HC Deb 25 April 1940 vol 360 cc410-509

Again considered in Committee.

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.]

4.44 p.m.

Mr. Dalton

I was recalling that when the capital levy controversy was taking place, one of our most ingenious opponents was the present Chancellor, who misled the electors of Spen Valley as to the nature of our proposals, though he was not so unintelligent as to fail to see the falsity of the arguments that he put up. I do not desire to go further than to say that the Chancellor is very well aware of the arguments in favour of our plan for a capital levy, because he used very cleverly to manipulate them in the Spen Valley Division in the years when that was a raging controversy. We have some interesting and rather surprising reports of his speech at that time. Therefore, he will be able very easily to present the case in favour should the tide turn. But I desire merely to say that, looking forward to the post-war period, it seems intolerable to contemplate a National Debt even now of the magnitude of, I think, nearly £9,000,000,000, allowing for the increase which will inevitably come as the war continues, and I think there is no person who believes that the war will be short or cheap. The thousand millions will keep on piling up. In the last war I think it went up from about £600,000,000 or £700,000,000 at the beginning to a total of £7,000,000,000 or £8,000,000,000 at the end. I shall be astonished, if at the end of this war, we are not up to £13,000,000,000, £14,000,000,000 or £15,000,000,000 at the present rate of going. A figure of that magnitude, assuming a price level of anything approaching the present, seems to be an utterly impossible proposition.

By one means or other that debt will have to disappear. The cleanest, most honest, most just, and socially advantageous method of making it disappear is to repay it by a special ad hoc levy graded according to the individual taxpayer's ability to contribute. That is the most efficient way to do it—by a general levy on capital. If that is rejected, I suggest that there are only two alternatives. One is that not only the Debt, but much else as well, will be devoured by the furies of inflation, and the other is that you will have the total shipwreck of repudiation of the Debt, and many other monetary obligations also. That might lead us, after a period of stress and strain and misery, to a less hampered future. I do not see how, if the Debt is to continue to rise, as now seems inevitable, one or other of these three alternatives can be avoided. When victory is won, there will not be any disposition in the minds of those returning from the front to go back to 3rd September, 1939. No one will wish to reconstruct that particular world. I think, that when victory has come and Hitlerism has been broken, those who have done the breaking will come back, after serving their country on the battlefield, with a desire that a new Britain shall be created. They will expect a squarer deal than their fathers got 20 years ago. Too many of their fathers after the last war came back to distressed areas, destitution, unemployment and slowly dying hopes, which had been kindled in their hearts by the rhetoric of old men spouting in security while they were risking their lives. All that rhetorical rubbish about "lands fit for heroes" did not feed them when they came back. I hope and believe that when the boys who have broken Hitlerism come home they will demand and get something better than that.

Mr. MacLaren (Burslem)

The possession of the land.

Mr. Dalton

I do not believe that the workers of our country, whether in uniform or in civilian clothes, will consent to be robbed for a second time in one generation of the fruits of victory upon the home front.

4.50 p.m.

The Financial Secretary to the Treasury (Captain Crookshank)

The hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) was, unfortunately, interrupted in what he was saying, which does interfere with the thread of one's thoughts, but for all that he has given us a good deal upon which to reflect. I entirely accept his apology for any apparent discourtesy to me the other day. I was only surprised at that time at his incapacity for taking one of the broadest hints ever given on Budget day.

We are, to-day, engaged in the second day's discussion on this year's Budget, and it may be useful to take up one or two of the points rather on the financial side, and to leave the larger economic questions to my right hon. Friend, who will deal particularly with those matters on behalf of the Government. My right hon. Friend will certainly be satisfied at the way in which the Committee and the country have received his Budget. The criticisms have not been very many, and such criticisms as there have been in this Committee have been on the lines—it is extraordinary when one comes to reflect upon it and when one considers that the House of Commons is the guardian of the public purse—that he is not budgeting to spend enough, that the taxes are not heavy enough and that the target is not sufficiently wide. Be that as it may, I say to the hon. Gentleman that the criticisms which he expressed on that ground were, I recognise, based upon the view that it was necessary to do everything possible to hurry on the conduct of the war in every sphere. Criticisms offered from that point of view are very different from the criticisms which at other times are frequently addressed to Chancellors of the Exchequer about the Budget.

I would like to say, lest anybody take these criticisms too seriously, that we recognise that they are offered from the point of view that all Members of this Committee, with the possible exception of one, are at one in the desire to further the vigorous prosecution of the war, and, intended in that spirit, the Committee will accept such criticisms as subjects for consideration.

It is a fact that, having listened to all the speeches yesterday, I find that very little has been said about the Budget or about the actual taxes. The hon. Gentleman did not go very deeply into that matter, and I think I am right in saying that, up to this moment, the two words "beer" and "tobacco" have not been mentioned since my right hon. Friend mentioned them in opening his Statement. That is a very remarkable fact. The imposition on these two articles is very great. Before last year's Budget, tobacco was being taxed at 9s. 6d. per pound, and now it is being taxed at 17s. 6d. per pound. The increase is colossal. Beer is up by 2d. per pint; and the effect of the new duty on whisky will be to increase the retail price per bottle from 12s. 6d. to 16s. It shows the sort of atmosphere in which we are considering this matter when impositions of this kind have not yet been mentioned by anybody. I think that we all recognise that both tobacco and beer, while they might be classified as luxuries, are on the borderline, and that even if you consider them luxuries, they are, one or other of them, or sometimes both, perhaps the one luxury of the workers of this country; and we should therefore recognise that we are asking from that section of the community a considerable sacrifice of their amenities. It is a tribute to everybody concerned that no great political complaint has yet been made on that subject, and I think it is because that section of the community, like all others, realises that we shall not get through this war unless everybody makes his contribution.

As to the expenditure side of the account, I have to say one thing. The hon. Member for Wrexham (Mr. Richards) asked why in the Financial Statement there was nothing about Civil Defence, and, therefore, why was not the Committee and the country informed as to what we were doing in that sphere? He was under a slight misapprehension, because whilst it is true that in the Statement of Revenue and Expenditure, Civil Defence is taken as a token Vote, it is also true—and I am glad to call the attention of hon. Members to this point in case they have not already had an opportunity of seeing it—that on Budget day a White Paper was issued giving particulars of the Vote of Credit out of which Civil Defence, like other Defence Services, will be financed. On pages 90 and 100 of the Vote of Credit Statement will be found the figures, which, as far as we can at present estimate, will cover the cost of Civil Defence. On page 90 appears an item of some £96,250,000 in respect of the Ministry of Home Security, and on page 100 hon. Members will see further expenditure under the heading "War Services of the Mnistry of Health," which is an allied service. It is not therefore correct to say that this information is not available in as extensive a form as it is possible to give it under war conditions.

The right hon. and gallant Gentleman the Member for Newcastle-under-Lyme (Colonel Wedgwood) spoke vigorously against any form of expenditure for this purpose at all. He wants to see, as I understand it, all the Civil Defence organisations swept away, because he himself does not believe that there will ever be air-raids on this country, or, if there are, they will not be on the town of Stone. I gather from the Press that he frequently takes wagers on this subject, and I hope that he will win every bet he makes of that kind. But when he cashes in on the successful anticipation which he now has, let him reflect that it may be that one of the reasons why there has not been the type of air-raid which was at one time envisaged is the very fact that preparations were known to have been made. It is always difficult to assess how far such knowledge counts, but it may very well account for something, and certainly this is not the time to relax our efforts in that or any other direction of our war effort.

The right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) and the hon. Member for Bishop Auckland have both mentioned that in their view there was nothing in this Budget which could be described as "equality of sacrifice." That is one of the pet phrases which so often trots into our language through political channels which it is very difficult to analyse. However much we all agree that it would be the ideal solution, if we could all make the same sacrifice, the fact of the matter is that with all the innumerable changes in human life, and in circumstances, custom and habit, it is impossible to get very much closer to that ideal than a very rough approximation. The right hon. Gentleman himself said yesterday that many rich people have great responsibilities and liabilities out of which they cannot quickly get. As I heard that remark, it made me think that that was just one of the sort of pointers which are very difficult of application, because it may very well be that some of the responsibilities and liabilities out of which those whom he called "many rich people" find it difficult to withdraw quickly may be responsibilities and liabilities towards other people.

When the hon. Gentleman opposite said that there was no longer any pretence of equality of sacrifice because there was no increase of direct taxation, I was staggered, because there is in fact an increase of 6d. in the standard rate of Income Tax. The fact that it was announced last September does not make it any the less an increase now. Because you are forewarned of some impending calamity—I am not saying necessarily that a standard rate of 7s. 6d. is a calamity, though it is a very grievous imposition—and because you have an opportunity of trying to arrange your affairs, and indeed in some cases of trying to obtain the money with which to pay the tax, to say that it does not mean anything because it is only imposed in April renders language completely senseless: he says that because you know ahead of time that a thing is going to happen, when it happens it can be taken as not happening. If the hon. Gentleman has looked at the top end of the table, it is really rather a fancy picture that he has seen, because the people who have incomes of £150,000 must be very small. I have never asked whether there are in fact any such incomes or whether they are not given to complete a statistical picture which he, as an economist, would very gladly have. To give only one illustration—one could pick out many from a table like this, but I take one of the most startling to show what a difference it makes to certain sections of the community—the rich community—I looked to see at what stage in the scale at the present time, that is to say, with a 7s. 6d. standard rate of Income Tax, and with Surtax as raised in September last, half a man's income was taken by taxation, as compared with the position at the time of the Budget last April. I was surprised to discover—and I dare say hon. Members will be surprised—that this time last year half of a single man's earned income was taken by taxation if his income was £17,000. The point in the income scale at which that result now occurs is £8,500—just a half. Really, for the hon. Gentleman to get up and say there is no increase in direct taxation astonishes me very much, and also makes me suspect that he has neither £17,000 nor £8,500 a year, though I am sure he deserves it. If he had, he would appreciate what this burden of taxation can be.

Mr. Dalton

I am trying to follow the right hon. Gentleman on the table. I think he has made the contrast rather sharper than in fact it is. On page 23 the point at which half the income was taken was £10,000, and it has only dropped, to take the corresponding figure on the other side, to between £8,000 and £9,000.

Captain Crookshank

No. It is as I thought: the hon. Gentleman has misconceived the position. He should take the middle figure.

Mr. Dalton

You are not reading from this table at all?

Captain Crookshank

No. I never said I was.

Mr. Dalton

I misunderstood.

Captain Crookshank

If the hon. Gentleman wants the right one, it is Cmd. Paper 6107, published at the time of the War Budget in September, 1939, and it shows the two stages preceding the present Budget. There is last year's Budget in April, and the War Budget, where Income Tax was raised to 7s., Surtax increased, and the announcement made of the additional 6d. which the hon. Gentleman ignores, but which is being raised at the beginning of this Financial Year. That is where the change has come in, and he will see that it is a very serious matter. I am glad if I have made it clear to him, because it is not only he who says this sort of thing. The hon. Member for Leigh (Mr. Tinker) said it the night before last, and the "Daily Herald" to-day says in a leading article: The promises to tax all wealth and profits have become no more than a receding mirage. In spite of this curious view on the part of the hon. Gentleman, the "Daily Herald," and the hon. Member for Leigh, there is another hon. Member opposite who, I always understood, was almost a tutor to his colleagues in Scotland, and had taught them all they ought to know about economics; he, the hon. Member for East Stirling (Mr. Woodburn), speaking yesterday, said: I would not say that the taxation is not severe enough."—[OFFICIAL REPORT, 24th April, 1940; col. 289, Vol. 360.] I think most people will, for once in a way, agree with the hon. Member. In any event the matter is fairly proved when one comes to see the estimated yield of Income Tax. Last April my right hon. Friend budgeted for an Income Tax receipt of £327,000,000. In the War Budget that figure was raised to £390,000,000, and that figure was reached. Now we are budgeting for a figure of £450,000,000. That represents a considerable increase in direct taxation. I hope that the hon. Gentleman will not go round the country saying the contrary any longer. He can say a lot of other things, of course, in the way of criticism, and he did, but I do not think that the one which he employed is a very good line if he is trying to persuade his hearers that he really knows something about the subject. They have only to quote what I have said to catch him out.

There is one other figure that I would like to put right, because one speaker who is always very accurate fell inadvertently into a mistake. That was the hon. Member for Wrexham. He took my right hon. Friend to task for saying that this year we were estimating to get by taxation the highest amount that had ever been got and he said, "No, the highest figure was in 1921."It was a mistake on his part, because what he had taken as the figure of 1921 was not the tax revenue, but the total revenue, and that year there was taken into the total revenue a certain amount of money which had come in as assets from the sale of war stores. The statement of my right hon. Friend was correct.

The hon. Gentleman opposite reserved his view about the Purchase Tax until more details are available. I think that is the general view of hon. Members, and it is the right view to take, because the proposal which my right hon. Friend put before the Committee was in very broad, general outline, and, as is always the case when anything novel is announced, there is a dilemma. Either you can bring down a cut and dried scheme, when everyone says, "Why were we not consulted? Why has not the House been given a chance of expressing its views?", or else you can bring down a more general proposal, and then hon. Members say, "We do not know what all this is about." I agree with the hon. Gentleman that it is just as well to see the whole picture rather than to try and adduce too much from seeing a skeleton outline.

The hon. Gentleman propounded to us a great new scheme of taxation. Having only seen the skeleton of that, I shall do the same as I advised the hon. Gentleman to do towards the Purchase Tax: I shall await further details and further investigation. But I would utter a word of warning. He is a Cambridge economist. So is Mr. Keynes. Mr. Keynes has brought forward a scheme which has been rejected, and it may well be that the same fate will befall his own scheme. However, anything novel is worth looking at, even if one does not carry it out. The hon. Gentleman said we were not spending enough on the war. One or two Members put it in another sort of way. The hon. Member for East Birkenhead (Mr. White) said that he was sorry the Chancellor had given any figure at all of estimated expenditure, and would have preferred to leave the war charge completely open. My right hon. Friend the Member for Sparkbrook (Mr. Amery) would have liked, instead of £2,000,000,000, the figure of £3,000,000,000, because that, he said, would in his view approximate more to the present cost of the war to Germany.

I must say I do not know where this figure of £3,000,000,000, which was so much quoted yesterday as representing Germany's war effort, comes from. I treat everything that comes from that country with the utmost reserve. In fact I have not found anything which has been said there for months, or even years, which has had any relationship to the truth. It may be that it is some part of Germany's propaganda to put about great figures which have nothing to do with great expenditure. I do not know whether any other Members will build up much of an argument around Germany's figures. The right hon. Gentleman the Member for Sparkbrook did, and said that her figures were large compared with those of France and Britain. But it should be borne in mind that there are not only the French and British figures; there is the whole of the Imperial contributions being made by Canada, Australia, New Zealand, South Africa, India, and the whole of our Colonial Empire. Here we are only talking about the Budget of this country, but we must not overlook the fact that the war expenditure of the Dominions is by no means neglible, nor is their potential production. Nor must we leave out of account the direct contributions from every part of the Empire. We should also consider the potential productive output of other countries on which we can draw, provided we do it on a cash and carry basis.

Besides all these great reserves, we have even more. I am sure you cannot measure the war effort of the Allies with the war effort of Germany on a pound-for-pound basis. On our side we have a great many imponderables which are of enormous value to our war effort: We have the rightness of our cause, we have the un-dragooned beliefs of our own people in freedom, liberty and justice; we have the whole of the support of the Empire and we have besides the certain knowledge possessed by all the independent nations of the world—that we are, in fact, really fighting for their survival as well as for our own. We must put all that into the balance as something which weighs with us.

But we are not discussing that to-day. We are discussing Ways and Means for next year. My right hon. Friend put before the Committee vast figures which will involve great changes. Great changes are happening now, and will happen rapidly with the increased taxes which the Budget contains; but they are being accepted wherever they do occur with submission, and cheerfully, because they are essential contributions towards the winning of the war. Sacrifices are required in every quarter and I am sure the Committee will realise that the Chancellor of the Exchequer was not slow in asking in his Budget speech for sacrifies from every section of the community.

5.20 p.m.

Mr. Clement Davies (Montgomery)

We have just listened to a delightful speech by the Financial Secretary and one which was uttered in good temper, but I do not think I have ever listened to a more surprising speech than that he has just delivered. He said it is not right that we should compare our war effort with that of Germany or that of France, that we should remember we have Canada, Australia, South Africa, and everybody else to rely on and that they should bear the burden which the Chancellor refuses to carry. [HON. MEMBERS: "No."] Well, that is the logic of his remarks.

Captain Crookshank

The hon. and learned Gentleman must really acknowledge that I never said anything of the kind.

Mr. Davies

I am driving the argument to its logical conclusion. Let me go a little further. The right hon. and gallant Gentleman said that not only we have those assets on our side, but we should remember we have right on our side, the feeling that we have all these independent nations to help us and all moral feeling on our side. Driven to its logical conclusion, it means that we are so right that we need not fight. Our complaint all along has been that the effort that is being put forward by His Majesty's Government to-day is not sufficient for or commensurate with the resources possessed by this country. We have been calling for more and more effort, and it is not right that it should be shouldered by anybody else if we can shoulder it ourselves.

May I give one other point before I return to the Budget itself? The Financial Secretary doubted the figures which have been given by the hon. Member for East Birkenhead(Mr. White), the right hon. Member for Sparkbrook (Mr. Amery) and myself and which have been repeated many times in this House and in the newspapers. I would ask him if he has taken the trouble to ask the Minister for Economic Warfare whether they are right. Has he troubled to inquire what is the war effort of our enemy, or does he believe that so many lies come from that country that it is not necessary to inquire? If he will take the trouble to inquire from the Ministry, he will find that figures have been most carefully worked out of the effort being made day after day by Germany, the numbers employed in that country, their factories and machines. Altogether, you get a figure which in the first instance is represented in marks, and I dare say you have to take those marks, if you try to turn them into sterling, on a different basis depending on the article you have in mind.

Let me give one instance. Suppose you are comparing the amount of rubber produced in Germany with the amount of rubber brought into this country. A ton of rubber in Germany will have cost a great deal more than a ton of rubber here, because that is manufactured rubber, which you have had to produce by raw materials, the building of factories and the use of a tremendous number of chemical processes. In this country you have a ton of rubber which has cost so much in Malay, plus the freight rate. I advise the right hon. and gallant Gentleman to inquire whether my figures are right. If he does inquire at the Ministry of Economic Warfare, he will find the figures for raw materials which they know, or ought to know, Germany has got. He will find that marks are translated into sterling at a rate of probably 30 to the £, and that when you come to another different kind, say, 15 to the £, making all these allowances—and I challenge the Government to say that the figures are incorrect—the amount being spent by Germany to-day is £3,200,000,000 a year on war effort alone. All this is being turned out in material meant for our destruction.

Mr. Marcus Samuel (Putney)

Do we understand that the Germans are paying 10s. a pound for ersatz rubber compared with 2s. a pound for ours? Are we not doing better at a lower cost?

Mr. Davies

Certainly. Allowances have to be made for this, as I think I have explained. Having made all these allowances, and in order to get a comparable figure, you will find that they are spending to-day at the rate of £3,200,000,000.

I will come to the amount which France is spending. The right hon. and gallant Gentleman will not doubt that. He can make his comparison as to what France is spending as compared with this country. What I object to about this Budget is that it is not a war Budget at all. Whatever else it can be called, it is not a war Budget; it is a continuation of a peace Budget, with certain additions, and I will explain why. Last September the Chancellor budgeted to receive from taxation some £995,000,000. The figure he budgeted for in the previous year, 1938–9, was £927,000,000, so that there was an increase of taxation, from peace to war, of only £68,000,000. It turned out that he actually received a great deal more because the country showed wonderful resilience. He received £1,049,000,000—an increase of £54,000,000 on what he estimated, or an increase of £122,000,000 over the previous year. What has he budgeted for to-day? A figure of £1,234,000,000, which is an increase of only £185,000,000 over the peace Budget, of which £84,000,000 is coming from old taxes and only £101,000,000 from added taxes. The sum total of this Budget, which has been called "The Budget to bring the war home to us" or, in a resounding phrase used by the Chancellor of the Exchequer in his peroration yesterday, a Budget which shows the fortitude and resolution of our people in paying Government taxes, is the extra sacrifice that we are called upon to make. And that is all.

Let me compare that figure with what Germany is doing. Our total expenditure during the six years preceding the war, for war purposes, including the Navy upon which we were spending the most—and we can to-day be grateful that we did so—was £1,100,000,000. The total expenditure, as given by Herr Hitler himself, of Germany during those six years amounted to £6,000,000,000. Even if he was exaggerating and it was £5,000,000,000, that is a great deal more than our expenditure. On 3rd September he had all his buildings erected, all his plant working, his machine tools were there, and everything was in order. Yet all that we are called upon to face is an increase in taxation of £185,000,000.Not only that but Germany has looted from Austria and from Czecho-Slovakia and from Poland, and the loot that Herr Hitler got from Czecho-Slovakia has added very considerably to his war effort. It is still there, and still working for him. In addition, he can release a certain number of men for war, because 2,000,000 men were taken from Poland. Does the Financial Secretary doubt these figures? He will find them in the statistics of the Ministry of Economic Warfare. When these figures are being bandied about, we ought to have the Minister of Economic Warfare here. He is absent too often from these Debates.

It is obvious to me that we are waging two wars in this country. One war we have been waging for the last seven months. It is a war against our enemies. The other war which has been going on for 20 months, and longer, is the war which some of us have been waging against the dangers of the doctrine of laissez faire which has pervaded the Government too long. It is a sort of morning credo that is sung, that "time is on our side," that we have always "muddled through," that we have lost many a battle but we always win the last. Think of what that means. That is why we are calling for a bigger effort to-day. We want the doctrine of laissez faire and muddle to end, because that is not the way to tackle the other war which we are all anxious to see won. I wonder whether the Government have reckoned the cost of muddle and lack of effort in money and materials, and, what appals me more, the terrible loss it may mean in young and sacred lives of this country which otherwise might be saved. That is why I keep on expressing my indignation at what is taking place. The doctrine of laissez faire is a pernicious doctrine; it is a foul creed which should be removed in time of war.

It has been suggested that we are not capable of organisation. It is untrue. This country is capable of amazing organisation. The whole story of the Victorian era is the spirit of organisation throughout the land. Why did our trade become world wide? Why were we in the forefront of everybody in trade and business? It was through the organisation of the leaders of trade and industry, and that organisation is here to-day. It only wants to be called upon. The Chancellor of the Exchequer has been saved from complete failure as a Chancellor in preparing this Budget by one thing, and one thing only, and that is the failure of himself and his colleagues in the War Cabinet to organise the country on a war basis, their failure to increase our production and employ our manhood and womanhood to the full. As the hon. Member for Bishop Auckland (Mr. Dalton) has reminded the Committee, even to-day, eight months after the war, 1,000,000 men and women are on the register, and millions more are wanting to work and waiting for guidance. If they were put into work, production would leap up, but so would the costs and expenditure, and where would the Chancellor of the Exchequer then be with just £1,234,000,000 taxation?

The greatest confession of failure is contained in the statement that in the opinion of the War Cabinet all that is needed between 1st April this year and 31st March next year is £2,000,000,000. That is all they are contemplating doing; that is all that the Chancellor of the Exchequer has provided for. And that £2,000,000,000 is not all for shells and munitions. Buildings are still being erected, machines have still to be made and machine tools still to be bought, and even then this £2,000,000,000 is not all to be spent in this country. It includes the war effort by purchases from America and the purchase of goods the world over. I ask the Committee to compare the situation. We, the wealthiest nation in the world, standing second to none, with the Empire and with all its resources at our back, and Germany, encircled and unable to get out. Germany spending at the rate of £3,200,000,000 a year, while we with all our resources can only think of spending £2,000,000,000. That is the position, and it is appalling that this is all the Government have in mind.

May I give the Committee another figure? The economists—I commend them to the attention of the Chancellor of the Exchequer and the Financial Secretary—have spent years working on these figures. They are some of the ablest men, and some of them are now in the Ministry of Economic Warfare. So far as they can work it out, the national income of this country and of Germany are much of a muchness, roughly about £5,000,000,000 a year. The national income of France is about half, £2,500,000,000. Consider what our Ally has done. She mobilised on 1st September 5,000,000 men. In order that we might understand as Members of Parliament the sacrifices that are being made by our Ally and what she is doing, a number of us asked a leading Frenchman to attend in another part of this building and tell us what France was doing. That story is in the mind of all those who were fortunate enough to hear him, but there were some hon. Members who did not hear the figures. They left an indelible impression on my mind. France mobilised 5,000,000 men. What was the result? Their production went down 50 per cent. straight away; and no wonder. Since then she has demobilised the older men but only to the extent of 1,000,000, and she has mobilised her women, who are at work, increased the hours of labour, with the result that they have recovered 50 per cent. of the loss they suffered. A wonderful effort by a superb nation.

Look at their Budget. Out of a national income of £2,500,000,000 you will find M. Reynaud's Budget of over £8,00,000,000. Our Budget is £2,667,000,000, out of a national income of £5,000,000,000. Out of that £1,800,000,000 all with the exception of £300,000,000 is devoted to the war effort. Therefore, the effort of France reduced to figures is £1,500,000,000 out of a national income of £2,500,000,000, that is, 15 over 25, or three-fifths; which is also, by the way, the effort of Germany—£3,000,000,000 out of £5,000,000,000. What is our effort? It is £2,000,000,000 out of £5,000,000,000, that is, 20 over 50, or two-fifths, as compared with Germany's three-fifths and France's three-fifths.

Mr. Cove (Aberavon)

From where do you get the German figures?

Mr. Davies

I spent at least a quarter of an hour explaining. That is a wonder- ful effort on the part of France. But consider her frugality. Fifteen centimes a day to the soldier—let us call it a penny, although it is not as much. If he is actually in the fighting line, he gets the equivalent of 1s. a day. The family allowance for wife and children is about half of ours, and there is also a very strict means test. I ask hon. Members, Does anybody feel comfortable when he hears such figures? Does anybody feel satisfied that the greatest effort is being made against this most ruthless of all foes? Is it right that my partner should be carrying a bigger burden than myself when he is not so well off as I am? May I give some more figures? There is an Excess Profits Tax in France in respect of defence factories which wipes out all profit except 4 per cent.; and every workman contributes 40 per cent. of such of his wages as are paid in respect of work done over 40 hours a week. There is a 5 per cent. Income Tax on incomes of £40, and if a man is not serving but has gone back to his ordinary work that 5 per cent. goes up to 15 per cent.

They have Income Tax, Surtax and a special tax, and out of this special tax they pay the family allowances. What is more, their wages have been fixed from 31st August, and every workman contributes direct to the national fund. Some 4,000,000 men are under arms, and their women are at work. The amazing thing is that they are so patriotic that what is equivalent to £500,000,000 has been repatriated to France. That is what our Ally is doing. Can we do less? Can we afford to do less, and do we wish to do less? It is our duty, our right and our privilege to shoulder at least as great a burden. I could go through the German taxation, but with regard to that, one can say at once that it is not voluntary. What is taken from German workmen, German business, German families, is taken from them without their having any say in the matter. The taxation to which I have been calling the attention of the Committee is that of free and democratic France.

Let us consider what the Chancellor has to do. He has budgeted for £2,667,000,000 expenditure—£667,000,000 of that being for ordinary purposes, and £2,000,000,000 for war. How does he propose to get that amount of £2,667,000,000? He will tax up to £1,234,000,000, leaving a balance which he will have to find from sources other than taxation of roughly £1,400,000,000. For this he has two means at the present time, apart from borrowing. One is the Purchase Tax, which we are told not to discuss too fully, because we do not know what the proposals will be. But may I point out one or two things with regard to this tax? We were given a figure yesterday of £600,000,000. I have done my best in a few hours to try to check that figure. I dare say the Treasury have their figures. Somewhere between £600,000,000 and £700,000,000 is the taxable amount. Therefore, 1 per cent. will bring in either £6,000,000 or £7,000,000.

Mr. Aneurin Bevan (Ebbw Vale)

Does that exclude food?

Mr. Davies

I am obliged to the hon. Member. It excludes food, and things like tobacco, petrol, and everything on which a tax is paid, but it includes boots and clothing and furniture. The main items, without doubt, will be boots and clothes, and in the main, next to food, these represent the biggest expenditure which a poor family has to meet. There is constant wear and tear of those things. What does the Chancellor expect to get out of this tax? If he proposes to put on a tax of 15 per cent., it will bring in only £100,000,000.

Mr. MacLaren

What about the cost of collection?

Mr. Davies

That is without deducting the cost of collection. New machinery will have to be set up, and when it will work, I do not know; in the meantime, the war is going on and every moment is vital. By the time the whole structure is set up, what will be the position? Even if a tax of 15 per cent. is imposed—will the Chancellor do that?—it will bring in only £100,000,000, and increase the cost of living. For what will happen with regard to that tax? It is to be put on the initial transaction between the wholesaler and the retailer. This will add to the costs of the retailer, he will want his profit on that, and there will be snowball progress until it reaches the consumer. So much for that.

I want now to ask a question with regard to the other proposal—the limitation of dividends. Incidentally, having bolted, barred and chained the door, and sneered at Mr. Keynes and paid him a little compliment for his clarity of thought, you then go on to say, "He happens to be right about public companies, but wrong about private companies and private individuals." Why is it a sound principle with regard to public companies and an unsound principle with regard to everything else? I want to ask on what is this to be based? When opening the Budget, the Chancellor said it is to be based on the highest dividend of the last three pre-war years. Is 1939 a pre-war year? Companies are to-day wondering what they are going to do. Their books and balances were closed on 31st December, but they have not yet declared dividends. If they did so on Monday, will they be outside the Act? If they did so on Tuesday, will they be within the Act? This is the kind of thing that ought not to be uttered from that Box without a great deal of precision. The country is entitled to know where it stands from day to day.

It is not known what this will bring in. At the most, there will be, I suppose, an increased saving of about £30,000,000, of which the Chancellor hopes to get a part, either by forcible borrowing or by voluntary borrowing. Subject to this, there is left £1,400,000,000 to be collected by borrowing. As I have said, £100,000,000 is already in the Chancellor's pocket from last year, out of the Three Per Cent. Loan. This reduces the total to about £1,330,000,000. This has to be obtained by borrowing out of income, by the sale of gold, or by the sale of foreign securities. As far as I can estimate, the sale of gold and foreign securities will bring in roughly £350,000,000. Therefore, let us say that the Chancellor has to find, in round figures, £1,000,000,000. What is the normal saving in this country every year? It is £600,000,000. Of that sum, half is institutional; half of it is the money collected by building societies and insurance societies, and a large part is due to statutory savings that have to be made compulsorily. Roughly, £300,000,000 of the £600,000,000 is institutional and statutory saving, and, therefore, the voluntary saving is only £300,000,000. If one takes out of the £1,000,000,000 the £300,000,000 of institutional saving, it leaves for voluntary saving £700,000,000.

How is the Chancellor to get £700,000,000 in the coming year when the normal voluntary saving is only £300,000,000? From where is he going to get the other £400,000,000? He says he will get it through National Savings Certificates, but will he? Let us consider the National Savings Certificates at the net figures. These figures are not published properly. If hon. Members will look at the "Times" of yesterday they will find, if they glance at the top of the column, a reference to National Savings Certificates as amounting to £2,750,000 for the week, but one has to look lower down the column to find that there were repayments of £750,000. Therefore, the net figure for last week was £2,000,000. For the three previous weeks, the amount paid in was £7,500,000, but repayments amounted to £1,650,000. Therefore, one can take it that over the four weeks the average was £2,000,000 a week, and for 52 weeks that will bring in only £104,000,000. But let it be remembered that that is not a net gain. A good part of the £104,000,000 will be collected out of war savings clubs and out of the Post Office Savings Bank. Therefore, it will not be a net gain. All I can say is that the voluntary savings will be about £300,000,000 ordinarily. Add to this £100,000,000 from National Savings Certificates, and there is a sum of only £400,000,000—and there is £700,000,000 to be found.

Where is the Chancellor going to find this sum? What justification had he for the optimism which he expressed at that Box? He must have gone through these figures. If he did not do so, he was neglecting his duty. If he went through them, can he challenge them? That being so if his optimism is not justified, when will he face up to the real situation, and when he does, what will he do? What system is he going to adopt? He can adopt one of about five or six systems. He can adopt the French remedy of taxation of wages and the fixing of wages. [Interruption.] I hear groans from the benches above the Gangway. That is the French system at the present time. Will the right hon. Gentleman adopt it? If he takes something away from wages, the workmen will not see it again in their own pockets; the right of distributing it will have gone away from them. If he will not have that system, will he have comprehensive rationing, as in Germany, so that people cannot buy? With heavy rationing so that people do not know what to do with their money, except spend it on pleasure, there is the fond hope that they will save it and give it to the Government. Which of these systems will the Chancellor adopt? Whichever he adopts, both of them are forms of compulsory saving, or, to use the words of the Chancellor, which he rather sneered at yesterday when referring to Mr. Keynes, forced loans. Of course, they are forced loans, and one has to face up to that. Or would the Chancellor prefer the good old remedy of progressive inflation? Obviously, that is what we are going to have.

Sir J. Simon

Did I hear the hon. Gentleman use the word "sneered"?

Mr. Davies

Certainly, I did. If I was wrong, I apologise, but I have known the right hon. Gentleman for so long, I have appeared with him in so many cases in court, and I have watched him quite enough to notice whether it was a sneer or not a sneer. It looked like a sneer when he said that these would be forced loans. In any case, he used the right words. They would be forced loans. I return to what I was saying. If there is progressive inflation, it will be very different from what we had in the last war, because then there were time lags of about six months between the rise in prices and the rise in wages. There will not be a time lag of six months now, for we are all too conscious of the figures; it will come rapidly and with great cruelty, for it will fall on the very poor and the under dog. That is what is in front of us. When will the Government face up to that situation? I make two prophecies; one is that this Budget is only a provisional one, that another one will have to be placed before us within the next six months, and when that is placed before us—and this is the other prophecy—it will be made by a Chancellor of the Exchequer with sufficient backbone to tell the country the truth and ask the country to face the truth.

Commander Sir Archibald South by (Epsom)

I should like to ask the hon. and learned Member two questions. He compared the amount spent by Germany on naval rearmament with the amount spent by this country. Surely, he would not wish to mislead the Committee. Does he not understand or appreciate that the amount spent by Germany on naval rearmament was occasioned by the fact that Germany started from scratch, with no navy, whereas in this country we had a Navy, and that although they spent that colossal sum, they achieved only 25 per cent. of our naval rearmament? Secondly, the hon. Gentleman compared the payment made to the French poilu with the payment made to the British soldier. He referred to the most interesting meeting at which some of us heard an address on this matter. One point which he omitted, and which the Committee should know, is that although the French soldier is paid such a very small rate in France, he has, I think I am right in saying, his rent paid by the Government.

Mr. Davies

I did not mention naval armaments in figures, but what I said was that we had spent in the six years a total of £1,100,000,000. Naturally, I was grateful that the bulk had been spent on the Navy. With regard to the other point, I quite agree that there is no rent and no rates, and, I understand, no insurance premium; but at any rate all the French soldier has as pocket money is 1d. a day.

6.1 p.m.

Sir George Schuster (Walsall)

I wish to make it clear in following the hon. and learned Member that if I do not address the Committee with the same emotion as he has shown, I hope no one will conclude from that that I do not feel as passionately as he does the need for this country to put forth its maximum effort, which I am sure is a feeling shared by every Member—not the least by my right hon. Friend the Chancellor of the Exchequer. But we have a very practical problem to discuss to-day, and I have been thinking, as I have listened to this Debate, how very easy was the task of hon. Members who can get up to criticise or propose plans without the responsibility of carrying them out—how very easy is that task compared with that of my right hon. Friend who has to take responsibility for action, to maintain confidence in the country, and ensure that everything proceeds progressively and without disaster. The right hon. Member for Sparkbrook (Mr. Amery), for example—who made a speech admirable in many ways and full of extremely useful thought—in dealing with the problem of taxation, after criticising the Chancellor for not raising nearly enough, went on still further to criticise his estimate of the yield of indirect taxation, because he said, indirect taxation to-day should be imposed at a rate which would stop all consumption and produce no revenue. I refer to that passage, not because I wish to make a dialectical point, but because it does reveal the essence of the difficulty which the Chancellor has to deal with to-day.

If one looks back on what has been said in the speeches to the Committee, I think one can gather two definite impressions. There has been general agreement in saying to the Chancellor of the Exchequer, first, "We want you to spend the maximum you can, providing that the money is well spent," and, secondly, "We are prepared for even heavier taxation than you have proposed, providing that such taxation is fairly levied." I think that is a message which my right hon. Friend will not be at all sorry to receive, and he can be congratulated on receiving a response of that kind. There is, however, one point which I wish to put to him before I come to such remarks as I have to make on the proposals for paying the bill, which, after all, is what we have to discuss to-day. I would like to ask him to tell us a little more about that figure of £2,000,000,000. As I understood him, it is a round figure, and a figure which he can safely feel will be usefully spent. But I invite him to assure the Committee that that does not necessarily represent the limit of the Government's purposes, that, as the process of production can be speeded up, that figure may be largely increased, and that, if it is necessary to come to the House again before the end of the 12 months is up, he will do so. The hon. and learned Member for Montgomery (Mr. C. Davies) ventured on a prophecy. It is not a very rash prophecy to make, because, after all, if we look back to the last war, we had an emergency Budget in September, 1914, an ordinary Budget in April, 1915, another emergency Budget on September, 1915, and an ordinary Budget in April, 1916—four Budgets in a very short period. I submit that this sort of situation we are facing to-day cannot be tackled for all time in one comprehensive programme, and that my right hon. Friend is right, with the vast strain which is put on the country, and the vast adjustments which have to be made, in feeling his way and in not declaring his plans and policy too far in advance.

There are, if one turns to the strict business of the Committee in discussing this Budget, three major issues apart from the overriding issue as to whether the expenditure is great enough. The first question is whether the Chancellor of the Exchequer is raising enough in taxation. Well, we have had figures given to us about what is being done in France and Germany, but I submit that we have to take these figures with caution, and that they cannot usefully be applied, except with all the relevant and surrounding facts. We shall be doing a little more useful work if we concentrate on our own position, at least when discussing our own Budget. It is a remarkable thing that the only criticism which the Chancellor has had is on the lines that he is not raising enough. It is a very remark able thing that we have the standards which we now accept as regards what is a reasonable taxation. But surely, if we are to be fair to the Chancellor, we ought to acknowledge that he himself has done a great deal to bring about that state of feeling. In my own short memory in this House nothing has been more remarkable than the shock which went through the Committee when the Chancellor made his announcement last September that he proposed that the standard rate of Income Tax to go up straight away to 7s. 6d. I know there is some controversy whether it was 7s. or 7s. 6d., but he did tell us it was going up to 7s. 6d. That was a tremendous shock. Yet now some of us seem to have forgotten all that. It was an extremely brave step. The Chancellor did not hesitate about it, but went straight away to the big thing. We have accepted it and have forgotten it, and we give him no credit for it.

Let us consider what our standards are to-day as compared with the last war. I do not over-stress the comparison. I know that we have to face a different situation now from the last war, but I think it is worth while in order to get a sense of proportion to look back to what we did in the last war, remembering always that we came through our financial task with success. Let us look back to Mr. McKenna's second Budget in April, 1916—which, if one reads the history of the taxation in the last war, was heralded with the headlines, "Real taxation at last!" We find he had to face an expenditure of £1,825,000,000 and that he raised it by introducing taxes which would bring his revenue to £502,000,000. That left him with £1,323,000,000 to borrow; that is to say, he raised 27 per cent. in taxation and left £1,323,000,000 to be borrowed. To-day the Chancellor is proposing to raise £1,234,000,000 in taxation out of £2,667,000,000, or 47 per cent. of the total, leaving himself to borrow £1,432,000,000, of which he already has £100,000,000 in hand. In fact he is raising £732,000,000 more revenue and leaving himself a task of borrowing just about the same as Mr. McKenna faced in 1916 after the war had been going on for one and three-quarter years. There is another thing to remember. The £1,323,000,000 was being raised then at 5 per cent., but as a result of my right hon. Friend's policy he hopes to raise his £1,432,000,000 at 3 per cent. That makes a substantial difference in the burden which will have to be carried, because £1,432,000,000 at 3 per cent. means £43,000,000 a year, whereas £1,323,000,000 at 5 per cent. means £66,000,000 a year. So the burden accumulating is substantially less.

If one passes from that to consider how the burden of taxation is distributed—and I do think the hon. Member for Bishop Auckland (Mr. Dalton) ought to pay attention to these figures as showing at least the direction in which we are moving—we find that in the McKenna Budget a married man with £200 a year paid £9 Income Tax, and a man with £100,000 a year paid £34,000 in Income Tax and Surtax. To-day the married man with £200 a year pays no Income Tax, and the rich man with £100,000 a year has to surrender about £81,000. I submit these are very striking differences. Again, if we consider how we have been progressing since the war began with these burdens of taxation, I think the hon. and learned Gentleman the Member for Montgomery, if he will excuse me saying so, juggled with his figures and arithmetic in a way which was distinctly misleading to the Committee. If one looks back to the last peace-time Budget of 1938–39, one finds that tax revenue has gone up from £895,000,000 to £1,202,000,000, an increase of £305,000,000. But that is not the end of it, because that only includes the yield which my right hon. Friend has estimated this year. On a full year of his present taxation he can estimate another £27,000,000, and he has already told us he is going to put up the Surtax in the following year, while there is also the Purchase Tax to be added, the yield of which we do not know. I submit that this represents a very steep increase in taxation, and that what has been said by the hon. and learned Member for Montgomery gives a very misleading picture in regard to it.

I turn now to the second main question: will voluntary loan money flow in quickly enough? My right hon. Friend has adhered in this Budget to the voluntary principle, and on reflection I am personally prepared to support that at this stage. If one faces realities, I think it would have been hopeless, or at least very undesirable, to go forward with any other proposal unless it had received the support of the trade union leaders, and the party represented on the opposite benches. As far as I know, they have made it clear that at present, at any rate, they are not prepared to accept any other principle. But I would appeal to hon. Members opposite and I would also appeal to my right hon. Friend—and I hope he may say something about this in reply—and address these words to them: "Do not dig yourselves in on a trench-line of hopeless opposition to this proposal. Do think out the realities of the situation." I do not always agree with Mr. Keynes. I think sometimes that he is right, but brings forward his proposals at the wrong time. But that pamphlet of his is one of the most brilliantly written pieces of financial analysis in simple language that has even been done. It does put the essential problem before the country. Hon. Members opposite ought to think very seriously before they commit themselves finally to a rejection of these proposals, because if one looks round for alternatives one sees that one has to ask, "What else is there unless you are prepared to accept either the most drastic direct taxation of wages, or a really dangerous measure of inflation?"

Let us consider the other alternatives, and particularly what the hon. Member for Bishop Auckland said. I wish he were here, for I feel that we deserved a more serious contribution and more constructive thinking on this problem than we got from him. He complained that the Budget did not adequately tax the rich. If it is of any psychological satisfaction to the country that the rich should be more heavily taxed, I would never raise my voice for one moment in opposition to it, because the psychological value of getting across the country the idea that there is equality of sacrifice is of immeasurable value. But further taxation of the rich cannot be a major factor in solving the problem of war finance. The hon. Gentleman put forward a proposal which, I think, hardly needs serious consideration. He thinks the solution of the difficulty may be found in some form of capital levy. I do not want to enter into a long economic argument, but anyone who thinks out the problem of war finance must realise that a capital levy will not make the slightest contribution to its solution. Our essential war problem is to increase our production, to turn more than half of it to war purposes, and somehow or other to keep the country living on the balance. Any handing over of existing shares and capital assets will not make the slightest difference to that problem.

Beyond that let us see what margin is left for getting any really large sum of money from further taxation of the rich. The "Economist" the other day had an interesting article which dealt with the position very well. It pointed out that if we confiscated the whole of every income above £2,000 a year, we would get only an additional £60,000,000. That gives an indication of the sort of limits which there are to the contribution that can be made to the solution of this problem by the further taxation of the rich. I would beg hon. Members opposite to reflect on and analyse the position as it has been presented by Mr. Keynes. Is there anything that can be done by those whom they regard as representing interests different from the interests of the ordinary wage-earners—anything which will make the wage-earners feel that there is equality of sacrifice, so that they can accept a plan like the Keynes plan without feeling that it would cause an unfair distribution of the burden as between the wealthy and the wage-earner? I do put it to them that if they put forward constructive proposals and say, "If you will do this it will make an even balance, and we are prepared to come forward and back such a scheme," they will render a really valuable service to the country.

I turn now to the third main question—a question in everybody's minds—whether this problem can be got over without inflation. An awful lot of nonsense is talked about inflation. We all know, of course, that in its extreme form inflation by the printing press, when the public loses confidence in the currency and eventually everything the value of which represents nothing but currency runs down the slippery slope and becomes worth nothing, is the sort of inflation we could never face in this country. There is, however, a certain measure of inflation which has been going on through the centuries—inflation in the sense that the purchasing power of money has been steadily decreasing in value, which as it has developed has been working in some ways at least to the general benefit of society. The right hon. and gallant Gentleman the Member for Newcastle-under-Lyme (Colonel Wedgwood), whom I am sorry not to see here to-day, said that the full value of that process has always accrued to the landowner. I would ask him to go back over his economic history, or over his practical experience, or the practical experience of people who have been handling property. I speak with some experience as one having been connected with a trust which has held property for 300 years, and I will tell him that colleges or foundations which have held agricultural land, so long as it has remained agricultural land, have not, broadly speaking, benefited. It is only when a town has grown up on their land that they have benefited, and I for one do not mind anybody suggesting that the community should get a share in the value of such an increment as that.

If we face realities we see that we have to get through this war by a great number of different means. We shall get through it partly by taxation, partly by patriotism and voluntary lending, partly, I believe, by some forms of pressure on lending, partly by rationing and control of supplies, and partly, too, I think, inevitably by some measure of inflation. But as to inflation, the important thing is that it should be regulated. If we look back to the experience of the last war we find that it was not so much the inflation that took place during the war that did harm as the lack of any controlled system for dealing with the situation after the war. I want now to turn shortly to some of the particular points in the Budget. I feel that the Chancellor has done wisely in arming himself with a new weapon of indirect taxation in the form of the Purchase Tax. Before it was announced by the Chancellor it was a proposal which was put before him from almost all sides by amateur strategists of finance. Yet, now he has put it forward in its practical form naturally it attracts objections. No doubt this is a matter the details of which will have to be fully discussed, but I believe that we must broaden the basis of our taxation and that, in introducing this Measure, my right hon. Friend has done something which has opened out a great many new possibilities. There is only one point I would like to put to him. When the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) was speaking yesterday, he stated that my right hon. Friend had said in an answer to an interjection of his that this tax must be at a flat rate. I fully realise that there may be administrative difficulties in making it elaborately discriminatory, but I feel it would be a much more valuable weapon in my right hon. Friend's hands if it were made broadly discriminatory so that it should fall with greater weight on those things which are least desirable for consumption and that he could get his revenue without putting a very heavy rate on necessary articles of clothing and things of that sort.

Next I would like to express my extreme satisfaction at the proposal for regulating the dividends of companies. I think that is a very wise step and one in the right direction. I do not, like the hon. and learned Member for Montgomery, feel that it shows inconsistency with what my right hon. Friend had said about Mr. Keynes' plan; on the contrary, I regard this proposal as a first step which might induce hon. Members opposite to think that if this can be done to companies it is not perhaps so unjustifiable from the point of view of the individual. For that reason I was glad to see this small first step being taken.

Mr. A. Bevan

One of the objections which has not yet been mentioned is that those persons whose dividends are not distributed become richer and richer as the war goes on and their assets appreciate as accumulative reserves.

Sir G. Schuster

That applies to everybody who saves money in order to lend it to the State. What we shall do about that after the war is a matter which can be discussed when the war is over. The problem with which we have to concern ourselves now is how to finance the war.

Before leaving the question of taxation, I would like to put forward a suggestion to my right hon. Friend. I know it has not been regarded with great favour, but I feel that in these special times the question of a tax on betting is one which ought seriously to be considered. Betting represents a vast turnover, and if we are considering the general economic conditions of the country and what is wise and what is beneficial for the people to spend money on, I think a broad distinction should be drawn between money expended on consumption and money spent on attending places of entertainment or amusement. I suggest that that takes nothing out of the consumable store of the country's goods and need not be discouraged. It might also be a useful field in which to look for extra revenue.

I want, in conclusion, to refer to that aspect of our problem, which, although it is not directly part of the Budget, is really the most important point of all. It is the one with which I started, namely, our means for equipping ourselves most effectively to fight the war. I know that the Chancellor recognises that, although this does not fall strictly within the scope of the Budget proposals, it is essentially a part of his own task. If there is one passage in his first war Budget speech to which I always return with feelings of satisfaction, it is the passage in which he said "What we have to do therefore in this essential Department of our national effort is to deal with the economic and financial problem of war in the way which will make the best use of our productive resources." It is a great comfort to know that the Chancellor is looking upon his task in that broad way. I feel that he and his Department might do even more than they have already done in studying some aspects of this question. What we really want to know is why we are not producing more than we are at the present time. None of us is satisfied; I know that my right hon. Friend himself is not satisfied. We have set ourselves a very difficult task in this war. I have referred to this before, and do not want to deal with it at length again; but there is this great contrast, that in the last war we allowed the old profit-making motive to operate. Everyone had a carrot hung in front of his nose, and under that temptation a drive forward to production was generated both among wage-earners and employers, a drive which towards the end of the war was a drive of immense force, unequalled force.

This time we have said, "No, that sort of thing is not to happen again." There are "controls" everywhere, and I wonder whether there is not something in that change of system which is having an effect on the country's effort. I feel that in the Treasury they should be studying these things. This, again, is a subject on which I have made suggestions before. I feel that on the economic side it might be desirable that the organisation of the Treasury should be strengthened, and that in conjunction with Lord Stamp's Committee, and with a full-time staff, it should be equipped to keep closely in touch with what is happening at various points in the country, so as to be able accurately to put its finger on any point at which production is being held up, and to ascertain why we are not producing with all the energy of which this country is capable.

Having made that concluding suggestion, I would only like to say this: It is because I see in the Chancellor's speech and in his proposals a balanced outlook and a full appreciation of the problem; because I feel that his Budget does open the way to dealing with the situation by methods which appear to be right, because I judge it not as his final and decisive act but as a stroke which he thinks it right to play now; because, above all, I place hopes on his unique powers of explaining to the country the lessons which they have got progressively to learn; and, finally, because I trust him to go ahead from strength to strength with increasing courage and determination, that I give my support to my right hon. Friend's present financial programme.

6.34 p.m.

Mr. Sexton (Barnard Castle)

It is with a certain amount of diffidence that I enter into this Debate, in the presence of so many financiers and economists, but when I hear the experts bandying figures and contradicting one another so often, I feel that perhaps another aspect of the Budget, that of the humane point of view, should receive more consideration. This Budget has been described as stupendous, gigantic, incomprehensible and astronomical. I find that if we had to pay the bill of £2,667,000,000 in pound notes, they would cover no less an area than 6,400 acres. If the bill were paid in half-crowns the weight of coins would be in the region of 300,000 tons, while, if it were paid in pennies, the weight of coins would be 6,000,000 tons. These astronomical figures bring me to the question: What are the reasons for so colossal an expenditure? The answer is that the present conflict has increased the national obligations. The Budget was introduced on St. George's Day, the anniversary of a mythical patron saint, who faced a mythical dragon. The Chancellor of the Exchequer, as the modern St. George, confronts something more than a mythical dragon; he has something more concrete to face, and so has the country. The valour of our Forces and the patience and the persistence of the nation will be of no avail if our financial strength fails.

The Chancellor has pointed out how he was proposing to get these enormous sums of money. I, again not speaking as a financier, take it that he referred to two methods, taxation and borrowing, and the relationship between them ought to be carefully watched. One hon. Member explained the difference between a tax and borrowing. To me it seems that a tax is a forced gift while borrowing is a voluntary loan. Borrowing on a large scale leaves a legacy to posterity, but posterity, when it comes to take charge of the affairs of this nation, will have problems of its own to face, and I hope that one of them is not the problem of war. Are we sure that the limit of taxation has been reached? Is it plain that equality of sacrifice is really being insisted upon? We have been told by politicians, economists, the Press and the Chancellor of the Exchequer that the rich have been thoroughly soaked. It is not a very elegant expression, and judging by the tables in the White Paper showing the effective rates of Income Tax and Surtax I think it is not accurate to say that they have been as thoroughly soaked as the poorer classes, because we must see what standard of life is left to them after the taxes have been paid, as that is what matters most.

On examining Table 11 on page 23 of the White Paper I find that there are in- dividuals who, after deduction of Income Tax and Surtax, are left with £26,000 a year, or £500 a week. It may be that they have been soaked, but their heads are still above water. The lowest figure mentioned in that Table is £120 a year, or £2 5s. a week, and I fancy that people with that income have been more submerged than the others, though they may have their forelocks just out of the water. In those Tables no mention is made of the mass of people who are in a worse state, who have less than £2 a week and in some cases less than £1. Those unfortunates are crying out for a Budget which will do what a Budget ought to do, and that is make a fairer distribution of the national income. This completely-submerged section ought to have a good deal more consideration.

One complaint that I have to make is in respect of the method of increasing taxation by the so-called flat rate. The policy of a flat rate increase in taxation hits the poorest people the hardest, and there can be no question, in my opinion, that inequality of sacrifice is a result of such form of taxation. The Financial Secretary said that nobody had mentioned tobacco. I have had a letter from an old age pensioner who smokes half an ounce of tobacco per week. He worked in the mines for over 50 years. At the bottom of a mine shaft is the sump, consisting of mud and refuse. He tells me that his pipe is sometimes like that, and that if tobacco is increased in price, he will have to smoke his sump. Tobacco is a solace to these old people as well as to young people.

Then the threatened increase in the postal rates is a matter which will fall heavily on the poorer section of the people. Many Press comments have been made upon if, pointing out the seriousness of a rise of 66⅔ per cent. in postal rates, probably one of the highest percentage increases in the Budget. Referring to the proposed higher postal rates, the "Daily Telegraph," in a leading article on 24th April, spoke of them as "a controversial tax" and as likely to create a sense of burden out of proportion to the yield of the tax. It thought that postal charges might bear some increase, but that ½d. would have been sufficient. On the same day the "Times" talked about a "serious increase" in the charges for the essential services of the Post Office, pointing out that letter postage was to be ½d. more now than during the last war, and said such an increase would not be worth the controversy it might cause in the country. Its leading article concluded by saying: It may be hoped that this feature of the Budget will be modified. We on this side of the Committee, and I believe hon. Members in all parts of it, hope that later the postage increases will be modified.

I turn to the question of man-power. Some people may think it is not germane to the Budget, but really money-power, which is debatable on the Budget, is derived from man-power. The financial strength of the country is not at full capacity while there is a huge volume of unemployment. The productive potentiality of our present army of 1,000,000 and more people out of work represents in money terms round about £200,000,000 per year. In Durham County there are 58,000 unemployed. The cost of their keep to the State amounts to £3,000,000 a year. The loss to the State of their productive capacity is round about £11,000,000 a year. Therefore, there is a total loss of £14,000,000 a year from the unemployed in the County of Durham alone. Some of the increased output of commodities that could be got by putting the manpower to work, might consist of war necessities. It would help our shipping position by leaving more cargo space for goods which must come from abroad, and would remove the reproach that we have not used our full man-power.

I know sparsely populated areas which have thousands of unemployed people, while in those same areas are valuable minerals waiting to be worked. There are lead miners and limestone quarrymen out of work while the material is at hand which is required for the national service. If those quarrymen and miners cannot be employed at that work they might be used in opening up iron-ore mines which exist in my division. I understand that iron ore is in urgent demand. In a discussion we had the other day my hon. Friend the Member for East Middlesbrough (Mr. A. Edwards) told us that blast furnaces are being put out of action, owing to a shortage of iron. Yet we have the iron ore. Why can we not bring together the iron ore and the unemployed men? Efforts are being made to increase the production of coal; surely it is possible to employ every miner who is out of work, in order to obtain that increase in coal production. In spite of such matters of detail, this assembly must and will, in the main, endorse the proposals in the Budget, as I believe will be done by the nation.

Now that the war is here, the most important question is that of victory over dictatorship and justice over tyranny, and in order to ensure victory against an implacable foe the nation must be prepared to endure to the end, no matter what sacrifices such endurance entails. Slavery may be cheaper physically and financially, for a time, but, in the long run, the sacrifice would be even greater. Some of the financial sacrifices which the nation will have to bear will make inroads in the wealth of the nation, and some of those financial fiords are foreshadowed in the Budget. The Budget demonstrates also that the price of liberty is something more than eternal vigilance; it shows that the price of freedom includes hard cash and hard times. We must not shrink, and we will not shrink, because our men in the Forces, the defenders of the faith of freedom, are facing all risks. They have given up their civil liberty to a large extent in order that we may enjoy the larger liberty of democracy. They left the comfort of their homes to ensure that we, in this democracy and others in other democracies, should have better homes in the future. On our part, we at home must co-operate with them. We must be prepared to give up some of our luxuries, liberties and enjoyments in the faith that an abiding peace through justice will be the outcome of our joint sacrifice.

That justice and that peace must include a new order of society at home, where glaring injustices of wealth, all of which is produced by the workers, will be abolished for ever. It has been said in this House that no man ought to be richer in wealth as a result of the war; but he ought to be richer in contentment, which is more valuable than wealth. The worker has imposed upon him all his life a capital levy, because his only capital is his labour. When he pays his taxes he pays a tax or a levy on his capital. Here we speak frankly: he is not satisfied that the capital wealth created by him for others should wait until the end of the war before some plan is made as to a levy upon that capital. Speaking for and on behalf of the workers, the vast majority of whom want to win through to victory, I say that they want something else, after victory has been achieved over the aggressors abroad. They want victory over aggression at home.

6.52 p.m.

Mr. Magnay (Gateshead)

When I listened to the remarkable speech of the Chancellor of the Exchequer on Tuesday—I use the word "remarkable" advisedly and deliberately, because the speech was remarkable in every sense of the word—I thought that the Committee ought to have had a map of the world brought into the Chamber so that everybody could see the real meaning of the problems which the Chancellor had to face. That map, to me, is the true background of the Budget and of the position in which this nation now is. As I have some amount of imagination I distinctly saw, as the Chancellor was speaking, a map of the world. I could see the static position on the Western Front where millions of men are staring at one another but ready for any eventuality. I could imagine what was happening in Norway and Denmark—our Navy fighting its violent way, storming the citadels in Norway which had been taken by the Nazis. It was as though I were flying in cloudland, blue and grey, and could see it all. As I saw those things I thought that if, in this House and indeed in this nation, we could realise the position of our men, our boys, our flesh and blood, our best blood, we would have indeed a true sense of proportion, and we should say to ourselves: "What is the limit to which we can go, in order that this war may be won?"

I was glad to note the reaction in the Committee, at any rate among the Members with whom I was sitting, to the speech of the Chancellor of the Exchequer. There were sundry grunts from the back. They reminded me of my boyhood and school days, when I did quite a lot of fighting. I had to do it, not that I wanted to, because I was never big enough for most of the lads with whom I had to deal. I could hear "Oh," and "That is a stinger," or "That is that" at the finish, but the reaction was, I thought, excellent, and typical of the country. It aroused the amazement of the whole world. The world and ourselves realise that Germany has spent and is still spending considerable sums. But some of the statements made have been challenged to-day by the Financial Secretary—and he ought to know—on the ground that Germany's expenditure on armaments has been very much exaggerated by subtle propaganda. It may be so. Many capable judges, however, say that Germany has spent twice as much as we have spent. Certainly she has had a flying start and she is said to be spending twice as much as we are, even yet.

As to our gallant Ally, she has put all to the hazard, to the utmost limit. You may cite any figure you like even in millions, regarding man-power. All that she has, has gone into the hazard—not that she is gambling, but she realises that, for the third time in living memory, she is fighting for her very life. What do all these material issues matter? They are but dust in the balance when compared with the fact that our lads, our kith and kin, our boys, are fighting, even at the jaws of death. That is, to me, the background of the Budget, against which we must assess its true value and so be able to see things in the light of reality and in true proportion.

I was delighted to hear the Chancellor of the Exchequer torpedo the Keynes plan of compulsory savings. As I will not exaggerate, or say what is not exactly correct I must add that the right hon. Gentleman thought the Keynes plan inapplicable to the position at present, but did not turn it down altogether.[An Hon. Member: "Did he not torpedo it?"] I think he torpedoed it; at any rate it was grounded. The plan is not floated at all, but it may be salved and brought back to port. The future alone will show. I was glad the right hon. Gentleman did that, because the essence of democracy must be trust in the people. In my constituency in 1931, 42 per cent. were unemployed, in round figures 10,000. Even now there are 6,000 unemployed. Financially, they have been on very short commons for many years. All the private incomes and charitable sources from which assistance has been given to the "down and outs" have long ago been exhausted. Now, when they are to have a little more than they have been having for years, it would seem that Mr. Keynes is saying, "We cannot trust you to spend the money as you should. True, you have had a hard time, but you must not spend above a certain sum. In fact, we snail treat you like children."

For the life of me I cannot see any sense in that. That is not democracy. We must trust the people. At the same time we must be frank. Everyone must be told that this is not a normal Budget where the balancing must be done by taxation, and if necessary borrowing, and that with the remainder—what little there is—they can do what they like. On this occasion what is left must be husbanded with the utmost care. I do not think it is beyond the persuasive powers of Members of Parliament in their own constituencies to advise the people and put them in possession of all the facts, and trust to their sound judgment. I have not the slightest doubt what my people would do if they had matters explained to them. They may not know that the small investor who lends to the Government is doing exactly what his or her insurance company do. They purchase an annuity which brings to them a return in the shape of interest on their investment, or the equivalent of an endowment policy. I was amazed by the statement made by the hon. and learned Gentleman the Member for Montgomery (Mr. C. Davies) that there was very little hope of any further savings by the savings groups. I could not understand that, because surely the savings groups are not static. They are increasing in places such as Jarrow and Gateshead which are distressed areas. Every week there are increasing numbers of these groups with voluntary officers.

Mr. A. Bevan

Those of us who listened to the hon. and learned Member for Montgomery (Mr. C. Davies) did not understand him to say that. We understood him to say that the £300,000,000 had been substantially contributed by institutions which it was unlikely would be able to expand much further.

Mr. Magnay

I am obliged for that interruption. I have stated what I understood the hon. and learned Gentleman to mean and if I am wrong, I am delighted to be corrected. I will apologise if I have put a wrong interpretation upon his words. There is another point which we should not forget. While it may be fallacious to compare our position to-day with that of 1914 at the outbreak of the last war, we can say, with certainty and truth, that we are vastly stronger financially and more capable of engaging in war than we were then. Our monetary system is more adaptable to any need than then. We are not bothered as we were then by troubles connected with the Gold Standard. Trade was measured, not by the volume of gold but by the scarcity deliberately made. We can breathe freely because we are not in a strait waistcoat. We are out of it, for which I devoutly thank God. We have the organisation and the experience in the matter of the Exchange Equalisation Account, a thing unthought of before the last war. We have experience in managed currencies. The Treasury were the last to be converted. One must expect that, because they cannot put their arm out any further than they can bring it back. We expect the Treasury to try all things. An hon. Member who spoke earlier reminded us that we are not paying interest on the average of 5 per cent. We are now paying interest of 1, 2 or 3 per cent.

Another matter which rather amuses me, is the easy talk about the dangers and fears of inflation—as if ordered, managed and controlled inflation were an evil. The curious thing is that people who think that inflation is a grave evil, talk quite easily about deflation and do not turn a hair. Deflation and inflation, of course, are reverse processes and we can use inflation to our advantage as we have done since 1931. To anyone who talks glibly about the dangers of inflation I would suggest that he should consider for a moment how there can be serious inflation when there are 1,500,000 unemployed. How can there be inflation? We have that reserve which no other country has. I would never go on any journey in a motor car, certainly not for any distance, unless there was a spare tyre on the vehicle. Now this body of unemployed is our spare tyre.

Mr. A. Edwards (Middlesbrough, East)

You have to pay for the spare tyre in advance.

Mr. Magnay

Of course, we have to pay for the spare tyre. We have done it with unemployment assistance and benefit at a rate which is more than my father— a skilled craftsman, the best blacksmith on Tyneside before he was made foreman, so I have been told—ever had in his hands in 40 years. But it is obvious that the spare tyre must be inflated before it is any good. It is no good until it is inflated to the correct pressure. That is all inflation means. Some speakers have expressed doubts about our ability to raise the huge sum required. All I have to say is: "For Heaven's sake cheer up. What are you frightened about?" Some of the most doleful Members of the Committee are those who ought to be the most cheerful. We have not yet reached our fullest national productive capacity. The sum of £5,300,000,000 was computed by Professor Clark to be the annual national income. I suppose he should know about it as much as anybody, and that is not very much. These experts are not very useful. You can take their opinions but you should judge for yourself. That is my opinion after 30 years' study of these matters. That is all the study I have been able to do, so I do not know a great deal about it. That sum was calculated on 12½ per cent. of our working population being unemployed. So that with all in work it would mean at least £6,000,000,000.

A little while ago, before the war, upstairs in the Committee room we had a German banker. He came to a private Committee and he reckoned—mark you, the German economy took advantage of the experiment of the Russians, and avoided all their mistakes—that £250 per head per annum is the value of a worker to the nation. If that is so, if you multiply £250 by 2,000,000, the number of our unemployed people, you get £500,000,000 as the value of our spare tyre. That is our untouched reserve, and I am not saying anything at all, as any banker would, about the velocity of circulation—a banker would multiply that figure by 14. What there is to be afraid of, I cannot understand. We ought to be great optimists, for if we are to have a hard time, what about the Germans? When I was tired after running a race, I would say, "The other fellow must be pretty bad, because I have been taking care of myself and he has not." The Germans have no exports, no shipping, and no labour reserve. In spite of the Czech slaves and the Polish slaves, in spite of the exhausting labour of the Germans themselves, they never can compete with us, they cannot be a self-contained economic unit; so what are we grumbling about? We want to say "Cheerio; we are in very good fettle, thank you. We must, and we can, win this war; and one of the reasons will be this sound and reasonable Budget."

7.12 p.m.

Mr. Silkin (Peckham)

The hon. Member for Walsall (Sir G. Schuster), who is always listened to with great interest, has issued a challenge to hon. Members on this side to tell him what he could do to give us the impression that there was equality of sacrifice. I gathered that if we were in a position to tell him, he would give the matter very serious consideration. I can tell him some of the things that would give us that impression. Throughout the country young men have been called upon to sacrifice their lives: people in all classes of society are being called upon to sacrifice their standard of living; but the one thing that appears to be inviolable and must not be touched is the capital of individuals. It is true that the Chancellor of the Exchequer stated on Tuesday that, if Parliament so decided at the end of the war, there would be a tax on capital increases that accrued during the war, but it was a very conditional statement, and it left the principle of the inviolability of capital intact. If the hon. Member for Walsall really wanted to assure us of his sincerity and of the desire of his friends and himself for equality of sacrifice, let him be prepared for some tax on capital—and for such a tax at the present time.

We also listened with very great interest to the hon. and learned Member for Montgomery (Mr. C. Davies). I was particularly interested in his analysis, to which he devoted much time, of the relative expenditure of this country, of France, and of Germany in respect of the war. In a way, I feel that it is a pity that he should have endeavoured to draw too close a comparison between the war expenditure of this country and of France. After all, when two people are in partnership, engaged in a life-and-death struggle, they do not in the middle of the struggle begin working out in fractions the exact effort which each partner is making, and drawing comparisons which, however they are made, are bound to create an impression that one or the other is not pulling his full weight. I am sure that the hon. and learned Member, on reflection, will admit that that was the last thing he wanted to do, and I think he was ill-advised to pursue that line of argument. Moreover, I did not altogether follow him, because, according to his own figures, the combined effort of this country and France certainly exceeded the effort that Germany is making. Nevertheless, I think that the point that he did want to bring out is one with which all Members, except perhaps one or two, will agree, that this country does want to make the fullest possible war effort, and that we are not yet making it. The £2,000,000,000 mentioned in the Chancellor's speech as a measure of the country's effort is not necessarily a maximum figure, even for this war. I understood the Chancellor to say that the figure was limited by the men available and by their capacity to work, and by the materials available. But none of us feels that that figure is a maximum, or that all the men and women who could possibly be engaged in the war are already engaged.

I listened to the Chancellor's speech with great attention, and the impression he gave me was that he was not looking at our financial position in relation to the war as a whole, but was looking at our finances as if this were a peace-time Budget and he had to deal with it only for this particular year. He certainly did not give me the impression that he was putting forward a financial policy for meeting the cost of the war, or even that he had such a financial policy. I also got the impression that he was either over-optimistic as to the way in which we were going to finance the war or had not a complete realisation of the difficulties with which we should have to contend. It is all very well for the hon. Member for Gateshead (Mr. Magnay) to indulge in cheap sneers about the gloomy people who express doubts as to the way we are going to finance the war. It is very easy to finance the war standing at that bench and talking glibly, as he has done; but the money has to be found. With the tremendous sacrifices which people are being called upon to make at present, the Chancellor has not been able to provide more than half the amount required for this year—in fact, substantially less.

Here I should like, respectfully and humbly, to disagree with my hon. Friend the Member for Bishop Auckland (Mr. Dalton), who takes the view, apparently, that it is possible to increase taxation indefinitely. I feel that there is a limit to the amount by which taxation can be increased, and also that, although we have not yet reached that limit, we are approaching it. I would say to my hon. Friend—whoknows more about it than I do—that there is the doctrine of diminishing returns. When you get beyond a certain point, it may well be that your returns will gradually diminish, so I feel that at the best, with the probable increase in expenditure to which we can look forward during the war, we cannot anticipate that we shall raise much more than half of it by means of taxation. Moreover, there is a very definite limit—and here I know that I shall have my hon. Friend's agreement—to the amount that you can raise in indirect taxation on the kind of things which fall more heavily upon the poorer sections of the community. There is certainly a limit on what you can raise there, and as time goes on we shall have to raise more and more by borrowing. I felt that the Chancellor of the Exchequer did not sufficiently appreciate this point, or at any rate that he did not give the Committee the impression that he was appreciating it.

Every one of us who is interested in the financial position of this country has given serious consideration to the very brilliant book issued by Professor Keynes, and the Chancellor of the Exchequer did scant justice to the point of view expressed by Professor Keynes. I do not wish it to be understood that I myself wholly accept his conclusions, but he puts forward the difficulty which has to be faced, and if it is not to be met by the means which he himself puts forward, it will have to be met in some other way. The Chancellor of the Exchequer rather too glibly disposed of the remedy and also of the difficulty. The difficulty is that in a war which may last another three years from now we shall have to raise by way of loan something of the order of £6,000,000,000. On the basis of the present expenditure, we shall have to raise over £4,000,000,000, but I anticipate that we shall have to raise substantially more than the present expenditure, and if it is anything like the figure to which the right hon. Gentleman the Member for Spark- brook (Mr. Amery) referred yesterday, it will mean that we shall have to raise something like £6,000,000,000 by way of loan. Nobody wants to say anything to minimise the great efforts that are being made by all those who are engaged in bringing about voluntary savings. People are making very great sacrifices both in encouraging voluntary saving and in actually giving of their own savings. But with the best will in the world and with the greatest effort, and allowing for all the other forms of saving which we can expect, and also for the avenues which the Chancellor of the Exchequer has closed in the direction of alternative investment, I believe that the Chancellor of the Exchequer has considerably underestimated the capacity of this country by the means which at present he expects to produce £6,000,000,000 in the course of three years by way of loan. Therefore, I very much regret that he appeared to have definitely closed the door to any such scheme as has been put forward by Professor Keynes.

I admit that at the present time such a scheme would not be practicable, if only because my hon. Friends on these benches are not yet reconciled to it, but I would say to them, as the hon. Member for Walsall said to the Chancellor of the Exchequer and to the Members on these benches, that in a struggle of this nature we cannot afford to dig ourselves in on any particular financial view. We may have to think again. If we find that the money cannot be raised in any other way, we shall have to think of that, and while I say I am not committed to this particular method of raising money to-day, I feel that the Chancellor of the Exchequer, and my hon. Friends, will have to think about the Keynes system before long. In talking about digging oneself in, I hope that the hon. Member for Walsall will not make the mistake which he is warning us against, because he appeared to have dug himself in on the question of a capital levy. He was prepared to dismiss that in one sentence.

Assuming that my figure of £6,000,000,000 on the basis of another three years' war is the correct figure, and assuming that we have to raise that money at interest of 3 per cent.—and here again I doubt whether on a voluntary basis it would be possible to raise anything like that figure at that rate—weshall, at the end of the war, after the battle has been won, have to meet further charges by way of interest of £180,000,000 a year. I am not even allowing for Sinking Fund. If you add to that the existing figure which we have to meet for loan, you get to a total of nearly £420,000,000 a year which will have to be met for interest on loans. That is a colossal figure; indeed, a crippling figure. That is bound to have its effect upon the social services, and I venture to suggest that after the war the demands for improved social services and for greater expenditure on these services will be greater than they were before the war. The men who come back from the war will not be content to put up with the standard of living and of social services which existed before the war, and unless some method can be devised now of avoiding so colossal a burden as £420,000,000 a year in interest alone, the country will find itself in a very serious position.

The time for considering the problem is now. There is a number of alternatives. One alternative is to pay substantially less than 3 per cent. for our loans, but I have already expressed a doubt as to whether we shall be able to provide the enormous amount that we shall require by voluntary means, even at 3 per cent. Therefore, it is certainly inconceivable to me that we could get voluntarily so large a sum at less than 3 per cent. That again almost drives me to the conclusion that a large amount of money will have to be conscripted at a rate substantially less than 3 per cent. But it drives me to a further conclusion, and that is that the existing methods of raising money, either by way of loan or of taxation, will practically be dried up, and some other method must be found. The only method that I can see is that of a tax on capital, and a tax on capital not after the war, and on that capital which is increased as a result of the war, but a tax on actual capital in the hands of individuals to-day.

I do not imagine that the Chancellor of the Exchequer, who has refused to swallow the Keynes system, at any rate at one gulp, will accept anything so revolutionary as a levy on capital during the war, but I feel quite sure that long before the end of the war, if it is to last for three years or thereabouts, he will be driven to some such expedient, and I would therefore suggest that, without prejudice to his ultimate conclusions, he ought to take some steps now, so that, if in the future he decides upon a capital levy, his course will be made easier. In any event, he has, as far as he could, promised us a levy on capital increase brought about by reason of the war at the end of the war. I suggest that he should here and now require from everyone who makes a return of his income a statement of his capital assets. I think that is an essential preliminary both to a capital levy during the war and to a capital levy after the war. Again on the basis of a three-year war, I feel that the Exchequer would be in very great difficulty unless it had at that time a statement of the capital assets of individuals at the beginning of the war. It is a matter which requires careful consideration, but I almost feel inclined to suggest that the right hon. Gentleman might accept the capital return at its face value subject to this, that naturally most people would be tempted to put in a high return for their capital assets so that they would have to pay less in respect of any increase.

On the other hand, they would be faced with the dilemma that, if there were a tax on capital to-day, they would have to pay on that higher amount. Moreover, they would also be faced with this further dilemma that, if they put in an unduly high return, I imagine that the inspectors of Inland Revenue would compare it with their recent Income Tax returns and would want to know how it was that they were possessed of such a large amount of capital. Taking all those facts into consideration, we might safely leave it to the individual to make any return he likes, subject to the right of the Inland Revenue to make the sort of inquiries that I have suggested. But, whether that be so or not, I suggest that, to safeguard the position, and without prejudice to whether or not such capital level is introduced immediately, this return should be called for at the earliest possible moment.

I have deliberately said nothing about the details of the Budget, because the particularly interesting things are matters about which we are still waiting for further information. I refer particularly to the Purchase Tax. But I feel that we are all concerned, first of all, with ensuring that we put forward the maximum possible effort that the country is capable of producing, and that no amount of money will stand in the way. I submit also that what we want to do, certainly what I want, is not to take advantage of the war to push forward any particular views that we may have. I do not feel that the war should necessarily be the occasion for taking such an advantage. But I feel that the whole country should be satisfied—everyone who is called upon to make any sort of sacrifice—that the sacrifice is an equal one. Until there is a tax on capital, until everyone can feel that capital is not sacred but can be taxed as well as anything else, there will not be that general feeling that there is any approach to equality of sacrifice.

7.37 p.m.

Dr. Little (Down)

Every speaker who has taken part in the Debate has spoken of the Budget from his own standpoint, and I intend to deal with it from my viewpoint. My first word is one of hearty congratulation to the Chancellor of the Exchequer. I never expected to see a Budget blessed as this Budget has been. I think it is largely owing to the foresight and wisdom of the Chancellor. In fact, he dealt with the whole difficult problem in such a way as to lead us to infer that he was giving rather than asking—that he was lifting a load, rather than putting on another burden in addition to that which we are bearing already. I do not see eye to eye with the hon. Member who has just sat down. He thinks the Chancellor has under-estimated the resources of the country. I should be glad to think he did. It is too early in the war to over-estimate the resources of the country, and I think the right hon. Gentleman showed wisdom if he under-estimated them, though I have often heard it said of some man whose resources dried up before the end of his life, "Poor fellow, he left nothing for a rainy day." I am glad that the Chancellor has left something for a rainy day.

Mr. Silkin

I did not say anything of the kind. The point that I tried very hard to make was that I doubted whether the Chancellor appreciated the difficulty of raising by voluntary borrowing the amount of money that he would require.

Dr. Little

That is how I understood what the hon. Member said. If I misunderstood him, I apologise. The hon. and learned Member for Montgomery (Mr. C. Davies) dealt with the huge amount that Germany was spending and held it up before us as something worthy of imitation. We could spend £10,000,000,000 if we turned on the printing press, but we are not going to do that. We are going to fight the war with our available resources, and we are not going to turn out money without any backing. We shall carry it through to the issue, and at the end, when victory comes, we shall sail out into the blue sea of peace with our spiritual and material resources unimpaired. I am glad that we have the Chancellor of the Exchequer at the helm to hold the purse strings. I hope that until the end of the war we shall not hear, as we have heard from the hon. and learned Member for Montgomery, comparisons between Britain and France. He reminded me of the well-meaning man who tried to stop a quarrel between a man and his wife and was kicked out with no thanks from either. I do not think the hon. and learned Member will get any thanks from either Britain or France.

To me, the chief problem is not one of money—we shall get all the money we require to see this war through to a victorious end. The great problem is that of men—to get them into employment so that they can do something constructive for the continuance, progress and success of the war. We have had brought before us a Budget of which our forefathers would never have dreamed, and yet we have faced up to it like the brave Britishers we are. The testing days in which we live demand such a Budget. The safety and security of our own nation and the democratic nations of the world call for it, and the freeing of the world from barbarism cries for it. The defeat of Germany will be well worth all the expenditure which is incurred. With our trust in God we are confident that the issue of the war will teach the German people and their brutal, deceitful and crafty rulers that war is a monster which devours, and so they will learn a much-needed lesson, which all war-mongers must be taught—that war degrades, debases, dehumanises and contaminates everything it touches, and that they themselves will be the first sufferers. Hitler has created a Frankenstein monster that will eventually devour him, and it is our duty, by providing the men and money in conjunction with France, to see that Hitler and Hitlerism are destroyed for ever.

Long ago the patriarch Job wrote the words which are as true to-day as they have been through the ages: Is not destruction to the wicked? and a strange punishment to the workers of iniquity. That strange punishment and eventual destruction are awaiting Hitler and his satellites in due time. For the attainment of this aim and for the establishment of enduring peace in the world under the reign of our great Prince of Peace, our Saviour, the Lord of glory, there is no sacrifice too great to make, and it is well for our enemies to understand that. Our people have risen to the occasion and will rise still higher, by providing the huge expenditure required to put an end to Hitler and all that he stands for. I am glad, as a representative of Northern Ireland, that you, Sir Dennis, have been kind enough to give me the opportunity of saying in this Chamber that we are with you heart and soul in this great enterprise of freeing the world from the grip of the tyrant. Although the Budget will bear heavily on Northern Ireland, owing to the revaluation recently made, our people will do their duty gladly and pay their share of the burden without grumbling. We are bone of your bone and flesh of your flesh; we are heart and soul with you in the struggle against the "son of perdition" who is seeking to exalt himself above God. We shall not draw back until victory has been won and the disturbers of the peace, prosperity and happiness of the world are sent, like Judas Iscariot, to their own place. Our distinguished Prime Minister, Lord Craigavon, recently said of the people of Ulster that we are King's men, and that is true in every respect. We are with you in every step that you may be called upon to take for the safeguarding of the world against predatory robbers and grabbers of their neighbours' properties. We are with you to the end, for victory is assured and will come just as will the rising of the sun to-morrow morning, in the goodness of God. Never have we in Northern Ireland been so closely bound to you as we are at this moment; no earthly power can sever the bond which binds us to Britain.

As regards the Budget, I am waiting for the Chancellor's explanation of his Purchase Tax. I understood we were receiving help in keeping down prices of com- modities, and I am not quite sure whether this proposed sales tax will be a paying proposition, although nobody will be better pleased than I if I am wrong. Since Tuesday I have been thinking of the abortive tax on land values and I feel that, like the cost of that, this new tax may exceed the profit and so in the end fail to benefit the Exchequer. But we must wait until we have heard what the Chancellor has at the back of his mind and whether he can go through with the tax without seriously placing any additional burden on the country. I would suggest to the Chancellor and the Financial Secretary that they have omitted to tax one thing which should be heavily taxed, and that is toney wine, otherwise "red biddy." I do not know anything which is a greater curse than this cheap, villainous stuff, and I would make a strong appeal to the Chancellor to put a sharp tax on this poisonous, degrading drink which harms and ruins the bodies, souls and spirits of its addicts. Nothing would please me better.

The Chancellor must be gratified by the favourable reception which his huge Budget has received both in this House and the country. One hopes that the Germans will take it to heart. Nothing will prevent us from doing our duty, and we shall go on with trust and confidence in the feeling that right and justice will prevail against wrong and injustice. I want to leave with the Committee four "P's." The Chancellor left one, and it was, "Pay." I do not put "Pay" first. I put "Pray" first, "Pay," second, "Prepare" third, and "Perseverance" in the prosecution of the war with vigour, courage and determination to the very end, fourth. Our watchword to-day is, and should remain, "Forward to victory."I want this Committee and the country to be optimistic, for so sure as God is in His heaven, He will see that right prevails. For right is right, since God is God, And right the day must win; To doubt would be disloyalty, To falter would be sin. I am glad to see our heroes standing between us and the enemy, and hon. Members of this House and our people throughout the United Kingdom rejoicing, not grumbling, that they are found worthy to pay and pay well towards the prosecution and success of the war. There is no ground for pessimism either as to men or as to money, nor as to the success of the war. I would pass on to the Committee and to the nation the words of the Hebrew Psalmist: Fret not thyself because of evil doers, neither be thou envious against the workers of iniquity. For they shall soon be cut down like the grass, and wither as the green herb. Trust in the Lord, and do good; so shalt thou dwell in the land, and verily thou shalt be fed. With God is victory always and everywhere for the righteous cause.

7.51 p.m.

Mr. Aneurin Bevan (Ebbw Vale)

The few thoughts which I may have been entertaining during the Debate have been scattered by the tempestuous gale of the oratory of the hon. Member who has just sat down, and I must ask the indulgence of the Committee while I try to gather them together again. I thought that the Financial Secretary was rather unfortunate in his opening remarks when he complained that in the Debate yesterday not very much attention was given to the details of the Budget. He was taking a far too orthodox and formal a view of the occasion. The reason why the Budget has not received more comprehensive treatment and why the details have not been subjected to the customary examination, is because a war Budget is necessarily a very different matter from a peace Budget. A Budget which represents an expenditure of £2,600,000,000 out of a national income of £5,000,000,000 embraces so large a proportion of the national activities that it becomes more and more a mirror of activities rather than a sum in arithmetic. We are entitled to consider the Budget not merely from the point of view of the imposition of burdens but from the point of view of the picture it shows of the way in which the nation's energies are being organised for the war effort. The fears which have been expressed are based not upon the fact that the Chancellor of the Exchequer is not spending more, but on the fact that the Chancellor of the Exchequer is not being called upon by other Departments to provide more money.

I have not very much quarrel with the Budget except in one or two particulars, but I think hon. Members have been right in pointing out that the sum of money which is being asked for by the Chancellor indicates a gloomy view of the extent to which the nation's resources are being organised. That is one of the reasons why it will not be possible for hon. Members on this side of the House to respond to the invitation of the hon. Member for Walsall (Sir G. Schuster) to consider Mr. Keynes's plan, until we are satisfied that the point has been reached when remedies of that kind have to be applied. Mr. Keynes himself pointed out that the necessity for his plan does not arise until the nation's resources are fully employed. So as long as we have 1,000,000 men unemployed and 2,000,000 women who might be employed in an extremity, it does not seem to me that this House is called upon to consider the details of Mr. Keynes's plan, but we are entitled to ask the Government why, after eight months of war and 18 months of active preparation, there remains such a very large proportion of unexploited resources in the country. It seems to me that the hon. Member for Walsall failed to appreciate that point, which I thought formed the chief justification for the interesting speech of the hon. and learned Member for Montgomery (Mr. C. Davies). It is no use being mealy mouthed about this matter.

The hon. Member for Peckham (Mr. Silkin) castigated the hon. and learned Gentleman because he drew a comparison between our record and that of the French nation. Do hon. Members believe that the facts are not known to the French nation? Is there any point in concealing them? In any case, it is no use because Mr. Keynes in a letter to the "Times" to-day makes just that comparison, and it will be known to the French nation. How are we to form a proper estimate of our own effort except by a comparative standard of that kind? It is true that the French nation have exerted themselves to a greater extent than the British nation. The hon. Member for Walsall some months ago pointed out that we were in a period of transition and that we had prevented, by various methods of economic control, large and inflated profits being made. I think that is an over-estimate of the position, but, nevertheless, it is true that the Government have attempted, for a variety of reasons, to prevent the oxygen of grandiose profits driving the economic machine more quickly, with the result that the motives of self-interest and business ambition have not been as robust as they were in the last war. That means that a large number of people who might be in employment and a large amount of economic resources which might be used, are not being used. If that is the case, if the inspiration upon which the system normally depends is flagging, what evidence is there that the Government are putting something else in its place? There is far too long a lag.

I ask the right hon. and gallant Gentleman to give attention to this point, which has a direct bearing on what was said by the hon. Member for Walsall. The hon. Member expressed a great deal of satisfaction that money is being borrowed at 3 per cent. now as compared with 5 per cent. in the last war. Apart from the fact that the rate of interest in the last war went up progressively, and apart from the fact that a lower rate of interest is always paid on a larger volume of borrowing, it is true that one reason the Government are able to borrow at this low rate of interest is that there is far too much liquid capital. They would not be able to do so if the industrial equipment of the country was fully employed. This low rate of interest is itself an expression of economic ill-health rather than something to be pleased about. In the last war, when private capitalists expanded their own businesses under the inducement of larger profits, naturally the rate of interest went up because the demand for money was greater. At the present time, the export market has been interfered with, world trade has been dislocated, many businesses have been upset, and, therefore, they are unable to employ the workers they did. Thus, the result is that there is a smaller demand for liquid capital. It seems to me that the Government are not providing by the war effort the employment which private resources could give.

What should be done? It seems to me that one of two things must be done. I suggest one with which I do not agree; it is that all the controls and irritations that exist on private enterprise should be taken away and that private enterprise should be allowed to flow freely and do its utmost to organise the energies of the nation. If that is not to be done, if the war effort of the nation is to be expanded, then that expansion can take place only as a result of far more direct employ- ment through the Government. Information which we have is to the effect that the great Hermann Goering works in Germany, which afford direct Government employment, are slowly absorbing a larger and larger part of the German steel industry, and that a larger part of the German working-class population is being directly employed by the State. Surely, it is reasonable to ask hon. Members opposite to do one of two things: either they must operate the system in which they believe, a system of organising the labour of the nation by private profits, or, if that system fails, if that principle languishes, they must have resort to the principles in which we on this side believe, and afford far more direct employment by the State to provide work for idle men and women, the potential labour of the country.

The nation will not tolerate the under-employment of our resources because we are unfortunate enough to be fighting the war under the leadership of a great Conservative majority which believes in methods that are no longer of any avail in organising the resources of the nation. That is one of my principal indictments against hon. Members opposite. It is no use answering by saying that we ought not to say these things because by doing so we shall cause hurt to our Ally. It is not the saying of these things that wounds the susceptibilities of France; it is not doing them. Therefore, the demand which we have to make to the Chancellor is that he must say to his colleagues in the Government that the country is dissatisfied with the efforts made by the Government to organise the nation's war effort. I thought that the Financial Secretary to the Treasury was so complacent to-day as to be quite frightening. What is the use of telling us about our advantages, our imponderables, the justice of our cause, the enthusiasm of our Allies, the co-operation of our Colonies and Dominions, the resources that are still to be used? That is no answer. What is wanted is not that we should measure our effort by the effort of Germany or even by the effort of France, but that we should measure our present effort by our potential resources—because we want the war ended, we are not fond of it, we do not want it to drag on, we are not engaged in a mediæval tournament in which we try not to out- number the enemy too much. We want the maximum employment of our resources at the earliest possible time in order to save the lives of hundreds of thousands of our people. It is too much to have to listen to complacent speeches of the kind made by the right hon. and gallant Gentleman, which might have been worthy of Budget Debates in pre war days, but which was really quite frightening this evening.

I should like to make a few observations on the proposals which the Chancellor has made. The proposal to limit dividends has been welcomed with enthusiasm in all parts of the Committee. I doubt very much whether there is to be said for that all that is sometimes claimed. What is done by the limitation of dividends? On the face of it, certainly the proposal looks attractive; undoubtedly it has psychological attractions. Many people in the country have welcomed it because it appears to prevent the dispersal of large fortunes made during the war, but like a good many other things of the right hon. Gentleman it is more symbolic than actual, more demagogic than valuable, in its practical results. We are told that if there is a limitation of dividends, the companies will have to invest them in Government stock, and that that will be a way of canalising the reserves of companies into Government loans. That is true, but what it really means is that the Government tell these companies that if they are unable to employ the money more profitably by expanding their plant, the Government will employ it for them and give them 3 per cent. interest; the Government will become a customer for their money, if their plant is not a good customer, and give them 3 per cent. If the resources of the nation are properly organised, what can those people do except lend the money to the Government? They cannot sit on it or swallow it; they have to put it somewhere.

But why give them 3 per cent.? Why should these undistributed profits, which are admittedly made out of the war, which are admittedly excess profits, be borrowed? It seems to me to be an astonishing proposition. What are the Government saying to the country? They are saying, "We will not allow these people to have the profit, but we will allow them to save up the profits and we will pay them 3 per cent. for that money." Therefore, those who are profiteering—in the Chancellor's own language—get wealthier and wealthier as the war proceeds. The hon. Member for Walsall said in reply to my interruption that that happened to everyone who saved money. My reply is that there is a vast difference between saving money from earnings, and profiteering out of the necessity of the nation—and this is directly a result of profiteering. It seems to me, therefore, if the principle of compulsory diversion of undistributed profits is correct—and there is something to be said even against that—that if the concerns are unable to employ in the expansion of their plants any of the money arising from Government contracts or any other matter connected with the war, then it should be allotted by the Government to the war effort.

The principle of usury applied to banks has become so established that people seem to forget that banking started by people paying the banks to look after their money. It seems to me therefore that the nation is discharging a very considerable service by looking after the money and employing it usefully so that it is available if wanted for the concerns after the war. But I doubt very much whether that is the best way of dealing with the problem. If these profits are not distributed in the form of high dividends, the owners escape Surtax. They may pay Excess Profits Tax, but they escape Surtax with the result that the worst kind of profiteer has an advantage from this apparently attractive demagogic proposal. The money is not distributed and therefore the Inland Revenue does not obtain any of it in Surtax.

I am surprised at the uncritical praise which has been given to the Chancellor's proposal by some of my hon. Friends. It seems to me that there is a great deal to be said against it. If these profits were dispersed in high dividends the Purchase Tax would again bring some of it back, because presumably that tax is to be placed on luxury articles which only this class of citizen can buy. So, more money will come back again into the Treasury, and if there is any left, the Chancellor of the Exchequer can exert his well-known eloquence to persuade them to lend it to the State. It seems to me that this proposal quarrels with the Chancellor of the Exchequer's peroration which expressed great confidence in the patriotism of owners of money in lending to the State. Yet he has so little confidence in them, that he is not allowing the profits to be distributed.

I will not say a word here about what is going to happen when the war is over, and about all these vast reserves held in Government stocks which concerns might wish to employ after the war. I will not say a word about the inflationary consequences which might follow from such a highly inflationary collateral. When the war is over and industry returns to peace-time conditions, if the concerns want to employ this money, it will only be in the form of an I.O.U. Consequently, they will be inclined to borrow money from the banks, and there will be a vast amount of banking credits. That is a problem for the future, but it arises directly out of what I consider to be an uneconomic proposal. When the money borrowed comes to be discharged, it will have an unfortunate effect on the economic situation as a whole.

There is another proposal in the Budget which has been universally acclaimed, and indeed I also acclaim it, namely, the proposal to exempt from the means test, war savings made now. But what is the obverse of that proposal? We have been told by the Chancellor that if he and his friends get back into power, the means test is to be a permanent feature of our social service. So, this war, which we are told is being fought for all the worthy things described with such eloquence by the hon. Member for Down (Dr. Little), will apparently leave the working class in this country still having inflicted upon it a most objectionable principle.

We are supposed to be enthusiastic about it, but imagine what will happen to a man who remains at home during the war and who as a result of the war earns more money and saves it. His "pal" who is not in a reserved occupation, has not the chance of making any savings. Supposing when the war is over, they both become unemployed. The ex-service man, now living with his family, may have his unemployment benefit and allowances reduced. He immediately becomes dependent on the earnings of his brother or father, but his next-door neighbour who remained at home, is able to enjoy his savings and have the full rate of benefit. It is not a very nice state of affairs. It is not equality of sacrifice. It is not a very good way of persuading the working class that, at this moment they ought to be making even greater sacrifices than they are making. It seems to me that it would have been far more gracious for the Chancellor of the Exchequer to to have said, "If we do win through this war, one of the first things to be done will be the abolition of the means test," rather than making a statement which, by its implication, forces us to go down to our constituencies to answer the gibe from many people, that this Government propose to keep the means test as a permanent feature of our social services. When we look more closely at the details of the Budget they are not as attractive as they appear on first sight.

I am bound to say that I agree with hon. Members in many parts of the Committee who have said this evening that the figures used by the Chancellor of the Exchequer are a very disquieting picture of the way in which the nation's resources are being organised. Hon. Members on the other side of the House with their vast majority have a great burden of responsibility. I will not go into the polemics of the past or say how far they are to blame for the existing position. They will remember how docile, sheep-like and uncritical they have been of all the things done by those on the Front Bench for the last two or three years. It seems to be impossible to make any impression upon them even now when, after eight months, we have these unused resources. What are they waiting for? Are they waiting for some terrible calamity at sea or on land or in the air before we can shake them out of this mood? Have thousands, it may be hundreds of thousands, of our people to lose their lives and be mutilated before these stupid Tories can be moved? Is that what they are waiting for? To-night we have empty benches here. We have a Prime Minister whose name is anathema in every country in the world. We have a Chancellor of the Exchequer, who is really a special pleader with all the superficial gifts of legal casuistry, but whose name is despised throughout the world.

Is it necessary to have a terrible calamity before we can get these benches filled and hon. Members doing the job they ought to do? This is their Government, it is in their control and power. It is no use for hon. Members to hope that this will pass from them as a good many of them do, leading a pure Micawber-like life. This job has to be done, and it can only be done by hon. Members opposite throwing aside many of their cherished notions. It can only be done by a supreme national effort, and that effort can be made only under the inspiration of principles that take no account of orthodox profit-making such as hon. Members opposite are protecting all the while. I have been very disquieted about the Debate this evening. There are many things we would like to say that we cannot say here because we do not want them to be used against the nation's war effort. Unless the other side moves quickly we shall have to demand a series of private Sessions. We shall have to insist upon it because there are things we want to say. It is a bad business, indeed, that we should have a Budget after eight months of war which discloses so appalling a failure to organise the whole of the resources of the country.

8.23 p.m.

Sir Stanley Reed (Aylesbury)

I would be prepared to take up the challenge of the hon. Member for Ebbw Vale (Mr. Bevan) and discuss our share of the responsibility, from which none of us shirk. The closing passages of his address, however, were such as to place it beyond the pale of reasonable discussion. Therefore, I shall leave it entirely aside. I want to deal with two or three details in the Budget, but before doing so I ought to touch upon two general questions. We have heard during the Debate great insistence on what I think is the most dangerous financial doctrine which has ever been preached in this country; that is, that the national effort should be judged in terms of money spent. That doctrine came from Wales, it has been repeated from Wales, and I hope it will go back to Wales and will never return. The Chancellor and the Financial Secretary have been pressed to rush with precipitate haste into further taxation. The Financial Secretary placed that question beyond the possibility of controversy. All these higher taxes, as has been pointed out, mean a severe degree of dislocation. That dislocation, unfortunately, means hardship to a great many people, and it is infinitely better that it should be spread and that the shock should be broken than that it should be thrown on the community with the uttermost and unnecessary violence.

Turning to points of detail, I would ask my right hon. Friend whether between now and the concluding stages of the Budget he and his colleagues will examine afresh the postal charges proposed in the Budget. I have authority for saying that a letter can be carried at a profit throughout the area served by the Post Office for 1d. Therefore, the charge of 2½d. means a tax of 150 per cent. upon that service—and that at a time when, owing to the dispersal of the population, there is a demand for greater facilities among the lower sections of the community, who will feel this tax considerably. There is a psychological element in this matter. Two-pence-halfpenny is an uncomfortable figure. The odd halfpenny is an irritant, and people will begin to ask themselves how they can get out of it. Many of us can reduce our postal charges if we are put to it. If the Chancellor could reduce the charge to 2d., it would be acceptable to large sections of the country. One has no right to make such a suggestion without offering an alternative. The Chancellor must get his revenue and more revenue. There are two possible avenues of taxation which, I suggest, are far more suitable at a time like this and which would be more easily and cheerfully borne than the postal charges. The first is to raise the standard duty on patent medicines. The profits on patent medicines are colossal, amounting to hundreds and thousands per cent., and they can very well afford an addition to the duty. That would compensate for the loss of the ½d. on the postal charges. Another impost which I think would be received almost with gratification throughout the country would be a tax on cosmetics. Here again the profits are extravagant, and the cosmetics are an extravagance in themselves. They are very fit subjects for taxation. I trust that my right hon. Friend and his colleagues will give these points such attention as they can.

The question of the limitation of profits sounds very attractive, but the proposal will not operate in the manner in which many people think it will. After all, these larger profits are taxable sources which are useful to the Exchequer. Directors of companies are human beings, and if they are not allowed to show these returns in profits, they are apt to get absorbed in extravagant administrative expenditure, which is a permanent loss to industry. In that connection let me ask my right hon. Friend to consider, if not exactly the tempering of the wind to the shorn lamb, the hard case of those industries which have been depressed over a long period. When the turn for the better has come, are they to have only 4 per cent. after all their losses in the past, at a time when it is possible to buy steady revenue-yielding equities on a 5 or 5½ or 6 per cent. basis? Will he consider the case of such companies and see how far he can bring them into line with the more prosperous concerns whose profits are to be limited?

One sentence in conclusion. I know that my right hon. Friend the Chancellor thinks that I have "a bee in my bonnet" on the subject of economy in expenditure. I have, because as I go about the country I am convinced that any form of extravagance, any form of salary profiteering, is terribly weakening to our morale and our war effort. No one will argue that we can maintain quite the same rigid measure of Treasury control in time of war as in time of peace. We realise that the strain on the Treasury and its officers is enormous. The community are now at work to get 250,000 unpaid volunteers to take part in A.R.P. precautions. One salary profiteer in a district, one or two evidences of extravagance, make infinitely more difficult the task of mobilising the men and women of the nation into the great mass of voluntary workers which we so intensely desire to see created to assist in carrying on the war.

8.32 p.m.

Mr. Price (Forest of Dean)

I am sure that we all agree with the hon. Member for Aylesbury (Sir S. Reed) about the necessity of preventing waste in national expenditure. We have a committee sitting on that matter, and I understood from the speech of the Chancellor that important economies have been made. I think it is probably true that in the case of A.R.P. expenditure certain economies could be made without interfering with efficiency, but it is my experience that in the rural areas, at least, the greater part of that work is being done voluntarily at no cost whatever to the Exchequer. Although, perhaps, a good deal might not be saved, yet from a moral point of view it is desirable to prevent any waste. The Debate seems to have disclosed that there is a feeling on all sides of the Committee that sooner or later, and perhaps sooner than later, the Chancellor will have to bring forward more proposals for raising further funds to carry on the war. I think it is generally felt that the present figures are of such a colossal nature that to leave this large gap to be filled up by voluntary lending is to run a very considerable risk of disappointment. My hon. Friend the Member for Bishop Auckland (Mr. Dalton) has put forward an important scheme for raising funds by greater taxation on the higher ranges of incomes and a levy on large capital fortunes. It seems to me that something of that nature will have to be attempted before very long, particularly if the filling of the gap by means of lending proves to be unsatisfactory.

The higher taxation of large incomes and a levy on capital may not solve the financial problem of the country, but at least if incomes above a certain level are limited, the moral effect on the rest of the country will be colossal. It will then really be clear that those who are fortunate in the possession of this world's goods are without doubt making a real sacrifice of their resources to meet the national emergency. We might even say that in the case of incomes above a certain figure 20s. in the £ should be the level of the Income Tax. I am quite prepared to agree with those who may argue that that will not solve our problem; and I say, too, that unless levies of that kind were taken in something other than cash, there might be immediate undesirable consequences. Therefore, I am glad that my hon. Friend did put forward the suggestion that at least some of this taxation might be met by handing over capital values—securities or real estate.

I have lived most of my life in the countryside and have seen the devastating effect of Death Duties upon the resources of the rural areas. I have seen big estates broken up, as they should be, for the agricultural landlord can no longer fulfil his obligations. But the trouble is that we have put nothing in his place. Estates are broken up, woodlands are cut down, to pay Death Duties. We have destroyed one functionary in the land and left the countryside in the hands of the speculative timber merchant and the jerry builder. That has been going on all too much in the countryside, and our young men, on their return from this war, may find an England bereft of its beautiful woodlands and spoiled and scarred by jerry building and ribbon development which has come about by unplanned taxation and the splitting up of big estates. The effect of taxation and of levies on the scale proposed should be not only to raise cash, but to assist the process of transferring to the State real property.

That may be a revolutionary thought, but I maintain that it would put something in the place of the old landed proprietors who did their duty in their day and are now gone. We should at least make the State responsible for planning the countryside. The alternative is to my mind, clear. I heard it said not long ago by someone who had been studying the subject that our people are anti-capitalists in the sense that they do not like to see great accumulations of private property, but are not sufficiently socialistic, and consequently they fall between two stools. They see big properties which are privately owned broken up but do not dare to see the State come into its own.

Our Budgets are becoming more and more the means of revolutionising our national life. In the dim, distant days of the calm Victorian era Mr. Gladstone used to come to this House and propose taxation, or the remission of taxation, with one idea alone, and that was to interfere as little as possible with private enterprise. The State would just be there as a policeman to see that competition was fair. To-day, the State has become increasingly, and particularly now, a director of our lives. Not only in raising money, has the State a direct control over our lives. It must aim, as the Chancellor has hinted in his speech in regard to some of his taxes, at preventing the consumption of certain articles. I took the right hon. Gentleman to mean that to be part of his idea in proposing a sales tax. If that concerns the consumption of luxury or semi-luxury articles, it is a step in the right direction, but it will be very difficult to draw the line.

I shall look with a good deal of suspicion, mingled, of course, with interest, when it comes before this House. It may be an instrument of good in preventing the expenditure of private resources upon articles on which money should not be spent. Therefore, I can conceive of this Budget as an instrument not only for raising revenue but for taking steps to see that the public spends in the right way, and not in other ways, and that it lends as much as it can for the State or passes the money over in taxation. There are many ways in which these steps can be taken, as by the rationing of food and of articles of necessity, to prevent consumption. The effort is not only Budgetary but is being made extra-Budgetary. Measures have to be taken outside the Budget to restrict public consumption of goods.

The limitation of dividends is a step in the right direction, although I am inclined to agree with my hon. Friend the Member for Ebbw Vale (Mr. A. Bevan) that there are two sides to that question. I can hardly share his fears that, at the end of the war, an accumulation of savings in Government securities owned by private companies would necessarily have an inflationary effect. In all probability such companies would have to spend considerably on renovating plant and getting down to peace activities. I do not see that that will necessarily have a large inflationary effect if the process takes place with the aid of the banks. There are other means by which money can be raised and steps taken in the right way, and some of them have been referred to by speeches made this evening. One way is to limit the profits that can be made on the sale of land as a result of the national effort. Large profits are undoubtedly being made by owners of site values, who are selling sites in places where the national effort in the war has caused an inflation of values. I know that it is argued that this would mean the creation of a large apparatus to value land and so on; possibly that would be the case if we contemplated a capital land tax, but I do not see why an unearned increment tax on land when sold at a higher value than its valuation under the land valuation, Schedule A, could not be collected. As we all know, Somerset House has a record of that valuation. It should be possible easily to put an unearned increment duty upon values of that kind without the setting up of expensive apparatus for land valuing.

All those methods will not suffice to fill the enormous gap, even though the higher incomes contributed, in the way suggested by my hon. Friend the Member for Bishop Auckland. For that reason I am rather sorry that the plan of Mr. Keynes has been at least temporarily turned down. I believe that the time will come when the Chancellor will have to reconsider his attitude on this matter. In the last war, the rich and those with higher incomes were the principal lenders to the State, but it seems quite possible to work matters in this war so that the lower incomes shall lend to the State. To-day we see the scale of Income Tax go down to the 48s. a week income for the single man, who has to pay Income Tax upon it of 15s. 6d. I would much sooner see those scales of income not paying tax direct to the State but lending money to the State along the lines of the Keynes plan—if not the whole of the incomes, at least a part of them. In that way, the loans could be made the basis of social insurance.

Mr. Keynes has suggested that loans of this kind to the State can be made the basis of a family allowance scheme or of a credit scheme which, after the war, can be used to buoy up the purchasing power of the community just at the time when there will be almost certainly a big reaction and possibly a trade depression. I understand that, in the United States, the war veteran bonus which was granted by Congress in 1935 had some effect in getting over the big slump which started there in 1933. When the people with the smaller incomes face the position after the war, if they have this credit which they have lent to the State, they can draw on it and increase their purchasing power. That would be a step in the right direction. All that is foreseen in Mr. Keynes's plan. It seems to me that Mr. Keynes takes a long view and sees Budgetary problems not only for this year or next year but for many years ahead. Of course, the Chancellor of the Exchequer is looking only a very short time ahead. I believe that the right hon. Gentleman will have to come back to this Committee in six months' time with further proposals, and I would like to see something proposed, if not then, as soon as possible, with much broader vision than is now proposed, something which could be used as a basis of social insurance for people with small incomes. It would also assist us in the great national effort to win the war.

8.49 p.m.

Colonel Nathan (Wandsworth, Central)

The reception which has been given during the last three days to this monumental Budget both in the Committee and in the country is striking evidence, open to the eyes of all men, including our enemies, that this country is prepared, in the financial field as in every other field, to face sacrifices which have hitherto been almost unimaginable. Even the gigantic figures contained in this Budget are by no means the measure of the ultimate magnitude of the burdens which we shall have to face and from which we shall not flinch. In no ordinary sense is this a Budget at all. It is indeed little more than a current account of prospective receipts and expenditures over a limited period, and even then it is not complete, for the Chancellor of the Exchequer has very frankly told the Committee that there will probably be additional amounts to be expended. That is all very natural, but I make that observation not by way of criticism but merely to point out what is the nature of the financial proposals which are now being considered. Enormous as the figures are, the truth is that the Committee, and I think the public at large, were somewhat depressed and perhaps even a little alarmed that the requirements of the Chancellor were not at this stage even greater than in fact they are. I believe that I represent the minds of the great bulk of the people of this country when I say that we realise the enormous growth that must inevitably take place in our expenditure during this war, and that the sooner it comes the better satisfied we shall be, for it will show that we are speedily proceeding with our effort.

There are one or two items in connection with the figures that have been laid before the Committee upon which, if it were practicable, I should like to ask for a little information. I have not observed in the documents that have been placed before us provision for accrued interest on Savings Certificates. In fact, I think there is a note specially saying that no item has been taken into account—at all events, the substantial figure which I have in mind—for that interest. Yet it is a liability, and with the increasing number of Savings Certificates it is an increasing liability, and it would be advantageous if it were shown in the appropriate place. I do not think that the Chancellor, in that very illuminating speech which he made yesterday, made any reference to the results of what I will call Government trading—I mean as a result of the taking over and the disposal of very large stocks by various Government Departments and controls, both immediately at the start of the war and subsequently. It would be interesting to know what the result of that trading has been. I imagine that the result is included in the figure of "Miscellaneous Receipts," and I wonder what is the proportion. I should also like to know what has been taken into account for similar Government trading presumably under the heading of "Miscellaneous Receipts" in the accounts for the now current year. I do not think it is important to the financial structure or to the picture which we have to survey but it would be interesting to know.

I do not know whether it is fully appreciated that the figures in the Budget, gigantic as they are, do not even now disclose the full burden that is falling upon the citizens. From time to time and with increasing frequency, both before the war and since, the central Government have left foundlings at the doorstep of the local authorities. Those foundlings have to be nurtured just the same, whether they are under the care of the local authorities or under the supervision of a central Government, and the burden falls upon the same shoulders. If the tens of millions comprised in local rates were added to the burdens of national taxation, then indeed a very formidable picture would be shown of what citizens of to-day are being asked to bear.

There are some of the specific proposals contained in the Chancellor's statement when he opened his Budget on Tuesday to which I may perhaps refer. He pointed out the problem with which he was confronted, of deciding—as we all have to decide in our own small spheres—how much must be raised by taxation, how much to be paid out of income and how much to be raised by borrowing. I was a little alarmed, if I correctly understood the Chancellor, to learn that he was contemplating without a great deal of embarrassment the expenditure possibly during the current year of our reserves of gold, I think he said, although I would assume that foreign securities might be deemed to be included also.

Sir J. Simon

Perhaps the hon. and gallant Gentleman would allow me to say a word on this point, because the same observation has been made before. On reflection, I think he will see that I cannot hope for any relief from my Budgetary total by the realisation of foreign securities, because, of course, I do not take those foreign securities from people for nothing; I have to pay for them, and when I pay for them I lose as much on the one hand as I gain on the other. Therefore, the use of our reserves of gold means a loss of capital. It is not the case that foreign securities and gold stand in the same position.

Colonel Nathan

I am obliged to the Chancellor of the Exchequer. I do not think that there was really the confusion in my mind which I led him to think. The point which I wished to make was this, that we do not rely merely upon the resources at present in existence or to be raised by taxation or by borrowing for meeting our commitments abroad; we do not rely solely on our gold, but we do and must rely, and rely increasingly, upon our ability to pay out of our surplus exports. I hope the Chancellor of the Exchequer will correct me if I am on a false point. What alarmed me was this: I did not find that the Chancellor in his speech made any reference with the emphasis which I would have expected to the vast importance of conserving our gold and foreign securities, which are indeed our life-line financially, and expanding to the utmost the exports upon which we must mainly rely to pay for our necessary requirements from abroad. I thought, viewing the picture which the Chancellor drew of the financial situation as a whole and of the economic plans he had in mind, that that perhaps was not sufficiently emphasised. I think the Chancellor will agree that much depends upon the increase of our export trade.

I want to deal with some of the specific proposals which the Chancellor made. There is the proposal to prevent the payment of dividends out of certain excess profits. I share, to some extent, the doubts that have been expressed regarding that proposal. I should like to see its terms expanded more fully in the Finance Bill. The Excess Profits Tax is at present levied at the rate of 60 per cent., as compared with the 80 per cent. which was levied under the Excess Profits Duty at the end of the last war. I am rather doubtful as to the wisdom of leaving 40 per cent. of the excess profits in the coffers of the companies that have made them. My reasons are twofold. In the first place, the Chancellor loses Surtax upon those undistributed excess profits. In the second place, let it not be forgotten that, as the experience of the last war showed abundantly, excess profits are a prize packet for inducing extravagance in the conduct of business. If a certain proportion of those excess profits is compulsorily retained in the business, there will be an additional inducement to extravagance within the business, and, perhaps, to quite undue expansion. You will get, in essence, an over-capitalisation of businesses. That is a danger to which attention should be paid.

I want to refer to two matters, minor perhaps in themselves, but of very great importance to considerable bodies of per sons. One is the increase in the duties on tobacco, beer, and spirits, and particularly on tobacco. As I understand, the tobacco tax will increase the price of a packet of cigarettes by 1½d. I should like the Chancellor to consider that additional burden in relation to its application to members of His Majesty's Forces. At present, soldiers in France are able to obtain their cigarettes, when they do not receive them as free gifts, at a price computed free of duty. The soldier at home has to pay a higher price than the soldier in France, because the price he has to pay includes the duty. There is already a disparity, therefore, between the prices paid by the soldier at home and by the soldier in France; a disparity which, I ask the Chancellor to believe, is having some effect upon the minds of the soldiers, because it is not the only disparity that exists between the conditions of the soldier at home and the soldier abroad. A married private soldier receives for his own expenditure not more than 7s. a week. If he has dependants in addition to his wife, he may receive as little as 3s. 6d. a week—it is not permissible that the amount should be reduced below that figure. Even at 7s. a week, these small additional payments on cigarettes, beer and spirits, if the soldier drinks spirits—the soldier of to-day does not drink much spirits—

Mr. G. Griffiths

He has nothing to buy them with.

Colonel Nathan

That reinforces my argument. He has very little to spend. Quite often, he is a man who has been in receipt of a considerable income, and has suffered a great drop in income immediately upon joining the Army, though he does not complain about that, because it is inevitable. This increased tax puts an additional burden upon him, and increases the disparity between the conditions of the soldier in France and the soldier at home. In the last war, it was substantially fair to say that the soldier in France was on active service and the soldier at home was not. The position to-day is different. Vast numbers of soldiers at home are just as much on active service and are exposed to the same dangers as those in France. That applies equally to men in the other Forces—take the balloon barrage, the bombers, fighters, and anti-aircraft units, for example. There is little reason for any discrimination. I realise the difficulties that there might be in administration if I were to suggest that the soldier at home should be relieved of this particular tax completely, but I would make this suggestion. The Chancellor has been asked already to provide that the soldier at home should be allowed to have his cigarettes at the same price as is paid by the soldier in France.

I repeat that appeal, and apply it equally to members of the other Forces. I hope the Chancellor can grant that; but if he cannot go that far, I ask him to arrange for the additional 1½d. a packet not to be imposed on cigarettes bought by members of the Armed Forces. I am not suggesting to the Chancellor of the Exchequer—and I know the difficulties of administration—that the soldier who goes into a shop should be entitled to receive cigarettes at a lower price than a member of the public. That would impose difficulties upon administration, but I am suggesting that, in the organisation set up to provide for amenities for soldiers and the other Armed Forces, in the Navy, Army and Air Force Institutes, the Y.M.C.A. canteens and the like, where the soldier is buying things in his home, so to speak, in the place provided for him, he might be allowed to purchase cigarettes free of duty upon the same terms as soldiers in France or at least be relieved of the additional burden of the increased duty.

Mr. A. V. Alexander (Sheffield, Hillsborough)

I would like to support my hon. and gallant Friend, as he is so much in this welfare work, but how would he propose to prevent any extra quantities from being bought by members of the Armed Forces and transferred to members of the general public?

Colonel Nathan

I think that the answer to that question is—as long as they are bought in the ordinary quantities in which the soldier buys them, and not on a wholesale scale. The soldier has only 7s. a week, unless he has a private income from outside. If he is a private soldier, is a married man and has no income from outside, his maximum income is only 7s.

Mr. Alexander

But he might soon get more.

Colonel Nathan

As things are at present, he can be given cigarettes by members of the public. There is no lack of generosity on the part of the public, but I want the soldier to have special facilities in the canteens that the Services provided for his use. I do not suggest that we should go beyond that, and naturally the same applies to beer and spirits.

Now I come to the particular application of the Income Tax at the very high rate at which it now exists. During this war—but it was not so in my recollection in the last war—Income Tax is deducted at the source from the officer's pay. That is an enormously hard burden, especially upon the junior officer. Tax is deducted at the full rate of, I suppose, this year 7s. 6d. in the £. He may either already be suffering from a diminished income or be finding it sufficiently hard to get along with his pay, but if, having regard to all the demands to which an officer is subjected, his pay is diminished by 7s. 6d. in the £, more than a third, in fact nearly 40 per cent., it really is a very great burden upon him. That is what is happening to-day. The officer's pay is being reduced when it is paid to him by 7s. 6d. in the £. It is true to say that he can recover it, but he has to make a return. He is put to all the inconvenience and difficulty of doing that sometimes under conditions which are not conducive to making Income Tax returns, and he has to wait until the end of the financial year before he can claim his allowance and any repayment to which he may be entitled. It is a very real hardship upon people who have been earning a substantial income suddenly to find themselves confronted with a diminution of 40 per cent. in the amount of their pay. I hope that the Chancellor of the Exchequer will be able to arrange matters in such a way that officers' pay, especially in the junior ranks, may be received free of deduction of tax at the source.

Another aspect of these increased taxes is the increasing difficulty among the well-intentioned and generous-minded in providing for charitable institutions the sums which they have been accustomed to give in the past, and which they would like to continue to give. Hospitals are feeling the draught heavily. When the rich, who way have to bear taxation up to 17s. 6d. in the £, are asked to continue their subscriptions to these vital public services they feel a difficulty about it which is easily understood. But it is not merely a question of the normal subscriptions to the hospitals. There are at this time special appeals being made for the campaign of the Red Cross and the Order of St. John. A very large sum of money—upwards, I think, of £1,250,000—has already been subscribed, but it is not anything like as large as the sum which ought to be subscribed, or that will be required, and it is becoming increasingly difficult to obtain the money. The comfort of those who may be wounded in many of the Armed Forces will depend in a very large degree upon the Red Cross and St. John's Fund.

The Government have instituted recently a welfare scheme for the Army which has some application also to other of the Armed Forces. The Treasury has refused so far to accept any financial responsibility and has thrown the Army, in respect of this welfare, upon the charitable public and the well-intentioned and the well-inclined. I have had a good deal to do with this particular kind of work. It has been part of my task to deal with these questions in a vast area of this country, and particularly in London. Nothing is provided by the Treasury. The charitable public have been approached, and they say, "Taxation is so high that we do not think that this burden ought to be placed upon private citizens. If it is an essential service, it ought to be furnished by public funds." I will not discuss or open that matter further, as it is more suitable for discussion on another occasion; my point is that it has become the practice as the Chancellor of the Exchequer knows for a considerable period of years now that those making regular and largish subscriptions for charitable purposes may do so by means of a seven-year covenant. That means that they are entitled to deduct the annual amount of the covenant from their income for the purpose of assessing Surtax, and if the recipient is a charity it may recover Income Tax, so that it is an advantage to the charity and a saving to the well-inclined who want to give. What they say now is, "We are very willing to give to the Red Cross, and to the welfare work, but we cannot enter into a seven-year covenant. We are prepared to give for the period of the war."

I want to ask the Chancellor of the Exchequer what the position will be if some well-intentioned person undertakes to give a large sum of money annually for seven years or for the period of the war, whichever may be the shorter, assuming that the organisation to which it is given is one which obviously comes within the description of a proper recipient of money for the purposes of the war. It is a rather important question. I have no doubt that the Chancellor has heard from others upon it, and he will certainly hear a great deal more. If we could have an answer to-night, it would be most helpful. It may be that the Chancellor would prefer that, instead of there being a seven-year covenant, it might be a covenant for the period of the war, but it is essential that if the well-disposed public is being invited, as it is, to contribute out of the income that is left after the heavy burdens of taxation have been met, to causes which appeal to the hearts of all citizens, the causes which really ought to be the business of the Government themselves, the Government might well, and really ought to, make this contribution, and the Treasury, by the means I have indicated, could automatically make a contribution directly and accurately proportioned to that made by the well-disposed public. I hope the Chancellor will not think these points too small for consideration, for I know that they vitally affect large numbers and will ultimately affect vastly increasing numbers of our fellow citizens who are making great sacrifices for the common weal.

9.23 p.m.

Mr. Tomlinson (Farnworth)

There are one or two points in this tremendous Budget, on which I would like to express an opinion. I know little or nothing about high finance, but I know something about what I call low finance. I know particular instances in which the new taxes will inflict particular hardship. One of the things that struck me when the Chancellor was speaking yesterday in his usual lucid manner, making the items balance, in spite of the fact that they came to such colossal figures, was the impossibility of equalising the burden. With the best will in the world, it is an utter impossibility to get equality of sacrifice when you do not begin with equality, and it is because we do not begin with equality, that the imposition of burdens which seem equal, is so much harder on some than on others. Whilst I realise the necessity for raising the money, I think the penny increase on the letter post and postcards might have been obviated and the money found elsewhere. I should also like to ask whether the Chancellor has considered the effect of this imposition on a good many organisations which make use of the Post Office for essential business. I speak, in particular, of the approved societies of our trade union organisations, whose stamp bills are very large and whose administrative expenses in the way of postage have gone up tremendously in recent years owing to the spreading out of the community due to the changing circumstances of our commercial life.

For instance, in the small trade union to which I belong, and which I was responsible for administering for a fairly long period, I find that, owing to the transfer of the workers from Lancashire to the South, a great many people have moved. They have retained their membership, and all the business is done by post, and the paying of benefits by post when the stamp duty is increased will mean a tremendous burden on many of the smaller societies, particularly when we bear in mind that the alterations which have just taken place in National Health Insurance and the introduction of the recent Pensions Act will have deprived the society of some thousands of pounds yearly. On account of the change-over from 60 to 65 members are no longer paying contributions and are no longer in- cluded in the administration charges, although they still require to be looked after as individuals who maintain their position in insurance. It is because I know of the serious effect upon many small district societies that I would ask, if it were possible, that that part of the burden might be transferred elsewhere. I am not saying that it should not fall upon the same people.

I may be somewhat unorthodox in my economics. Whoever is called upon to pay a tax from a personal point of view, in my view the worker pays it all. All has to come out of industry at some time or other, somewhere or other, and it is the worker who has to pay, whoever gets the credit for handing it over to the Chancellor. I am not "kidding" myself that the worker will be any better off because it is someone higher up who has the money and is handing it over to the Exchequer. It comes from the worker, and these colossal sums that we talk about so glibly, on which interest has to be paid in future, represent to me so many hours labour on the part of so many labourers in the future in order that that tremendous debt may be paid. I ask, therefore, that where it hits him hardest at present, he should be relieved if it can be done.

For the same reason I should like to say a word about the Purchase Tax. I have some sympathy with the objection raised yesterday that people had been left to judge where the burden would fall. It seems to me that what happens as a consequence of a statement of that kind, and an impending decision, and an impending imposition, is that it leads to the storing up of things which might be subject to taxation in the near future. It does not require a statement hinting at the coming of a tax to enable this to be done. I had an experience a fortnight ago when the controller of cotton in Lancashire made it known that there was to be a limitation of the amount available for home consumption and that priority was to be given to those manufacturing for export. I know a person who works in an outfitter's shop, and he told me it was no uncommon thing during that week-end when the statement was made for people to buy 10 shorts at once. That is the sort of thing that I want to avoid, because, if there is to be equality of sacrifice, if there is to be limitation, and if it is intended to limit the purchases of the whole community, it should be the whole community and not one section of it. I object to people in a privileged position being able to take advantage of a coming tax before it comes. To that extent I hope we shall have the details as quickly as possible, so that if we have to play our part to the extent to which it can be done, it shall be equally done.

I want to express a word of thanks to the Chancellor for disregarding the first £375, in connection with the computation for old age pension purposes. Yet, at the same time, I want to tell him that it is not good enough. I would like to make a confession. I was invited to speak at a meeting in connection with the National Savings Movement, and I wrote to the individual who invited me pointing out that if I was an Income Tax payer, holding £500 worth of Savings Certificates, it would, for the purposes of Income Tax, be ignored, while if I was an old age pensioner of 65, seeking supplementation of pension, that amount would rank for 19s. Although I thank him for having removed that amount so far as new money is concerned, so long as £500 of old money is exempt for Income Tax purposes, that amount should be dealt with in the same way if held by an old age pensioner. I am not asking him to make fish of one and flesh of another, but I am saying that an old age pensioner is entitled to have £500 worth of old Savings Certificates ignored if the Income Tax payer is entitled to a rebate. I am asking him to extend his generosity a little further, because I do not think it would make a lot of difference. I think it might result in some people, if called upon to apply for supplementation, transferring their holding. If it is desirable to achieve that, I think it can be obtained in other ways. I do not think the difference in new money will make any distinction, but it will make the gesture a little more complete than at the present moment.

9.33 p.m.

Mr. A. V. Alexander (Sheffield, Hillsborough)

I have listened to a great deal of the Debate of the last few days, and there are some peculiar features about it. The first is that while everybody has been saying what an enormous Budget this is in aggregate and what a large proportion has to be provided not by taxation but by loan, how very little interest has been shown in the Debate by the majority of Members of the Committee. I must say, on behalf of my hon. Friends who were associated with me in the so called financial crisis of 1931, that as my mind goes back to the night of 8th September of that year and the Debate in this House, with its tremendous excitement and great interest in the late Lord Snowden by the packed benches opposite, as to whether or not this country was going to disaster over £100,000,000 or so, I am extremely surprised at the small volume of interest which has been shown in the extraordinary Budget we have now to debate. Yet it is right to say that when on 2nd September of last year a decision had to be taken as to whether German aggression was to be allowed to take its next great step unopposed or whether it was to be resisted, our records show that the decision taken was not so much by the Government as by Parliament. It was the decision of Parliament. I do not think there is any case in our modern history where Parliament has been so near to complete unanimity as on that occasion before entering on war.

The reception of the Chancellor of the Exchequer's first war Budget for a complete year of war in prospect, has indicated that the degree of unanimity in Parliament for the objective which we have in this war is in no way reduced. It is just as well the world should understand that. I. may say a few very critical things, perhaps not unassociated with the kind of remark with which I opened my speech, but, behind it all, let the world understand that, while we value freedom of speech and the right to criticise, we are going to use what resources we can mobilise to reach our objective. A substantial part of the criticism of the Budget has been that, if anything, it is not sufficiently drastic to provide the maximum effort which should be made in the direction of bringing a speedy and complete achievement of our objective. The Chancellor of the Exchequer will hardly need to be assured that whatever criticisms I may utter to-night must be taken in conjunction with the general objective to which I have referred. Many sacrifices have been made by the taxpayer in the last 12 months, many references have been made to them in the Debate, and just tributes have been paid to the manner in which the taxpayer has responded, but let the Committee observe that there is no part of the sacrifices which the taxpayer has made in the last 12 months or of the increased sacrifices he must make in the next two or three years, that has not been faithfully prophesied from these benches year after year; and hon. Members opposite have taken no notice. I want to rub that in.

Year after year we have warned the House as a whole that if the Government and its weak-kneed supporters went on in the same old path of a stupid and weak foreign policy and sacrificed the benefits of collective security, certain things were bound to eventuate. They have eventuated. I remember standing at this Box and saying that unless they changed their policy, and changed it quickly, they would stand inevitably without the support of the nations in the League of Nations and would probably stand alone with France. We are not very far away from that position now. I pointed out to the House the kind of taxation sacrifices which would have to be met in those circumstances. We went into war with a debt of £650,000,000 in 1914, and to-day the debt is £8,000,000,000. Of course, in those circumstances sacrifices have to be faced. We are up against a major war, and the achievement of the objective which we all desire in the interests of liberty and freedom must tax the whole of our available resources.

We are, indeed, entitled to say from these facts that the Labour party's policy, financial and foreign, which was ridiculed and trampled upon year after year, has been proved by events to have been sound. The Chancellor of the Exchequer himself, in a speech which he made on 1st May last year, could find no argument to utter against the type of capital levy which the Labour party proposed immediately after the last war. I remember quoting to him on that occasion the various technically correct and firmly held views stated by the present Secretary of State for the Home Department when he, as Chairman of the Board of Inland Revenue at that time, was in the witness chair answering the Royal Commission on War Wealth, and how at that time he, as a civil servant, undoubtedly proved the rightness and soundness of the policy of a capital levy to deal with the debt left after the last war. On 1st May of last year the Chancellor said that there was a great deal that could have been said for it at that time. I mention this to-night simply to show that Labour's advice upon financial and foreign policy is not so unsound, after all. Events have proved it, and it will have to be recognised more and more if the resources of the country are to be properly organised and used.

I should like to give another illustration of that sort. When one hears talk about the sacrifices that are required not only from the direct taxpayer but from the indirect taxpayer at the present time, my mind goes back to that period in the Cabinet, in August, 1931, when the first proposals were being made for balancing the Budget, when the first Treasury draft, as far as it had been considered in a preliminary way, was sent for consideration to the other parties because they were in a majority in the House. I remember the messages which were sent back by the present Prime Minister, who was acting at that time for Lord Baldwin, then leader of the party, and Lord Samuel, acting for the Liberals. It was a great and heroic beginning to a balancing of the Budget, but not sufficient; it was imperative, they said, to demand further sacrifices from the unemployed of £100,000,000; there was great fear unless we should go off the Gold Standard. I mention these things because I think they need to be put on record before we can come to a sound assessment of the present policy. Having said this, let me add that, in these circumstances, and in the middle of a war which we are determined to carry to success, hon. Members opposite must not imagine that the great mass of the working class, especially the Labour voters, will forget 1931 or expect, after having been called upon now to make sacrifices, personal or financial, to win this war, to be treated in that way again. The loyalty with which they have responded to the national call in this war, in these circumstances, is an enormous tribute to the British working classes.

Having got that off my chest, let me recall to the Committee that last year, when the Budget was being discussed, I asked the Chancellor whether the proposals which he then submitted could be regarded as adequate, fair in their incidence, sound in their basis, or constructive for the future. I want to argue to night that, drastic though this Budget appears to be to many people, its pro- posals are not really adequate; at any rate, they hardly appear to me to be so from the ground covered in the Chancellor's very able and lucid speech. I recognise, of course, that with the mass of data which the right hon. Gentleman had to mobilise and put to the Committee, he could hardly have been expected at that stage to cover much more ground than he did. But the extent to which the Revenue can be obtained and expanded—and I regard this as essential—depends upon the economic direction by the Government of the utilisation of the whole of our productive resources. The difference between the Chancellor's standing in opening the Budget this year and in previous years is that at present we hold him as the responsible leader in the War Cabinet for the economic direction of the policy of the country. I rather missed, in the very able and lucid speech he delivered, any encouragement as to what is really happening in that larger economic field.

Of course, the extent to which the heavy borrowing, involved in the Budget now before us, is not to lead to a disastrous inflation must be governed, not only by the amount of genuine savings of the people lent to the Government, but also by the amount of increased production which can be set off against the increased borrowing. I have also held that if it were possible to adhere to a currency policy and a Budget policy in which you could remain tied to gold without any difficulty, that is a sound policy; but I have also held the view that there was nothing very miraculous about the tying of currency to a particular commodity like gold. What is really essential, however, is that in our national economy the amount of currency which you issue for spending in relation to your Treasury issues and total borrowing must, if it is to remain sound, be accompanied by an increase in production. It seems to me that we have not heard anything like what we might have expected from the Chancellor of the Exchequer with regard to the general economic position.

My right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence), in what I think was an admirable speech yesterday, stressed the failure, for example, to harness in support of the task with which we are faced the masses of unemployed persons in this country, or to utilise to the full the reservoir of productivity which exists in the skill of retired persons and women not usually employed in peace-time in industry. In the light of that labour problem to which my right hon. Friend referred, I am bound to say that, in spite of the great task we obviously had to face before the war broke out in rearmament, it will be increasingly found that we must obviously face not only the question of materials, but also that of goods for export. I am not satisfied that there has been a sufficiently adequate survey of our productive establishments and of the controlled mobilisation of their resources in support of the national effort. In fact, not only am I assured by people who know, but I know myself, that at this moment we have idle men and women, and also idle mines and factories, large and small. I knew, for example, last autumn, when some men in the Army, ready for active service, were without overcoats, there were establishments capable of making them, which were not being given work. That kind of thing is still continuing, although I hope in a lesser degree than last year. It is that kind of thing which, as no doubt the Chancellor of the Exchequer will realise, makes Members attack the Treasury and say, not so much that the total expenditure in this Budget is not enough, as that in the general economic planning of the Government the Chancellor is not being pressed to put the full effort of the country into running this war.

In the face of such Budget proposals as we have before us a position like that is not justifiable. We are coming to a period of major war when the expenditure of material in the field must grow by leaps and bounds. We had a comparatively quiet period from September to March. Lots of people said what a great thing it was that the front was going to be widened and that instead of our sitting for long periods behind the safe fronts of the Magi not and Seigfried Lines, with only occasional raids, we were now to have fighting under conditions when we could make the enemy use up his stuff. Let us not forget, however, that we are using ours as well, and we must take into account other contingencies and be prepared for increases in output by the mobilisation of our resources. We recognise that in the last few weeks, all too late, the Government have been making efforts to mobilise our productive resources for the export trade. Generally speaking, I feel that a great deal remains to be done. I hope that in the course of his reply the Chancellor, as the Minister who, after all, is responsible for the War Cabinet to the House on the question of economic organisation, will be able to give us some further picture of the situation.

I would next ask whether the Chancellor's proposals for increasing the revenue are fair in their incidence. Let me say at once that, in my view, there are some features of his war-time plans for taxation which command respect and agreement. My use of those words may perhaps be qualified in the minds of some of my hon. Friends, but, looking at it from my own point of view, knowing what the difficulties are, I should say that, compared with the Budgets of 1914–16, the Chancellor's plans for direct taxation have on the whole been far more realistic than might have been expected from the Chancellor of a Conservative Government. Income Tax at 7s. 6d. in the £, and Surtax on incomes of the lower level of £1,500 are to be commended. It was refreshing yesterday to hear that delightful and humorous speech from the hon. Member for Hastings (Mr. Hely-Hutchinson), who showed us that he could look from a Conservative seat in the House almost with equanimity on the possibility that the present drastic rate of direct taxation would be largely increased during the war. When an hon. Member on those benches who is such an expert on financial and economic questions takes that line, I do not think the Chancellor cancriticise my hon. Friend the Member for Bishop Auckland (Mr. Dalton) too severely.

On the other hand, it must not be forgotten that the increases in indirect taxation which the Chancellor has levied over the last few months have already placed a sore and heavy burden on the poorer classes, especially those with fixed incomes and those in receipt of pensions, unemployment pay and public assistance. The Financial Secretary to the Treasury seemed to think that we have not those problems very much in mind in this Debate because there have not been many references to such taxes as those on beer and tobacco. Believe me, we always have that in mind. If hon. Members will do me the honour of looking at my remarks on 1st May last year, they will find that the first steep increases in the duties on tobacco, sugar and tea were the subject of very pointed references; and although in view of the special circumstances of to-day we recognise that the workers are prepared to do something in this matter, that does not mean to say that, after these heavy increases, you can with equanimity levy further indirect taxation upon the incomes which they have left. That is what the Financial Secretary must bear in mind, and we must look at all the other proposals in the Chancellor's Budget from that point of view.

My hon. Friend the Member for Bishop Auckland spoke, for example, of the postal charges. It is not merely the fact that there are to be increased charges for postage, which will fall heavily on the working class, but the fact that it is an additional impost upon them after the £46,000,000 taxation on tea and sugar, and the largely increased taxation on tobacco and beer. It is the cumulative effect of these increases, one by one, which must be taken into account. We have often had to remind the Committee that in the case of all these indirect taxes four-fifths of the money is paid by the working classes. The Chancellor, before he begins to talk about his Purchase Tax, is estimating to get this year £466,000,000in Customs and Excise Duties, as compared with a humble £245,000,000 which the Labour Government could get when it was charged with causing a financial crisis. That is £221,000,000 more from indirect taxation.

Mr. J. P. Morris (Salford, North)

You had no Hitler then.

Mr. Alexander

It might well have been that if later there had been others operating in foreign affairs, Hitler would never have got the power he had. I notice a smile upon the faces of hon. Members. Perhaps they will not mind my saying that I remember a Sunday in May, 1931, when I went to Chequers with the then Prime Minister, in the absence of Lord Snowden, to see Dr. Bruening about what was the best contribution which could be made towards helping the democrats in Germany to stand up economically against the oncoming Hitler régime. I remember the proposals we made, which resulted in the Hoover moratorium of 1931. I remember the result of that moratorium. I remember that that started the run on gold. Tories in this country immediately made a great political issue of it, and charged the Labour Government with having been responsible for it. Hon. Members smile about these things, but I have a good memory.

Mr. Loftus (Lowestoft)

I regret interrupting the right hon. Gentleman, but as regards the Gold Standard, was not the mistake which the Labour Government made in 1931 the adhering to the Gold Standard at such bitter cost to inflation?

Mr. Alexander

Perhaps the hon. Member was not in the Chamber just now when I mentioned that the present Prime Minister and Lord Snowden were very keen on keeping the Gold Standard. They sent back to us and demanded that it was imperative not to make further sacrifices for the unemployed. The Cabinet did not agree, and would not stick to the Gold Standard for that purpose, and that is why we came out. It is well that we should get these things settled. Hon. Gentlemen have made quite irrelevant interruptions, if I may say so, because they have not allowed me to complete what I was saying about Hitler. The point I wanted to make was that the run on gold started after the Hoover moratorium, because it was discovered, as soon as the French made a delaying action in dealing with the Hoover moratorium, that there was a restriction on the export of capital to Germany. It was then found that the London issuing houses—nothing to do with the Government—had been issuing money on short-term loan and that the money was now becoming frozen. There was £200,000,000 or £300,000,000 of it. That money had again and again been used by Germany to finance trade with Russia, which the Tories in this country had refused us the right to finance. I am quite prepared to meet hon. Members in debate on these points at any time, because I know what I am talking about. If the country had been prepared to support the foreign policy of the Labour party then, and to give a proper show to the democrats in Germany, we might not be facing the kind of danger that we are now standing up against in Europe. That is the real position.

With regard to what I was saying about indirect taxation when I was interrupted, I want the Chancellor to give further and special consideration to the point whether it is advisable to proceed with his proposed Purchase Tax. I know that some of my hon. Friends have quite reasonably and logically said, "We have not heard much about the proposal yet, and we want to hear a little more." Make no mistake; whatever comes out of this proposal will be another tax on the consumer, on top of all the burdens to which I have already referred. The Chancellor probably will have opportunities to tell us more about this proposal, but I must say, having regard to the great amount of loyalty which the workers in this country have shown towards our war objective and the loyalty of many Members on this side of the House in doing their very best to conserve and improve it, that I feel that the right hon. Gentleman is making a grave error in submitting this proposal at the present time, unless he can show that the need is so great and that the yield of the tax will be so great as thoroughly to justify it. I observed with great interest the items which, the Chancellor has so far informed us, he will leave out of his proposal. He does not propose to tax any goods for export, food or drink, foodstuffs for human or animal consumption, articles already subject to heavy duties, such as tobacco and petrol, or services for domestic consumption, such as fuel, gas, electricity and water.

I have made a few calculations, although not, of course, final ones, because the Chancellor has not told us how much he proposes to charge, whether by a flat rate or any other rate. May I say to him that I have quite an easy method of getting a rough measurement? Necessarily, it must be rough. There are two organisations with which I am well known to be connected covering England and Scotland, and in those two organisations we handle in wholesale trade about £160,000,000 a year. Of that trade the exclusion of all these items will probably cover 84 per cent.; only 16 per cent. of the remainder would come within the scope of the tax. It is true that in that class of business we probably have a greater preponderance of food trades than perhaps might prove to be the percentage in non-food trades in the rest of the trade of the country, but having made every possible allowance for that fact, I take the view that probably not more than 20 to 21½ per cent. of the normal wholesale trade turnover in this country would fall to come within the scope of the tax on the basis which the Chancellor has announced to the Committee.

Normally I should say that the ordinary retail commodity sales in the country, which, after all, are the ones to which the Chancellor will pay most attention, taken collectively would vary from £2,100,000,000 to £2,300,000,000. If you take the wholesale value of them and take 20 per cent. of that wholesale value, even making the most generous interpretation of it, I cannot see that the Chancellor would have a wholesale sale of a greater amount in a fiscal year's tax than £450,000,000. I have been looking at other species of turnover tax—because that is really what this is on a wholesale basis—in other countries. I find varying amounts. A great many of them are quite low. In one case that I saw it was as low as one-half of 1 per cent., except that in that case it was accumulative and it was applied at more stages than the wholesale stage. In other cases it was 2½ percent., and in very few cases did I find a steep turnover tax. In most countries a steep turnover tax is very likely to cause very serious discontent. I there for obtained a few figures. If your flat rate—and I gather from the answer to the interruption of my right hon. Friend on Tuesday that it is to be a flat rate—is 5 per cent. or 1s. in the £, it is obvious that on £450,000,000 you will get no more than £22,500,000 a year. If you have 2½ per cent., it is one-half of that sum. Is it worth while to add such a tax as that on top of present indirect taxation and disturb the general workers in the country, when you are dealing with a Budget in which you have raised already £1,224,000,000 by taxation and propose to borrow £1,143,000,000? I thought there was some indication in the Chancellor's speech on Tuesday that this would give him an enormous revenue. He referred to other methods to which he had not yet applied his mind. If this proposal is to be only the thin end of the wedge in a much wider basis for taxing the consumer in the future, he can assuredly count upon the whole-hearted opposition of those for whom I speak. However, I gathered that he was anxious to get as far as he could from increasing the cost of living for the poorest people.

I would add, however, that, as some of my hon. Friends have pointed out quite rightly—my hon. Friend the Member for Farnworth (Mr. Tomlinson) dealt with the point very effectively—there is very much doubt whether this proposed tax will have any effect at all in regard to the Chancellor's other proposal, to restrict consumption in the home market, in the interest of maintaining the economy of the country in war-time. What would happen is what we have already seen happen with regard to butter and bacon. If the Government increase the price of a commodity, as has been done with butter and bacon, the result is to ration the articles to the poorer consumer, but not to the consumer who can afford to pay. That has been our problem in regard to butter and bacon; and exactly the same thing will arise in connection with clothes, boots, personal equipment, furniture, carpets, and so on. I do not think that that objective of the Chancellor either will be met by a tax of this kind.

I should like the Chancellor to explain exactly how he is going to organise his register of wholesalers. He spoke, in his usual clear and illustrative manner, of a sort of fence, or corral, into which he put the wholesalers, and said that they will be taxed only when they hand goods over from inside the corral to people outside. Of course, he says, there would be no tax if they were only exchanging goods between themselves. I should like to hear from the right hon. Gentleman, who is one of the most eminent Chancery lawyers we have ever produced, what is his interpretation of a wholesaler. I have already had some experience myself as to the difficulty of deciding in a case like that who is a wholesaler. I really think the Chancellor had better have another look at that point. Owing to the diversion which I had to make just now because of interruptions, I have been a little longer than I expected to be, but the Committee perhaps will allow me to say that, of course, you cannot arrest the so-called vicious spiral by such a tax; and I am not at all clear as to what is the general theme of the Government's policy in this direction. For example, we have this £46,000,000 of taxation put upon tea and sugar. Then we have the announcement that the Government do not want this spiral to be effective, and so they are going to provide a £50,000,000 or £60,000,000 subsidy to prevent the price of certain foodstuffs being increased to the consumer. Then, on top of that, we have the proposal for a general sales tax, which will again raise prices to the consumer. I do not see the general direction of the Government's policy in between these various proposals. Perhaps the Chancellor will explain how, in these circumstances, he hopes to arrest the vicious spiral.

My hon. Friend the Member for Bishop Auckland dealt adequately, I think, with the question of the limitation of interest and bonus shares, but may I put this point? We are trusting the Government, of course, to carry out their pledges with regard to a levy on war wealth at the end of the war, but I am not clear, from the kind of announcements thay are making, how they propose to do it. Is it not essential to have a valuation? What is going to happen on the present basis of saying, "You must be good boys, you company directors and shareholders; you must not issue more than in the last three years, and you must not issue any bonus shares." I know that the Board of Inland Revenue officials are pretty good, and I would like to know from them or from the Chancellor of the Exchequer how they are going to deal with them. Is there to be a valuation? Are we sure that we have sufficient information under the ordinary terms of the National Defence Contribution and Income Tax combined to arrive at a proper estimate of war wealth? I should like to know whether there is to be some basis of valuation.

The last point—and I must leave out something—that I want to make is that there is one thing that I am not satisfied about in the Budget speech and indeed in much of the Debate. We certainly want a great increase of our national effort in the production we need to win the war, and I am not satisfied that we are taking proper care to see that we get value for money. I have asked the House about this on four or five occasions in the last two years. Case after case comes along to me, and I am shown that money is being regularly and directly wasted and that contracts are being given out without any price being quoted at the start, and there are extraordinary stories of the results of that practice. There is a grave lack of supervision, and I would like to know from the Chancellor of the Exchequer when we are to obtain anything like an adequate report from the Select Committee which he has setup. I hope that during the course of our financial Debates we shall get some information about it. It is not a question of providing money by taxation to win the war, but of seeing that we do not burden the country now or in the future more than is necessary. I would not allow the kind of waste which happened again and again in the last war, and the kind of profits which were referred to two or three years ago in the aeroplane factories, and I ask the Chancellor of the Exchequer to see what he can do to reassure us that there shall be proper economy.

In the meantime, anybody in this Committee who really is anxious to win this war for liberty and freedom ought to be prepared—and I think they will be prepared—to support a general effort to increase our production capacity and output. It is easy to talk about equality of sacrifice; there never will or can be equality of sacrifice in war. No one can make an equal contribution to winning a war, but we ought to see at any rate that we conduct this national effort in the best possible way and that we do not have waste or profiteering, and that we are prepared to reconstruct a society in this country which will be worthy of the freedom and liberty for which we are fighting.

10.14 p.m.

The Chancellor of the Exchequer (Sir John Simon)

It is a well-established custom of the House of Commons that, after the Budget has been opened, there should be a Debate for a couple of days in which hon. Members who take part discuss proposals or speak more generally on the economic situation, and that at the end of this preliminary and general examination of the Budget proposals the Chancellor of the Exchequer should make a short reply. I cannot hope to deal to-night with every question that has been raised. I have several in mind with which I will not attempt to deal now, but I have done my best to make a note of them, and the Treasury, among its other undoubted virtues, is a Department that takes the most careful and accurate note of any and every observation of a financial kind, and in due course it is examined and either the Financial Secretary or I consider it.

I was glad that the right hon. Gentleman the Member for the Hillsborough Division (Mr. Alexander) began with the well chosen declaration that he made. A foreigner must think this a very curious country, for I believe it to be completely true that there has never been such fundamental unity amongst us as exists to-day. It is certainly true, from the small knowledge that I have of our history, that there was never an entry into a war in which this country was more of one mind. In fact, right through the Napoleonic wars there was always among the politicians of this country a body of men of high character and honesty of purpose who were opposed to the Government. In the Crimean War some of the most famous figures in politics offered strong opposition and are still remembered for the wonderful speeches that they made in the House. The Boer War split a historic party into fragments, and even in the war of a quarter of a century ago there was far more difference of opinion than there has been to-day. That is a very great satisfaction to every man who is devoted, as we all are, to finding a way to victory. I recognise that it throws a very great responsibility upon the Government. When I hear Members exercise their full right to utter language of criticism, and sometimes of reproach, it only has the effect of making me feel that we must all recognise the enormous burden of the duty we have to discharge and that we must try to discharge it as well as we can.

It is true that this has been in some ways a very peculiar Debate. The peculiarity that has struck me most is this: I have proposed the imposition of taxes which total to a larger amount than ever before. There has never been such a big tax burden, yet the main complaint running through the Debate is that it ought to have been more. Since so many critics have warned us, with very good reason, of the great danger of increasing borrowing to such a point that we stretch the elastic till it breaks, it follows that those who take this view must really believe that there should be more taxes. If one takes the round figure which has been once or twice used in the Debate, it means that there should be another £1,000,000,000 of taxes. Here is my puny little effort, and in the end I produce £101,000,000 of additional taxation. All I would say to those who have contributed to the Debate by making these comments is that, although there is a well-known constitutional rule that provides that a Member of Parliament may not, himself, move in Committee or in the House an increase of taxation, there is no rule which prevents Members from explaining how they would propose to raise another £1,000,000,000 this year. As I have been able to raise only £101,000,000 I wish somebody would tell me how to do it.

Mr. MacLaren

Will you take the tip?

Sir J. Simon

Under the hon. Member's specific it would take a very long time to raise £1,000,000,000. However, I must exempt from this criticism the hon. Gentleman the Member for Bishop Auckland (Mr. Dalton), who is a logically minded and a well educated man. He thought it rather ridiculous to go on like this—not making suggestions as to how to fill the gap—and so he gave us some ideas on the subject by suggesting some form of tax on capital. I am not holding him responsible for it, but I was surprised when he said that in some quarters it was not thought administratively difficult to carry out a tax on capital. Certainly it would be difficult to carry through in order to get £1,000,000,000 in the next 12 months. But he said, if there are difficulties there is a variant. He said, Why not proceed on the basis that after all capital was valued because it produced an income at the assumed rate of 3 per cent. and not bother about examining the capital assets of "A" or "B"? Why, he said, should I not proceed on the assumption that anybody who had any considerable income must be regarded as having it because that income represented 3 per cent. on his capital?

I made a calculation, because it is not my experience that people who have a considerable income always have capital to match. I should have thought that in the case of a famous or successful surgeon who might make a large income for some years—perhaps I might even modestly suggest a fairly successful barrister—it would not by any means follow that you could by precise, simple arithmetic arrive at the exact total of his capital assets. If there ever was a Labour Government in this country again, each member of whose Cabinet drew £5,000 a year, it would follow that every member of that Cabinet would be holding capital amounting to £166,666.

There was another observation by the hon. Member for Bishop Auckland that I must touch upon, although I think it was dealt with delightfully and wittily by my colleague the Financial Secretary. I understood him to take the view that this Budget did not contain any direct taxation at all.

The right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence), exercising that freedom which we all enjoy when we go to the microphone, has been telling the people of this country—so far as they listen to him, and I have no doubt many do—that this Budget contained a small increase in Income Tax which was announced last year. It is interesting to me to note that we have moved into a world where the increase in direct taxation in this Budget is regarded as a mere trifle. It shows how the standard of things has changed; anything less than £1,000,000,000 is not worth talking about. I understood the hon. Member for Bishop Auckland to say that it was not worth while dealing with the direct taxation because the proposals were announced last autumn. The hon. Member reminds me of the White Queen. It will be remembered that when Alice met the White Queen the lady suddenly began to scream, and when Alice asked what was the matter, she said, "I am going to prick my finger." A little later, when the next Budget came round, she found her finger was badly pricked, but she did not say anything because she was living backwards. I am glad to hear that this part of the taxation is not regarded as burdening the people so greatly.

Mr. Dalton

It is covered up so nicely.

Sir J. Simon

You must not warn people in advance. When a distinguished surgeon performs a serious operation he must not tell the patient about it beforehand, because when the operation table appears he will like it.

There is another line of criticism to which I have listened and which I under- stand is seriously entertained in some quarters. The hon. and learned Member for Montgomery (Mr. C. Davies) said it was a sad and melancholy reflection that when we were entering on this dreadful business of war, in an emergency Budget there should be so modest an increase in the amount of revenue expected to be raised. I do not think he stated the facts correctly. It is true that in the Budget of 12 months ago I estimated a revenue of £942,000,000. That Budget cannot be regarded as exactly a peace Budget, as it was to provide for the possibility of war, and as it turns out we ought to be glad that the House of Commons went in for rearmament when it did. I do not wish to enter into past history. I listened to the vigorous explanation of the right hon. Gentleman as to how he and his friends were right and I enjoyed it all the more because I have heard it several times before. I cannot help thinking that when hon. Members opposite look back they must feel very glad that for a number of years their opposition to increased expenditure on armaments was voted down in the House of Commons.

The hon. and learned Member for Montgomery said, "Look at the increase, a mere £60,000,000."But what was the first thing that happened on the outbreak of war? We had to revise our financial Estimates. We had to recognise that under war conditions we could not expect to get from existing taxation what we should have got before, and the first thing I had to do was to knock off over £50,000,000—about £54,000,000—from the Estimate of £942,000,000 and build up from the lower figure increased taxation which in fact amounted to over £100,000,000. This time we have got the further result of that action. A good tax should have the quality that it tends to produce more, and not less, when it gets in full motion.

Mr. MacLaren

Hear, hear.

Sir J. Simon

On that point the hon. Member agrees. I have always understood that would be the effect of a system of land taxes. But it takes time. The consequence is that, if I take a space of 12 months, inside those 12 months we have had three Budgets, and the increases which have been imposed in that period of 12 months, taken together—if you were to take them as in a full year— would actually produce an extra result from revenue of £330,000,000. That is a pretty big total. As I have said, because we are faced with these perfectly prodigious totals, we tend not to realise what an enormous amount that is. For good or evil we must recognise the fact—for it is one of the things that are fundamental to this whole problem of budgeting—that we must get under modern conditions an enormous rise in the total that will be spent in carrying on modern war. The critics may be right when they say we ought to be spending even more. Certainly, I do not resent their saying it, because I am as keen as any of them that we should put forth the utmost effort; but while you may say that expenditure should go up by three, five or 10 times, there is no power on earth which will make the imposition of taxes operate and multiply at the same rate. You may look at the one figure through a magnifying glass, and it will bulk very big, but 6d. on the Income Tax or 1d. on beer will not suddenly multiply by five or 10 times.

That is the reason why, inevitably, when you get a very big total such as we are now facing, struggle as you may you cannot prevent the sum total produced by taxation from tending to drop a little behind. I tried very hard—I do not think anybody ever tried harder—at the beginning of this war to start on a sort of fifty-fifty basis, and it was a pretty difficult thing to do. Inevitably, as the expenditure goes up by £1,000,000,000 or £2,000,000,000, the proportions are bound to shift. What we can do, of course, and what we ought to do with all our might, is to make contributions from taxation as big as ever we can, but it is impossible to lay down some supposed scientific formula which will determine, without regard to practical circumstances, how much that can be.

Having made these general observations, I should like now to answer two or three of the main questions put to me, which are of a more specialised character, and I will first take two points, among others, put by the right hon. Member for East Edinburgh when he opened the Debate yesterday. They are technical points, but they are very important. As regards at any rate one of them, I have had the advantage of conversations with him before, and in giving him across the Floor of the Committee a short answer, I will tell him that I shall be glad to have any further discussion or consultation with him. The right hon. Gentleman said that cases had been brought to his attention, in which, owing to the existence of a free pound-dollar exchange by going to a place where you can get sterling for less than our official price—an exporter in a foreign country might be able to quote a lower sterling price for an article—I think he mentioned Indian shellac—to an importer, a Canadian importer, than a United Kingdom exporter could do. Such a case is certainly possible. I do not think myself that the questions involved in this matter are so isolated—certainly they are not simple—that we can discuss them with profit at great length in a Parliamentary Debate.

I can only say that I have, to the best of my ability, gone into this matter in very great detail, but I willingly associate myself with the right hon. Gentleman who modestly said he did not claim—and he thought that very likely I did not claim—to be a complete genius on the subject. Very few people are. The real truth is that it is our policy to conduct as much of our trade as ever we can, on the basis of the official rate of exchange and that immensely the greater part of our trade is so conducted or conducted in other areas where the dollar does not come in. It is unquestionably on balance the right thing to do. The fact that we try to maintain that exchange has a good deal to do in this connection with the treatment we get and the sympathy we get from the other side of the Atlantic, and if we simply let our sterling go to ruin and did nothing about it, that would not be the end of the story. If there are little pockets in which it is possible to get sterling cheaper, then undoubtedly that does give a man who gets the chance a little business on a profitable scale. As a matter of fact more and more are we getting control of this, and I cannot assume that many such cases will arise, having examined it and taken all the best advice, not only from the Treasury but also from the City and experts, and I can only tell the Committee that I am satisfied that on balance it is better to let these rare cases happen than that we should reverse our policy in this regard.

The other point was that the right hon. Gentleman had been told that there were cases where a man, I presume a British resident, had escaped the due account for dollar securities he had because he had put them in a private company abroad, and in that way it might be that certain individuals were failing to surrender those dollar securities. That again is possible. He suggested that I might be helped if I called together a committee. I would very readily do so if it would help, but in point of fact I believe we handle these things better because we already have exceptional information at our disposal, including that from the Inland Revenue. I do not imagine anyone knows anything more about this, except a limited number of professional persons who themselves are responsible for making these arrangements for their clients, and therefore they, of course, have quite exceptional knowledge. I hope that my words can reach and citizen outside who says, "I have not got to account because I have put my securities in the hands of a company in the North Pole or somewhere." If these are straightforward, honest citizens, they will say, "I do not agree with the arrangement I have made. I am going to produce these dollars." That is what his professional advisers should say, and if that is done, we shall get some dollars which might otherwise have escaped. We get very valuable information from various quarters, but we are glad of all the help we can get, and if the right hon. Gentleman and those who help him will be good enough to place his information at our disposal, we shall be very glad.

The next point on which I must say a few words, as clearly as I can, is the limitation of dividends. There is, undoubtedly, some anxiety that this should be stated clearly so that there shall be no possible doubt about it. I will state the proposals which will be contained in the Limitation of Dividends Bill, which I hope I can introduce in a few weeks' time. First, as regards the standard dividend beyond which a company, under the Bill, must not go, what is to be the pre-war standard? My present idea is that the standard period by reference to which an existing company must regulate its annual distribution is any period for which the accounts of the company are made up ending after 30th June, 1936, and before 1st July, 1939. That is a period of three years. It follows, therefore, that within the period there have been three occasions when the company has made up its annual accounts. The company may take whichever year it thinks best. The standard is the amount distributed in respect of that accounting period. Let me give an example. A company which makes up its accounts to 31st December will take as its standard the dividend it paid in respect of the year ending 31st December, 1936, or the year ending 31st December, 1937, or the year ending 31st December, 1938. It would naturally choose the highest. This applies to the dividends to ordinary share-holders, and I am assuming there is no change in the quantity of ordinary shares. An existing company, therefore, will be entitled to distribute either of two amounts, whichever is the greater. One would be an amount equal to the amount distributed by way of ordinary dividends on paid-up capital in any one of the standard periods; or alternatively, an amount equal to interest for the standard period at the rate of 4 per cent. on paid-up ordinary capital at the end of that period, whichever is the greater.

One or two of my hon. Friends have put the question, whether I was correct when I used the phrase, "a minimum of 4 per cent." It entirely depends on the connection in which that phrase, "a minimum" is used. I was, I think, correct in the statement, but I can see that there might be confusion. What is meant is this: Assuming that a company makes profits adequate to justify it in distributing dividends, such a company will be entitled to distribute, as a minimum, 4 per cent. But if it has, in any one of the three previous years, distributed more than 4 per cent., it may continue to distribute at the same rate as it has distributed before. In that sense, 4 per cent. is a minimum. Let me take one illustration, because I want this to be clear. Take quite a common type of capitalisation, a company with, let us say, £100,000 in 5 per cent. preference shares, without participating rights, and £100,000 in ordinary shares; and I am assuming that there has been no change in the amount of capital. The position is that if the company had paid 10 per cent. on its ordinary shares in one of the standard years it will be able to distribute 10 per cent. in the future. Of course, its preference dividend is not affected. If, on the other hand, the company in those past years has paid less than 4 per cent. ordinary dividend, then it will be allowed to distribute a maximum of 4 per cent. on its ordinary shares. I would make it entirely clear that when I say 4 per cent. what I mean is that that will be the gross amount declared; of course if it is attempted to distribute it free of tax the tax would have to be "grossed up" in order to get the gross and not the net amount.

I have been asked what is to happen where there are preference shares with participating rights—shares which are entitled to a fixed dividend, if there is money to pay it, and which share with the ordinary shares, in some way, what is left. The aim will be to limit the amount to be distributed during the war period to the amount which was paid in the standard year in respect of the ordinary dividend and the participating rights taken together. For the purpose of the 4 per cent., if the standard year did not produce a more favourable result, that 4 per cent. will in general be calculated on the ordinary capital, but some part of it may go towards meeting participating rights if there are participating rights.

Provision will have to be made, as I said two days ago, for new companies, because they will not have any standard, and also it will be necessary to deal with cases in which the capital of the company has been increased since the standard period. In addition, there may be cases where there are exceptional circumstances which might justify the payment of a higher rate of dividend than would be possible under the general rule, and a company will be able to apply to the Treasury for an increase if there are such exceptional circumstances. I have had a case or two mentioned to me as illustrations, but, of course, I cannot say anything about them now. Those cases will all be dealt with on the advice of the Capital Issues Committee, which, as hon. Members interested know, sits under the presidency of Lord Kennet and advises the Treasury constantly an all matters affecting capital issues.

Mr. J. P. Morris

May I ask one question?

Sir J. Simon

Yes, but I do not think we shall improve things with too many questions.

Mr. Morris

Just one. May a company be allowed to pay up arrears of preference dividends?

Sir J. Simon

Oh,yes—if it is cumulative preference dividend. A point occurs to me which I dare say has occurred to others. Unless I were tempted to make this Bill retrospective, which is a thing I would not wish to do, strictly speaking I shall not get any results until the Royal Assent is given to the Measure. While I recognise that there may be some companies which have already made different arrangements. I think myself that if this proposal is felt to be generally approved, all honourable, prudent and patriotic business men will do their utmost to secure that the spirit of the arrangement is observed.

In order that I may make one difficult point clear, let me say again that in what I have been saying "dividend" means the gross rate and not the net amount received after deduction of tax, which might alter because there has been a different rate of Income Tax. That, of course, means that dividends paid free of tax will be what accountants commonly call "grossed up."

I cannot imagine that what I have said clears away every possible connundrum from everybody's mind, but I think that if they will look at my words as they will be reproduced in the Official Report that will be almost better than risking confusion by answering questions.

Mr. Dalton

Private companies are not affected in any way by these regulations?

Sir J. Simon

The hon. Member mentioned the point earlier in the day. I am very willing to answer him. I have no objection to it in principle, but the difficulty is, as some hon. Members know, the constitution and nature of a private company. Very frequently a private company is really the embodiment of a partnership, and the directors have really complete control over the distribution of the money. In these circumstances, it would be very difficult to limit dividends effectively; and the same result can be achieved in many other ways. I shall not exclude the possibility at all, but—

Mr. Dalton

Many of these companies have different names.

Sir J. Simon

True, and the hon. Gentleman will appreciate that this is a very difficult problem.

On the question of bonus shares, hon. Members opposite have made very interesting speeches in the last few days. I do not think that I quite agree with all that they have said, but I can say that it would really be no use to have a limitation of dividends scheme unless at the same time we prevented the creation of bonus shares. If a company makes a large profit it may deal with the profit in either of two ways. One way is to declare a dividend, when the shareholders get a proportion of the profit, and the other is—I thought I should be able to go on with my speech, but I cannot go on now, and I must ask the Committee to forgive me. I am afraid I have to stop in the middle of a ploughed field—or a partly-ploughed field.

Question, 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,

put, and agreed.

Resolution to be reported upon Tuesday next; Committee to sit again upon Tuesday next.