HC Deb 23 July 1940 vol 363 cc668-702

Motion made, and Question proposed, That the law relating to the national defence contribution be amended as respects all accounting periods beginning on or after the first day of April, nineteen hundred and thirty-nine, and so much of any accounting period beginning before that date as falls on or after that date) so as to disallow deductions in certain cases in respect of interest, annuities and annual payments, and in respect of payments under certain contracts or arrangements relating to indemnification in respect of war damage.

6.7 p.m.

Mr. Lees-Smith (Keighley)

The Chancellor of the Exchequer has presented to us a Budget which I think contains the largest expenditure and the highest peak of taxation in the history of the country, and I am bound to say that he did so with a persuasiveness and a disarming manner which I have noticed has got him through a good many difficulties in the House before, and which on this occasion kept the Committee in fairly good humour throughout the painless dentistry in which he showed himself a practitioner. He said that the estimated expenditure was nearly £3,500,000,000, and I made a little calculation which showed that that is about £900,000,000 more than the estimated expenditure of the Budget of April last. I am glad of that increased estimate of expenditure, and I take it as an example of the increased vigour of the administration and of the increase of our production of the war machine under the new administration. I say that for this reason, that the main advantage which Germany has in this war is her machines, and the general impression which I have gleaned from those who have come back from the front is that if you take a German out of his machine, it is doubtful whether he is as good a man as his father was in 1914. The Nazi system produces a poor human quality, and when our production of machines of which our expenditure is the test is so developed that we meet with the Nazi powers man for man on equal terms, then the war will begin to be won. I was interested in the statement of the Chancellor of the Exchequer about the Purchase Tax. The Bill has been withdrawn; it is proposed to tax in an entirely new form, and I noted with pleasure that we accepted the very drastic suggestions made by my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) that the tax should be in two steps, distinguishing between necessities and luxuries. My right hon. Friend and I will consider the new tax and the other proposals during our leisure in the course of the next 24 hours, and I hope that tomorrow afternoon the right hon. Member for East Edinburgh will let the Chancellor know what our views are. There is one principle which we have laid down for every Budget, even in war time, although we do not want to apply it to pedantic extremities, and that principle is that no scheme of finance must undermine the reasonable standard of life for everyone throughout the whole population. If I may say so, that principle, I think, is reinforced by the present position and the course of the war, because this is now clearly going to become a war of endurance and of nerve strength. One of our greatest advantages is that we began without that continual lowering of the standard of life to which the German population had been subject years before hostilities broke out. Therefore, we would say that any scheme of taxation which impairs the sheer power of physical resistance would be a scheme of taxation which would undermine our strength in enduring this war to the end.

In the early part of his speech the Chancellor of the Exchequer went into an interesting exposition and examination of the danger of inflation, and I would like to take some of his figures and tell him exactly in what area, as far as I can see, the danger of inflation will take place. He told us that his expenditure is £3,467,000,000; he did not actually give us his final figure, but I calculate that it is about £1,471,000,000. Therefore, I calculate that the deficit is somewhere about £2,000,000,000. He spoke about borrowing and referred to the various resources which he had at his disposal, such as mobilising foreign securities, which is a kind of forced loan; but from the calculations which I have seen I have not heard our power of borrowing put at a great deal more than, say, £1,000,000,000, and I have not heard of our power of mobilising foreign securities put at much more than, say, £400,000,000, that is, if the war is to last for two or three years. So that you get there a figure of £1,400,000,000 towards a total deficit of about £2,000,000,000. This is why I have made this analysis: I gather that the remainder must be borrowed, and is already, I suppose, deemed borrowed from the banks. Of course, it is in this sum which has been borrowed from the banks that the area of possible inflation is to be found, because, as the right hon. Gentleman explained in a very interesting way, that does represent exactly that money which is extra Government expenditure without any reduction of private expenditure to offset it on the other side which would lead naturally to a rise of prices and progressive inflation. I mention that, because I would like the Committee during the Budget discussion to examine some of the rather technical proposals which have been made by financial economists upon this subject. I find that a large school of them consider that the danger of inflation by borrowing from banks is much less if you borrow from commercial banks than if you borrow from the Bank of England. That is a very important point, which could very usefully be discussed during the Budget Debates. I have examined the point made by the right hon. Member for East Edinburgh in that article to which reference has been made. The point is that, although there may be a rise in prices, the dangers of it may be largely met because in this very artificial economy of war there can be a selective rise in prices, by distinguishing between necessities, semi-luxuries and luxuries. I hope that that point will be usefully discussed in the later Debates.

I come to the increase in direct taxation. I accept that, but it would have been better if this increase had come last April, because changes of taxation in the middle of a financial year create the maximum of inconvenience and dislocation. I believe that the Chancellor, if necessary, can carry the limits of taxation in this country almost to the limits of human endurance. A great difference has taken place in the war since the Budget of April last. Since then, we have been driven in upon ourselves alone, and now we know that never has any country had such a responsibility as will rest upon us, with our 45,000,000 people, during the next few months. We have the responsibility for the civilisation of the entire world in the future. The country knows of that responsibility, and I believe it is willing to rise to that responsibility, and, therefore, to accept self-sacrifice such as it did not contemplate even a few months ago.

6.18 p.m.

Sir Percy Harris (Bethnal Green, South-West)

I would like to congratulate my right hon. Friend on having handled a tremendous task with skill, and, above all, with clearness and grit—two very important qualities. I was glad to hear, too, of his incorrigible optimism, which is something very helpful and necessary in these days. When he was making his terrific call, unprecedented in the history of this or any other country, I could not help thinking of some of his great predecessors who have stood at that Box. I thought of Peel, Gladstone, Asquith and McKenna, whose Budget Speech during the last war I remember hearing. I thought of my right hon. Friend the Member for Carnarvon Boroughs (Mr. Lloyd George) and of the memorable statement in 1931 of Lord Snowden. Their figures were big, but they certainly would have been amazed if they had thought of the figures which the right hon. Gentleman has now given us. Some people were surprised at his selection for the office that he holds. He had had no previous experience of finance. Most of his work in the House of Commons had been associated with the spending Departments, particularly the Ministry of Health and, later, the Air Ministry. His appointment is an experiment. He has to win his spurs. He is now on trial, under testing circumstances.

He has appointed a committee, and I think that in that he has been well advised. I do not know whether that means that the Chancellorship is going into commission. We should like to know —though, of course, the right hon. Gentleman is not likely to tell us—how much the members of his committee had to do with the framing of his scheme. How much is due to the hand of Mr. Keynes, and how much to the hand of Lord Catto? Certainly there is none of the originality of Mr. Keynes in the Budget which is now presented to us. It is unimaginative. The right hon. Gentleman seems to think that he has exhausted the possible methods of taxation. It seems that even the ingenious minds of those whom he has called into council have been unable to devise any new methods of bringing in the tremendous Revenue that he has to find. The Income Tax is a very useful instrument, and it is to be increased, although by not quite so much as was anticipated in some papers. We should like to know a little more about the right hon. Gentleman's scheme for collecting the tax, through the employers. I am afraid that that is going to put a great deal of work on the employers. We shall scrutinise this particular device very carefully in Committee.

I come to the Purchase Tax. We must have the revenue, and this is the best that the right hon. Gentleman can do. Although most of us claim the right to examine the Bill when it comes before the House, we accept the principle. The principle of graduation is right. It is difficult to say exactly what is a luxury and what a necessity, even if you exempt food, but the principle is sound, and if the right hon. Gentleman has worked out a scheme which is practicable we shall do our best to help him. I regret that he has not thrown overboard the tax on what is not a luxury but a necessity in war-time, the tax on books. That is a thoroughly unsound tax, particularly at present. It is common knowledge that the book industry is going through a hard struggle to survive under the strain of war conditions, and, with the public facing the long nights of the winter, with the blackout in force, it is unfortunate that this very bad tax on knowledge has been retained. I hope that when the time comes members of his committee will do their best to persuade the right hon. Gentleman to regard books as a necessity at a time like this, and will get him to throw over a tax which cannot bring in much revenue.

As for tobacco, it is one of those useful instruments to which every Chancellor of the Exchequer turns as a convenient way of raising revenue, but this tax is a hardship on the soldiers. That is not a mere appeal to sentiment. When the soldiers went overseas they got their tobacco and cigarettes at a more or less nominal price. If the right hon. Gentleman insists on this tax he should persuade the Service Departments to consider seriously giving each soldier a free grant of cigarettes or tobacco. I am not going to deal with the tax on beer, but I should like to make a reference to entertainments. The entertainment industry is going through a lean time, particularly in London, and particularly the theatrical side, as opposed to the cinema. The late Prime Minister, when he was Chancellor of the Exchequer, made some concession to the living theatre.

Mr. A. P. Herbert (Oxford University)

And the late Chancellor of the Exchequer did so.

Sir P. Harris

Yes. I suggest that if the right hon. Gentleman puts this extra tax on entertainments, he should make some further concession. In London theatre after theatre has closed down, and hundreds of actors and actresses have been thrown out of work. Some concession would be much appreciated, and it would decrease the possible unpopularity of this further taxation. However, we are conscious that we have to find the money somehow. It is very easy to criticise, but one is always faced with the challenge, "Find a better way." I believe that the nation is prepared to submit to any burden in order to secure victory. The alternative obviously means bondage and bankruptcy. We can see what has happened to our ally France, which has handed its liberties over to the Nazi invader.

I should be neglecting my duty if I did not make some reference to the blessed word "economy." The right hon. Gentleman did pay lip service to it, but it is a word very much out of fashion, and almost under suspicion. The suspicion arose during the first nine months of the war that it was used in order to hold up necessary war supplies. The figures for the last few months, and especially for the last month, prove that nothing of that kind is being done by the present Chancellor of the Exchequer. It was suggested that the late Chancellor of the Exchequer was too much the top dog. The right hon. Gentleman must be careful not to become the bottom dog. The nation's resources are not unlimited, I am glad that he stressed that point. We must think, as he said, not so much in terms of pounds, shillings and pence, but in terms of man-power and material. If any Department is wasteful or extravagant it is hindering the war effort. I happen to be a member of the Select Committee on Expenditure, and I took a great interest in the starting of that committee. I was very glad that the right hon. Gentleman went out of his way to pay tribute to the work of the committee. I should like to pay some tribute particularly to the chairman, whom I am glad to see in his place, and to the 30 members of the committee who have done yeoman service in examining all the details of the various Departments. But let us be frank with ourselves. I think the chairman of that committee will agree with me that only too often our criticism and examination come after the event rather than before. We cannot do anything at the beginning. We have to look to the ordinary machinery of government.

The right hon. Gentleman the Chancellor of the Exchequer, as the guardian of the public purse, must take the main responsibility for seeing that our resources are used to the best advantage. I know that everybody regards the Treasury control as amply fulfilling that responsibility. There is no one who does not recognise the ability and capacity of those splendid men who work in the Treasury, but, although they discharge their functions efficiently and effectively in peace time, something else will have to be devised if we are really to control these great Service Departments that are expanding almost every week. We are becoming more and more a vast trading organisation monopolising the greater part of the industry of the country. It is something like the financial director that you have in these big combines and businesses, working, not outside the Department like the Treasury and the Select Committee, but right inside, and seeing to the proper balancing of the industrial output and the vast expanding expenditure.

The economic weapon is likely to be as deadly as guns, ships or aeroplanes. Germany now commands more or less the whole resources of Europe. She is ruthlessly harnessing her industry and agriculture to her war effort. On the other hand, we have the unlimited resources of the New World. Germany gets her supplies by robbing her victims; we, on the other hand, have to pay for what we require in sterling. I was very glad that the right hon. Gentleman went out of his way to refer to the vital importance of maintaining our exports, and that some concession is being made by the Ministry of Supply and the trading Departments to stimulate and provide the exports that are now handicapped obviously by the closing of the Continental markets. We have to look to them largely to help us to get those vast resources upon which the next few months depend so much. But they only partly, or in a very small way, contribute to paying for our necessary imports and supplies. We have largely to rest upon our credit and the soundness of our financial position. Upon that depends whether we can prove to the world that our financial system can stand the strain of this terrific war expenditure. We are not by any means, as the right hon. Gentleman showed, paying our way. He has asked us to find a very large sum, but their still remain vast balances that must be found by borrowed money and by various ingenious devices.

The right hon. Gentleman said that this was an interim Budget. I think that that is the right description. It is not going to be the end of the amount of money we shall have to raise. We shall have to find still larger sums from the taxpayer in the future. I suggest to him that between now and next spring, or even earlier, when he comes again to this House, he will put on his thinking cap and use the ingenuity of his advisory committee to see whether the nation, which is willing to find the money, can be told new ways, methods and systems of finding taxation in order that we can say that the country is financially sound.

6.34 p.m.

Sir John Wardlaw-Milne (Kidderminster)

It is not given to all of us, indeed it is given to very few of us, to have to stand at the Front Bench and introduce a Budget, but I am sure that I am speaking for all Members of the Committee when I say that, although we may not be able to speak from personal experience, we can realise the very severe strain of having to speak for about an hour and a half with an explanation of detailed sets of figures and hold, as the right hon. Gentleman did to-day, the complete interest of the Committee. I congratulate him very much upon the achievement of that heavy physical task. Although most of us have not, as I say, had anything to do with introducing budgets, it is probably the case that almost every Member of Parliament at some time or another has had to make speeches in his constituency or elsewhere dealing with budgets, and at any rate most of us, I think, have long ago found the necessity of making one thing clear to an uninitiated audience, namely, that the Budget is neither a balance sheet nor a profit and loss account, but that it is nothing more or less than a statement of estimated income and expenditure. It is, therefore, from that point of view that I want to say a few words in reference to the statement which has been put before us to-day for a balanced Budget is a thing unknown in these days either in this country or elsewhere.

The Chancellor of the Exchequer, as was right and proper, devoted the greater part of his speech to pointing out that it was necessary to put forward new taxation proposals amounting in all to £239,000,000 in the present provisional Budget, which, added to some 300 odd million pounds additional taxation which was imposed on the country by the Budget of last April, total up to between £500,000,000 and £600,000,000 additional taxation this year so far. I am afraid that I am not very interested, speaking broadly, in how that money is to be raised. The thing that interests me is the gap between the total and the total figure of our expenditure. The immensity of the gap is bound to make one look at the problem of the Budget as put before us as really rather a minor affair. It is true that it is not a small matter in the form of taxation on individual income and the contraction of individual spending power—that may cause very great hardship indeed—but the real problem before the Chancellor of the Exchequer and the country is not whether the Income Tax will be 8s. 6d. or 7s. 6d. or whether the Purchase Tax should be put in its new form or in the old form under the proposed Bill, but how is the country to meet this enormous expenditure which, as he describes it, is something over £50,000,000 a week. That problem, I agree with the Chancellor of the Exchequer, is probably insoluble at the present time in the sense that it is not possible to put forward a clear statement of how it will be met to-day, but that does not mean that we shall not be able to face the expenditure. The resources of the country, I have no doubt whatever, will meet that expenditure in the end. What we are first concerned with however in this Committee is the effect of the immediate expenditure upon the country and the daily lives of everybody in it.

If the right hon. Gentleman the Member for Keighley (Mr. Lees-Smith) is correct in his figures—and I have no doubt that he is—there is a gap of some £600,000,000 which will have to be met by borrowing from the banks. My estimate of the figure would be somewhat larger than that, but the exact amount is not material. The point is how are we to avoid inflation so long as there is that margin which cannot be met either by borrowing or by taxation? There is a definite limit to taxation. I am always amused—and I will give the benefit of this to hon. Members opposite—when I hear Chancellors of the Exchequer saying that the Income Tax has arrived at a figure which makes it impossible for it to go any higher. You can say that of any taxation. Actually you can impose any tax up to 19s. 11½d. or 20s. in the £ if you choose. That is not the point. The point is that if you put taxation beyond a certain proportion of income or earnings there is no initiative or enterprise, and this apart from the destruction of happiness and comfort. These taxes have no bearing on the real war problem of expenditure. Doubling the Income Tax would make little difference to bridging the gap between revenue and expenditure if the latter should continue at the present rate for a long period. This Budget imposes excessive taxation. It is excessive if you are to treat the country as a going concern. It has been said that it is much too expensive to die; it is much too expensive now to live. Clearly the whole system of taxation has got beyond us. We wish presumably to look at it from the point of view of a going concern, and we want to try and balance our income and expenditure.

In doing this, we also wish to avoid inflation, because of all the circumstances which would follow from uncontrolled inflation. I am not, however, one of those who believe that all inflation is necessarily evil or necessarily uncontrolled. I think it is possible to some extent to control it, but the situation in which we are placed to-day is that we are trying to finance the war without inflation, whereas in the last war we definitely inflated. Inflation, if it can be controlled, has this advantage, that when people are bearing heavy burdens in the shape of personal losses, sorrows, reduction in income and so on they have for a time at least the feeling that they appear to be richer and are able to handle more money. In this war we have definitely gone out to avoid that position. We have cut down incomes and now we are going to cut down consumption, but there is one difficulty in dealing with it on the present lines which we have to face. The income of the rentier, the net income from invested funds, and that of the bulk of the salary and wage-earning class is going to be much reduced, but there is one part of the community—a small part —whose incomes are not being reduced, but are being very much increased. There are certain classes of labour in this country who are being much overpaid by overtime, Sunday work and the like, and they are a danger to themselves and to the vast majority of their fellows who are not in that position. This is one of the matters which the Government will have to watch, and upon which action is required. If nothing is done, it is possible we shall have serious unrest. I do not want to go into any details about it here, because this is not a suitable opportunity, but I suggest to the Government that they will have to take the greatest care to see that there is not great inequality in the reward of labour in different classes of the community. By that I do not mean different social classes, but different sets of people in the same classes working under very similar conditions and probably all doing excellent national work. That is one of the conditions that the Government will have to watch, and a continuation of the present system may bring about inflation whether we like it or not because the people who may be getting excessive wages will make purchases and the money thus spent may in itself bring about inflation.

I want to say a word regarding the statement of the Chancellor of the Exchequer that he was going to fill part of the gap to which I have referred by the sale of securities and by use of the unexpended balances of the Indian and Dominion Governments. That is surely very much a makeshift. It will not help very far, because sooner or later these balances will have to be repaid in sterling and, therefore, to me that is very much a matter of a few months only. I hope very much that the right hon. Gentleman is not looking to that source to help him to fill any material part of this very large gap between our totals of income and expenditure.

There is another detailed point to which I want to refer for a moment, and that is the question of the collection of Income Tax from workers at the source. That sounds a very effective proposal. It has been discussed on previous occasions, as my right hon. Friend knows, in past years and at first sight there seems to be everything to be said for it. But let us look a little further to see how it is going to work. I do not want to weary the Committee to-day with details but I want to mention one point, namely, What is to happen in regard to refunds which will play a very important part in connection with taxation at the source? Take the case of a man who has deducted from his wages a fixed amount each week or month and who is, in fact, entitled to allowances for family or other reasons and has, therefore, a claim upon the Exchequer. It is true that his employer, who collects the weekly or monthly amount, will have nothing to do with the position upon which that man's final tax assessment is made up, but it is equally true that there will be a great deal of work for somebody in order to secure the money the workman has overpaid.

Mr. Loftus (Lowestoft)

This is an important point. I understood the Chancellor to say that the assessment would be made out by the Income Tax authorities with all allowances deducted and that the net figure would be handed to the authorities.

Sir J. Wardlaw-Milne

Perhaps I did not make myself clear; I am aware of that but, unfortunately, that does not cover the whole case. Conditions under which an assessment is made out vary from year to year and during the Income Tax period. In all classes there are smaller or larger savings of invested funds. These amounts are outside earnings and will have to be taken into consideration in assessing Income Tax. They may vary year after year, and the matter is not, therefore, so simple as at first sight appears. I think that this question of refunds is one which will give the Treasury a good deal of difficulty.

Sir Frank Sanderson (Ealing)

Is my hon. Friend aware that the total number of repayments to-day is approximately the same as the total number of receipts, so that it really would not make a great deal of difference? It is merely a question of filling in a form in a different way.

Sir J. Wardlaw-Milne

Perhaps it is again my fault that I do not make myself clear on this point, otherwise I am sure my hon. Friend would have followed me. I will try to make the point again. As I see it, it is nothing to do with what the system has been up till now; in future you are to get money paid weekly, and that money when totalled up, in a good many cases, will vary from the final amount due by the taxpayer. I think that is an important point and it is one which, clearly, will have to be discussed when we come to the Finance Bill.

Sir F. Sanderson

I think it would be universally accepted.

Sir J. Wardlaw-Milne

I am not against the principle. I am trying to ensure that the system of refunds will not overburden the scheme.

There is one other thing I want to say to my right hon. Friend which I think is worthy of consideration. I think one of the mistakes we have made so far is to make our Excess Profits Tax 100 per cent. I have always believed that it was important to let people make as much money as they could, however much you had to take away from them afterwards. If you prevent them from making money at all, you will destroy the goose that lays the golden egg and put an end to initiative and enterprise. But there is another reason why I think the actual figure of 100 per cent. is unsound. I do not want to give the impression that I think a tax which takes away practically all excess profits due to the war is bad, for that is not my view. My point is that we defeat our own ends by taking away initiative and because, in the working of a 100 per cent, tax, it is well known to-day that in some businesses which are subject to this tax, a considerable increase in expenditure will be met with. I will not put it in any greater detail than this. There may be a considerable increase in management expenditure, and, if so, it is an increase that the Government, with all their resources, will not be able to track down or question. It will be impossible to say that the increase in most cases is not genuine, and I think we would not have been subject to that if we had been wise enough to say that the tax should be 90 per cent, or 95 per cent. but not 100 per cent.

Mr. Glenvil Hall (Colne Valley)

Does not the argument of the hon. Member cast a very severe reflection on the community at large, especially as the men going into the Forces have to give 100 per cent.?

Sir J. Wardlaw-Milne

I am not casting a reflection on anybody. I am dealing with the matter of human nature. It may be almost impossible to say that an increase is not genuine. There have been so many changes caused by the war, men going to the front, new appointments and so on, that one cannot take past conditions as a guide. That is why I think we would have been wise if we had made our Excess Profits Tax slightly lower.

Sir Robert Tasker (Holborn)

How can you stop dishonesty?

Sir J. Wardlaw-Milne

It is not necessarily dishonesty at all. There may be a tendency to be less careful about increased charges when you have no interest in the result, and you are not nearly so keen on economy when your pocket is not affected. If you make it worth while for people to be economical, they will be economical, but if you take away the personal interest, the same care will not be taken. However, these are merely criticisms which I wanted to make on my right hon. Friend's statement and points to which I wanted to draw his attention.

The main point, if I may revert to it, is that we have to face this very large difference, whether it is £600,000,000 or more, between the amount we can raise and the amount of our expenditure. I think that question is what must give the Chancellor the greatest concern. I have no doubt we shall face it and that we shall find the money, but I doubt whether we shall be able to find it without having to embark on some form of inflation. The amount of money borrowed from the banks is already considerable; the increase in our note issue is also considerable, and these things, I fancy, must be giving the Chancellor a good deal more concern than the mere matter of whether the Income Tax rate next year is to be 8s. 6d. or 7s. 6d. It is not for any private Member to put forward a new system of finance which would lift us out of our difficulties—certainly it cannot be done at a moment's notice—but I think the whole of our system of raising money will have to be looked at after the war, and probably before the end of the war, with new eyes and from a new angle. I do not think we can continue on the basis upon which we have worked for so many years past; the days of "soaking the rich" have gone long ago, and, on the other hand, if you put your indirect taxation beyond a certain figure, you will make life so bitter for a large number of people that you will destroy the greatest reserve in the country's strength—the contentment and determination of the people as a whole. One thing is certain; equality of sacrifice is the essential basis of our national effort. These are not easy problems, and our sympathy must be with the Chancellor in a task which has never been faced by any of his predecessors in the history of this country. I can only say, in conclusion, that while I congratulate him on the achievement of a difficult task to-day, I do not envy him in what is ahead, because, as he has truly said, this is but an interim Budget. It is not only the question of this Budget but what is to follow that must be his concern from the time he leaves this Debate to-day. Like every other Member of the Committee, I wish him well in that task, and I know that in the serious burdens he will have to lay upon the country he will have whole-hearted support behind him both within and without this House.

6.58 p.m.

Sir Percy Hurd (Devizes)

The spokesman from the Front Opposition Bench has been urging the Chancellor to push taxation still further to the very limit of human endurance. I gathered from the interesting speech to which we have just listened that we had nearly reached that point now. The Chancellor himself said that we must expect further burdens, but he gave us this comforting thought. He thought these burdens would be borne with equanimity if the community had the assurance that there was no waste and no frittering away of the huge revenues which have been collected.

I want to bring to the notice of the Committee one direction in which our national spirit has been considerably damped by one of our present methods. The late Chancellor chastised us with whips, and the present Chancellor is chastising us with scorpions, but I believe the chastisement will be borne with resignation because of our feeling that we are contributing in our small way towards the great fight for Christian civilisation. Even those most hardly hit have a sense of exhilaration because of the belief that they are taking part in this great struggle, but it is on the condition that there shall be no frittering away of our revenues. There must be greater resolution to stop waste and re-establish and strengthen the self-managing capacity of the English people. We are frittering that away by the excessive interference of Whitehall. I speak with the memory of a meeting of a town council, of which I am a member, and which was held last night. We had before us the monthly report of the various spending committees. What is the method by which we are frittering away a large part of our revenue? I will take two or three examples by way of illustration.

There is, first of all, the question of air-raid expenditure. There was a question of providing cleansing facilities at an air-raid post. This is a town council representing 100,000 ratepayers. They are responsible, they are full of a sense of their duty and anxious and determined to fulfil it, and they hold a very high record for efficiency and economy. But this high authority, elected by the ratepayers, has to go to the Middlesex County Council for sanction for this very small sum, and the Middlesex County Council has to go to the Ministry of Health to get its consent. The Committee can imagine the correspondence, the interviews and the delays that are occasioned. There was another case, a question of providing water closets for a certain ambulance station. The town clerk reported that he had obtained the sanction of the Middlesex County Council for the expenditure and, if the Home Office approved it—in this case an expenditure of £30—it would be sanctioned.

Right through the report you get this same over-elaboration of internal machinery. The Chancellor will tell me that there must be control where public expenditure is involved. Let us have control, but do not let us imagine that the old methods of control are suited to our conditions of to-day. They are not, either on the ground of quickness, efficiency or economy. What is to prevent the Ministry of Health saying "There are certain municipal authorities having a certain rateable value or a certain population, and there are certain duties which we must lay upon them. They are clearly defined. We know what they are, and we know the limits"? Why should not a formula be established by which the Ministry of Health will say, "There is your sphere of action. This is a formula which, on a basis of population or rateable value, will give you a certain block sum. It will be your duty to delegate a large part of those functions to various town councils." Their sphere of action is also limited. They know what they have to do and, instead of every meticulous item having to pass through this bottleneck of the Middlesex County Council and then up to the Ministry of Health, the county council would say, "You have these duties to do. We are going to allocate a certain block sum for them. You will not have to come to us for 20." There are 13 such cases in this one month's report. The volume of correspondence and the amount of delay occasioned by this is colossal. This is only one authority. The same principle is applied throughout the country to every municipal body.

Cannot my right hon. Friend devise some means by which this waste of time, creation of irritation and damping down of initiative and effort are put a stop to? Instead of treating big municipal authorities like school children, why cannot they be treated as responsible authorities anxious to do what they can to help forward the war effort? I do not believe it is beyond the capacity of the finance officials of the Ministry to devise such a formula, applicable in the one case to the Ministry of Health in its relations with county councils and in the other to the county councils in their relation with smaller bodies, enabling the municipalities to bring about a higher effort in forwarding the national purpose. We know how our Departments are overworked. Why should the additional work be thrown on their shoulders? Municipal staffs are greatly overworked. Mr. Priestley on Sunday gave a broadcast and started it by relating his experience of an interview with a high civil servant, and he showed what an entirely different point of view was that of the ordinary citizen from that of the highly placed official. They ended up, not by blows, but with very nasty language one towards the other. It is no good getting angry. It is no good abusing civil servants. They are performing a high duty in a very fine spirit. It is only necessary for someone regarding the problem from the point of view of my right hon. Friend to view it in the light of new conditions and requirements, relieve these civil servants and municipal officers of all this worry and give them a system more adapted to the needs of to-day.

7.6 p.m.

Mr. Tinker (Leigh)

I am sorry that the Chancellor of the Exchequer did not in a sense make a table of his Budget. I could not follow exactly what we are going to borrow. We are spending about 1,60,000,000 a week. That would mean about £3,120,000,000 in 12 months. We shall get a certain amount by ordinary taxation, and I understand that some £2,000,000,000 will be required from our savings. The Chancellor did not tell us what is expected from that. He hinted that it might mean what is called inflation. Will someone later on examine what inflation means, and tell us? We hear about the dangers of inflation, but we never get any further as to what it actually means. I hope that some financial pundit who knows all about these things will, while the Budget is passing, tell us exactly what it will mean in this country, isolated and living practically within itself. It is understood that at the moment we have the money in the country to meet any call within reason. We keep taxing this and taxing the other. I think in a crisis like this we ought to get right down to the bottom and start up from the base.

I have a suggestion that I should like to put before the Committee. We ought to examine what is the unit of cost of a family—food, clothing and comforts—multiply that by the number of the household, and then give to each family that amount each week, or at least, if the head of the family gets that in wages, that is his allocation. When everybody has been put on the basis of being sable to live, all income above that level should be taken away by taxation for the purpose of meeting the exigencies of the war. If all that amount were not required, it could be returned in proportion to what had been paid; if all were required, and de standard that had been fixed was too high, the standard would have to be lowered. We have to remember that we are now fighting for our very existence, and whatever may be the hardships that we have to face as a country, those hardships must be faced by every individual. I do not think any individual—certainly no individual in the lower ranks—would complain of that method as long as he knew that those above were not getting wealth easily at a time like the present. I should like to give the Committee an example in connection with the talk about economy and the criterion of spending power. Last week, I read in a London newspaper of a man who had been to a certain restaurant, and who said, "They were still able to put on a lunch at 8s. 6d. per head, and the place was packed." I ask the Committee to think what must be the effect, when we are talking about economy and the criterion of spending power, if it is spread throughout the country that a certain restaurant is able to put on a lunch at 8s. 6d. per head, whereas a working-class family never gets anywhere near that at any time. At a time of grave crisis, it is wrong that that sort of thing should happen in any part of the country.

When we have to meet this tremendous expenditure, let us at least try to curtail expenditure where it ought to be curtailed —among the better-off classes. We have heard it said many times that we cannot soak the rich any more, but I always find that there is a class of society which lives very well indeed after all the soaking. The soaking does not seem to trouble them very much, and cannot ever have gone very deep. These people live very well indeed, and although that may be all right when things are normal, it is not right in time of war. We are sending soldiers to the front, and they are living on a certain stated amount; they are fighting for us, and defending the country. Is it wrong to ask that everyone should be in the same position as they are? We who escape the dangers of being at the front ought not to have a better standard of life than the soldiers have. I put this plainly to the very rich people—they know as well as I know that it is touch and go as to what will happen in this country. I believe fervently that we shall win, but let us look at the matter from the other side. If we happened to lose, what would happen to us? Those who conquered us would take everything away; there would be little difference with any class of society, for we should be right at the bottom, without any freedom and living on a very hard standard of life. To prevent this happening, we have to make every sacrifice we can.

I appeal to the Chancellor not to be squeamish at this time of crisis, but to try to work a scheme on the lines of that which I have advocated. There is no need for him to ask for anything; he can get the money simply by taking it. The Chancellor and hon. Members opposite say to the working classes, "We want your savings, and we will pay interest upon them." That is very attractive to a working man. He may invest £30 or £40, which will bring him a little return. But I want the Chancellor to remember what he is doing with this huge borrowing. Sums of £30 or £40 are as nothing compared with what those with money invest, and when the time comes to straighten out these things, those small investments will be paid many times over to the richer classes who have invested big amounts. The question of borrowing money at a time like the present ought to be put out of the way altogether. Whatever is wanted by the State should be taken. Soldiers are sent to serve at the front. The Minister of Labour can transport labour from one part of the country to the other. He is doing this. Wherever there is a shortage, labour is sent. The rights of freedom of which we boasted in times gone by have gone by the board. I agree with this. We must utilise all our resources. If that be so, and if there is money in the country, as there is—I have figures showing that the total of private fortunes in this country is £25,000,000,000, four-fifths of which are owned by 5 per cent. of the population—and if my contention is right, the money ought to be taken, just as human labour is taken to carry on the work. I want the Chancellor to be more pugnacious. I ask him to make no apology, but to demand the money. Those who want to win the war will say to him, "Good luck; we would like you to get all you can to carry us to victory."

7.16 p.m.

Mr. Lipson (Cheltenham)

I think there will be general agreement with at least one sentiment expressed by the hon. Member for Leigh (Mr. Tinker), when he said that, however grim may be the taxation we are called upon to pay to-day and whatever taxation the Chancellor may impose in future, it will certainly be less than we should have to pay if Hitler were to have his sweet way in these islands. On that account alone I think the people of this country are quite willing to bear whatever sacrifices they may be called upon to make to enable us to win the war; but of course, this does not necessarily mean that they will approve of every individual proposal for taxation, for naturally, they must reserve the right to criticise.

I am very glad that the question of economy has been raised in the Debate this evening, but I think that what has been said shows how easy it is to talk economy in theory and how difficult it is when one tries to give an example of where economy should be practised. I sympathise with what was said by my hon. Friend the Member for Devizes (Sir P. Hurd) when he spoke about his local authority and how it had to go through certain processes before it could spend certain moneys as it wished to do; but I am afraid that if the proposal which my hon. Friend made were adopted, it would result, not in less expenditure, but in very greatly increased expenditure. I think one cannot leave it to the Ministry of Health to decide by means of a formula how much will be spent by any local authority. Surely, in the interests of economy, it is the local authority itself, which knows all the facts, that must determine the amount of its expenditure. But as far as general expenditure is concerned, there is no need for a local authority to consult either the Ministry of Health or any other higher authority. It is only when it seeks to borrow money or to go outside its ordinary routine expenditure that it has to obtain that authority.

Sir P. Hurd

I am afraid my hon. Friend is out of date, for if he will look at the report of any toxin council, he will find every item of air-raid precautions expenditure, for instance, has to be sanctioned by the scheme-making and grant-making authority, as well as by the Ministry of Health.

Mr. Lipson

I think that matter comes under one of the special new services in respect of which I made an exception in what I said. On the whole, it is wise to leave to the larger authority in an area to decide the amount of expenditure on a service of this kind. I also have had some experience of local government, and my experience goes to show that, however small a local authority may be, it wishes to spend as much as possible on A.R.P. If every authority is allowed to do that, the total expenditure throughout the country will be greatly increased. Therefore, there must be some more responsible body to examine recommendations of particular local authorities and to decide whether or not the expenditure is justified. Although such a procedure might involve a certain amount of correspondence and delay, I am quite satisfied that, in the end, it makes for greater economy.

Sir P. Hurd

Does the hon. Gentleman really suggest that the town clerk of a great borough like Hornsey is unable to judge proposed expenditure as well as a gentleman in Whitehall, especially on a formula which is strictly limited?

Mr. Lipson

There may be particular instances where a local authority might suffer by the present arrangement, but the system has been devised in the interest of the nation as a whole. Generally speaking, I think it is a good thing that there should be some kind of formula for new expenditure of this kind. For example, with regard to expenditure on air-raid shelters, it is, I think, important that some authority, with knowledge of all the facts, should lay down the basis on which expenditure should be made. Whatever else the change proposed by my hon. Friend would produce, it would not result in less expenditure.

The hon. Member for Leigh asked whether some financial pundit would give him an explanation of what inflation is, and what its effects are likely to be. I am by no means a financial pundit, but I will try to tell him what I understand by inflation. It may be that I am somewhat of a child in these matters, and therefore shall have to put it simply and clearly, I shall speak the language which the hon. Member will understand. As I view the financial position at the present time, it is that, owing to the war, the country is spending a great deal more money than usual, and in consequence a great many people are earning more money. People who were unemployed are now at work, and people who were working for a certain number of hours are now working longer hours, and in many cases there has been an increase in the rate of wages. The result of this is that there is more money in circulation. At the same time, in the national interest it is necessary for the State to limit the sale of certain articles. One of the reasons for this is that certain articles of consumption have to be bought overseas, which means risking men's lives. Again, there is the necessity of saving shipping space and foreign currency. The net result is that while purchasing power has increased, there are fewer articles on the market. There is more money about, and there is an increased demand for those fewer articles. If people start competing for those articles, the inevitable result will be that prices will go up, and that will produce inflation—that is to say, the pound will not buy as much under these conditions as it did before.

How does that affect the people? It does so in this way. For instance, a great many of my constituents live on fixed incomes, and have not had their incomes increased as the result of the war—in many cases they have actually suffered a decrease because their dividends are not forthcoming as before. The Chancellor of the Exchequer has also made bigger demands on them. Inflation will, therefore, fall very hardly upon them, and very hardly upon all people with limited means, and it will deprive the working classes of a great deal of the advantage of their higher wages. It is not the amount of money one receives that matters, but what that money will buy. In the interest of all classes it is necessary to prevent inflation. Incidentally, inflation would add to the difficulties of the Chancellor of the Exchequer, because not only would the ordinary prices of articles go up, but also the prices of everything we have to buy with which to wage the war. If inflation took place, we should be in a much more serious position, and therefore one test of this Budget, and all subsequent Budgets, must be the extent to which it prevents inflation.

The right hon. Gentleman the Chancellor of the Exchequer pointed out that he is concerned with the present position owing to the extent of the gap, estimated at something like £600,000,000. That is a problem which one day will, I think, have to be faced. To my mind, there are only two ways in which to deal with it. One is by the adoption of Mr. Keynes' plan of deferred pay—I would welcome that plan, not only for its immediate advantages, but also because after the war the people who received this money would have something with which to face the difficulties of the post-war period. The second method is by a tax on wages. So long as we leave this purchasing power free, we shall not be able to prevent consumption, and the example given by the hon. Member for Leigh, in which he drew attention to people who paid 8s. 6d. for a lunch, is an example drawn from only one class of society. The same thing will happen in all other classes where there will be equally unwise forms of expenditure. Therefore, I believe the only real way is for the Government to adopt one of these two alternatives, but apparently public opinion is not yet ripe for that, and I presume we shall have to wait.

This Budget has been described as a conventional Budget, and while the country will receive it with a feeling of satisfaction, I also think it will be received to a certain extent with a feeling of relief. I regret that no concession is made to soldiers in respect of postal charges because I can assure my right hon. Friend that there is a very strong feeling throughout the country on this matter. I also regret that no concession is made to soldiers with regard to the Tobacco Duty. I do not know what it would cost to supply a ration of tobacco to serving soldiers without payment of the last two duty increases, but I am sure it is something which should be done. If the Chancellor does not make some concession on these lines, he will find that later on there will be an overwhelming demand for increases in soldiers' pay. The Chancellor must ask himself which course will prove the less expensive. I must also express my regret that my right hon. Friend did not put an increased tax on whisky. The Beer Tax will, I think, be received with much greater favour if the people know that at the same time spirits are being taxed. As my right hon. Friend is not proposing to do this at the presnet time, I hope he will bear it in mind for his next Budget.

I am pleased that the original Purchase Tax Bill has been dropped, for I thought it was a thoroughly bad Bill. Until we have the Schedule and know to what this revised tax will apply, it is difficult to express an opinion. I am, however, surprised at the amount that the Chancellor is expecting to get. It would seem from the figure of £110,000,000 that he can hardly be expecting a very great reduction in consumption. I was sorry that, as he expected to get such a large amount, he did not agree to exempt books and newspapers. I would like to ask him whether he is imposing this tax on books and newspapers because he wants to restrict consumption. Does he want people to read less? The amount involved cannot be very great, but the principle involved is a vital one. This is an old battle that has been fought out before, for it really is a tax on knowledge at a time when there should be no such tax.

Sir Stanley Reed (Aylesbury)

Does my hon. Friend ask the Committee to believe that one-tenth of the matter published as books to-day is any contribution whatever to knowledge?

Mr. Lipson

That is not the point, because it is proposed to tax the good with the bad. The good is so vital to the nation, particularly in these days when we have to face propaganda from the Continent against free thought and the freedom of the human spirit that we should be reluctant to take such a step as is proposed by this tax. This proposal is also particularly hard on newspapers at a time when their burden has become very great and when we shall have to rely more and more upon books and newspapers to maintain the spirit of our people in this struggle. I hope that the Chancellor will not think I have been unappreciative of the efforts that he has made. I can assure him, in common with all other Members of the Committee, I will give him any support I can to enable him to use our financial resources to bring us safely and victoriously through the war.

7.34 p.m.

Mr. Gallacher (West Fife)

The interim Budget introduced this afternoon, and especially the speech that accompanied it, brings out clearly the terrible impasse to which the capitalist system has brought the people of this country and the utter impossibility of extricating them from it, while the capitalist class and capitalist property relations continue to determine the fate of this country. The Minister made a remark to the effect that this war, unlike other wars, cannot be paid for by the taxation of the rich. Have the rich ever paid for any war? In every war that has ever taken place the rich have piled up enormous fortunes. I remember hearing how after the last war the benches opposite were packed with big fat men who had piled up fortunes out of the people. In every war the masses of the people have had to bear the burden, and they will have to bear it in this war. This Budget definitely places the burden upon them. An hon. Member who spoke from the well-packed Liberal benches made a sinister remark when he said that the Minister was on trial. It was sinister because I gather from a book that has recently been published that the Minister is one of the guilty men.

The Chancellor presents the question in this way. We have to concentrate great masses of our forces and energy on war production. We have then to direct a great mass of our forces and energy to the export trade which is necessary to assist in the winning of the war. Then, as the "orphan of the storm," comes consumption goods. But what is the war effort for? Is it to save the property-owners and the financiers, or are we to believe, as we are continually being told, that this is a people's war, and that it is to save the people? If, however, during the process of saving the people and expending all their energies on war and export production you cut their consumption goods, you will starve them. Cannot the Minister understand that in a war such as is contemplated and in a test of endurance such as lies before the people of this country the stamina, health and morale of the people will be the determining factor. It was the home front that defeated Germany in the last war, yet here, without the slightest consideration of the character of the situation which will develop, the Minister glibly talks about cutting down the consumption goods of the masses of the people.

Before there is the slightest thought of cutting down the consumption goods of the masses of the people, every luxury hotel and wealthy house in the country should be closed down. Why should we have wealthy luxury hotels and big country houses with their week-end parties, and the rest of it? Consider the consumption goods that are squandered in these places. The Minister cannot tell us that the luxury hotel or the big country house entertaining guests at the week-end is essential for the national effort. Country houses should be used for evacuated children, for health centres for the workers who will be affected by the long hours they are working, and for soldiers who are in need of rest after being wounded or sick. All these luxury houses should be taken over and the luxury hotels closed and used for other purposes.

Mr. Stokes (Ipswich)

Does my hon. Friend suppose that if we closed all the hotels and luxury houses in the country, it would increase the amount of money in circulation for the purchase of consumable goods?

Mr. Gallacher

I am not suggesting it would increase the amount of money in circulation. I am suggesting that it would result in more consumption goods for the masses of the people. Until the luxury houses and the luxury hotels are closed it is a crime to talk about interfering with the consumption goods of the masses of the people, whose health and well-being should be our consideration.

Mr. Leslie Boyce (Gloucester)

In so far as these consumption goods, as the hon. Member calls them, are rationed, we shall not get any more or less consumption whether we close down those places or not.

Mr. Gallacher

If they were closed down you would increase the goods available for other people.

Mr. Boyce

But there would be the same number of people to feed, whether they were living in those houses or not.

Mr. Gallacher

A lot of other consumption goods are not rationed. They are alternatives and substitutes, which are being used continually in luxury hotels and houses. Read the advertisements in the papers. They show how in these hotels and luxury restaurants they have wonderful substitutes which add to the rations and thus provide very special lunches and dinners. All those should be at the disposal of the masses of the people, in order to ensure the absolute minimum of interference with what is necessary for the maintenance of health.

Mr. Stokes

May I interrupt again? I do not join issue with the hon. Member at all as to the better distribution of wealth, but would he not do better to direct his atention to the distribution of it as controlled by the banks?

Mr. Gallacher

I am coming to the banks and the land. In view of all the talk there has been about everybody having to make sacrifices, I ask the Chancellor to tell us what sacrifices the banks are making. Is it not the case that the banks are piling up enormous fortunes, and not only the banks, but other concerns which are represented on the other side of the House? We have had much talk about heavy taxation, about the Income Tax at 7s. 6d. in the £ and then Super-tax, but despite all this heavy taxation, the wealthy in this country are not becoming poorer, but more wealthy. More millionaires are being created all the time. That is what is going on. What are the banks doing? In agriculture, one of the most important assets of the country, the banks will not lend money to farmers at under 5 per cent. The banks are contributing nothing, but are bleeding the veins of the people of this country. Whenever the Chancellor talks about property, land or capital they are always regarded as sacred. How easy it is for the Chancellor to find reasons why nothing should be done about the land. How easy it is for him to offer reasons, which are thoroughly acceptable to those on the other side, why nothing should be done to interfere with capital.

Mr. Glenvil Hall

Are we to take it now that the taxation of land values is part of the Communist programme?

Mr. Gallacher

The interjections of the hon. Member are generally of a character which are not intended to be helpful. They are intended to be very smart, but I do not like smart men who are not smart. When it is a question of the land or capital, the Minister can make all sorts of excuses for not doing anything; but let us remember that when, in France, it came to a question of saving property interests or sacrificing France that the ruling class there sacrificed France. Many times in this House I have called attention to the fact that there were people in this House and in high places in this land who would sacrifice the country rather than sacrifice their property. If the people of this country are to be saved, then the whole system must be changed, but there are people on the other side who would rather lose the war than lose their property.

Mr. Craven-Ellis (Southampton)

Name them.

Mr. Gallacher

I could name a whole lot.

Mr. Craven-Ellis

We must have the names. If the hon. Member makes accusations about Members on this side of the Committee, he should give their names.

Mr. Gallacher

Read their records. Take the men who supported Franco, Hitler and Mussolini in Spain.

Mr. Craven-Ellis

Give the names.

Mr. Gallacher

Take the men who, when it was pointed out in this House that they were betraying their own country, when they were betraying the Spanish people, the Members who supported and justified the sinking of British shins and the killing of British sailors. Take their records. The hon. Member knows them as well as I do. Their records are there. One of them is going to get up now.

Mr. Henry Strauss (Norwich)

Would the hon. Member tell the Commitee whether the Communist party is now in favour of fighting this war?

Mr. Gallacher

Again the intervention is quite irrelevant.

The Deputy-Chairman (Colonel Clifton Brown)

I do not think the hon. Member for West Fife (Mr. Gallacher) need answer that question, because it is quite outside the Debate.

Mr. Gallacher

I drew attention to the fact that the ruling class in France, when it came to a question of the interests of property or the sacrifice of France, sacri ficed France. If the people of this country are to be saved from the terrible fate which threatens them and which has been brought upon them by the capitalist system, then the land has got to be taken over, and all rents and all money associated with the land. Why should it not be so? "Ah," they say, "that is a big question." There are so many of the aristocracy in this country who have an interest in the land that you cannot interfere with them. There would be hardships. [An HON. MEMBER: "And many of the working classes."] There should be conscription of wealth. All the wealth of the wealthy should be taken over. All the private fortunes should be taken over. It is all right for Members on the other side who have big fortunes. They can carry on. But when the war is over what shall we get? There will be a mass of poverty-stricken workers, though some of them, we are told, will be not so badly off because of their savings. Masses of unemployed and big wealthy families in the country after the war. Is that what we are to get?

I say that the wealth of the wealthy should be conscripted, and that the land and all land values, rents and other money associated with the land taken over in order to ensure the welfare and the defence of the people. If we did that, if we took over the land and all associated with it, conscripted wealth and put a heavy tax on capital there would be hardship, and the Minister says that before we could do that, there would have to be an examination of the question. We have had several discussions on the question of dealing with aliens. The Minister for Home Security says that it is necessary first to gather up all the aliens and put them in detention and then hard cases can be considered, because that is in the public interest. But we cannot take over the land or take over capital without a thorough examination, which would take such a long time that the proposal would be of no value. Take over the land and capital, and the wealth of the wealthy, and then make any examination that is necessary. If there is hardship, we can introduce the people concerned to the public assistance committees. You can never solve the problems that confront the people of this country while you maintain the present arrangement of private ownership in land and in the productive forces of the country. Think about some of the suggestions that have been made in regard to tobacco, postage and many other things for the soldiers. I am a victim of the heavy taxation upon tobacco, but it is a shame that the soldiers should be so treated. Soldiers cannot afford heavy costs. It is obvious that steps should be taken to remedy their grievance.

The question to which I was about to call special attention is that of the Purchase Tax, a tax which is directed towards cutting down the consumption of goods by the masses of the people. This consumption tax does not affect in the slightest degree people with wealth. They may spend more money, but there is nothing that they cannot buy, whereas the masses of the poor people will be so seriously affected by the Purchase Tax that they will not be able to buy the things that are necessary. Remember the problem that confronts young couples who want to marry. They cannot, at the present moment, get married in many cases for lack of housing. That is a serious problem, but now you will add to it, and to the other difficulty associated with it—high rents—by a heavy tax on furniture. This will mean a serious handicap for most young working-class people in this country. The Purchase Tax is, by its whole character, part of the process by which the ruling class of this country are putting the burdens of the war on to the mass of the people.

That is why the Communist party demand a people's Budget and a people's government composed of those who have no other concern but the welfare of the people. We do not want a bunch of people who have big financial and industrial interests, which they put first, as happened in France and will happen here. We want to see a government in which every member is concerned only with the welfare of the people. Only by getting such a government and a people's Budget will the health, welfare and real defence of the people of the country be guaranteed. I was in my constituency all last week looking into the questions of A.R.P. and Civil Defence. Raiding planes come that way, and when bombs drop half a mile away, houses are shaken. There is a necessity for adequate protection, but how can we get it while land and wealth are private property? There is any amount of wealth in the country which we cannot get distributed. You can go to my constituency and find that not half enough has been done to ensure protection. The representative of the county council and the representative of the Ministry of Home Security recognise that much can be done, but it requires finance. That is why I say that, whatever may be necessary for war production and export trade production, the one thing which is absolutely essential is that the consumption of goods by the people should be maintained, and that every sort of wealth in this country, whether from land or capital, must be taken over and used for the health, welfare and defence of the people.

7.54 p.m.

Sir Stanley Reed (Aylesbury)

I listened with some alarm to the remarks of my hon. Friend the Member for Cheltenham (Mr. Lipson) protesting against a Purchase Tax on books as though it were a tax on knowledge. I ask how is it possible that a man of the great experience and freshness of my hon. Friend can seek to delude this Committee into that belief. I can only conclude that he buys a book only when he knows it is a good one and that he has never been a victim of the stream of semi-garbage that pours out from the publishing houses and which, I hope, will be reduced as a result of the tax. The good books will be so much more in demand that they will be very well able to pay the tax. It will not be bad if, as a result, the new generation are thrown back a little upon our classics and if they learn what English literature really is.

The point I particularly want to raise is that of the change announced by the right hon. Gentleman, in the collection of Income Tax on all salaries at the source. That is one of the greatest reforms introduced within my memory in regard to Income Tax. The right hon. Gentleman said that the rate of tax would be fixed by the Income Tax officers, that the pay and salaries would be charged at that rate and that there would be no disclosure of the other means of the individuals concerned; but surely if a higher rate than the standard is fixed, that is the rate at which the deduction is made from the salary, and it follows that information must be given that the individual has sources of income outside his salary. I lived for many years in a country where this deduction of tax at the source was invariable and had been in practice for half a century. The tax was always deducted at the standard rate, and any difference between that rate and the taxation upon other sources of income, was charged at the end of the year and was levied separately. The system worked with extraordinary smoothness. I congratulate the Chancellor of the Exchequer on taking this great step. It will alleviate in a very marked degree the burden of tax falling upon the salaried worker.

Another point I want to raise is in reference to the remarks which fell from the hon. Member for Leigh (Mr. Tinker). He is always an attractive speaker because he is perfectly sincere. Like all of us, he is groping after the truth in these difficult financial matters, and although we may approach it from different angles we all have the same object in view, which is, How can we best make our financial contribution to the winning of the war, if we are not able to participate in a purely military capacity? He raised the question of the aggregation of capital in certain individual hands. As I go about the country I find that few people realise the tremendous financial revolution that will be caused in the financial structure of the country by the war and our method of paying for it. What is much of the capital that we talk about as accumulating itself in certain hands? What is the capital value of a great house to-day? It is what some people will pay for it, and often that is nil. What is the capital value of the very large number of moderate sized houses? It is what some people will pay, and that again is often almost nil. One talks about a capital security. What is a capital security? It is a piece of paper which is a promise to pay, and it is no more than that. If a person promises to pay and cannot or will not pay it disappears. A very large amount of what we call capital at the present time may have very little value indeed in the great reconstruction period which comes after the war.

Mr. Stokes

Would the hon. Gentleman allow me to interrupt him? When he says that these houses and estates have no value, does he mean to say that if I offered the owners nil for them they would transfer them to me?

Sir S. Reed

Substantially. There are to-clay many large houses which you could get for nothing if you undertook to pay the rates and ground rents on them, and the owners would be only too glad to be relieved of the burden.

Mr. Glenvil Hall

May I ask the hon. Member whose fault it is that rates are paid on these houses?

Sir S. Reed

The people who own them cannot do it.

Mr. Hall

It is your own party.

Sir S. Reed

I am not talking about party; I am talking of facts. We are trying to consider how we can best make our financial contribution to this war. If I had scrip nominally worth £1,000 you might say that I have £1,000 in capital, but what would happen if the issuer could not or would not pay the interest on it? It would cease to have value as capital. The Chancellor has given us a wise and patriotic lead in confining himself to the true sources of raising these revenues, and that is by taxation of income and raising this taxation as high as he thinks we can bear it. Those of us who have to pay, will pay cheerfully and gladly to the maximum of our resources. If the right hon. Gentleman goes beyond that stage he will be trying to raise money from something which at the present time does not exist and which may have little or no value whatsoever, judged by the one test of value—which is what somebody else will pay for it. I conclude by saying that I think the Chancellor has led us along the right path and that we will stand behind him in the immense task which he has to face.

8.4 p.m.

Mr. John Morgan (Doncaster)

I want to put it on record that my impression of this afternoon's Budget statement and its reaction in the Committee is that the Chancellor is reaching the limit of his ability merely to juggle with the money income of the country, and that he will have to face the fundamental approach to the problem which was indicated in an interesting contribution from a quarter of the Committee which is sometimes treated rather jocularly and certainly looked upon with a certain amount of concern. He will have to get behind him substantial interests like land to get through this job effectively. If he were to announce tomorrow morning that he was taking over the rent income of this country, he would simply be disturbing a limited number of people enjoying unearned income from estate property, and he would be able to deal with them on a satisfactory basis of hardship in a much simpler form than he can deal with the multitude of other interests which he has now to conciliate.

I hope that this will be the last Budget dealing with a war financial situation by 3d. here and 6d. there, by various fresh innovations of taxation, and that some more substantial and fundamental approach to the problem will be made, or it will overwhelm the system and the very thing the Government are seeking to avert, namely, inflation, be tackled in the way indicated by the Communist Member of this Committee. In the interests of those persons as well as interests which are seated on the property rights and the capital rights of this country, it is time that they took notice of the fact that they are heaping up for themselves a mere network, a labyrinth, a jungle of innovations which will bring the whole show tumbling down.

Motion made, and Question, "That the Chairman do report Progress, and ask leave to sit again," put and agreed to.—[Mr. J. P. L. Thomas.]

Committee also report Progress; to sit again To-morrow.