NATIONAL DEFENCE CONTRIBUTION. (Hansard, 25 July 1940)

§ Mr. Lees-Smith (Keighley)
I think it would help us if it were made clear to the Committee how much time the remainder of this Debate is expected to occupy. I understand that it is proposed to take the consideration of the Workmen's Compensation (Supplementary Allowances) (No. 2) Bill at the conclusion of this Debate. The suggestion has been made that this Debate should continue until about seven o'clock this evening, after which it is intended to proceed with the Committee stage of the Measure to which I have referred.

§ The Lord Privy Seal (Mr. Attlee)
I think it is the general desire of hon. Members to conclude the Debate on the Budget Resolutions by about seven o'clock this evening, and to proceed then with the consideration of the Workmen's Compensation (Supplementary Allowances) (No. 2) Bill.

§ Mr. Loftus (Lowestoft)
When we adjourned last night, I was discussing the question of whether the defences proposed by the Chancellor of the Exchequer were adequate to prevent all danger of inflation. The Chancellor pointed out that the gap between the amount of taxation raised and the amount of the national expenditure would be £2,100,000,000. I think it will be at least that sum, and it may well he more for these reasons. In the first place, war expenditure may 1014 rise considerably, as my right hon. Friend pointed out. In the second place, there will, I think, be a great increase in civilian expenditure due to the war. For instance, I warn my right hon. Friend that during the coming months substantial grants are bound to be made to municipal and other local government authorities in what are called the evacuation areas. There is a third point. I am a little doubtful about the yield or rather the collection of Income Tax and Super-tax next January. We must realise that many businesses and many individuals were prosperous in the year which ended on 30th March and that they are assessed on the profits of that year, although during the past year they have made heavy losses and in some cases have lost capital as well as profit, and many will find difficulty in meeting their tax obligations in January.
Assuming the Chancellor's estimate of £2,100,000,000 to be correct, my right hon. Friend pointed out that in order to bridge that gap, he relied on three resources. The first is the realisation of American securities in gold. I do not place the capacity of the United States to absorb these securities and gold at a higher rate than £400,000,000 or at most £500,000,000 a year. The second resource on which my right hon. Friend relies, is the utilisation of Dominion and Colonial balances left in London, but that is a purely temporary resource. I would suggest to my right hon. Friend that that temporary help might be turned into a permanent help if the Dominion Governments of Australia and New Zealand used those balances in London to cancel portions of the debt owed by the Dominion Governments to Great Britain. The third resource, of course, is borrowing. I think that there is a gap of at least £1,500,000,000 which we must close by borrowing. The whole point is this. If we can raise that figure, which I think is at least £1,500,000,000 but may be more, out of the genuine savings of the people we avoid inflation. If we cannot, it means inflation. I think that some degree of inflation, the creation of new credits, will be necessary. Therefore, I regret that the Chancellor of the Exchequer did not take the opportunity of this Budget to recast our whole system of direct taxation and rebuild it.
1015 There is in to-day's "Times" a letter from Sir Reginald Rowe, supported by a very strong leading article, recommending a system by which everyone with an income above £150 a year would pay direct taxation deducted at source. It is suggested that there should be a rising scale starting at 1s. in the £ and working upward. It would be essential to combine such a scheme with a thoroughly adequate scheme of family allowances. Sir Reginald Rowe, I think rather optimistically, estimates that his proposals might bring in as much as £1,000,000,000. I do not think it would bring in as much as that, but it would bring in many hundreds of millions and it would be better than trying to patch up and build on to our present system. If we go on doing that, the present system may collapse under the strain. I beg my right hon. Friend to consider doing something on the lines which I have indicated in his next Budget. Unless we do something on those lines to raise a greater amount by taxation, I am convinced that under the stern and increasing pressure of the economic situation, more and more voices will be raised to demand, either a severe general rationing to include everybody or else some form of capital levy.
Already in the Debates of the past two days those pleas have been put forward. The hon. Member for Leigh (Mr. Tinker) advocated treating the inhabitants of this country as if they were the citizens of a beleaguered city, and treating them all alike. I wonder whether the hon. Member realised the full implications of that suggestion. It would have certain advantages. It would do away with the almost intolerable anomaly which exists to-day that a married man in the Army draws, at most, with stoppages and so forth, 7s. a week, while his brother of about the same age and possibly unmarried, may be working in a factory and drawing £8 or £10 a week.

§ Mr. Ellis Smith (Stoke)
Or he may be a stockbroker.

§ Mr. Loftus
He may be a stockbroker but that is the kind of situation which is causing complaint to-day and I warn the Committee that we shall have to deal with it sooner or later, in some fashion or another. But to return to the proposal of the hon. Member for Leigh, I suggest that 1016 the implications of it are very serious. If the State commandeered, for the duration of the war, the income of everybody obviously the State must also for the time being meet everybody's liabilities. It fills me with horror to think of the swarm of new officials which would have to be created. Heaven knows we have enough officials in the country now. Think too of the deluge of paper, of new forms of all kinds, that would descend upon the country, detracting from our war effort. Our old friend the capital levy has also reared its head in these Debates. I think the point made in regard to the capital levy was adequately met by the hon. Member for East Birkenhead (Mr. White). He pointed out that the form of capital levy suggested by the Opposition would mean handing over to the Chancellor of the Exchequer a lot of assets, which he simply could not realise in cash, and it is cash that my right hon. Friend wants.
Any form of capital levy must, in its nature, be inflationary, but I realise that there may be different forms of capital levy and if in the future we are ever to consider such a scheme—a scheme to which I object and which I consider to be inflationary and bad—let us consider the least harmful type of capital levy. Therefore, I venture to put forward certain proposals which were made to me by a former Conservative colleague of mine in this House, not that I entirely approve of them, but as indicating the least evil form of capital levy that I can conceive.