HC Deb 24 July 1940 vol 363 cc905-48

Considered in Committee Progress, 23rd July].

[Colonel Sir CHARLES MACANDREW in the Chair.]


Question again 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."—[Sir K. Wood.]

8.13 p.m.

Mr. Pethick-Lawrence (Edinburgh, East)

The importance of the Bill which has just passed through another Committee of this House has somewhat telescoped the time-table for the further discussion of the Budget, and I propose, therefore, in accordance I am sure with the wish of the Committee, to compress my remarks as far as possible, and I shall endeavour to make my comments as concise and as precise as is consonant with expressing my views. It is my intention to address myself to four main subjects. The first is the specific proposals of the Chancellor of the Exchequer both in their totality and in their individual detail. In the second place, I intend to make certain suggestions to the Chancellor of the Exchequer for stopping minor leakages and for possible amendments in the law in a later Budget whenever that may come. I intend to say a word on the expenditure of the country which is uncovered by revenue and conclude with what I think the B.B.C. would call a Socialist commentary on the financial problems of the country. Without more to do, I will "Go to it."

The Chancellor of the Exchequer, when he assumed office, found two main legacies of his predecessor's April effort. There was general recognition of the inadequacy of the total tax revenue provided, and there was the unpopularity in many quarters of the House of the Purchase Tax. The Chancellor of the Exchequer is to be congratulated on the fact that it was not long after he assumed office that he set out to remedy these two evil legacies and that there has not been a great deal of delay in setting his new proposals before us. It is rather a striking commentary upon the state of public opinion, both inside and outside the House of Commons, that, in spite of the fact that the Chancellor of the Exchequer is imposing taxation which, in the current year, is estimated to bring in £126,000,000, and in a full year no less than £239,000,000, practically the only comment of the Press, as far as I have seen it, is to criticise him for not putting on sufficient taxation. I will only say this for his comfort. I think that the field in which the public are asking him to tax them more heavily, is an easier one for him to face than the field in which everyone might be asking him to take taxes off, because the burdens were intolerably high.

Passing from this question of totality I come to the individual details. With regard to the standard rate of Income Tax, I gather that he has kept a bit in hand, with a view to a further rise in the tax in a later Budget. It looks to me as if he had got an asymptotic figure in his mind, to which the curve of rising Income Tax would always approach but never fully reach. I am not at all sure that it would not have been better in this respect to have taken a somewhat bolder line from the start. I turn to a very interesting part of the Chancellor's proposals, and one which I see in most comments in the papers has been described as the one brilliant improvisation. That is the compulsory weekly payment of Income Tax. From the approval with which his proposal has been greeted, I think the right hon. Gentleman may probably take it that, in spite of the numerous deductions which are already made from wages, and which are in many cases onerous in their total effect, his plan for securing weekly payments is welcomed and will be preferred by the majority of the wage-earners to the present method, which draws large sums which are very difficult to face at certain intervals.

There are three small questions with regard to this, that I would like the right hon. Gentleman or the Financial Secretary, to answer. In the first place, what is to be the position where a man has two or more employers? It is quite usual for a man to work for one employer for a certain time, it may be for a week or a month or more and for another employer, for a further period of the year What will be the position in that case? In the second place, I am not very clear precisely when this new proposal is coming into operation, and what is the rate of tax to be imposed when it does come into operation. As I understand it—and I speak subject to correction—the tax has hitherto been paid in half-yearly instalments on 1st January and 1st July. It is now 24th July, and there- fore, the 1st July instalment has already been paid. What I understand to be the case is that that instalment is part of the tax of 1939–40 and therefore, presumably, if it had been the full rate, it would have been the 7s. rate. Without the Chancellor's proposals the next instalment would be on 1st January and that would be the first instalment that would be paid for the year 1940–41. I would like to know whether that is correct and when the weekly levies will begin? Will they begin prior to 1st January, will the date be in November, as I have seen suggested? And what period does it cover? I understand that it has been the practice, under the voluntary system of deduction by employers for them to charge in some cases a small commission, which is not taken out of the wage-earner's pocket but comes out of the money paid to the Government. If that is correct, I would be glad to know whether it is proposed to continue that commission when the deduction is made compulsory? There is, of course, no commission where employers deduct contributions for unemployment and national health insurance, because that is a statutory obligation, but the other practice has been voluntarily and I would like to know whether it is to be continued?

We have also to face the Chancellor's addition to the beer and tobacco duties. I am afraid the smokes and drinks are a sort of Jerusalem donkey, on which successive Chancellors of the Exchequer have unloaded fresh parts of their burdens. They have seemed unable to resist this form of taxation. I am quite sure many people on all sides of the Committee feel these burdens are very heavy, but this is a war Budget and we must recognise that all sections of the community must bear an additional charge. Somewhat the same remarks apply to the Entertainment Tax which, unfortunately, the Chancellor has lowered to seats above 3d. I believe there are 3d. seats in some parts of the country but these, at any rate will be free of the tax.

That brings me to the Purchase Tax which is a slightly longer description for what is generally known in other countries as a sales tax. A sales tax has always had a pretty bad name in Labour circles. It has been the name for a tax devised by people who wanted to push on to the poorer classes a large part of the burden of taxation. Although the Chancellor's predecessor called the tax a Purchase Tax instead of a sales tax, it did not start with a very favourable reception in our minds when it was introduced. Apart from that, there was a considerable number of positive definite objections which we took to the tax in the form in which it was originally introduced. In the first place, in our opinion the Purchase Tax created an unequal distribution between direct and indirect taxation, and turned the scale very much against the working people, and even the poorest classes of the whole community. In the second place, the tax, as we saw it originally, although it did exclude food, included a very large number of the necessities of life and for that reason it would have added very considerably to the cost of living, with dire consequences in many directions which I will not specify now.

It was a tax imposed at a flat rate and both in this House, and in the article to which the Chancellor was good enough to refer, I criticised that aspect of the tax most strongly. That tax also had an unconstitutional method attached to it; it was to be brought in by the Treasury, who were left to decide what should be included, what was to be the rate, when it was to commence and, in fact, all the details with regard to it, a procedure almost unprecedented in the history of British taxation. The only analogy I know of is that of the Import Duties which is quite a different matter. That seemed to us highly objectionable. We felt it would involve immense new machinery and was a most unsuitable tax to introduce during the war. However, the Chancellor has made a very large number of alterations. He has brought this tax into a Budget on which he has put on considerable additional burdens of direct taxation, so that he has altered the unequal distribution which appeared to us so unreasonable in his predecessor's Budget. His predecessor put 6d. on the Income Tax and to that the Chancellor has added another 1s., making a total of 1s. 6d. for the two Budgets, and that is much more comparable with the proposals of the Purchase Tax, than it was when Lord Simon introduced it. The Chancellor of the Exchequer has removed from the purview of the tax two important necessities of life which form a large part of the expenditure of the poor outside food, namely, boots and clothing for children. In my opinion that makes a substantial difference. I gather that the Chancellor will now specify positively the articles that are to be included in the tax and we may hope that one or two other absolute necessities may find their way out of the tax before it is finally decided. At any rate boots and clothing for children are definitely excluded.

Still more important, the Chancellor has done something which I strongly recommended. Instead of making the tax a flat-rate tax he has made a step in the tax, and a very substantial step, so that luxuries and semi-luxuries are taxed at one rate, and things which are necessaries or on the border of being necessaries, are taxed at a lower rate. That, again, makes a considerable difference. He has also dealt with the question of the Treasury imposing the tax. We now have the specified rate of tax put forward in this Bill and it gives the House the right of saying not "Aye" or "No" just once but of fairly discussing the matter if it is so minded, and further, it is brought into line with the tax on beer, tobacco and other things. That is a considerable alteration of a suitable character. Finally, he has told us that, contrary to the expectations of many of us, it will not involve the appointment of a large number of new officials; in fact, he hopes and has administrative ground for his hope, that no additional officials will have to be appointed. Therefore the Chancellor has met us on the points of unequal distribution, on necessities, on the flat rate of tax, and, for the moment, on the question of the choice by the Treasury, and we recognise that this is of course a coalition Government and that we cannot expect to have everything our own way. Therefore I am authorised by my hon. Friends of the Labour party to say that, though we still do not like very much the idea of a Purchase Tax, knowing its history, we will not oppose the principle in view of the fact that it is part of a general increase in taxation, including direct taxes.

But there are two or three points of reserve which I should like to make. I am a little sceptical of some of the right hon. Gentleman's figures. He is putting on a tax of a third on the wholesale value of luxury commodities, and he says that, in practice, that will work out as a fourth of the retail value. Doing the sum backwards, I gather that the way he comes to that conclusion is this. He says an article, wholesale, costs a certain number of shillings and, without the tax altogether, the retailer puts on about a third, and therefore the third of the wholesale figure is about a fourth of the retail figure. The argument is that we can assume that the retail price will go up only a quarter whereas the wholesale price has gone up a third. That assumes, of course, that, in the process of reaching the consumer, there is no gross profit on the tax as well as on the article. It may be that the Chancellor can assure us that that will be the case. I am doubtful about that myself. I raised the point when it was originally brought forward by his predecessor and pointed out that, not only would the retailer try to add to it, but that he would have some slight excuse for putting on the addition. I had a letter from a large retailer pointing out that they really would be obliged to make some increase because they would be put to expense in various ways. I hope the Chancellor will see that, if it is necessary for the retailer to make any additional increase on the actual amount of the wholesale tax, this addition is kept as low as possible and does not amount to any large figure, other than the mere out-of-pocket expenses to which the retailer is put, even if it is to be as much as that. There is another question that I should like to put. What steps is he taking to prevent consumers attempting to forestall the tax by buying in large quantities, practically clearing the emporiums out, between now and the operation of the tax? What steps is he taking to see that they do not take advantage of the situation to put up all their goods in something like the proportion, with a view to making a profit out of the goods already in stock, which they are not really entitled to make? I suppose the Government must have foreseen it and I hope they have taken steps to deal with it, because it is obviously a highly important matter that that should be done.

Now I come to a point on which I still ask the Chancellor to make quite a small concession. In reading the Resolution in regard to the Purchase Tax I find that paragraph c (ii) says that the Treasury are to have power to vary from time to time the basic rate, and paragraph c (iii) gives them power to put articles into one category, take them out of another and make changes of that kind. I do not suppose anyone wants to pin the Government and the Treasury down absolutely to one final and complete schedule for all time. If, as the year goes through, the Chancellor only wants to make some technical change while retaining the whole principle of differentiation which he has made, I should not deny him the right, through the Treasury, to make those small alterations. I hope we shall get a definite assurance that the changes, if made at all, will be only of a very minor kind. If not, we shall have to oppose that paragraph. But I cannot conceive of any defence for paragraph c (ii), and I feel confident that the Chancellor, who has been quite reasonable up to now, will see his way to remove that altogether from the Resolution.

There was some ground originally—I do not think it was an overriding ground and I am glad the right hon. Gentleman has done away with it—in the initial imposition of the tax, for saying, "We will not declare the rate because we want to reserve that until the very moment of its being imposed in order to prevent forestalling." I could see some ground for that. I think the major reason, of the House of Commons having the right to do what it likes, was more important, but there can really be no reason why, if there is to be an alteration in the rate, it should be done by the Treasury and not by the House. I am aware that the Chancellor gives the House the final say in the matter, but it is a single vote, and that to my mind is not enough. After all, this proposal is much more on the analogy of the taxes on beer and tobacco and all the rest of them, than of the Import Duties, and there is no more reason why the Chancellor should give the Treasury power to alter the rate of this Purchase Tax than give it power to alter the rate of the Income Tax. The House would regard it as unreasonable, if he said, "The Treasury can put up the rate of Income Tax from 8s. 6d. to any figure it likes and this House shall only have the right, after it has been done, to say whether it approves the change or not." The Chancellor would not dream of doing such a thing. His supporters would not hear of it for a moment. Equally, we cannot accept any idea that the Treasury shall have the right to alter the rate and put it up from 16 to 40 or 50 per cent. I beg the right hon. Gentleman, in the interest of the conciliation that he has shown in the matter of the tax, to withdraw that part of his proposal.

The suggestions that I have to make with regard to alterations are concerned, first, with evasion of Income Tax. I am not thinking of the larger evasions which have been dealt with in Finance Bills of the past, but of the small evasions. There are many small matters of which no return is made by some taxpayers, or there is a failure to return individual items, such as interest on bank deposits. Very often it is a question of an oversight on the part of the taxpayer. There is also the failure to announce dollar securities, which I am afraid is not an oversight, but a deliberate attempt to escape doing what ought to be done. I suggest to the Chancellor that there are two ways of dealing with these things. First, he can ask the taxpayer in any return of income a positive question on these points to which the taxpayer must be compelled definitely to say whether he has or has not any of the items in question; and secondly, he can go to the people at the other end of the transaction and ask them whether their client has or has not got income from this source.

The second matter I want to raise concerns the Legacy Duty as distinct from the Estate Duty. I should like the Chancellor to look into this matter to see, first, whether the Legacy Duty as distinct from the Estate Duty might not be increased, and secondly, whether it might not be graduated. There is also a small point about legacies that are left what is called "free of Legacy Duty." I am aware that this does not mean that they escape the tax, but a curious mathematical consequence is that they escape a small part of the tax, and I think this ought to be considered. Another question which probably the Chancellor will not want to handle during the war, but which ought to be handled some time, is the incorporation of the Legacy Duty with the Estate Duty into the same consolidated act. A further point I want to put is whether the Chancellor might not ask auditors to state the names of the clients whose accounts they audit. I do not suggest they should give him the accounts, but they should state the names of the firms for whom they are acting. I think that the right hon. Gentleman might discover some leakage in that way. My last point is that where Income Tax, Surtax, Land Tax, and Mineral Rights Duty are held back after the date on which they are due, interest might be charged on the delay in paying the account. There is no reason why this should not be done, and if it were done, I think the Chancellor would get a quicker return of revenue and a perfectly legitimate source of additional revenue.

I come now to the matter which has already been discussed in the Committee. The total bill which the Chancellor has to meet is, in round figures, £3,500,000,000. The right hon. Gentleman's predecessor budgeted for some £1,234,000,000 The Chancellor told us a good deal about his new taxes, but he did not tell us whether, in the review of the financial situation, there was any change in the likely yield of the taxes which his predecessor had announced. I am rather hopeful that, in view of the large amount of money that is being spent by the Government, these taxes may bring in substantially more than £1,234,000,000 when the time actually comes. However that may be, the Chancellor is adding about £126,000,000 for the current year, and so we reach a figure in the neighbourhood of £1,360,000,000, which leaves at least £2,100,000,000 to be found. I should like to give the Committee a few figures which are conjectural, but probably somewhat in the neighbourhood of facts. Suppose that we are able to purchase by our capital assets, mainly in the United States of America, something in the neighbourhood of £300,000,000; suppose that we are able to get from our Dominions something in the neighbourhood of £100,000,000 without having to pay current cash; and suppose that the letting down of industrial plant which is unrepaired brings us the effect of another: £200,000,000, this will still leave £1,500,000,000 to be found. The question is, can loans out of genuine saving provide that amount? I ask, why not? When Mr. Keynes wrote, he thought we should have difficulty in finding £500,000,000 or £600,000,000. He thought it necessary to propose compulsory lending in order to achieve that amount. I think there is no possible doubt that Mr. Keynes' figure has been far exceeded by voluntary lending already. Probably we have already, out of actual saving, reached a rate in the neighbourhood of £1,000,000,000 a year, and there is no reason whatever, if proper steps be taken and proper encouragement given, why the amount should not go far above that figure. It all depends upon Members of this Committee and prominent persons outside.

Mr. Ellis Smith (Stoke)

And on the policy of the Government.

Mr. Pethick-Lawrence

It depends upon the Government and everybody concerned. It must be remembered that this large amount of money, this £3,500,000,000, that is being expended by the Government, although to the State it is expenditure, is income to the people who receive it. It goes into the pockets of the people of this country to a very large extent, and it is for them to save enough to enable the bill to be met. I believe that if we all use our influence to the very best of our ability and support the splendid campaign that Sir Robert Kindersley is organising, we can get something which very nearly approaches at any rate the £1,500,000,000 that has still to be found. It is essential that we should do this, because in so far as we fall short of it, we shall reach inflation, and that will mean an indiscriminate, indeterminate and undecided rise in prices of a general kind which will press most heavily upon the people who are least able to bear it.

Mr. Stokes (Ipswich)

Will my right hon. Friend define what inflation is?

Mr. Pethick-Lawrence

That is a very hard nut to crack. It is like asking someone to define a loaf of bread. We know it when we see it, but it is not so easy to define it.

Mr. E. Smith

The German people know what inflation is.

Mr. Pethick-Lawrence

I come now to the last part of my theme. It is now several years since I pointed out from this Box that the financial methods of the Government which preceded the present one were leading to an impossible position. I pointed out that borrowing for the so-called Defence Loan in time of peace was an utterly indefensible operation. I pointed out that even if no war came, there was no satisfactory means of meeting the bill; and the Lord President of the Council admitted the problem and admitted that he himself saw no solution. As war drew nearer, and we got the first stages of the conscription of men, I pointed out that there ought to be a tax on fortunes in order to meet the bill while we were still in peace time and so face the growing burden of debt. A tax on fortunes, or capital if you like to call it so, though it does not provide current revenue, does offset the creation of debt. That was refused at that time, and it was refused again after war broke out. But the attempt was made to buy off opposition by a vague promise to make a levy on war fortunes after the war was over. Let me examine what that means. It means that after the war is over those people who had great fortunes in existence before the war are not to be touched by the levy. In consequence, after the war, the same gross inequalities of wealth as existed before the war began will continue.

I say, definitely, that that will not "fill the bill." The Chancellor of the Exchequer is not imposing a tax on capital wealth now. He says he cannot do it in the middle of a war, and that it would not produce the cash he requires. Admittedly, it is very late in the day, and in an interim Budget, when we are already far advanced in the war, the situation is very different from what it was before the war began. But when the war is over, we cannot and will not go back to gross inequalities of riches and the disgustiing exhibition of luxuries, cheek by jowl with grinding poverty in other large sections of the population. Fortunately for this country we have had a very severe warning not very far off across the Channel. The 200 families, whose intransigence has ruined our neighbour, have tried to save themselves and their fortunes, and in the process have ruined their country. Instead of the brave line that we have seen in the Northern countries, when faced with a far more overwhelming military disaster, they have tried to protect their wealth and their possessions and I do not believe they are going to succeed.

Our governing classes, taken as a whole, are not unpatriotic, and it is only part of them—perhaps a very small part—which is selfish and self-centre[...] in the way that their counterparts in France have been. During the war we shall all have to live a simpler and perhaps a healthier form of life. After the war is over, we must retain that simpler form of life and that greater equality which will be brought about among the people of all classes. The fiscal machinery for making this change is to have a substantial reduction in individual fortunes brought about, definitely and objectively, in order to wipe away a large part or the whole of the war debt. The people of this country will start again with renewed vigour, a strong, a virile nation, prepared to face the future with fresh confidence, united as never before, one people, with our heritage of liberty and democracy, which will be our glory and lasting possession, and an example to the whole world.

8.56 p.m.

Mr. Graham White (Birkenhead, East)

I will try at once to enter into friendly competition with my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) in being as brief as I possibly can. I will try to avoid those topics which have been the subject of criticism by my right hon. Friend, and seek to confine my observations to some more general aspects of the Budget in relation to the financial task of the nation as a whole. I, in principle, have no objection to the proposals he has placed before the Committee, with clarity and ability, for a capital tax upon fortunes. Such a plan would have to be judged solely on its merits as a means of prosecuting the war at the present time. However, for my part, I believe that such a proposal would be a hindrance at the present time and that it would not produce the ready money which the Chancellor of the Exchequer demanded yesterday, and will continue to demand At the moment all that it would give him would be a number of titles to property and securities which would be ineffective and of no use for the immediate purposes in hand.

I am glad that the interval between the last Budget and this Budget has been so short. We were looking forward to the Autumn Budget, and the fact that we are considering it in July shows that the Government realise the situation, and are not going to allow that situation to drift. The Committee and the country are indebted to the Chancellor of the Exchequer for the admirably clear and concise statement which he made on the country's financial necessities at the present time. I think it is a clearer and more understandable statement of the position than we have had since the outbreak of the war, and some time before. Anyone who heard that speech, and anyone who has taken the trouble to read it, can be in no doubt what our necessities are, and what his individual responsibilities and duties ought to be at the present time. The proposals, taken as a whole, which were laid before the Committee yesterday, as a remedy for the situation which the right hon. Gentleman diagnosed, are, of course, quite inadequate as a solution of our financial needs. They would have been condemned out of hand completely as a remedy for that purpose, as were those of his predecessor, if he had in fact put them forward as a remedy or solution of our present problems. He stated definitely, however, that the proposals which he made yesterday were an interim statement, and we must look forward with trepidation to what other proposals he may have to make to meet the nation's needs.

It is clear that the Budget leaves unbridged by tangible proposals a gap of something like £2,000,000,000, and it reduces the actual amount of war and domestic expenditure which it is meeting from taxation from 46 per cent., as it was left at the time of the last financial review, to 39 per cent. If that proportion were to remain, it would leave us with our present difficulties unsolved and with a post-war problem, which in any case must be terribly difficult, which would be quite beyond control. We recognise that in war time the Budget is not a Budget in the accepted sense. We have a series of statistical reviews with such proposals as are brought forward from time to time to meet the changing conditions. There is no such thing as a financial Maginot Line, and thank God for that. What the situation demands is a general strategic plan for financing the war and for bringing the resources of production, expenditure, distribution and man-power into a comprehensive whole into which the financial machinery of the country and the Treasury could fall as a necessary part. The proposals of the Chancellor yesterday were much less drastic than the country expected. If that be the case, it should not be regarded as a licence to the individual to proceed as he thinks fit. If the financial arrangements of the Government still leave a gap to be filled and great sums be raised which are not to be raised by the actual proposals of the Budget, it is up to the individual citizen throughout the land to do what he can consciously to direct his expenditure and savings to fill gaps which the Government proposals leave unfilled. The taxpayer by this time has clearly realised that there is no escape from this burden. It is not a choice between Income Tax and other forms of tax which he may consider easier to bear. The actual burden is imposed at the time when expenditure is incurred.

If we cannot by taxation and by voluntary saving raise all that is necessary, it will inevitably be raised by the process of inflation, which the right hon. Gentleman yesterday recognised must arise from a situation which he himself described as fundamentally unsound. I am bound to say that I think the danger of inflation is probably much greater than the right hon. Gentleman allowed the Committee to suppose. It is very largely disguised by the fact that we are still living to a great extent on stocks. There is not in my observation any considerable curtailment of public expenditure in any direction. There has been an enormous transfer of spending power from one section of the community to another. I have seen a figure which suggests that the spending power of those engaged in the engineering trade has been increased by £200,000,000 a year. In the popular restaurants the average value of the ticket of any individual customer is not less than it was before the war. It has substantially increased. The man who supplies me with my modest supply of navy cut told me when I went in on Monday that I had better have two tins instead of one, and he said that there had been no reduction in the consumption of tobacco in spite of the tax. The danger of inflation is disguised by the fact that we are living upon stocks, and it has been reinforced by the direct method of borrowing the surplus balances of the banks. I know it is contended that that is not a direct inflationary proposal, but I think it is.

Mr. Stokes (Ipswich)

Will the hon. Member tell us what he means by inflation?

Mr. White

Perhaps those are matters which we might discuss with economy of the time of the Committee in some other quarters of the House. When the Chancellor of the Exchequer suggested yesterday, as I understood it, that we were probably somewhere near the limit of the income which could be raised by existing taxation, I am bound to say that I was rather inclined to agree with him. The difficulties of the right hon. Gentleman arise from the fact—and here again he has my sympathy in his position—that we have not had, nor have we to-day, any comprehensive plan for war-time production, for the distribution of our labour resources and our finances. We can only hope to reach our maximum war effort by the closest, indeed by complete, cooperation between the Ministry of Supply, the Ministry of Labour and the Treasury, in which the Treasury must conform to the major strategic plan for the prosecution of the war. The right hon. Gentleman himself suggested that the reduction of consumption by means of taxation is a very clumsy process. It is, as he said, a double-edged weapon. The more successful a tax is in reducing consumption the less successful it is as a means of raising revenue.

Another point which is of great importance is that the increase of the Income Tax, if pushed any further, may lead in some directions to the breaking of contractual agreements and arrangements, which may have a very bad effect upon the morale of the country and hinder the prosecution of the war. The same process may very well lead to the curtailment of expenditure in certain directions which is positively beneficial to the prosecution of the war. What is needed, in my judgment, is a comprehensive lay-out of the necessary production for war effort by the Ministry of Supply, accompanied by a progressive transfer of the man-power of the nation from unnecessary non-essential industry to war effort. It is a lamentable fact that after nearly a year of war it should be only now that the Ministry of Labour has called in assistance from outside and is making the necessary surveys, the necessary examination of the statistical foundation, upon which such transfers can take place. All these years, of course, the Ministry of Labour has been a ministry of unemployment. Its mind has been divorced entirely from constructive proposals. In passing, I would say that in mobilising and transferring resources of man-power in this country I hope that it will not deliberately throw away so many of the valuable brains and so much of the knowledge and experience which are possessed by many of those now registered on the aliens section of the central register. The problem of consumption by the civil population can, I am convinced, be solved only on these lines, coupled with the rationing of food and also the rationing of materials by the Ministry of Food and the Ministry of Supply.

War finance is not an isolated financial proposition. It must be conditioned by the balance of war production. I said just now that I did not disagree with the Chancellor of the Exchequer, if I was right in understanding him to say that we were somewhere near the limit of the practical yield of existing taxation. I am as fully aware as anybody of the difficulty of recasting our fiscal instruments in war-time, but I am certain that we have to recast our methods of direct taxation. I hold that the standard rate of Income Tax should be reduced and made applicable to all incomes, and it should, of course, be accompanied by a steeper graduation, on the lines of the present Supertax. It may be argued that it would depress still further the meagre standard of life of the poorer sections of the community, but nobody acquainted with me in this House would suspect me of advocating anything likely to have that effect. It is necessary to couple with any scheme of that kind, outside the wage structure of the country altogether, a system of family allowances. It can be done, by means of a direct scheme or, if that is not possible in war-time, by means of rebates, as it is to some extent done at the present time.

It is an essential aspect of our war finance that it should be equitable, that there should be no injustice and that the standard of the lower-paid sections of the community should be maintained. I am proud to think that Parliament can, in these times of war, be vigilant to see that steps are taken in those directions. Something has been done, not always as we would all wish to have it done, and perhaps not as we should do it in peacetime, in regard to old age pensions, unemployment insurance, workmen's compensation and the Ministry of Food milk scheme. They show that the people of this country are determined, even in these times, to see that the standards of life and health are not unduly depressed. I am convinced that the mobilisation of our resources for a total war can be carried out successfully only on those lines, namely, the organisation of production and of man-power, the rationing of materials and the taking of measures to maintain the wages and standard of life of the poorer sections of the people.

If I may trespass for a moment longer, I would say that the reduction of civilian consumption is becoming more urgent, not only for the reasons with which we have become familiar in this discussion, but owing to the changing character of the war. It may be that, in a short time, the fortunes of war may be bound up more closely than they have been with purely economic considerations. We might find ourselves, after six months, perhaps in a little longer time, faced with a situation in Europe in which the whole of the Continent is bordering upon famine and in which the granaries of the world, in our Dominions and in the producing countries are bursting with produce of one kind or another. It does not require much reflection to see what a powerful propaganda instrument would lie there, when we were represented before the world as people who were starving Europe and preventing the producing countries from selling their goods. It seems more urgent than ever that we should divert from civilian consumption everything that can be exported from this country, in order that the exports of the country may be maintained, in order that we may be in a position to command the supply and in order that in those days we may be ready to hand over to people who are starving and in need the resources which we can command by the money which we now save, provided that the Nazi grip which has brought them into this trouble is removed. It is a matter of the gravest consequence, and it seems to me to be definitely related to the problem which we are considering this evening. In the changing aspects of the war the probability that it will assume an increasingly important economic aspect as time goes on calls for stringent restrictions of consumption and the limitation of civilian consumption to what is needed in order to maintain ourselves in proper health and fighting efficiency.

I welcome as a most powerful aid to the Allied cause the step recently taken by President Roosevelt when he asked for a credit of £125,000,000 in order to finance the produce of South America. Again the necessity for economy is forced upon us by the fact that we have already undertaken great obligations to our Dominions for the purchase of their products, to West Africa for the stabilisation of the price of cocoa and transactions of that kind. These are all matters of which I hope the Committee will not lose sight in considering the financial matters which we are called upon to discuss.

I share the satisfaction of my right hon. Friend at the alterations which have taken place in the Purchase Tax. I further welcome the proposal to deduct Income Tax at the source, but I hope that when we come to consider that matter in detail the right hon. Gentleman will consider proposals which we may make to him for some elasticity in the administration of that tax. There are especially in the casual trades very great administrative difficulties indeed. A man may work for two or three weeks and draw money well above Income Tax level, and then when a period of unemployment comes he is left with the necessity to pay Income Tax. My right hon. Friend the Member for South-West Bethnal Green (Sir Percy Harris) yesterday made reference to the increased Tobacco Duty in relation to the supply to the troops. I realise the difficulties which lie in the way of making any exception in their favour, but a very substantial postbag which I have in dealing with correspondence from the troops indicates that they feel that they have a very real grievance, considering that despite their small earnings they have to pay the full amount for tobacco and cigarettes. I hope that some consideration will be given to that matter and that although it may not be possible to deal with it by means of a differential rate, something in the nature of a free ration might be given. Perhaps that may seem an emotional point of view, but so far as the troops are concerned, it is very real and does not help the war effort at the present time.

On the Purchase Tax, I would mention one point. Very properly, the clothing and boots of children have been exempted from the tax. There are people who, for the purposes of their trades, have to use an abnormally large number of clothes, protective clothes of one kind or another. There are, for example, the men who are called upon to clean out boiler tanks. Every time they go into a ship they have to have a new suit of overalls. Some consideration might be given to matters of that kind when we consider this question in detail. I hope that the Chancellor will look with a charitable eye on the suggestion to exempt books from the further burden that is proposed. The Budget leaves us with this great gap of at least £2,000,000,000 to be raised by loan. As my right hon. Friend above the Gangway has said, the response to the campaign for voluntary loans has been excellent. I hope that it will continue. We must continue to devote the whole of our effort, the whole of our material, and the whole of the money that is not needed for the maintenance of health and morale, to the furtherance of the war. Every citizen has his part to play, and I believe that every citizen is prepared to play it. Our strength is that we are more united than any other country. We are not yet called upon, nor is there any prospect, so far as I can see, of our being called upon, to tighten our belts, because we have made arrangements for an iron ration to be available to the people for any length of time that can be foreseen. But there is an urgent necessity for us to tighten cur purse strings in connection with everything other than the prosecution of the war.

9.23 p.m.

Sir Robert Tasker (Holborn)

The Chancellor, in reviewing the finances of the country, surely was confronted with a task unequalled anywhere in the world, except perhaps in the United States. My plea is that there should be an attempt to reform and simplify the method of taxation, particularly in relation to Income Tax. May I remind hon. Members that Income Tax really originated with Pitt in 1799? Out of that, the foundation of our present Income Tax system arose in 1842. There have been various alterations and amendments from time to time. It became so complicated that, in 1927, a committee was set up to consider consolidation, and they sat for nine years. They did produce a Consolidation Bill in 1936, but we have never heard any more about it. Let us consider the situation to-day. The codification Act of 1918 comprised some 300 pages, subsequent Amendments some 400 pages, and the Finance Act, 1940, some 100 pages, a total of 800 pages. The weakness of the machinery is revealed by decisions of the courts which fill 20 large volumes. The whole position to-day is hopeless. Unless we have a change of system and some drastic steps are taken, the confusion will go on, and this Budget will make confusion worse confounded.

This Budget, like others, has its foundation based upon the Act of 1842. The whole condition has changed since that time. I think I am right in assuming that the 1842 Act was based on the 1799 Act, and in those days there were no such things as limited liability companies. The bulk of the taxation as far as Income Tax was concerned was levied on land and property. Business to-day is so much more complex, with a variety of circumstances of which we never dreamed, certain words have a precise meaning in law—other words, not legal perhaps, have precise meaning to business men. I suggest that there ought to be something rather bolder than 8s. 6d. in the £ on Income Tax. Our experience of these interim Budgets leads to the greatest confusion to taxpayer, officials of the Inland Revenue and all concerned with alteration from 5s. 6d. to 7s. and then to 7s. 6d., and the same sort of thing will happen in regard to the 8s. 6d., and before all that can be levied there may be another alteration. If we have to face it, let us face it now. I suggest to the Chancellor of the Exchequer that he should have called it 10s. in the £. It would have had this merit at least—the collection would have been much easier. In fact, it would have been easier for my hon. and genial Friend who has twice wanted to know the meaning of inflation.

Mr. Stokes

Will the hon. Member tell us what he means by inflation?

Sir R. Tasker

Inflation means the increase beyond proper limits, especially prices. If my hon. Friend will refer to the dictionary, he will find that my defini- tion is something with which neither he nor the dictionary would quarrel. I do not go as far as the hon. Member for Leigh (Mr. Tinker), but I would say that there ought to be no Income Tax at all on incomes up to £200 a year, and then there should be a sliding scale, gradually increasing, and on reaching £1,500 a year, the Surtax should be introduced. It is impossible for me to subscribe to the weird doctrine described as "soaking the rich." If you are to take 17s., 18s. or 19s. in the £, or whatever the figure may be, there does not seem to be very much left to soak. I observe that the rate above a certain figure is 9s. 6d., and I think the Surtax is another 8s. That does not leave very much; the owner does not want any soaking after that. Big estates are being wiped out one after another. The demands of the Inland Revenue are such that a man says, "I cannot any longer own the estate. What am I to do?" What is actually happening in many cases is that the Inland Revenue takes over the whole estate and makes a compassionate allowance to the owner until the debt to the State has been liquidated. If any hon. Member would like me to give him private information in that direction, I should be happy to do so.

There is one matter which seems to have been lost sight of, and which was referred to by the hon. Member for Devizes (Sir P. Hurd). It is the question of economy in municipal administration. The attitude of many Government Departments appears to be that it does not matter what it costs so long as they get it. That is a very wrong and unsound idea. There is an old saying that a penny saved is a penny earned. Although I do not want to indulge in a dissertation on municipal affairs, my hon. Friend was quite right, and I would remind the Chancellor of the Exchequer that when I addressed the question to him, when he was Minister of Health, inquiring how many employés there were in municipal services. In 1916 the answer was that there were over 900,000. To-day there must be over 1,000,000. That is one direction in which great economies can be effected. What wealth do they produce? I refuse to believe that it is essential or necessary to have five or six people auditing every account that goes through the offices of a municipality. I received a letter this morning from a person who says: I would like to draw your attention to an article in to-day's 'Daily Mail' by Mr. Ward Price on the subject of the enormous rise in wages in some war trades. The point is no taxation is likely to suffice, however many people are ruined or impoverished, if certain workers are paid two or three times pre-war wages or more. It is a serious matter if as Mr. Price writes the Ministries of Labour and Supply, under Mr. Ernest Bevin and Mr. Herbert Morrison respectively, collaborate nowhere with such intimate efficiency as in agreeing without demur to demands for increased time and peace rates. What of the position in the engineering trade? At one place a girl doing skilled work is receiving £6 5s. a week. There are men employed in munitions factories receiving £8, £10 and £12, yet the highly skilled toolmaker is receiving about £4. My admiration for the skilled engineer does not diminish with the advance of years. When working in the engineering shop we thought ourselves rather "pukka" fellows to be able to work to a hundredth of an inch. That degree of accuracy is ridiculed to-day, but the operators making those tools in manufacturing munitions are receiving less than half the money that men are receiving who are looking after automatic machines. It does not end there. In common with others I drew attention to the money paid to labourers in building barracks.

Mr. Stokes

May I ask the hon. Gentleman what Lord Derby gets per minute for owning the land on which the workers work?

Sir R. Tasker

I do not think that is relevant, and I deprecate the introduction of personalities. I am not interested in Lord Derby or Lord anyone else. I and, I believe, the Committee are concerned in doing the right thing to the mass of the working people of the country, and we are interested in learning where injustice is being perpetrated. I brought to the notice of a Minister a case of errand boys who earned 15s. a week, going to the building of barracks and receiving more than £8. The explanation given to me was that it was due to overtime, but that will not do. Anyone engaged in business can quickly work out the time employed at 1s. 3½d., and knows that it is physically impossible to work 124 hours a week even with double time for Saturday and Sunday afternoon. That is the sort of thing that appears to be overlooked, yet the Treasury have to find the money. A letter appeared in yesterday's "Times" stating that the Inner Temple had offered their railings to the Government. The reply which they received was that this iron could be sold only to scrap merchants. They asked for tenders, and were offered 60s. and 52s. a ton. Is it necessary to employ scrap merchants when these people, in common with others, are prepared to give their iron to the Government? Surely, that is one direction in which economy might be practised.

There are other things for which the Chancellor will be called upon to find money. One of the sources of the supply of butter, Denmark, has been cut off. There are substitutes for butter, one of them being coco-butter. When a Question on this subject was asked in the House on 29th May, the Minister replied that the main crop had to be destroyed because there was no machinery. But there was a group of persons who were quite willing to provide machinery. The machinery was obtainable, but it appeared to these people as though a certain group of vested interests regarded themselves as the sole proprietors of West Africa. As subsidies have to be provided for such an article, that ought to be taken under review by the Treasury. I have no desire to weary the Committee by giving illustrations, but there are directions in which revenue can be raised. There was at one time a Member of the House, Mr. Bottomley, who talked about unclaimed bank balances.

Mr. MacLaren (Burslem)

Where is he now?

Sir R. Tasker

I do not know; he may be in the place to which I shall go. A Commission was appointed to look into the question, and it was discovered that there was something like £3,000,000 of unclaimed bank balances, and by this time at 4 per cent. compound interest this amount must have risen to some £6,000,000. Nobody will say that the banks are unpatriotic. All that the Chancellor has to do is to guarantee that the money will be refunded if at any time it is claimed. That is not unreasonable. There is another direction in which £500,000 might be obtained; that is, by the payment of a tax of 5s. per cycle by the 2,000,000 cyclists in this country. Does anyone allege that the cyclists are so unpatriotic that they would grumble at such a tax? Those of us who cycle have said very uncomplimentary things about motorists at one time or another, and I am sure the motorists have reciprocated very heartily; but we have spent money in providing tracks at the side of the roads for cyclists, and there is no reason why a tax that could be so easily collected should not be imposed by the Chancellor.

Another direction in which revenue could be obtained is one which would mean a risk of incurring the wrath of what is known as the Nonconformist conscience. Why not do what was done in former wars, in the Napoleonic wars, for instance? Why not have lotteries? What is wrong with a lottery? When we sit here and see the Box on the Table opened, and numbers are called out, is not that indulging in lotteries for Motions, and for Bills, and again we indulge in a lottery in obtaining seats in the Gallery. What hypocrisy it is to pretend that there is something wrong and vile about a lottery. I believe that a Nonconformist is as ready for a gamble as a man in the Church of England, a Roman Catholic or anyone else. If it is made legitimate, why cannot we raise revenue in this way? I am far from wishing to be Chancellor of the Exchequer but if I were Chancellor, I would welcome any scheme for raising revenue.

Mr. Barr (Coatbridge)

May I ask whether it is not a fact that former Chancellors of the Exchequer, including the late Sir Austen Chamberlain, who, in 1919, examined these very proposals, gave many reasons why they should not be adopted?

Sir R. Tasker

That may well be, but surely what happened in 1919 does not govern or influence us, or direct what we shall do, in 1940. I wish the Committee to believe that I desire to do all I can to win the war, and if my suggestions are impracticable, they will be rejected by heads wiser than mine. Whatever one may do, and whatever one may say, I want to impress upon the Committee one thing, and one thing alone, namely, that there is no division between us in this House, or outside this House, in our determination to win through, whatever the cost may be, because we are fighting for something which is dearer than life itself.

9.49 p.m.

Mr. Ellis Smith (Stoke)

I believe that the hon. Member for Holborn (Sir R. Tasker) would not willingly hurt anyone, but by his irresponsible statement made to-night, he has certainly hurt me. There is no truth whatever in the statement that girls of 16 years of age, in industry, are earning £6 a week. There is no truth whatever in the statement that boys are earning £10 to £12 a week.

Sir R. Tasker

I did not say that. I can send the hon. Member the name and address of the 16-year-old girl who received £6 5s. a week. I said that two errand boys, whose names I had given to the Minister, received 15s. as errand boys and £8 a week as labourers.

Mr. Smith

I repeat that no girls 16 years of age are coming out of the engineering industry with £6 a week.

This is an interim war Budget framed as an expedient for dealing with the war. Our financial policy is being carried on on a basis of expediency. In my view, which is based upon an examination of the situation, we require a short-term financial policy and a long-term financial policy. It should be based upon the mobilisation of the whole resources of the country, of the Dominions and Colonies, whose good will cannot be measured, and of all the peoples throughout the world who are prepared to co-operate with this nation in the great effort which is now being made. The economic policy of a country determines its financial position.

I was pleased to hear the Chancellor's reference to the danger of inflation. I hope that his optimism will be justified, for some of us have had concrete experience of the effect of inflation. When we remember how we came home after the last war and had to pay so guineas for a navy blue suit for which we had been used to paying £2, and saw our fellow workers come out of the factories with £4 and £5 a week, which expressed no higher value in real commodities than £2 a few years before; and when we remember the experience of our fellow workers in Germany and the suffering through which they had to go for years as the result of inflation, we cannot speak about inflation in the same irresponsible way as that in which it has been dealt with in interruptions this evening. Therefore, we on this side, the party representing the aspirations of the people of this country, are bound to be concerned about the effect of inflation upon the standard of living, and we are pleased that the right hon. Gentleman sees its danger. We hope that his optimism will be proved correct, in order that relative stability can be maintained in the dangerous situation in which we are living.

This is a war Budget, and I am concerned whether we are getting the value from the expenditure that we ought to have. I am concerned, with my hon. Friends on this side, with the future of our people. It is on that basis that I make this contribution to the Debate. I want to appeal to the right hon. Gentleman and the Government to realise that the time has arrived when all the resources of this land should be mobilised in the service of the people. The principal members of the Government are working hard and long, and they are assisted by loyal civil servants in the task which they have undertaken. That work and that loyalty, however, have not found expression in industry. I am reinforced in what I am saying by what I have learned in consultation with people in managerial, administrative and supervisory positions and by large numbers of manual workers, to whom I am pleased to belong. While it is true that great improvements have been brought about, the resources of this country are nowhere yet being mobilised so as to enable the peak of production to be reached and to enable the nation to make the war effort which the spirit of the people deserves. There is some short-circuiting somewhere, and I hope that the Chancellor of the Exchequer, who has accepted a very serious responsibility in undertaking his present task, will see that the financial contribution which the people are making will not be short-circuited in industry as it has been up to the present time.

I remember speaking one Friday from this place when the Lord President of the Council was sitting on the Treasury Bench with the ex-Minister of Supply, and I concluded that speech by saying that no one in the House had been more critical of the Nazis than I had, and no Member had followed developments in Germany more closely than I had, but that while I had been critical of them, I had never under-rated them. I said that I had observed, through following developments there, that never did they move against a group of people in their own country until they were convinced that they were capable of dealing with that group. First they took the trade unions, then the Social Democrats, then the Jews and then the Catholics. Each group thought, "We shall not be dealt with in the same way"; but the time arrived when they had driven underground all the aspirations of the common people and smashed the organisations which represented them.

Not until the monopolists in Germany, wielding their new political instrument, had dominated the whole life of Germany did they proceed to apply the same policy in the international sphere. They did not march into the Rhineland until they were convinced, through the work of their efficient espionage system, that Britain and France would not offer any resistance. If there were time, I could go on giving concrete illustrations showing how they marched next into Austria, then into Czecho-Slovakia and then into Poland. Never did they make a move against any country until they were convinced that they had overwhelming superiority against that country. I concluded that speech by asking the Government whether they were satisfied that the Germans had not been using the past eight months to obtain the same superiority over the Allies, and I have to stand here and confess that that fear proved to be true. We taught the world the use of tanks. Our men handled them in the last war in such a way that our Tank Corps was the admiration of the old German Army. That period of eight months was used in a way which has been revealed to us bitterly and to our cost. I will quote from a gentleman of whom more notice will be taken than of myself. He is a gentleman with whom I have disagreed during the past four years, because of his pro-German policy. Much to that man's credit, since the war he has thrown overboard that pro-German policy, and, in article after article on Sundays, Mr. J. L. Garvin has been proved correct in his analyses of the situation, as it has changed from week to week.

In the "Observer" of Sunday, 14th July, was an article from which I wish to read a few extracts, which ought to go on to the records of this House in order that hon. and right hon. Gentlemen might read them, and that the words might shake them out of the complacent way in which many of them are still carrying on. I am getting a little disappointed. During the past five years I have stood here and made speech after speech upon the menace to this nation from German militarism. I remember, at a conference in Manchester four years ago, influential trade unionists who were by my side saying that I was taking a pessimistic view of the international situation, but the analyses which some of us made, and which determined the view which we formed, has been proved correct. Probably, when I say to-night that I am beginning to be disappointed, and when I quote from writers of this character, such views will be taken more notice of, after they have been brought out by men of this kind. Mr. Garvin wrote: When will it come? The only sound view is that we may wake any morning and find that it has come. There are still some worthies"— There are scores of them on that side of the Committee representing well-placed people in this country and who have had too easy a time during the past 20 years. That is really responsible for determining their outlook— untaught by the lessons of the last 10 months, who relax at the faintest excuse into infatuated credulity. The storm, when it bursts, is bound to be as sudden as the invasions of Denmark and Norway, of Holland and Belgium and the devastating sweep on France. Do we expect the Nazis to give more warning in our case than in others? However short it may be, the present interval is another false lull. We know too well what was signified by our former and longer experience of the same kind. For eight months it acted like a dope on the democracies and their Government. Meanwhile, by contrast, the enemy undertook and carried out the most gigantic work of production and organisation that has ever been done in the same time. The reason I quote that is that I am asking the Chancellor whether he is satisfied that, with his introduction of the war Budget, we are getting production from industry and are mobilising the resources of this nation in order to meet the gigantic productive efforts which are being carried out by the people to whom we are opposed. I say that we certainly are not. I hope that, after the Budget has passed through the House, the Government will take early steps to mobilise the whole resources of the country.

During the past few weeks I have made several contributions on the question of the productivity of this country. I travelled with a man the other day, and he said to me: "One of the mistakes that we make in this country is that we put into jobs people who seem to know very little about them. We see people put into important positions in the aircraft industry and the Aircraft Ministry not because of their long experience in the aircraft industry, not because of their capacity, but because they happen to hold an influential position somewhere else and happen to be big people in Woolworth's or something like that." I heard the other day of a case of a man appointed to an important position in the Aircraft Ministry. On a legal question I would always give way to the knowledge of the right hon. and learned Gentleman opposite whom I respect because of his legal knowledge, but there are many men who I know have spent long years in industry, and I would never ask them to take second place to him if it came to a question of the organisation of aircraft and output in the supply industries. What applies to the right hon. and learned Gentleman applies more so to other people who have not the same standing in the legal profession, and therefore one can understand the irritation which is caused by appointments of this character.

I wish to appeal to the Government to review the payments which are made to our men serving in the Armed Forces. The position as it is cannot be supported by anyone on any platform in this country. There is no democracy about the payments that are being made to the men in the Armed Forces at the present time, and, therefore, although there is no time to deal with this question in a way in which one would like, I hope that the Government will agree that the time has arrived when there should be a review of the payments being made to the men and their dependants.

The Deputy-Chairman (Colonel Clifton Brown)

I would remind the hon. Member that this is a matter of raising money and not spending it.

Mr. Smith

I am hoping that the amount raised will be allocated to the men serving in the Armed Forces in a different proportion from that in which it has been allocated in the past. Our people are making a greater effort than ever. The Chancellor, who has visited many workshops in this country during the past two years, knows that the spirit of the work people engaged in these industries is an inspiration to anyone who has had the privilege of visiting them. I could not have believed the great effort that is being made if I had not visited them and moved among them. We in the House of Commons have a responsibility on our shoulders. Most of us are relatively well placed, most of us have an assured income, but some of us remember the promises that were made after the last war, and I remember, as a young boy beginning to take an interest in things, saying that our people would never stand for a repetition of the insecurity of the past. Men working alongside me said that it would continue. I was proved wrong, and they were right, but I am now confident that the people in the future will not stand for a repetition of the past if we come through this war as we all hope we shall do. If millions can be raised in this way for the successful prosecution of the war, millions can be raised also to remove the economic insecurity of our people under which they have been living in the past. Therefore, we on this side will support the right hon. Gentleman in this Budget in principle. Perhaps several changes in detail are required, but our people are behind the prosecution of this war. It is they who are making the great effort. Therefore, we have a right to ask that in future steps shall be taken to remove the insecurity in which our people have lived.

10.10 p.m.

Captain Sir Ian Fraser (Lonsdale)

I cannot help feeling that it is fair to try to place the inevitable burdens on all classes, and I am glad to feel that in most parts of the House that view has been accepted. I am glad that the Chancellor has had the courage—for I think political courage was required—to ask middle-class people and wage-earners of the artisan class to make their contribution towards the Income Tax. For the first time for many years, the Income Tax to be paid by workers in the £4 to £8 or £9 a week groups has been raised. Quite apart from any question of class or wealth or property, it seems clear to me that unless that vast group of people, numbering many millions, who are receiving increased wages at present are asked to make a really generous contribution out of those wages towards the cost of the war, it will be impossible to finance it. At the one end of the scale we have the well-to-do people. They have been found willing to make the most tremendous sacrifices from their incomes. I do not think that the hurt to the individual, the discouragement to the man of enterprise who has begun to earn big money, counts in anybody's mind, nor do I suggest that the Chancellor should have taken less from those with high incomes. He has done well to make them bear the burdens which he is placing upon them. But hon. Members should bear in mind that there are certain wealthy people who have very great obligations.

More particularly is this true in the countryside. There are people there with estates, who manage them not for their private benefit entirely but for the good of their people, and who render a very great service to the countryside in so doing. They have had to pay increased wages to their estate servants, but they do not get any help towards those increased wages; they do not receive, as the farmer does, higher prices for the goods produced. The rise in the cost of estate servants comes wholly, in many cases, out of estates which are already impoverished. I beg hon. Members not to think that I am in any sense pleading for the individual: the rights, the habits and comforts of all individuals must, if need he, go by the board; but I have seen cases where there is a real threat that damage will be done to the countryside if the taxation imposed on the land by taxing many owners of estates in this extreme way goes on without limit. But I welcome the proposals which the Chancellor has made. The rise in the taxes which the well-to-do are paying will make a contribution, although the House will note that it is not so great a contribution as might have been hoped for, towards raising the money; and, above all, it will enable us to feel, and to make the whole of our people feel, that there is no limit to which those who are wealthy are prepared to go to help the country at the present time.

At the other end of the scale come the people with very limited incomes, pen- sioners, war pensioners, old people who live on small savings or small investments. It will be a very great burden to them to meet the new taxation of an in-direct kind. Nevertheless they are being helped by the Government in a variety of ways. There is provision for the exemption of certain necessary articles. There is for the very poor the increase in the allowances and benefits which are made through our various social services. There is the milk scheme. It is right that we should have regard to the burden which inflation and rising prices place upon those with fixed incomes, and I am glad to think that not only in the Budget, but in the policy of the Government generally, the needs of these classes are borne in mind.

Inflation, while it may for a time benefit the artisan class, and even the unskilled worker who is now receiving higher wages, does not at any time benefit the person living on a small fixed income, who suffers enormously. All through the last few weeks while I have been listening to speeches of Ministers I have been glad to notice that the very poor and the poor are in the minds of the Government even at this time and that they are making such provision as they can to help them, but between the poor and the very poor and the well-to-do there is the great mass of our people. Let it never be forgotten that the Surtax payer is an extraordinarily limited class. That does not give him any special rights, but it does limit the amount of money that can be had out of him. Even if you took away 20s. in the £, as I think the Chancellor of the Exchequer told us, you would then raise only £70,000,000. Let the country not forget that fact. This is not the time for party arguments about rich and poor or class and class, and it is to me, as one who has been away from this House for a few years and has now come back, a source of great gratification to find that the old arguments that one used to hear so frequenly have taken a back seat because of the general view as to the necessity for unanimity in fighting this war. One could argue about Socialism and Capitalism, but, thank God, that is not wasting our time now. I believe frankly that we on these benches would prefer that this country should end up a Socialist democracy provided we win the war, and that Members opposite would prefer that it ended up even a strengthened capitalist democracy provided we win the war.

The important thing is that we must win the war and maintain the conditions in which we are free to shape our social and economic policy as Parliament would wish, but in these circumstances let us face the facts. The money cannot be had from the rich or the well-to-do or the moderately well-off. Even if you took it all, you would not get enough. If, therefore, we are to win the war, the money must come from the great middle-class, from the artisan class and from the skilled and unskilled men who are now obtaining higher wages than those to which they have been accustomed. I say, "Good luck to them." They went through their time of bad trade and of unemployment, and it was they who suffered most. The well-to-do classes, the shareholders, the owners of property generally have a bit put by to help them over the evil times.

The working class have to rely on what is, by comparison with many countries, a generous provision in time of unemployment. But that is to them a great sacrifice and makes it difficult for them to obtain their homes and keep them together. Let us not forget the man who may, at the end of any week, find himself out of a job, with a family to provide for, rent to pay and obligations to meet. In spite of unemployment allowances he must be in a difficult position. But now he is in for a better time. There is no denying that there have been substantial rises in wages among skilled and unskilled workers and the cost of living has by no means gone up pro rata. In these circumstances they must make their contribution because, without it, the war cannot be won.

I make an appeal to my hon. Friends opposite. Let them aid the Government and the country, as so many have patriotically done, by asking all the great middle class, artisan class and the skilled and unskilled labour class, cheerfully to pay their substantial Income Tax. Only then can the money be found for the winning of this war. I appeal to them to take that message to their constituencies, as we on this side have been willing to take many messages which, judged by old political standards, may be unpopular with many of our supporters.

I want to say a few words about the Purchase Tax. I support the Chancellor in bringing it forward. Although I realise that it places burdens on many—and in so far as it places burdens on the very poor, I am extremely sorry that that should be so—I see no other way in which the Chancellor would get the whole community to make an increased and additional contribution. If people have no money they cannot spend but if they have any money, and do spend it, they will be making their contribution, pro rata, towards winning the war. Since the Chancellor cannot pick out exactly all the individuals who have a bit of money and are prepared to spend it, there may still be some left, after he has obtained his Income Tax, and this seems an admirable and effective way of getting it.

I have studied lately some of the various methods by which certain commodities may be taxed and have examined some of the measures in use for many years in some of our Dominions and other countries. In my judgment, for what it is worth, the Chancellor has chosen the best way of doing it. A retail tax is extraordinarily difficult; it is worked in some countries but has been abandoned in others. It would be peculiarly difficult in a time like the present. To have to account for every transaction over the counter would be an elaboration of effort and a waste of work which would be unjustifiable at the moment. Moreover, it would produce all sorts of anomalies. There are goods so trifling in their value that they have to be exempt and those of a little more value and you would get the ridiculous situation of buying one thing which was exempt, and buying two things which were taxed. That sounds trifling and ridiculous, but it has occurred in countries where this method of tax upon the sale of commodities has been done at the retail end.

I think the Chancellor of the Exchequer has chosen the right method in applying it where the goods leave the wholesaler. He is making a smaller number of persons responsible to him for the collection—that is an advantage—and he is doing it at the point where it is very much easier to administer and collect. I give him my whole-hearted support in bringing the tax forward, because it is one of the few methods of taxation still untried in this country which can raise large sums of money from all classes in proportion to their ability to spend. If they cannot spend, they will not pay. If they spend much or little, it does not much matter from the point of view of the Chancellor. As he said so rightly, it is the cash that he wants, and it is as useful to him to have 1,000 shillings as £50. I hope no private interest will cause hon. Members to oppose him. I was delighted at his estimate of £100,000,000 and hope it will be realised. Above all, I would urge him to have the courage not to give way on 101 small points in relation to whether this or that commodity should be included, because, if he does that, he will whittle away the great advantage the tax offers him.

I should like to add a word of thanks and congratulations in relation to the decision to compel employers to collect Income Tax by instalments. I think that is most sensible. Theoretically we all ought to be wise enough to save our money to pay our taxes, but many of us do not, and we find it a very great burden when the time comes to produce a large sum. It is a protection to the Treasury—that is the angle from which the Chancellor looks at it, whatever he may say—and it is a convenience to the individual. I think the Budget shows, by its general acceptance, that all classes are willing to make any sacrifice to pay for the war. I wish the Chancellor good luck with his job and hope all his taxes will bear the fruit that he has estimated to be possible.

10.29 p.m.

Mr. Richards (Wrexham)

I imagine that the Committee has listened with the deepest admiration to the speech we have just heard. The facility with which the various aspects of the Budget have been dealt with and the lucidity with which the opinions were expressed must have won the admiration of everyone. I think, too, we can congratulate the Chancellor of the Exchequer on the lucidity of his statement yesterday. He was labouring under a particular difficulty. He had to come in at half-time. It is difficult for a new Chancellor to step into the breach, particularly to introduce a third Budget in the course of 10 or 11 months. The statement was one of the most lucid we have ever listened to. At the same time the Budget is commonplace in its outstanding features. Perhaps the Chancellor has no objection to that. The Budget had to be framed, as it was, within the framework of the existing fiscal system, and consequently, it does not present any very novel features. Even the Purchase Tax was not a surprise, for we had been told that something of the kind was likely to be introduced; and I should like to congratulate the right hon. Gentleman upon the very reasonable changes he has introduced into the working of that tax.

In the course of his statement, the Chancellor said that it was essential that everybody should contribute to the national effort. We are all agreed on that. What hon. Members on this side are rather concerned about is that even now it is quite possible that the poorer section of the community may be contributing—indeed, I am certain they are contributing—an amount more than proportionate to the wealth which they have as compared with other classes. For purposes of illustration, I would like to refer to some figures that were given by the Chancellor. He took the case of a man with £400 a year and two children, and pointed out that such a man will pay under the new taxation £15 16s. 8d. That will leave him a balance of £384. A man with £1,000 a year will pay £210, which will leave him with £790. I suggest that the test of equality of sacrifice is not the equality of the percentage paid, but the actual amount that is left after the payment of very considerable sums. The man who pays £210—a very big sum compared with the £15 16s. 8d. paid by the other man—will still have nearly £800 left. That is the argument that we ought to apply in every case. It is not a question of how much a particularly rich man is paying, but a question of his still having, after he has paid a very large proportion of his income, a very considerable income left. Whereas in the case of the poorer man—and this is particularly so if we take the indirect taxation as well—there is so much less left to him that it makes his sacrifice really much greater than that of the rich man. The fact is that there is no equality of sacrifice as long as there is no equality of income, and however we may juggle with the figures of the Budget, the inequality in incomes makes it impossible for us to arrive at anything like an equality in the sacrifice that is made by the contributors to taxes.

I should like now to refer to some of the figures that were given by the Chancellor and compare them with the figures which his predecessor gave last April. The right hon. Gentleman's predecessor said that the total amount which he required was £2,667,000,000, and of that sum, war expenditure amounted to £2,000,000,000. The right hon. Gentleman's predecessor raised by taxation £1,234,000,000 of the £2,667,000,000, and borrowed £1,400,000,000. The Chancellor pointed out that the cost of the war has been steadily mounting; it was £40,000,000 a week in April, and since then it has reached £50,000,000 a week. Recently a figure of £57,000,000 was given, and the Chancellor has stabilised it at that figure. He assumes that the expenditure will continue at round about that figure, and no doubt he has reasons for coming to that conclusion. I wonder whether the figure will not soon be £60,000,000, and if we multiply that by 52, we have a total expenditure of over £3,000,000,000. If we add to the total expenditure the £667,000,000 for the service of the debt, it brings the amount to £3,787,000,000; that is to say that we are creeping towards an annual Budget of £4,000,000,000.

I do not know why the Chancellor should not have taken the higher figure, because it seems to me that we can take it for granted that the cost will mount, particularly if the calamity, which we all hope will not happen, takes place and we have to push the enemy back from our shores. Therefore, my first criticism is that the figure adopted by the Chancellor is £3,467,000,000. The figure I accept, on the basis of the £57,000,000, amounts to nearly £3,800,000,000; so there is a difference of £350,000,000. It means that the gap of which he spoke yesterday, and which he is attempting to fill, may be, and probably will be, £350,000,000 more than he suggested.

It seems to me that the Chancellor ought to be bolder, and that he ought to budget, as far as he can, for the maximum expenditure he can foresee within the next six months. He went on, in an attempt to please us to a certain extent, by pointing out that all may not have to be raised by taxation—there are certain mitigating circumstances and certain alternatives. He said, for example, that the Government possessed a considerable supply of gold which had not been disposed of. It is very difficult for an outsider to know how much gold we really do possess. There is no longer any need, speaking generally, to have a great deal of gold in order to keep up the value of paper currency, but the tragic factor is that no Government has ever been found which is sufficiently honest to issue paper money without some very considerable backing of gold. Immediately the gold is reduced, the value of paper money is reduced, and we have inflation. No Government can be trusted, even a National Government of this description, to issue paper money without a very considerable backing of gold behind it. Consequently, I presume that the Chancellor would not like to get rid of the gold that he has reserved in the Bank for that purpose.

Mr. Craven-Ellis (Southampton)

Is the hon. Gentleman of the opinion that gold is at the present time behind the currency of this country?

Mr. Richards

I hope it is; otherwise, we are passing into the inflation which has been spoken of. A great deal of the gold has been retained in the Exchange Equalisation Fund. It is kept there for the purposes of foreign trade, and the Chancellor emphasised yesterday the importance of foreign trade as second only to that of the military requirements of the country. Consequently, I do not think he will rob that fund either. I was rather puzzled, therefore, when he said that we had a considerable amount of gold which we could dispose of. If we decide to get rid of any surplus gold that we have who is going to buy it? Most of the markets of the world are closed to us and we have only America which may possibly take some of the gold. My impression after the recent events in Europe is that America is saturated so far as any demand for gold is concerned. Our market for gold is, therefore, very limited, and I do not think we can build very much upon it. The Chancellor also stated that we have our foreign securities. The estimate of our foreign securities at the present time is problematical. An estimate has been made that before the last war we had between £3,000,000,000 and £4,000,000,000 worth, that by the end of the war we had sold some of them, and that at the beginning of the present war we had not more than £1,000,000,000. They cannot be disposed of at once. They can be disposed of only gradually at the rate of £1,00,000,000 at a time. It will, therefore, take us a considerable time if we decide to convert our securities into money in order to buy commodities in the States and elsewhere. We can, then, neither get rid of our gold nor get rid of the securities that we have.

The Chancellor said that the total amount he wanted to find was £3,467,000,000 and he proposed to get by means of taxation £1,360,000,000. That is an addition of £126,000,000 on the taxation formerly levied. That amount is divided between £69,000,000 direct and £57,000,000 indirect taxation, which is a very fair division. It is difficult to assess what the relative burdens of direct and indirect taxation should be. The Chancellor has pointed out that that gap is gradually widening, and that he is raising by taxation a less proportion than his predecessor. That is rather a serious criticism. The figure in April was something like 46 per cent., leaving 54 per cent. to be borrowed, and the figure now is 39 per cent. by taxation, leaving 61 per cent. to be borrowed. My right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) was very optimistic about the probability of borrowing. I do not feel so optimistic myself. It is a big burden to throw on the machinery we have for borrowing and one naturally thinks of the introduction of some kind of compulsory savings. On the April Budget we had a discussion upon the scheme suggested by Mr. Keynes, but nothing was said on that score by the Chancellor yesterday.

He went on to say that it was estimated by certain people, though he did not say that he agreed with their figures, that the national income was somewhere about £5,000,000,000. I suggest that our war expenditure is creeping up towards £4,000,000,000, leaving £1,000,000,000 for expenditure outside war expenditure. This brings me to the crux of the question, as put quite fairly by the Chancellor yesterday. We are spending so much of our wealth on war efforts that the amount we have left to spend upon ordinary commodities is considerably reduced. That was the argument which the Chancellor used for introducing the Purchase Tax. I think something drastic must be done to get consumption to fit, so to speak. While people are getting more wages the amount of the commodities produced for the community at large is steadily declining, and the Chancellor had to introduce the Purchase Tax partly for the purpose of reducing consumption, which is an absolute necessity, and partly to prevent prices from rising.

As was pointed out by my right hon. Friend the Member for East Edinburgh, the objections we originally had to the Purchase Tax have been considerably modified by the generous attitude of the Chancellor towards many of them, but there is one aspect of the matter to which I should like to refer. I agree with those who have said that it is a pity that the Chancellor is taxing books. We must realise the importance of literature of all kinds to the community. We are fighting really for the right of man to express himself in his own way; it is an essential part of the struggle in which we are engaged. I would make a special appeal to the Chancellor for Welsh books. The position in regard to them is peculiar. After all, there are only about 500,000 exclusively Welsh-speaking Welshmen, and it is upon them that we depend for the production of the more characteristic Welsh books. The price of Welsh books is, as a rule, low compared with that of English books. It is rare to find a Welsh book priced at 3s. 6d. or 4s. 6d.; the usual price is between 2s. and 2s. 6d. When one increases the price, difficulty is created. One has to remember that many of the books are written by such people as quarrymen and miners, who are keeping alive the Welsh language, tradition and culture, which it is most important to do at the present. I appeal to the Chancellor of the Exchequer to do away with the tax altogether in the case of special books, particularly Welsh books. If he does so, his name will be honoured in Wales, and that will be sufficient reward to him for his generous attitude towards the problem.

10.52 p.m.

Mr. Loftus (Lowestoft)

I cordially endorse the plea made by the hon. Member at the end of his speech. We ought to do everything we can to preserve these small cultures when there is such an endeavour to standardise all people and all things. If the tax is to be maintained, it should be with certain exceptions. Weekly reviews should be excepted. The hon. Member's appeal should touch the hardest heart of a Chancellor of the Exchequer in favour of one of the small surviving cultures of Europe, and I hope my right hon. Friend will accede to that appeal. The hon. Member made a most interesting speech.

I would congratulate also my right hon. Friend on the admirable clearness of his exposition of the Budget yesterday. I felt that he gave us a clear and convincing diagnosis, and was a most excellent physician. But when I listened to the details of the prescription I felt it was not adequate to the diagnosis. This war Budget has two functions, the first being to reduce consumption and to switch national productive power from goods which are not essential to those which are essential and to the war effort. By taxation, and prohibition, if necessary, we must prevent people spending their money on goods which are not essential.

I thought I detected a contradiction between the beginning and the end of the speech of the hon. Member who has just spoken. At the beginning, he took the case of people with £1,000 a year, whose taxation would be about £200, and that of a small-income man of £400, whose taxation would be about £16. We must remember that it is the limitation of consumption which is the aim, and 75 per cent. or 80 per cent. of the national consumption is, chiefly, by the wage-earners. Therefore, if you confine your heavy taxation to the large incomes you will not limit 80 per cent. of the national consumption, and we must limit 80 per cent. of the national consumption.

The second object of this Budget must be to raise sufficient by taxation and other means such as genuine loans and genuine savings to prevent inflation. The vital question before the Committee is whether this Budget will accomplish that object. The hon. Member who has just spoken dealt with that point at some length, and, while I do not agee with all of his points, I certainly agree with the conclusion at which he arrived. We have this gap of £2,100,000,000. He suggested it might be a gap of nearly £2,300,000,000 or £2,400,000,000, and he would be a rash individual who would say that the hon. Member is wrong. No one can tell. But there is that gap. I will take a lower figure—the figure taken by my right hon. Friend the Chancellor, £2,100,000,000—and see how that can be bridged without inflation.

In the first place, there is the sale of gold. I disagree profoundly with the remark of the hon. Member who has just spoken, that no Government can be trusted to issue paper money without a considerable amount of gold behind it. I think that our issue to-day is quite independent of gold, but America is saturated with gold and I imagine that the United States would be very reluctant to take more than a very moderate amount of gold. Then there is the sale of securities. The hon. Gentleman gave figures; I do not know whether he referred only to dollar securities or genuine securities. Before the last war we had well over £4,000,000,000 worth of foreign investments. We sold chiefly our dollar securities. We still had most of our sterling securities. In rough figures, we had £1,000,000,000 in Australia, which we still have. We had vast investments in the Argentine, South Africa, New Zealand and so on. I agree with the point that was raised, that there is a limit to the amount which you can sell every year. I do not know what the limit is, but I suggest that the sale of dollar securities and gold to the United States combined would not be more than £400,000,000 or at the most £500,000,000 a year. My right hon. Friend suggested utilising the American and Colonial balances here in London. That, as has already been pointed out; is only a very temporary scheme. Looking at it by and large, I feel that my right hon. Friend—

It being Eleven of the Clock, THE CHAIRMAN left the Chair to make his Report to the House.

Committee report Progress; to sit again To-morrow.

The remaining Orders were read, and postponed.

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