economist," I realised the truth of the remark recently made by Mr. Keynes when he said that the orthodox economists kept catching up so fast that he looked forward to a blameless old age surrounded by orthodoxy. On reading that article in the "Economist," I realised that we have 297 moved a long way in our economic ideas since the last war. I would go even further. If there has to be a certain expansion of credit money, created credit, I cannot see why the State itself should not create that credit free of interest. I do not mean the printing of currency notes, but the creation of credit in the same way as the joint stock banks do when they lend to customers. That credit, so created, should carry no interest, but be redeemable by annual instalments. Such a system would involve very strict control. It must not involve any juggling by political control. But it would have the effect that any assets created by that Government credit would not bear the burden of interest. In such things as housing schemes, and so on, the burden of interest probably accounts for a considerable proportion of the rent. I feel that it is a flaw in the wonderful and very efficient money system of the modern world that nearly all money comes into being as a loan saddled with interest. If we could get a new technique, very carefully controlled, for the State to expand credit, it would be a good thing, provided one could guard against any evils of real inflation.
It must always be remembered, however, that no methods of currency control will allow us to dodge realities, that money is only a symbol representing goods, and that the realities are goods. Therefore, any juggling with money brings its own punishment. I believe this direct control of credit by the Government may become necessary in war. Certainly, I believe it will be essential in post-war reconstruction. I do not believe that the world can go on piling up vast quantities of debts. The world is overburdened with debt to-day. We are warned that civilisation may be destroyed by war, but it may also be destroyed by an over-heavy burden of debt. It was an over-heavy burden of debt and taxation, Ear more than the barbarians, which destroyed the Roman Empire. I fancy at times that something may be said for the old Mosaic law by which all debts were abolished once in every 50 or 100 years. There is one thing that I must say to hon. Members opposite. I must make quite clear that I do not advocate under any consideration the nationalisation of the joint stock banks. These great institutions are conducted with an in- 298 tegrity and an ability which make them the admiration of the world and a model of how banking institutions should be conducted. They work their present system in an extremely efficient manner. I do not criticise them, but I criticise the system by which the bulk of our money must come burdened with interest. I feel that the banking system should act as agents for and not as the creators of Government credit.
Everyone in the Committee recognises the immense burden which the Chancellor of the Exchequer carries, and carries with such apparent ease. We would all like to assist him. Again, I appeal to him to consider whether it might not be a good thing to lighten that burden by constituting a subordinate economic Cabinet, meeting once a week, from which he could get advice and help; and I ask him also whether he might not strengthen that Advisory Committee presided over by Lord Stamp by adding to it one or two slightly unorthodox economists like Mr. Keynes and Professor Harrod. We all recognise how gallantly the Chancellor has carried this burden. We appreciated that yesterday. Some of us feel that he will have to face a similar effort in the months that lie before us, but, one and all, we wish him every success, and hope that his methods will succeed, that the gap of £1,000,000,000 will be bridged by the voluntary, genuine savings of the people, thus avoiding the miseries of inflation.
§ 8.20 p.m.
§ Mr. McGovern (Glasgow, Shettleston)
I rise for a short period during the course of this Debate to strike what I regard as an entirely distinct note. I have every sympathy with those who are in charge of the finance of the country in their efforts to get sufficient amounts of money to carry on the war, and in their task of searching the pockets of the people of this country to obtain the necessary amount, by taxation and by loan, to carry on this destruction into which the world has entered. I have heard various suggestions as to how the money should be raised, and every person is prepared to see that the other fellow bears the sacrifice of carrying on the war, and that he should be exempt, or at least that he should make the minimum sacrifice. It reminds me of the letters I receive, almost every day, from people who are called-up, 299 saying that they want to get into non-combatant battalions. Everyone wants to get into the Artillery or the R.A.M.C; they all want to carry the dead or the wounded, but no one wants to engage in the deadly struggle of war.
That brings me to a reflection on why this money is being gathered together. My mind goes back to the year 1930, and I think of the hue and cry raised over the paltry sum—paltry in relation to the sum to-day—of £100,000,000 raised for the unemployed of this country over 20 years. It was going to bring destruction to this country and end our financial system. The late Labour Prime Minister was put on the films to show that inflation in Germany had led to the ruin of the whole economic order in that country, and that the same was waiting for us if we dared to pay to the unemployed a miserable 24s. a week. We have gone on from that stage when the bankers' ramp took place in 1930, and we are facing to-day, not the raising of £100,000,000 to save human life, but the raising of thousands of millions of pounds to engage in an orgy of destruction in blood which has been let loose throughout the world. In this struggle we are told that the cause is this man Hitler. There used to be an advertisement in a paper in Glasgow before the war which was known to many. It was of a busy painter who was prepared to go to any corner of the West of Scotland for a given sum to paper, paint and whitewash. We have seen the busiest painter I have ever known in my 30 years' experience in the building trade, and if he had stuck to his job of painting, it would not have been so bad, but he has begun to paint the map of the world in a different colour, and in the process he has found himself in conflict with other peoples throughout the world.
To-day we are only on the fringe of this situation. If man applies the brains God has given him, and examines the situation, he is bound to see, as I stated here on the Sunday when war broke out, that the end of this struggle can be foreseen by no man, and no man can tell the magnitude of the task. Everyone is suggesting ways and means of raising money to carry on that struggle, but I am tempted to ask what is the meaning of this struggle, and why there is no voice in this House turning our minds along the road of peace 300 instead of along the road of war. Has mankind got so captivated by this entrancing struggle of death and destruction that it must be driven along this road, and there is no way out of the catastrophe awaiting it? If you carry on this war with the slogan of preserving freedom, you will end all freedom for civilisation, and spend in the process tremendous sums of money which would break the heart of any man who sees the task awaiting solution in a peaceful way.
What is wanted in this country is a leader of intelligence and courage, who is prepared to say that he intends to use superhuman efforts to fight this catastrophe. When I hear Members of the Opposition one after the other joining in this chorus and demanding to raise money, I wonder why the workers ever put a party in to engage in this deadly struggle. Here we have tried to silence every kind of opposition in the country. We have engaged in a conspiracy to prevent electors from voicing their opinions on taxation or on any other issue. We say that we are the elected persons. We are the members of the British Reichstag, and we shall refuse to allow the electors to have any elections. Without consulting the rank and file and without asking them to agree, we say we shall suspend elections for the period of the war, and that the electors will have no expression, opinion or voice on whether this war shall continue or stop, or on the terms on which the war shall be ended. This is a conspiracy against a man who has held power in Germany since 1933 because of his misdeeds. We have held power from 1935, which is just two years short of that, and we have decided that we are going to continue for years to come if it is necessary to carry out what we claim to be the defeat of Hitler or Hitlerism.
§ Miss Rathbone (Combined English Universities)
The hon. Member is, I believe, a "stop the war" man. When the votes at recent by-elections in favour of a "stop the war" candidate have varied from 2 per cent. to 4 per cent., does the hon. Member think he would be returned if there was an election?
§ Mr. McGovern
So far as I am concerned, that is not the argument at all. The argument is not whether the people in their lunacy—
§ The Temporary Chairman (Mr. Charles Williams)
I think we must keep strictly to the terms of the Budget and not discuss either the question which was just put, or follow up the hon. Member's remarks with regard to elections.
§ Mr. McGovern
With all respect, I was only saying that in connection with the struggle for democracy for which we are raising these vast sums, there has been a suspension of the voice of the people. Therefore, I am analysing whether it is really a struggle for democracy when the voice of democracy is not allowed to be heard in relation to the Budget and to other issues in the Parliamentary arena. Whether the Budget would or would not be endorsed at an election does not matter; what matters is that the people have a right to be consulted on these issues, and they are not being consulted. I raise my voice to say what I believe to be the right course, and even though it may be popular to-day to join the crazy gang which is backing the war, I take the view that sanity in the end will return. Mankind will be poorer for this struggle in every way—in life, in wealth and in happiness. Therefore, I say the money is being used and directed to wrong purposes.
We all know that in war money is raised, it is spent, and it is squandered. I am not worried so much about waste taking place here or there or about saving money in certain directions like A.R.P., because to me the whole of the money spent on war is wasted. It is a form of destruction of the national wealth that should not take place in any decent society. The popular thing to-day is to raise money to destroy Hitlerism. One hon. Member suggested a thing that shocked me. He said that in the struggle for which we are raising this money we must see that on this occasion we go right into the capital of Germany, into a dismembered Germany, and that we must be prepared to rule that country. If that sort of thing were said in Germany, if they said they must be prepared to go into the heart of London, break up the British Empire and rule it, it would stiffen the tremendous resistance of the people of this country. Therefore, when such an expression of view is made in this Committee it shows that behind the minds of a section of people there is the desire not only, as they say, to protect freedom, but once more to place the 302 German people under the heal of the financiers and the capitalists of France and Britain.
I would urge that in this struggle the Prime Minister and his advisers outside the House and inside the Cabinet should examine the road we are travelling at the moment, particularly in regard to the raising of these vast sums of money. When the Chancellor talks about how we are to raise the money, it must be borne in mind that it is all raised from the efforts of the common people. As the producers of the wealth of the country they find the whole of this taxation. Not only is it taken out of them in taxes and in increased prices owing to the sales tax, it also comes out of the unpaid wages that go into the hands of the bond-holding classes. It is all plunder which comes from the efforts of the common people to create wealth, and the whole of society lives on the efforts of that section of the people. One hon. Member suggested that special consideration should be given to the serving man. I am not in favour of the war, because it is a brutal struggle in which no civilised community should take part. Nothing has been said for this war that was not said for the last war. No new trick and no new slogan have come into the arena to-day. When there is talk about sacrifice, I realise that the men at the bottom are bound to bear the greatest sacrifice, both in peace and in war.
Let us examine the cases of two serving men as we are told that they should be given special consideration. A man with a £5 a week job or a man with a £10 a week salary is called to service and surrenders the whole of his income for the pittance of 2s. a day, his keep, and allowances, if he has any family. Another man comes from the landlord class. He has £10,000 a year out of land. These two individuals go into the Army, and one gives up his income to accept 2s. and the other retains his income out of land and receives the nominal 2s. These sacrifices are cropping up every day. A Cabinet Minister gets £100 a week, the Prime Minister gets £200 a week, the Monarchy gets £10,000 a week, and the serving soldier gets 2s. a day.
Where is the spirit of sacrifice? A man with a wife and six children draws an artisan's wage of £3 12s., and a man who has a wife and no children also 303 draws £3 12s. Where is the sacrifice? Where is the sacrifice from different sections when there is unequal taxation which is not thought out or intelligent, but is designed so that it can be evaded by large sections of the country? I do not smoke or drink, and the State does not get me in that taxation. It will get me probably, as it will get many Members of the Committee, in stamps to our constituents, and we shall get a hard kick in the pants there. My correspondence has gone up from 80 to 300 letters a week during the war. Any Member who has no other income than his Parliamentary salary will be hit. If there were any real spirit of sacrifice, we would have a subsistence basis for men, women and children, and we would begin to tax after that basis has been met. We would probably increase taxation in war-time and say that we would confiscate all over £5,000 a year. Do not tell me that the Marquess of Bute and the man on the means test have an equal stake in the country, because no intelligent individual would accept it. If the son of the Marquess of Bute and the man on the means test have to go and serve, then if the menace is a real one, the Marquess of Bute is the man who has to fear most.
If we had intelligent statesmanship, we would not be considering preparations for a two or three years' war, because if we are out to defeat the armed forces of Germany, we are engaged on a struggle which will take a very long time. All the prophecies of internal revolt and shortage of materials have gone by the board. We are engaged in a deadly struggle. What is wanted is not repression and military victory, but a form of justice in the world. We want statesmanship that is prepared to demand now a cessation of this struggle and to promise immediately an international conference of the Powers to ration out the resources of the world as Nature intended them to be, not for the benefit of a group of nations or a few individuals, but for the whole of mankind, remembering that the Germans as well as the French and the British have a right to consideration in the feeding of their industries with raw materials. We want that in preference to the selfish policy of robbing everybody in the State in order to defend the interests of the few, under the guise of 304 freedom and democracy, when we all know that we are collecting money for the selfish, sordid, materialist interests of a few gangsters in this country and France who are menaced by the gangsters of Germany. If we are to do justice to all mankind, let us proclaim to the world fearlessly that every human being will be given consideration, and that we will enter into a struggle not to destroy mankind but to see if we cannot raise the standards of life of the black, yellow and white races and end this world struggle, which will end up probably in civil war, social revolution and blood lust entering in with its class antagonisms and love of war. In that state of anarchy I can see this country marching blindfold into that struggle. I hope the best elements in the country will make their voices heard as early as possible to stop this stupendous fraud on the public, and to end the war and the collection of this money for the purpose of death and destruction.
§ 8.42 p.m.
§ Sir Herbert Williams (Croydon, South)
We have listened with great interest, as we always do, to the eloquence of the hon. Member for Shettleston (Mr. McGovern), but, of course, the speech is one which we have heard before. It is one of those fortunate speeches that can be delivered on nearly every occasion when the terms of reference are wide enough. But it did not mean anything. If we were to propose to Hitler that there should be an international conference to-morrow, I do not think he would come.
§ Sir H. Williams
We did try once. And if he did come we could not believe that anything he signed would be true. Therefore, the suggestion has no bearing on things. It is eloquence, but it does not mean anything at all. I always like listening to the hon. Member, because he says things so well. I wish I could say them as well. I wish I could talk nothing with such enthusiasm.
§ Sir H. Williams
Other business has to be taken to-night, and therefore I must be briefer than I wished to be. The Chancellor has proposed a Budget which 305 is a heavy Budget and will cause a great many people many difficulties. I will not talk about sacrifices, because that is a futile word to use, but the Budget will mean to masses of people difficult adjustments in their lives. Those who have said that the Budget ought to have been bolder have not the faintest idea of what they are saying. It will take the people a long time before they can adapt themselves to the changes made in this Budget. All over the country people are sitting down together and saying, "Tobacco is up 3d.; beer is up 1d. a pint; those of us who have to pay Income Tax have to find another 6d. in the pound this year, and we all write a lot of letters." Millions of people are talking in that way, all kinds of simple, humble folk as well as the so-called well-to-do. They are trying how they can arrange their lives. The Budget does represent a heavy burden and it is nonsense to make high-falutin' speeches arguing that the Budget ought to have been bolder. There are very few people who, if they had had to compile the Budget, would have imposed heavier burdens. Later the burdens may be heavier, but we must give the economic machine time to adapt itself. The time factor is a vital thing in all economic changes.
The hon. Member for Lowestoft (Mr. Loftus) wanted the Government to borrow money without paying interest. He seemed to think it was a novel idea. It is not at all novel. A gentleman named Peppiatt undertakes to pay me £1 if I take a bank note to the Bank of England. If I do, he will give me another just like it. He has to work to the instructions of the Chancellor of the Exchequer, and the real value which somebody gave to the Bank of England for that £1 has been invested, and the Chancellor gets about £13,000,000 a year out of this inflationary device. There was once a Scotsman named Law who became financial adviser to Louis of France—I think Louis XV—nnd the net result was inflation, and the final result was that Louis XVI went to the guillotine.
§ Sir H. Williams
It may have been, but a lot of other people went to the guillotine too and the populace looked on and knitted. I am not as enthusiastic about these things as the hon. Member for Lowestoft. I believe the greatest difficulty 306 the Chancellor will have over the new taxes will arise out of the increased postal charges. We shall hear about it in a few days' time, because it takes time for opinion to formulate itself. The new charges represent a heavy burden of an economic character, and we should realise the fact that there will be strong protests, not against the fact that the postal charges have been increased but against the magnitude of the increases. The postal charge will be ½d. per letter higher than in the last war, and that represents a serious burden.
There has not been as much talk as I should have liked about the necessity for spending less. Last October I said that our A.R.P. system was crazy. It is not quite as crazy now as it was then, but much of it is still crazy. The case against it was admirably put by the right hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood). In pre-war days I used to think that A.R.P. would be a voluntary service and would not be mobilised until it was wanted, and the deplorable spectacle of some 300,000 people being paid to be idle, demoralising themselves, horrifies me. I hope it will be brought to an end, but it has, in fact, become a great vested interest, a new form of public assistance, and the moral effect will be very bad. The black-out, too, is a very costly business. The economic losses due to the black-out are very great. Production is restricted. I do not believe there is any sound strategic reason for the black-out. All the theories about air warfare which were given to me by experts before the war have turned out to be wrong. I cannot think of a single prediction which any expert gave me which has not turned out to be wrong. The desire for the black-out comes from the same experts. If I had my way, I would turn up all the lights to-morrow, and I do not believe there would be any prejudice to the safety of the public. Its economic cost is terrible.
It is proposed to have a Purchase Tax. I make the forecast that that tax is stillborn and that it will never come into operation. It violates most of the canons of sound taxation. The citizen will be ignorant of what he is paying, the cost of administration will be heavy and the tax will be uncertain in its operation. The fact that it operates in certain other countries does not influence me. The only reason for fancy taxation in other 307 countries is that the populations there are, in relation to Government affairs, less honest than we are, and their public services are more corrupt. That is the real justification for a sales tax. The object is to force a contribution from those people whom it is not economically practical to tax by means of Income Tax. That is the object of all indirect taxation. It would be very much simpler to tell the Minister of Food to stop the food subsidy. The sum of £50,000,000 or £60,000,000 a year is going down the Treasury drain in selling certain foodstuffs under cost. It will be a very much quicker way to run the Ministry of Food on a non-loss basis than to achieve the same financial result by a Purchase Tax. It can be done merely by restoring the normal state of affairs.
Now, as to borrowing policy. It is rather curious to recall that it took the Treasury nearly two and a-half years during the last war before it approached the obvious method of borrowing large sums without disturbance. That method is, broadly speaking, to borrow the amount every day that you want to spend that day. That is the process of continuous borrowing. For years that principle was pressed upon successive Chancellors of the Exchequer during the Great War before they came to the policy of continuous borrowing. It was done by war bonds. This time we have done it only in respect of continuous lendings from the smaller and less well-endowed members of the community by means of savings certificates. We have not yet come to continuous lending by people who can lend the larger sums. It causes far less economic disturbance than floating a big loan when you have to collect £50,000,000 from people upon the day of application, another £50,000,000 some time in the near future, and on the final day £200,000,000 which has to go through the machinery of the banks in order that it may be payable. That is a most uneconomic way of lending money. We made the mistake last time and we have not yet learned from the experience of last time. I hope that we shall soon come to the right approach.
One of the comments made upon the Budget by the Leader of the Opposition was that he liked it because it led us a little nearer to that classless society which 308 he desires. I am never quite sure whether a classless society is one in which everybody wears a dress suit or one in which nobody wears a dress suit. The only example of a classless society I have ever heard of is a curious form of monarchical dictatorship in which the bulk of the inhabitants are imperfect females and where, from time to time, a small number of males is born. After the males have, on one occasion, been introduced to Her Majesty they are handed over to the Unemployment Assistance Board and shortly afterwards they are bumped off. That society is known as a bee-hive and such communities have never shown the faintest progress. They have invented nothing and they never have had even a British Broadcasting Corporation to tell them what was happening. The only other form of classless society is one which occurs occasionally in our constituencies when a notice is exhibited that the local Labour party will hold a select dance. It is no doubt one to which the hon. Member for Shettleston would not be admitted; I do not know whether because he is too good or not good enough. "Select dance" must mean something, and I am only sorry that the Leader of the Labour party is not here in person, to tell us what its relationship is to the classless society.
Time is going on, and I have yet three or four points to put quite briefly. There are about 1,200,000 people in this country at this moment who desire employment and have not got it. The Minister of Labour with the help of the "Daily Telegraph" has been telling us for months past now that this figure is not true and that it represents really only about 500,000 unemployed people. I am sorry that the Minister is not here. What he and the "Daily Telegraph" are saying is nonsense. The bulk of those people are capable of and want employment but cannot get it. I hope that Members of the Government will not talk that kind of nonsense.
§ Sir H. Williams
After the first eight months of the last war the number of people unemployed in relation to those in employment was about one-fifth of what it now is. Our amazing failure to get 309 people into work is most extraordinary. It is a deplorable situation. There is productive capacity worth some £250,000,000 a year producing nothing at this moment. I hope that Ministers will apply their minds to this problem because there has been failure to keep the economic machine working fully at a time when it ought to be working.
For every £1 you pay out in war expenditure about 6s. 8d. at a rough calculation will come back in the form of taxes of one kind or another because of the heavy burden of taxation. That leaves two-thirds to be found; where is it to come from? It is to come out of the occupations which are not warlike. The people who are not engaged in what is called national service have to produce the money to finance those who are engaged in national service. Therefore all this talk about "Do not buy it" is terrible economic nonsense. I want to encourage everybody to buy all sorts of things unit I see the whole of our people employed. To say otherwise is to state inverted economics. The Chancellor of the Exchequer makes appeals to us to help the export trade by not buying things for home consumption. I walked up Victoria Street and I saw a shop selling shirts cheaply but I did not buy one. How was I helping the export trade? The only way to help the export trade is to sell goods. If you use up more material the home trade will be restricted but you do not help the export trade by abstaining from a purchase. In what way do the 6,700 people now unemployed in Croydon, 1,200 more than a year ago help the export trade by not pursuing their normal economic lives? A lot of nonsensical economics is being talked, as much from our own side as from the other side. There seems to have been a conspiracy. [Interruption.] Yes, but you do not really hear what you are saying yourself.
There is one thing I would say in conclusion. I am one of 32 Members of this House serving on a Select Committee on War Expenditure. Because of that work we receive a good deal of information of a confidential character. It would be a gross breach of every kind of decency, of privilege almost for those engaged in that work, to use that information in Debates in this House, except when the House is discussing one of our reports. 310 I am concerned more particularly with the Ministry of Supply and the Office of Works, but I can say—I learned this not as a member of the Select Committee but as an ordinary Member of Parliament—that the administrative methods now being pursued in all Government Departments are a crying scandal. You cannot get a reply to any ordinary letter under a fortnight or three weeks and when you do get a letter, it has wandered through one Department after another, simply because people cannot make up their minds to take a decision. I received a letter from a Minister. Five days before I got it I learned of a decision and when the letter came I said to the Minister: "It is a funny thing that I should get your letter just now although I heard of the decision several days ago." He replied: "Yes, that is just about right. It takes five days for a letter to go up the steps of the ladder in the Department so that the Minister can sign it, announcing a decision made five days before." The thing is a joke but Ministers are complacent about it.
My right hon. and gallant Friend the Financial Secretary to the Treasury answered a Question which I put the other day addressed to the First Lord of the Treasury who as Prime Minister is the head of the whole business. He referred it to my right hon. Friend and he gave me an answer which was not in quite his best style. I asked a Supplementary Question, and my right hon. Friend turned to me and said that, as I had been a Minister, I ought to know how it worked. My reply was that I did not like it and endeavoured to make some kind of protest against the delay that takes place in Government Departments and I hope he will do the same. This is a scandal of the first magnitude which adds enormously to the cost of administration, delays decisions and irritates the public. If ever hon. Gentlemen opposite achieve their hearts' desire of turning this country into a Socialist country my certain conviction is that it will make things even worse.
§ Motion made, and Question, "That the Chairman do report Progress, and ask leave to sit again," put, and agreed to.—[Mr. Boulton.]
§ Committee report Progress; to sit again To-morrow.