AMENDMENT OF LAW.

HC Deb 25 April 1940 vol 360 cc397-410

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.]

3.49 p.m.

Mr. Dalton (Bishop Auckland)

When the Chancellor opened his Budget two days ago he was, as always, both lucid and plausible. After 48 hours' reflection I think that some of the more favourable first impressions created by his statement have faded, and that some of the unfavourable features are now seen in rather sharper outline. The first observation which I wish to make following upon what was said by the right hon. Member for Sparkbrook (Mr. Amery) in his most interesting speech is that it is quite clear from the Chancellor's statement that the war effort of this country at the present time is gravely insufficient. The Chancellor is spending too slowly on the war effort. For that state of affairs he must share responsibility with his colleagues in the War Cabinet, but the mere fact that he has a large unexpended sum of money this year, as compared with his estimate, is to the discredit of Ministers in so far as it indicates that they are waging war in a half-hearted and lackadaisical fashion. We have still more than 1,000,000 people unemployed. That is not a satisfactory adjustment to the new state of affairs after eight months of war.

The effort that is now being made is certainly much below our powers and it is also much below our urgent needs. Confidence in the Government will not increase if this state of affairs is not visibly, rapidly and emphatically improved. I do not want to elaborate this aspect of the matter, but it is only right that it should be said, and I hope that the Chancellor will give some answer that will restore some part of the confidence which is undoubtedly ebbing away at the present time as a result of this evidence that the Government are not waging the war at full pressure, either on the financial or on the economic front. We are not producing enough aircraft or enough arms of other kinds, or producing them fast enough. We are not producing a sufficiency of other necessaries either for the sustenance of the people or for the conduct of the war. In the light of that state of affairs it is no satisfaction to be told that the Chancellor has not spent all the money that Parliament has voted should be spent in order that the war should be won quickly.

There are two matters on which I desire to touch briefly, in passing. Both relate to proceedings at the Treasury and are, therefore, relevant in this wide, general Debate. Both relate to our capacity and our will to wage the war to an early victory. In the first place, there is grave concern in many quarters about the wastage of our foreign assets which is taking place at the present time owing to a leaky foreign exchange control. Whether or not that point would be better pursued in a private Session is a matter for consideration through the usual channels, but I merely say that there is concern as to the weakness of the foreign exchange control now being operated. That we should lose our assets more rapidly than is necessary in order to speed up the war effort, that they should merely slip away from us owing to certain conservative and pre-conceived conceptions on the part of the Chancellor's advisers in the City is a thoroughly unsatisfactory state of affairs. Concern is widely felt on this subject in financial circles, as the Chancellor of the Exchequer probably knows.

In the second place, the economic war is being most inadequately waged at the present time. Much of the responsibility for that falls elsewhere than upon the Chancellor, but some falls upon him. The clammy hand of the Treasury still holds up the economic war in South-East Europe and elsewhere. Here again we are not spending money fast enough to bring the war to the earliest possible conclusion. I say that the Chancellor is responsible for the fact that many efforts to pre-empt supplies from under Hitler's nose in South-East Europe are being delayed or only half-heartedly pursued, because he or his officials refuse funds or delay the necessary procedure; for example, in the setting up of this English Commercial Corporation under Lord Swinton. The Corporation has not yet begun to trade, although it was decided in principle to set it up before Christmas. I say that the Chancellor of the Exchequer and the Treasury are the stumbling block in this matter, as in many others, and are holding up the most effective effort that could now be made. If the subject of economic war should come up for discussion in a private Session, there is a great deal that I could say on that subject which would not be proper or in the public interest for me to say in the hearing of Herr Hitler and of the Press.

I pass from these matters to the details of the Chancellor's statement. I noted in that statement a number of concessions to pressure of various kinds. Some I welcomed and others I did not. I welcome the concession with regard to the means test. All my hon. Friends will support the principle that, if a workman responds to the appeal of the nation to save some part of his wages now, and if he falls later into unemployment, or passes the age for old age pension and puts in a claim for supplementation of the niggardly 10s. which the law allows him, he should not be penalised for having responded. We welcome the concession, but we regret that it took so long to get. It has been a matter of haggling negotiation for months, and we regret that the concession was not made in more immediate fashion. None the less, we have it at last. The failure to make the concession has put pebbles in Sir Robert Kindersley's shoes in his efforts to get whole-hearted support from the leaders of the trade union movement, but I have no doubt that they will now carry out fully and faithfully their share of the understanding with the Chancellor.

Likewise, the prohibition of bonus shares in war time is all to the good, particularly when coupled with limitation of dividends of certain companies. I have a suspicion that that also was rather a late decision. I offer my apologies at once to the Financial Secretary to the Treasury for suspecting or suggesting that he was not fully informed about a decision that he naturally could not announce at Question Time on Budget Day. I welcomed the statement that the Chancellor made, but I thought that there again the concession was meagre. Whether or not it was made, as I suspect, at the very last possible moment, it is meagre. It covers only the dividends of public companies, and of course, many very large concerns, highly capitalised and highly profitable, legally are private companies. These are left out of the scheme of limitation. I am not satisfied, and perhaps the Chancellor will be able to explain why it is not possible to extend the ambit of this regulation so as to cover the major part, at any rate, of the field of private company finance.

I should have thought it would be simple for his advisers to draft a Clause in which limitation could be imposed upon the total sum paid out in profits whether the company were public or private. I do not think so poorly of Treasury and Inland Revenue officials as to believe that they are incapable of solving that problem. I welcomed the proposal for the reason, which has been noted in the city and other places, that it will buttress the cheap-money policy of the Government. Whatever it was designed to do, it has the effect of boosting gilt-edged securities and depressing equities, and particularly those equities which some people might have bought in a stage of speculative hopefulness. Neither those bonus shares for which they had hoped nor those higher dividends for which they were looking can now be distributed. The consequence has been to benefit gilt-edged securities as against equities, and to deflect money from speculative shares, because the bottom has now been knocked out of that market towards gilt-edged securities. It, therefore, assists the Chancellor in his cheap-money policy, which he wishes, and I know this House intends, should be continued.

I pass to the new taxes. I do not propose to say much about them here, but when we reach our Committee stage there will be much opportunity for detailed discussion. There are only two of the new taxes on which I want to say a word in passing. The first is what it would be simpler and shorter to call a sales tax. I do not understand why it was called a Purchase Tax. You cannot get a purchase without a sale. I should have thought that, in choosing between two words, one of one syllable and the other of two syllables, it would have been better to use the shorter word. Therefore, I will call it a sales tax. One can imagine a sales tax system which would be wholly objectionable. One can also imagine another system which might have considerable merits. Therefore, I shall not attempt to pronounce any final judgment beyond saying, in a broad and general way, that it would be objection able if it should turn out that the Chancellor's sales tax plan is intended to cover a very wide range of articles, including many necessaries of life such as clothing and boots, and if it is intended to fall upon all those articles at the same flat rate. I do not know whether that is the intention or not, but if it is, I think my hon. Friends will have considerable criticism of the proposal to offer.

On the other hand if the proposed scheme should turn out to be an approximation to the scheme suggested by my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence), namely, that a certain principle of differentiation should be introduced, that certain articles should be taxed at higher rates than others, the difference in the rates being determined according to the extent to which those articles are luxury articles or not; if, in other words, the sales tax were imposed only at a low rate upon things which are near-necessaries and at a heavier rate upon things which are relatively luxuries—then, in that case, I think my hon. Friends would take a more friendly view of the plan. Until we know the details, I doubt whether we can pursue the matter further.

This, however, may be said. If the problem is one of dealing with an existing situation in which there are shortages, then, to say that we must reduce consumption is not to enunciate a moral precept at all. It is to make a statement of fact, because people will be unable to consume the goods if they are not there to be consumed. But if that is the situation then the right course is not to raise prices and squeeze out the poor, but to ration things many of which play an important part in the standard of life of the poorer section of the community I hope, therefore, that the sales tax is not to be a mere substitute for an extension of the rationing of necessary articles and a reversion to the old-fashioned capitalist economic plan of allowing only those who have most money to buy what is in short supply, all the rest of the people having to go without. As to this, however, I think it would be wise to await anything which the Chancellor may say to-day in his reply by way of elucidation, or else await the terms of the Finance Bill itself.

The only other new tax on which I wish to say something is the increase in the postage rates. This is a very harsh burden imposed on the poorest people of the country. I would not object in principle or in any rigid way to any increase in any sort of postal charge. One thing in particular which I think the Chancellor has very insufficiently smitten is that type of communication which consists of trade circulars, advertisements and printed matter of that kind, the circulation of which is a great nuisance to the recipients and fills their waste-paper baskets and loads up the bag of the postman.

Mr. George Griffiths (Hemsworth)

Waste paper.

Mr. Dalton

But why waste it? Paper is scarce particularly as the result of recent developments in the war zone. Why should it be used for the circulation of this kind of printed matter, even at a postal rate of 1d. to which it has now been raised from one halfpenny? The sending out of these circulars is a psychological campaign against the savings movement. What is their object, but to put into the minds of people the idea that they would like to spend money on something of which they had not previously thought. Does the Chancellor wish to encourage that war of nerves, that psychological offensive, against the inclination to save? Surely, on every ground, he ought to wipe out this type of circular altogether, like bonus shares, for the duration of the war. If people do not know already what they want to buy, it is better that they should keep their money and then perhaps they will save it. But it is ludicrous that the right hon. Gentleman should propose to make a little girl, who has been evacuated from her parents' home and has only a few pence a week to spend, pay 2d. for sending a postcard to her mother to say that she is well and that the weather is fine, and yet allow these trade circulars to be sent out for one penny, with the object of defeating the right hon. Gentleman's desire that people should get into the habit of saving.

This discrepancy illustrates the fact that these increases in the postal charges have not been properly apportioned. I suggest that the Chancellor might limit the proposed increases to these trade circulars and take it off the postcards and the ordinary letters of poor people. As a matter of fact, the increase from 1½d. to 2d. is very serious to people like old age pensioners and others who are living on the margin of poverty. We recognise that there has been no increase in the charge on letters sent to members of the Forces and that, at any rate, is one alleviation which can be welcomed. None the less, in view of the large scale on which evacuation has been carried out and the separation of many individuals from their families and relatives, I think this is a very harsh and a very mean increase in taxation and the right hon. Gentleman may take it for granted that he will find opposition during the Committee stage to this project. I hope that he will reconsider it between now and then.

I do not propose to say any more about the details of the new taxes, but I would like to say something about the distribution of the burdens between different sections of the community. Very grim and hard days lie ahead of us. The customary standards of many people will have to fall and fall heavily. Many pleasant things will have to cease for the duration of the war, until such time as Hitlerism has been broken in pieces and "strawed upon the water." Very grim experiences may lie before us. Therefore for any person to say that he is not prepared to make any sacrifice is completely wrong. No person should say any such thing and least of all the rich. In this general pressure of necessary sacrifices on all sections, we should safeguard to the very last the standards of health and decency and modest comfort of the poorer sections of the community. Particularly should this be the case where young children are concerned. Many families with young children have been hardly hit already by the Chancellor's previous Budgets and the taxes imposed by him. The young children of the poorer section of the community should be the last to go into the firing line of sacrifice. In the end they may have to go, but they should be the last.

Who should be the first to go? I hope we shall hear no more of the fable, that most unpatriotic fable, which has been assiduously spread about, that the taxation of the rich has now reached its practicable limits. No national unity in this great struggle can be built up on selfish lies of that kind. The statement simply is not true. What is the position with regard to the distribution of wealth in this country now? I quote, not from political partisans but from statisticians and others who have examined the facts of the distribution of wealth, who have no party purpose to serve, who wish neither to excuse nor to attack but only to explain and elucidate, and the facts are that 6 per cent. of the population hold 80 per cent. of the property of the country and less than 2 per cent. of the population hold 40 per cent. of the property of the country. Is that grotesque inequality, part of what our soldiers, sailors and airmen are fighting to defend? I say it is not. I say that it is a stinking injustice and should be ended ere the war ends. But the tale has been put about and has even received some support in the Chancellor's own statements, that we have now reached a point at which he cannot impose any heavier burden by way of direct taxation upon the 6 percent. of the population who hold 80 per cent. of the property or on the less than 2 per cent. who hold 40 per cent. of the property of the country. To say that, is a direct blow at any possibility of true national unity. It is to say something which poor people know is not true.

My hon. Friend the Member for Kennington (Mr. Wilmot) the other day coined a phrase which deserves to travel the length and breadth of the land. I have been doing my best to lend it wings and to help it to travel. He said that we must have no more five-figure incomes in this country, either in war or in peace. When I turn to the financial statement issued by the Chancellor two days ago, what do I find? The last time I referred to this matter an hon. Gentleman opposite said there were no five-figure incomes left. No one says so to-day. [An HON. MEMBER: "There are two archbishops."] If we turn to the figures in the statement issued by the Chancellor, we see that those with gross incomes of £40,000 a year and upwards, after Income Tax and Surtax at the present levels have been deducted, still have more than £10,000 a year. I say that that is a scandalous state of affairs and one which ought to continue no longer. I shall make some practical proposals in a moment, but I wholly agree with the statement of my hon. Friend that it is indecent, at this time, when we are living under the stress of war, that five-figure incomes, to be spent as they choose, should be available to this number of individuals.

I now propose to touch briefly upon a number of points which are not in this Budget though in my view they ought to be. I propose to touch upon some of the elements—missing from this Budget—of what could be regarded as a just and competent scheme of finance for meeting the immense problems which over shadow us to-day. The first thing which one notes as being absent from the Budget statement is any mention of equality of sacrifice. That phrase has gone out of use at the Treasury. We used to hear it, but it was not used by the Chancellor on Tuesday. Although he spoke for two hours and some additional minutes, that phrase was not used once and, naturally so because in this Budget statement there is not the faintest pretence of equality of sacrifice being maintained. There are no increases at all in direct taxes, having regard to the fact that the 7s. 6d. standard rate of Income Tax was announced six months ago, as part of the Chancellor's intentions. So much had it already become part of the financial outlook that in the financial statement issued last September, on page 14, the words occur "Income Tax based on the standard rate of 7s. 6d. in the £." Then follow various figures as to what it would bring in during this year, 1940–41. Therefore I say that, in fact, the thing was settled last September and that Income Tax payers all knew that there would be a 7s. 6d. standard rate this year. Therefore there are no increases at all in direct taxation in this Budget, and there are no increases in the Surtax rates.

The Chancellor has been persuaded that in some way it would have been a breach of contract or equity or constitutional practice to have imposed in this Budget an extension of the field of Surtax, bringing the lower limit down to persons with £1,500 a year. He has persuaded himself that we must wait another year before this can be operated, and meantime he has made no increase in the rates of Surtax. There is in this Budget no increase in the Death Duties, in the National Defence Contribution, or in the Excess Profits Tax; on the contrary, there are concessions. Assiduously reading as I do the financial columns of the daily Press, I read in the "Daily Telegraph" that the concession which is proposed by the Chancellor in respect of Excess Profits Tax will be of substantial benefit to a large number of concerns. I do not wish to debate the details of that concession, but having gone through the list of the most obvious means of getting a larger tax contribution from wealthy people, it is humiliating to find that the only change made is a concession to a number of concerns which have admittedly been making excess profits during the war and that now only a smaller proportion of those profits are to go to the Treasury.

With regard to the proposal which my hon. Friends have often put forward, that in addition to these taxes there should be a special annual levy on capital to slow down the growth in debt, that was not even mentioned in the Chancellor's speech as a matter on which he had been spending any thought. His only reference was to the war wealth tax to be imposed after the war, about which I will say a word before I sit down. I would like to recall to the memory of the Committee that not only last year but on previous occasions before the war broke out, when we were in a period of wildly unbalanced Budgets due to the need for heavy expenditure on war preparations, my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence), I, and others, pointed out the value which such an additional tax would have in slowing down the rate of increase in the debt. I recall that we proposed that there should be levied annually on all individuals worth more than £10,000 a graduated impost, averaging 2 per cent., on the capital value of their wealth. Figures are readily available showing that some 400,000 persons in this country possess £10,000 or more, that between them they possess £12,000,000,000 worth of capital values, and that, therefore, an average 2 per cent. levy on that wealth would bring in £240,000,000 a year. That is roughly the position. We argued, and I think rightly, that at a period when the National Debt is mounting at a most dangerous rate it would be well worth while to get even a sum of that magnitude, say between £200,000,000 and £300,000,000 a year, to diminish the increase in the Debt.

We were told that there were formidable administrative difficulties. The Chancellor will not be deterred by administrative difficulties from imposing a sales tax upon articles of wide consumption. Of course, there are administrative difficulties in almost every tax. What matters is whether the will of the politician in charge is strong enough to instruct the officials to overcome the difficulties, and I have great confidence in the ingenuity of the Chancellor's advisers in that respect. If he so instructed the officials, he would find no difficulty in getting over these administrative difficulties. In the hope of provoking some rejoinder, I will offer another suggestion. I offer it entirely on my own authority. I have not even communicated it to my right hon. Friend the Member for East Edinburgh. If it is really true that the administrative difficulties in the way of valuing the capital wealth of this not very large number of comparatively rich people are so serious, would it not be possible to use the present Income Tax and Surtax machinery? At present it is generally assumed that you cannot go above 20s. in the £. We are told that the top level is now about 16s. in the £, but it does not reach that figure except in the case of persons with £150,000 a year, and, of course, there are not many of them, so that it is misleading to throw that figure out as being typical. It is a top limit which is hardly ever reached. But, if there is difficulty, as the Chancellor alleges, in putting a special capital levy on wealth, need we impose, as it is commonly assumed we must, a maximum of 20s. in the £ on Income Tax and Surtax of wealthy people? Why should not we push the total poundage up to 25s. or 30s. or even £2 in the £?

Let us think about that for a moment, adding the provision that part of this impost could be paid by handing over stocks and shares. Is there any real difficulty about that? I am trying to minimise the administrative difficulty. Let us take an arithmetical illustration. I cannot vie with the Chancellor in his gift of simplifying complicated situations, but I will do my best. We have talked about an average 2 percent. levy on certain capital valuations. Let us then take one-fiftieth as the annual tax. Supposing that interest on that capital is taken at the rate of 3 per cent.—I give that figure just to illustrate my point—then clearly one-fiftieth of the capital is the same thing as two-thirds of the income. Therefore, the equivalent of imposing a 2 per cent. levy on a capital valuation would be to impose upon an income valuation an additional two-thirds of a pound, namely 13s. 4d. I have worked the figures out and it may be clearer to me than to some hon. Members who are listening to me. I think it will be found to be correct.

Mr. Hammersley (Willesden, East)

Has not the hon. Gentleman overlooked this fact, that the people with the largest incomes are not ncessarily the people with the largest amount of capital? Would not the suggestion that he is putting forward put the capital situation entirely out of perspective, and would it not in fact create a larger burden on the producing section of the community and a less burden on the inactive section?

Mr. Dalton

No doubt this proposal may give rise to many queries, and the hon. Member has put a question that is relevant and interesting. But it is the case that the great majority of the largest incomes are substantially derived from holdings of capital and not from exertion, even though the exertion is over-remunerated. An arrangement could be made whereby concessions could be granted in the case of Surtax payers possessing very little capital. It could be worked out on that basis in the unusual cases of people with these very large incomes but with very little capital behind them. I think it will be found by simple arithmetical calculation that, if the Chancellor would impose an additional Surtax rate of something between 13s. and 14s. in the £ on the existing Income Tax and Surtax assessment, and if he would provide for a certain proportion of that to be paid in securities which could be cancelled if they were National Debt securities, or sold—

The Chancellor of the Exchequer (Sir John Simon)

Who would buy them?

Mr. Dalton

I am astonished at the pessimism of the right hon. Gentleman. Perhaps I may be allowed a moment or two to elaborate the point. Newly created securities are now issued from time to time and bought with new savings. I am suggesting that it would be much better, from the point of view of keeping down the growth of Debt, if we were to sell a quantity of existing securities which have come into the Chancellor's hands through the fiscal process which I am describing, so that these existing securities should be purchased with the new savings. Perhaps hon. Members who are showing interest will offer some further suggestions on this matter. I shall be waiting for them. If it is only administrative difficulties which are standing in the way of the original proposal, they could be dissolved by making use of the existing Income Tax and Surtax assessments, providing you recognise that, if you allow payment in securities, you can well allow your effective rate of tax to rise above 20s. in the £. I think this plan is worthy of consideration as an alternative method of doing what my hon. Friends have long been urging.

I desire to say a few words on the war wealth tax. I entirely agree with my right hon. Friend the Member for East Edinburgh that this war wealth tax by itself is completely inadequate to solve the problems which we have in mind. It is merely a tax on new intruders into the old established plutocracy. It imposes no burden on those who were already richer than they deserved to be when the war began. The burden is to be imposed merely upon those who during the war have increased their wealth. Though not rejecting it, as an element in a financial scheme suitable to be adopted, my hon. and right hon. Friends hold that it is insufficient to deal with after-war problems. It was of this period that the Chancellor was speaking when he made his references to that matter. We hold the view that there should be a general capital levy imposed after the war, in addition to the war wealth levy. I would even let the war wealth levy go, if I could get the larger and more effective instrument of a general capital levy, graduated according to the wealth of individuals above a certain reasonable minimum—shall we say £5,000, or perhaps £10,000?—graduated upwards, in such a way as to raise a sufficient sum to pay off in one operation the major part, at least, of the dead-weight debt, and thereby to cut out a mass of dead wood from the financial tree. This is an old controversy. When it was most hotly fought, in 1922 and 1923, the wrong side won, and the thing was not done. The Chancellor was one of our most ingenious, and sometimes one of our most disingenuous, opponents in that controversy. Some of us have long memories, and we recall how the co-operators of Spen Valley were led to believe, with that lucidity of which the Chancellor is such a master, that they would lose their all if our plan was carried out. That controversy, no doubt, will be resumed, and I hope that on this second occasion the wrong side—

4.31 p.m.

Whereupon, the YEOMAN USHER OF THE BLACK ROD being come with a Message, THE CHAIRMAN left the Chair.

Mr. SPEAKER resumed the Chair.