WAYS AND MEANS.

HC Deb 25 July 1940 vol 363 cc1017-63

Again considered in Committee.

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.

4.22 p.m.

Mr. Loftus

I was describing, without commending, certain proposals for the least harmful kind of capital levy put before me by a former colleague in this House who is no longer a Member. His idea was that there might be a compulsory loan bearing interest at a nominal rate—say, half of 1 per cent., or 1 per cent.—and that every individual with assets above a minimum, say, of £500—or whatever the minimum might be—should always hold a certain percentage of his assets—we will assume 5 per cent.—in this compulsory Government loan with a nominal rate of interest. The mechanism which he proposed was as follows. In the annual Income Tax return there, would be one or more extra pages added in which the individual would make a return of his total assets and their value. I admit there would be a difficulty in valuation. Stocks and shares could easily be valued on current quotations. Land, houses, factories, and so on, would be more difficulty, but there might be a rough and steady method of using assessments as a basis for valuation. Each year the individual would have to show among those assets the particular percentages—say, 5 per cent.—of the compulsory Government loan. This loan would be issued at par by the Bank of England, it would not be dealt with on the Stock Exchange, and it would be redeemed at par by the Bank of England and could be used for the payment of Death Duties. If an individual's assets fell heavily in a year, the Bank would be under the obligation to redeem at par by paying out in cash the proportion of the compulsory loan that had to be cancelled.

The effect over a long period of years would be this. National wealth increases, and therefore, there would be over a period a continuous issue of this nominal loan, and the issue would raise money that could be used to decrease taxation which is so heavy to-day that it is checking enterprise, which we want to encourage. It may be replied that in times of slump the Bank of England would be cancelling so much of this returned stock that there would be inflation; but in times of slump and falling prices this increase in the money paid by the Bank in cancellation would be a useful corrective of the slump. It would be a valuable thing. There is one safeguard that would have to be made. A great deal of the capital required would have to he borrowed, and those who borrowed for this purpose only would have to be assured of a very cheap rate of interest—possibly 2 per cent. or 1 per cent. above the Bank rate—by direct Government intervention. I have not time to set out the details of the proposals, but that is the general idea.

If there is a danger of inflation, if we have to expand credit, do let us face the fact. Let us not indulge in wishful phrases, such as, "We will never have inflation," unless we mean to take the sternest measures to prevent it. We have had enough wishful thinking in military matters during the last 10 months. Let us not indulge in wishful thinking in economic matters, or it may lead us to disaster. Let us organise and plan any necessary and moderate inflation in such a manner as to do the State the least possible harm and leave the least possible burden for the future. I have pointed out before in the House what I want now briefly to repeat. I ask the Chancellor of the Exchequer to study that remarkable article which appeared in the "Economist" last November under the heading "The Technique of Inflation." Whatever we do, we must not follow the same technique as in the last war—the creation of credit by the banks, the lending of those credits to customers, the customers buying War Bonds and depositing those War Bonds as a basis for loans for more War Bonds. This had a kind of snowball effect and left a vast burden of debt to the nation. The "Economist," which is a most orthodox paper, suggested that a new technique was necessary by which the Government should borrow any inflationary money, any credit created for the purpose, direct from the joint stock banks, paying a charge to cover their overhead costs, book-keeping, etc. The charge mentioned by the "Economist" was one half of 1 per cent. I commend that article not only to the Chancellor, but to all hon. Members who are interested.

I turn now to another subject, and that is the mechanism of the creation and cancellation of money and of credit, which is vital in considering a Budget of any kind, but particularly necessary in considering the present grave financial difficulties. My hon. Friend the Member for Kidderminister (Sir J. Wardlaw-Milne) said on Tuesday last that the whole of our system of raising money will have to be looked into with fresh eyes after, or even during, the war. I profoundly agree with him, but he may not agree with the application which I would give to his text. Let me first say this. I have the highest admiration for the management of our joint stock banks. I admire the great ability and the high integrity with which they are conducted and which make our banking system the envy of the world. I have always deprecated foolish attacks on the banks, and anything I say is not in criticism of the management of the banks, but of the system; for I have never concealed my opinion that the system whereby most of our money—and three-quarters of our money is cheque money—is created by companies and not by the State is a wrong system, and that it is responsible for many evils. I am convinced that under our privately controlled issue of money, money that is burdened with interest from the moment of its creation, we shall never be able in peace time to develop fully our agriculture and industry, and we shall be able to do so in war time only at the cost of piling up vast burdens of debt. I will go further. I will say that under this system you will of necessity always be hampered and hindered and delayed, as we have been during recent years in dealing with the great problems of unemployment, Colonial development and rearmament. I do not believe that the delays in our rearming were due to optimism or the short-sightedness of our politicians, or even so much to the desire of the Treasury to preserve our rate of foreign exchange, but that they were inherent in this present financial system.

Now that we have reached this breakdown of the old financial system, I urge the Chancellor to do what ought to have been done long ago, and that is, that the Crown should resume the essential right of every State—the right given away by William III in return for the Throne—to control the issue and cancellation of every kind of money. I do this in order to help my right hon. Friend. By this means, if and when inflation becomes necessary—and controlled inflation may be desirable at times, and it would certainly have been desirable in 1932 and 1933 at a time of falling prices—the State itself could issue debt-free money and credits under due safeguards, perhaps redeeming, when desirable, by an annual instalment, and thereby getting rid of the burden of interest which raises so much the rents of our municipal houses. I hold that if the Crown resumed this ancient right, the functions of our great joint stock banks would remain, under the same ownership and the same management, just as necessary, just as honourable, and just as profitable, as they are to-day.

I know that many will say that these words are merely the mutterings of a currency crank, and that I shall be accused of being a green shirt and a follower of Major Douglas. I never have been, although I have admired greatly his diagnosis, without agreeing with the remedies he proposes. My reply is that I have learned these ideas as a result of taking the advice of Lord Baldwin, who told us to study the work of Benjamin Disraeli. I followed his advice, and I now quote the words which he used. Disraeli wrote that King William III introduced into England the system of Dutch finance. The principle of that system was to mortgage industry to protect property. This system has made debt a National habit. It has made credit the ruling power, not the exceptional auxiliary of all transactions. Disraeli described the results of this system in typical Disraelian florid rhetoric: A mortgaged aristocracy, a gambling foreign commerce, a home trade founded on a morbid competition and a degraded people. It might be objected that Disraeli wrote these words before he had the experience of office, and before he shouldered the heavy burden of being Chancellor of the Exchequer. I will quote, in reply, the words of one who was Chancellor of the Exchequer more times than any other man in our history, Mr. Gladstone. He said: From the time I took office as Chancellor I began to learn that the State held, in the face of the Bank and City, an essentially false position as to finance. The Government itself was not to be a power in matters of finance, but was to leave the money power supreme and unquestioned. These are voices from the long distant past, but I would call in the voice of one of the greatest of living Liberals, Senor Madariaga, who at one time was President of the League of Nations. He said: These great financial institutions have attained two aims—they have all but evicted the State from its position as the only dispenser of money: they have all but evicted the industrialist from his position as manager and controller of industry. The absorption of all powers by the dispensers of credit is one of the most fantastic phenonima of modern life. But that is a voice from the Left, and it may not be acceptable to Right Wing opinion. May I then quote from the recent writings of Pope Pious XI, who, in an Encyclical, said: It is patent that in our days not wealth alone is accumulated, but immense power and despotic domination are concentrated in the hands of a few, who, for the most part are not the owners, but only the trustees and directors of invested funds, which they administer at their own good pleasure. This domination is most powerfully exercised by those who, because they hold and control money, also govern credit and determine its allotment, for that reason supplying the life blood to the entire economic body and grasping in their hands, as it were, the very soul of production, so that no one can breathe against their will. I do appeal to the Chancellor of the Exchequer to consider now, in this hour of grave peril, the resumption by the Crown of its ancient right to control the issue and cancellation of all kinds of purchasing power. I invite him to read the remarkable leading article which appeared in the "Times" last Thursday: It states: Much harm can be done to our cause, both in Europe and overseas, by the insinuation that we stand for the old order. This charge should be emphatically and authoritatively refuted. The Chancellor of the Exchequer can refute this charge both in Budget speeches and Budget practice.

Finally, I make this appeal, not only to my right hon. Friend the Chancellor of the Exchequer, but to every Member of this Committee and every Member of this House. There are multitudes, in this country and throughout the world, of men and women who realised before this war that the whole modern system of finance was breaking down; that it had failed to solve in any country the unemployment problem, that it had destroyed vast stores of food desired by the people, and that the system stood condemned. But they regarded with horror the alternatives offered to them by the disciples of either Karl Marx or Adolf Hitler—the degradation of man to the level of the hive or herd, the revival of slavery of mind and body, destructive to the soul of man. They look for and believe in a better order, and many of them look to this country for a lead. I believe that these multitudes have their own vague ideal of what the future should be. They desire a varied society of free men, where the productive resources are used to the utmost, and where consumption keeps pace with productive power. They desire individual liberty to be maintained, and they desire every encouragement of legitimate private enterprise. They also wish freedom of choice in the market and that international trade should no longer be a savage struggle to obtain favourable balances, but rather an equal exchange of goods to the mutual advantage of all nations. These people look to Britain now to give a lead, and I pray God that they do not look in vain.

4.42 p.m.

Sir George Broadbridge (City of London)

In common with other hon. Members, I can say that the City of London will approve the Chancellor of the Exchequer's proposals and will give every support to them. This war must be paid for, and paid for quickly, and one is not surprised that the Chancellor of the Exchequer, in his opening statement, emphasised several times that what he wanted was cash. It is to the City of London that the Government always turn in respect of national borrowing, whether it be Treasury Bills, Savings Certificates, Defence Bonds, various War Loans or, only recently, bank deposits. In fact, it would not be incorrect to say that the City of London is the barometer of the reception of all national projects. And so it can be said that, however unpleasant this burden of taxation may be or however great the sacrifice to be borne, both the State and the country will shoulder them and give every support they can to the Government.

Having said that, I desire now to make a few brief comments, the first of which is in the nature of a question. In the proposals tax is to be deducted from the wages of the workers at some given time, and the employers are to hand over that deducted cash to the Revenue. What I wish to know is—and this has been put to me in my constituency—what is to happen if between the deduction of that money and its handing over the employing firm becomes insolvent or is dishonest? Will there be any liability resting upon the employés who have already had the cash deducted from them?

With the various impositions, both direct and indirect, I am sure the question will soon arise, if it has not already arisen, whether the larger taxpayer is not already, in a minus position. Surely there must be a limit to a taxpayer's resources, even allowing for his patriotism and his self-sacrifice. There are numberless people who rely for their existence on dividends and interest—I refer in particular to old people, spinsters or invalids. To-day, their incomes have become almost negligible. The hon. Member for Leigh (Mr. Tinker) made a remark yesterday about the rich being soaked. I do not think it would be incorrect to say that the rich have already been drowned in taxation. A person with an income of £150,000 pays no less a sum than £130,000 to the Government. Suppose that £150,000 was split up into 15 sums of £10,000 or 20 sums of £7,500 or 30 sums of £5,000, the Government would be tremendous losers in taxation because the basic standard of taxation would be very different. After all, therefore, the large income earner is a real asset to the Government.

The City, which is the counting house of this country and the Empire, is always affected, as it is being affected now, by the condition of trade as well as by taxation. I am told in my constituency, and I have had hundreds of letters and interviews to this effect, that Government controls have played havoc with businesses; in fact, large numbers of businesses have already ceased to function. If every few months we are to have supplementary Budgets, each adding to the burdens of taxation, what is to be the eventual outcome? In addition to the national taxation there are the local rates, and these are increasing owing largely to the expenditure on A.R.P. and to the profligate expenditure in peace-time of local authorities. To take the place of people taxed out of the Chancellor can only look to those whom I prefer to call emergency taxpayers, that is, excess profits taxpayers and the workers who are now earning on munitions anything from £5 to £20 a week. [An HON. MEMBER: "Where are they?"] I can give heaps of names. In this respect may I call attention to the disparity between the pay of soldiers and the pay of munition workers? We must not overlook the fact that in the Government controls the great combines are undoubtedly scoring heavily and putting out of business the comparatively small traders. Only the other day we saw announced that a large combine had shown an increased profit over the previous year of no less a sum than £2,250,000.

I was disappointed that the Chancellor left petrol alone in making his proposals. I know of many cases where legitimate traders have been unable to obtain sufficient petrol for carrying on their businesses, and yet, when one travels about towns and the country districts, one observes the colossal amount of joyriding that still goes on. I was also disappointed that the Chancellor considered it necessary to interfere with the Entertainments Duty, because it is easy to observe that places of entertainment to-day are largely patronised by officers and men home on leave. I should have thought a much more easily collected source of revenue would have been an increase in the cost of wireless licences. There are 10,000,000 to 12,000,000 licence holders and the money is easily collected because the Post Office are the issuers. I can only imagine that this proposal is deferred until we have the pleasure of listening to another supplementary Budget. Some of my constituents have suggested that cycles should be taxed. I do not agree, because cycles, especially in the urban and rural districts, are largely used by the workers for going to and from their businesses.

With regard to the Purchase Tax, criticism has reached me from my constituency, and as late as to-day a large manufacturer told me that the total stock in the hands of retail traders is many times larger than that in the hands of the wholesalers, and that this tax should have started at the retail and not at the wholesale end. With regard to books and all the fuss that has been made about the suggested tax, I can see nothing to which to take exception. Generally speaking, reading is a hobby. Most of the business in books, in any event, is done with libraries. Apart from books and reading, I have a hobby, which is either golf or tennis. Every time I play I have to pay a substantial sum for the pleasure of doing it. If I have to pay for my hobby, surely book readers can pay something for theirs. The only thing we have to do at the present time is to concentrate on winning the war. However unpleasant taxes may be—and they are never pleasant—we have to shoulder them, and we can only hope that we shall not have to see many more burdens placed upon us. Whatever they are, however, I am confident that we shall all do our best to shoulder them, and we wish the Government every success in bringing the war to a successful conclusion.

4.52 p.m.

Mr. Barnes (East Ham, South)

I desire to take the opportunity of the discussion on the Budget Resolutions to re-state some of the objections to the Purchase Tax which I raised when the proposal was introduced. Before passing to my criticism may I put a point to the Financial Secretary? The Chancellor announced an interesting innovation in the collection of Income Tax when he proposed that the system adopted in the Civil Service and other large institutions would be extended to general industry. In its application to salaried officials one does not see any particular difficulty, while the advantages to the individual are very apparent. One can, however, appreciate the administrative difficulties in regard to both the Inland Revenue and employers in dealing with the large volume of wages of labour which fluctuate from week to week. It is desirable, if it is the intention of the Treasury to make this practice universal, that they should give some idea of the machinery of collection. There are, too, a large number of persons who do not draw their weekly wages from one employer but are often employed by more than one concern. It would be for the convenience of industry generally if the Treasury indicated their intention with regard to the machinery of collection as quickly as possible, and also whether it is their intention to operate the scheme within the present Income Tax collection year.

While welcoming the concessions which the Chancellor has made in the Purchase Tax, I see no reason to modify my objection to the tax as a whole. My most forcible objection is to the schedule of goods that will be subjected to the 12 per cent. It is significant that in the two Budgets which the Committee has had to consider in the past three months the Purchase Tax is the only proposal that has met with widespread criticism. Before the Second Reading of the proposed Bill could come before the House the Chancellor saw the necessity of recasting his proposals. The concession to cut out children's clothing, boots and shoes is a valuable one, and the principle of differentiating the tax so as to levy the higher duty on the more expensive and luxury articles is also very good in intention. While I oppose the form of taxation involved, I should like to make it plain that I do not minimise the importance of these concessions. My right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence), although he gave general support for the proposal, indicated that in the Committee stage he might have to press for further concessions.

I am definitely apposed to the inclusion of all those goods which will be scheduled for tax at 12 per cent. I venture to express the opinion that when the schedule of goods subject to the 12 per cent. is submitted in the Bill, many Members who are now inclined to support the proposal may be compelled to alter their view, because it will become apparent that many of the goods will be in the same category as children's clothes and boots. Under the Prices of Goods Act the Board of Trade have scheduled a list of goods of which they have controlled the prices, holding that those goods represent necessaries of life and that it is undesirable in the public interest that prices should rise. All goods in that list will come within the range of the Purchase Tax. Therefore, we have the position that the Board of Trade have listed a range of goods of which they desire to control the prices, whilst the Treasury, for taxation purposes, subject them to a tax which will steeply advance their prices. I hope we may induce a more generous frame of mind on the part of the Treasury and exclude the goods covered by the Prices of Goods Act from the operations of the Purchase Tax.

By his new taxation the Chancellor is hoping to raise £239,000,000, and £110,000,000 of that is to come from this Purchase Tax, a form of indirect taxation. When we add the sum of £13,000,000 from beer, £9,000,000 from tobacco and £4,000,000 from the Entertainments Duty, we find that £136,000,000 out of the £239,000,000 is to come from indirect taxation. I must enter a very strong protest against this enormous increase in indirect taxation. In his Budget speech the Chancellor mentioned that there are 300,000 retailers who do not bother to keep ordinary business accounts. That indicates how very large is the volume of trade conducted by rough-and-ready methods, and if that happens in the case of hundreds of thousands of small shopkeepers, it must be so also in the case of the large body of persons, hardly to be described as regular traders, who are in the habit of making up goods and selling them direct to their customers. How does the Treasury propose to see that an equitable basis of competition is maintained in the case of the wide range of clothing and other goods which will be subject to the Purchase Tax when there is such a large area of individual trading going on in this way? In recent years there has been a large development of direct trading between factory producers and institutions, clubs, local authorities and various organisations in regard to uniforms and things of that description. Are we right in assuming that although these transactions do not go through the ordinary channels of trading, that is from the factory to the wholesaler and from the wholesaler to the retailer, they will not be exempt from the Purchase Tax? I should like the Financial Secretary to tell us how it is intended to deal with such variations in trading.

It is proposed to impose the Purchase Tax upon wholesale values, but I think it is obvious that it is the retailer who will have to provide the capital to enable the Treasury to get its money. As far as I can see, it will mean that there must be an addition of one-sixth to the capital which will be required by retailers who are handling the goods, and that will have to be found by retailers at a time when the bulk of their trade is regulated by the Government through various controls and their margins are very strictly limited. The advantage to the Treasury of this method of collecting the tax is obvious, but it seems rather unfair that the Treasury, to suit its own convenience, should apply the tax at the wholesale stage and that the retailer should be left to carry the burden of the extra capital outlay.

As to the reactions of the tax, let me take one aspect of life it the moment to provide an illustration. Let us visualise the position of many households who are involved in the problems of evacuation, the households in reception areas which are receiving evacuees and the households in the areas which are sending their children away. Many receptionist homes have had to purchase additional furniture, bedding, etc., in order to provide accommodation for evacuees. In the case of working-class families particularly, when the children are sent away from home the mother makes an exceptional sacrifice in order to provide them with the necessary clothing. The exemption of children's clothing from the Purchase Tax relieves the problem so far as they are concerned, but we have now got to the stage when evacuation is not confined to children, because elderly people and others are going. If we take into account the whole of the restricted area round our coasts, there are tens of thousands of families who are being compelled to evacuate, and the problem provided by the additional purchases which have to be made is a very material one. In the average working-class home there is no surplus equipment to meet circumstances of that kind.

We have to observe, also, that a number of relatively poor working-class homes have been destroyed by aerial bombardment. There is no provision for immediate compensation for the destruction of the family furniture. They may get some compensation after the war, but nothing is certain. A certain amount of the furniture will have to be replaced and the Committee ought to pause before imposing heavy additional to taxation on a vast range of goods which people will have to buy to replace those destroyed by bombing.

A wider aspect of the problem of increasing prices is connected with Treasury expenditure. To-day the Government are the largest buyers of goods, are responsible for more wage packets than any section of industry, and if we adopt a policy of steeping-up by taxation the prices of a vast range of goods such as go into the homes of the average wage-earner we shall get into a vicious circle of increasing wages to meet increasing prices, and the country will gain nothing from the imposition of the 12 per cent. tax on this class of goods. A further practical point is that the goods which it is proposed to tax are not foodstuffs or goods which are turned over rapidly from week to week and therefore do not call for an outlay of capital over a long period, with the accompanying interest charges. Many of the goods which will be subjected to the tax are of a class which are likely to remain on the shelves of wholesalers and retailers for months, in some cases. A good proportion of them are seasonal goods. In those circumstances the Treasury and the Board of Trade will surely have to recognise that legitimate interest-charges must pass into the price of those goods as well as the 12 per cent. tax addition. It is no use our running away with the idea that the consumer will pay only the bare 12 per cent. extra. Further, in the case of many lines of goods there is no guarantee of sale. If the retailer has missed his market, or if fashions change or the taste of the community varies, the retailer cannot always realise the price he has paid for the goods. He has to cut prices to get rid of the goods, and realise whatever he can for them. There is no guarantee that he will be able to sell them at a price which will recoup him for the tax he has had to pay upon them.

I should like to conclude by dealing with a still wider aspect of this tax in relation to the Government as a whole. The Chancellor's speech and the discussion upon it have indicated the concern both of the Treasury and Members of this Committee at the problem we are now facing in regard to taxation—the amount we can raise from taxes, the capacity of the community to invest in loans, and the gap there is likely to be between the revenue from taxation and the money from loans and Government expenditure. So arises the problem of the Government and of this Committee, as to whether we can avoid inflation.

Without pretending at all to understand the economics of, say, William the Conqueror, or to know the value of the City of London to the community, I submit that the way in which we handle prices at this stage will have a very important bearing upon the forces which go to start a process of inflation. The House of Commons was very aware at the commencement of the war of the existence of this problem. I recollect the early statements which were made from the Treasury Bench and the support received from all quarters of the House for the proposal that, during this war, we should pursue a very determined policy of keeping prices down, and thus prevent the process of prices chasing wages and wages chasing prices. After examination of the position in recent months, I feel that the Government are losing grip on that policy. In the first few months of the war it was followed fairly successfully, but Members will see, if they glance at the position in recent months, a tendency to lose grip of that situation.

We adopted three methods of trying to maintain prices on a more or less stable level. First was the immediate and general control of commodities that were imported and likely to be influenced by overseas circumstances. Then the Treasury followed a policy of subsidising many commodities which affected the cost-of-living index, like wheat for the purpose of keeping the loaf steady, the subsidy to milk and bacon and so on. We followed on with the Prices of Goods Act, which sought to keep control over the general run of merchandise prices. In recent weeks we have observed that the Ministry of Agriculture have advanced farm prices by, roughly, 20 per cent. All the examinations that I have had taken out have convinced me that that advance of 20 per cent. is beyond what is necessary to give 48s. a week wage to agricultural workers and to meet the increased costs of production.

There is every indication that there was no proper measure when these prices were fixed. The Treasury, departing from its policy of subsidy, is, in the case of milk at any rate, passing on the cost to the consumer. Now, in the Purchase Tax, a vast range of other goods is being brought into the area of taxation, and the prices of those goods will be steeply advanced. These goods have already increased considerably above food prices. The Committee ought to take into consideration the fact that these matters are linked together. We are hesitating whether the problem of the gap will eventually land us into inflation, but if the Committee deliberately start a policy of taxation and of advancement of produce prices beyond what is actually necessary for purchasing power, we may introduce a policy of inflation.

When we survey the circumstances of the policy of this country in recent years, it appears that we ought to have learnt the bitter lesson of the consequences of indecision in foreign affairs and in regard to a proper defence policy. I suggest that we shall confront the same position if we go on, month after month, in the field of finance, refusing to face the broad position that is imposed upon us by the fact that the Government, in the circumstances of war, and in the very nature of the existence of the Armed Forces and the Civil Defence Forces, involving the cost of munitions production, equipment, and the provision of food, are bound to be brought down to a very hard but simple problem. We shall not solve that problem and narrow the gap by adopting a policy of trying to get money by easy methods. Indirect taxation is an easy method of taxation. I am not speaking now from a narrow, partisan point of view. I am definitely opposed in principle to indirect taxation but, in its wider aspect and in relation to the problem that overrides every other consideration at the present moment, the House of Commons is, in my view, following the wrong policy to deal with our major difficulty. If we seize at this moment the opportunity to raise indirect taxation over a vast area, that will be the one thing that will take prices out of our control.

I am not arguing for soaking the rich or the question of how much the poor should pay. I say that we are faced with a very definite and simple problem of finance and economics. There is so much money in the community. It comes into the possession of each one of us in the form of income, either as wages or salary or n the disbursement of some pension, allowance or benefit from the State. It would be far better for the Chancellor of the Exchequer, this Committee and the country, if they faced the problem that we shall require so much money from taxation and so much from investments. Over and above that, the consumption of the community must come down to whatever is left over. As far as I can see, that is a sounder principle than social credit, manipulation of the banks and things of that description. That is the hard fact of goods and consumption. My view is, therefore, that the Committee should give attention to raising whatever money is necessary direct from the incomes of the individuals. When that sum is determined direct taxation should be imposed to meet the sum required. Then, whatever we may have over, we must adjust our standard of living to meet the expenditure we have incurred.

Sir Patrick Harmon (Birmingham, Moseley)

On a point of Order. Would it be possible, Sir Dennis, to suggest to hon. Members that speeches might be limited in length? They have been very long this afternoon, and many hon. Members wish to speak.

The Chairman

The hon. Member has made the suggestion, but he knows that I have no power to limit the length of speeches by hon. Members.

5.24 p.m.

Mr. Clement Davies (Montgomery)

So far as in me lies I will do my best to accede to the hon. Member's suggestion. This is the third of what I may call the Statements that have been issued since the war began. No one can pretend that we have had three Budgets, in the sense that we understood Budgets before the war, when the effort was always made to link up the amount that we should raise by taxation with the amount that was required for expenditure. All that we have been able to have is the estimated expenditure required from time to time and the proposals for the taxation which can be levied, and which, of course, could not possibly meet that expenditure. It is rather interesting that in this Debate, and in the one that took place three months ago, there has been no criticism of the burden of the taxation. Everybody has said: "This is all right. The taxation has to be met." The only criticism, and a very mild one, has been in regard to the incidence of a particular tax and not to the form of it. The criticism has, in the main, been the other way. If it is necessary, the country and this House are prepared to support fresh and bigger burdens.

In spite of all that, it is clear that a new issue has to be faced and that is what I propose to do in this Committee this afternoon. In a speech which he made from this Box, in reply to the Budget proposals made by Sir John Simon, as he then was, the Lord Privy Seal very truly began by saying that, since the war, the whole economy of the country had changed. That is the issue that one has to face. We can approach that issue in the orthodox way, that is, by the financial method. That is the one that we should rightly follow in times of peace, when you can link up the amount of your expenditure with the amount of your taxation. There is another plan, and that is the one that we have to face now; it is the economic plan. It is that which has been followed by the Chancellor of the Exchequer and by his immediate predecessor. The basis of it is that you tax to the extent that the national income in the hands of individuals will be reduced to the amount which will buy the available services and commodities at existing prices. The national income is increasing day by day; on the other hand, the consumable goods and services for the public, apart from those required for the war effort, are decreasing day by day. The result is that there is an enormous gap which, left alone, makes inflation inevitable. [An HON. MEMBER: "Why?"] For the reason that there is the immutable law of supply and demand. The demand for the services and commodities is increasing as the national income is increasing, while the supply of the commodities is going down. That gap, as pointed out by the Chancellor of the Exchequer himself, amounts to-day to something between £2,000,000,000 and £2,300,000,000

It is rather difficult to get at the truth. I do not know whether the Financial Secretary to the Treasury can help us by giving a little further information about the total figure of £3,467,000 000 that was mentioned by the Chancellor. To my mind—I may be wrong about this—there are items in it which are really not expenditure out of income, but are really of a capital nature. For example, items expended on the building of more factories and upon goods purchased for the community, such as wheat, vegetable oils, and so on, which are again resold. We seem to inflate the figure by putting in the actual sums which have been so paid on the one side and on the other side the revenue which has been so gained. The right thing to do is to put in the actual profit or loss, or the subsidy. The subsidy would be legitimate, because that is a burden which has to be met.

Assuming that that is there—this is a pure guess on my part—the amount which is included in that would amount to something like £500,000,000. Taking my gap as £2,300,000,000, there is still, nevertheless, a gap of £1,800,000,000. How is that to be faced? I am sorry to disagree with my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence), but I find myself in agreement rather with the hon. Member for Wrexham (Mr. Richards) in saying that I cannot see that more can be saved under the present circumstances than £1,000,000,000. He said that much more might be saved, but I do not suppose that in his explanation it would go much beyond £1,000,000,000. If I am right, then there is a gap of £800,000,000. How is that to be obtained? It cannot be obtained out of savings. The orthodox way would be, of course, by taxation, but taxes so as to get another £800,000,000, which is equal to the total amount which has been obtained, and necessarily obtained, before the war began, is not only impossible but dangerous. It would be dangerous because of the tremendous upheaval that such taxation would cause. Moreover, I do not suppose that it would really help with the war effort. On the other hand, it might be destructive of the war effort and would not necessarily contribute towards national savings.

There is that deficit of £800,000,000 at the present moment. Of course, it can be obtained by inflation. Inflation is nature's remedy—it is like a scar covering a wound—but to allow inflation to go round gallivanting at this time in order to bridge that gap would not only be a foolish thing, but an extremely dangerous thing to do. Everybody agrees that it is foolish—

Sir P. Hannon

Would the hon. and learned Gentleman forgive me? Does he suggest that the Chancellor indicated any development involving inflation?

Mr. Davies

I am sorry if I did not make myself clear. I said that everybody said so, and I included the Chancellor of the Exchequer. He made a point of it. I said that there is one method, namely, by inflation, which is nature's remedy. Nature's remedy, however, is not one which should be followed at the present moment, and I think the Chancellor of the Exchequer would agree with me. These are no more than a few bricks when we want a whole wall in order to fill up that gap—

Sir P. Hannon

Would the hon. and learned Gentleman allow me to urge him to try and fill up this gap?

Mr. Davies

An appeal was made to me that I should be as short as I possibly could. I cannot possibly be short if I am interrupted, although I feel flattered that when I am interrupted the question always comes from the hon. Gentleman. The solution cannot be found in the financial sphere. It must be found in the economic sphere, and therefore it must come from the control of production. In the Budget which was introduced by Sir John Simon three months ago, the income that he was getting from taxation was £1,234,000,000, which left a deficit of £2,200,000,000. Of that deficit the Chancellor of the Exchequer by his increased taxation between now and the end of the financial year can get only £126,000,000. He very rightly says that the chances are that that deficit will go on increasing. What I should like to point out is that it must increase because of the urgent requirement for making up the deficiencies of the past years, the extra requirements which will have to be met because of the extra German effort that is bound to come from the occupation of France, and the extra effort which will have to be made to build up the striking force when we take the offensive. If the expenditure increases, the deficit under present methods will increase as well, and we can meet that expenditure only by the full mobilisation of all available producing sources and by our capital reserves without exception. We demand for that purpose that all labour and capital equipment of stocks and material not required for the maintenance of the standard of life necessary for health and morale must be used for defence purposes, and that is the economic plan which I say is the right one to follow and which transcends the financial one.

At the present moment we are not fully mobilised. I do not think that even today we are half mobilised. Moreover, the sacrifices that are being made to-day are not equal. May I mention one or two? Some time ago, in order to encourage exports, the Board of Trade limited the amount of material which could be obtained by factories for producing goods for home consumption. What is the result? I am not criticising the Board of Trade. I am only pointing out the fact. Those factories which are engaged on home consumption are running at half-time or less. Those factories which were fortunate enough to be in a position to engage in export production are working much more fully. Those which are working for the war effort are working fully. I hope they are working 24 hours, but it is not right at this moment that some people should be reduced to part-time or half-time and that others should be engaged to work at full-time. It becomes more obvious, perhaps, if I mention the evacuated areas. There are places which have been evacuated along the coasts. The man who has a shop, a factory or a business in any of those evacuated areas is faced to-day with complete bankruptcy. He has had to leave his stocks, his shop and his goodwill, and yet there are others like ourselves in London in completely different positions. For instance, my life, except for extra taxation and the fact that I am parted from my family, is much the same as it was before. The sacrifices which I am called upon to make are not the same as the sacrifices which the people in the evacuated areas have to make. Our present methods do not put us all on an equal footing, nor do they call for equal sacrifice.

Mr. A. Bevan (Ebbw Vale)

If I may, I should like to interrupt the hon. and learned Gentleman. Is it not a fact that if the idle productive capacity of this country is called into use in the war sector, it will result in a demand for more consumption of goods, and as these are deficient inflation will occur in respect of them until they are rationed?

Mr. Davies

The hon. Gentleman is anticipating. That is a matter with which I have to deal. I am now coming to what I suggest should be the plan. The first point is that the production of non-essential goods should be prohibited. By non-essential goods I mean goods which absorb the productive factors useful for war production and coupled with it, of course, goods which although unessential for us, nevertheless can be exported. If these unessentials now produced do not absorb factors useful for war production, they should not be produced, and I hope that I shall get the support of the Senior Member for Oxford University (Mr. A. P. Herbert). For example, entertainments ought not to be subject to taxation. They should be encouraged. The men who are engaged in that trade and who give great pleasure to millions are very few, and to take them away would not increase the war effort. Therefore, instead of taxing those, you should by all means encourage them, so that the morale and the happiness of the people should be continued. That is my first point, the prohibition of non-essential production.

My second point is that the expenditure on essentials must be rationed. Such rationing should be of two kinds; first rationing of foodstuffs and essential specific goods like clothes or boots. It could be done like some of the food is now—rationing by commodity. Other goods which are essential, such as furniture, could be rationed by limiting the amount which individuals should be allowed to buy. For example, at the present moment I am in the position of not requiring more furniture, but it may be that a young couple would require it, and, therefore, there should be a rationing system by which they could acquire those very essential goods. If you cut away the unessential goods and ration the essential goods, there is bound to be a tremendous surplus capacity. That, I suggest, would be an enormous figure. That surplus capacity must be employed by the State in war production, in production for export and in accumulation of stocks. The Board of Trade had something of the kind in mind when they created the Export Council. However, they failed to carry out the plans which they had in mind, although they had been wonderfully successful for this reason, that they only took the negative step. They did not have the machinery for the positive step. The negative step that they took was that which I mentioned to the Committee earlier, of cutting down the amount of raw materials which would go into the factory to be made for home consumption.

What is the solution for dealing with that on the positive side? The only solution that I suggest is compulsorily to pool each set of industries. That has already been done in one industry, with which, of course, I am very familiar, namely, the margarine industry. Recently the Ministry of Food decided that margarine should be rationed. They decided that the manufacture of goodwill articles, which were worth millions because money had been spent in building up the goodwill of those articles, should cease, and that only two kinds of margarine should be made, a 9d. and a 5d. kind. What did they then say, and what was the plan that was adopted? It was that for this purpose all the factories should be amalgamated into one company, that all the industries should maintain its men, travellers, managers and should be run exactly as before, but should be controlled by not exactly a holding company, but a directing company. They manufacture this and sell it to the Government, and they pool the profits or share the loss. If, perchance, one of those factories is either closed or bombed, the individual owner does not therefore lose everything, and have to wait until a new factory is built. He comes in for his share in the pool. It is a sort of mutual insurance.

That can be easily done with a number of similar industries. You get into much greater difficulties when you come to smaller, varied industries, and still greater difficulties when you come to the retailers. But even that difficulty could be met. Then the retailer on the East Coast to-day would share in the general pool which would be created with the retailers in Birmingham and Coventry, who are probably doing better to-day than ever before, subject to the 100 per cent. Excess Profits Tax. This is a problem that must be faced, and faced very quickly. On the labour side, displaced employés must be paid their standard wage, because they have been displaced through no fault of their own. The wage should be paid during the period of re-training and while they are being reabsorbed into war work. There must be linked with that a generous system of relief for the employers or a moratorium. Products and prices must be standardised. The fullest use will have to be made of plant, machinery and labour. Such a system will ensure the maximum organisation of the country, and the maximum production, and will prevent the danger of vested interests militating against the effective prosecution of the war. The State will rationalise production.

If such a system is followed—and it is quite different from the pre-war system—wherein, then, lies the importance of the financial policy? It becomes of very little importance. Non-essentials being prohibited, expenditure on essentials being rationed, and, therefore, curtailed, sufficient savings will be inevitable, and they will fall into the banks or the savings banks, and will be available for the Chancellor of the Exchequer. There will come his "complete saving of national income, over and above what is required for maintaining the standard of life." The Government already possess, under the Act which we passed in May, all the powers needed for such a programme. All I am asking is that they should use them, and use them quickly. I am not alone in my appeal to the Government. There is a very remarkable leading article in the "Times" to-day, calling attention to this very thing. It is headed "Shirking the Issue," and it says: The more closely the Budget statement is examined the plainer it becomes that any serious attempt to grapple with the financial difficulties of the war has been postponed for the second time. It winds up by saying this: It is high time to make an end of interim Budgets with all their consequent unrest and uncertainty. I agree. I remember that, in reply to Sir John Simon on the last Budget, I ventured on two prophecies. The first was that another Budget would be introduced within six months. That has proved correct. The second was that it would be introduced by a Chancellor other than himself, and that has proved correct. The article continues: They are the outcome of a timidity which is afraid to trust the capacity of the nation for self-sacrifice. It is wholly misplaced timidity; for the nation, while impatient of waste, is ready to respond to bold and imaginative leadership in finance as in every other field of the war. I endorse those words, and I hope that the time is rapidly coming when that great issue will be faced.

5.51 p.m.

Mr. A. P. Herbert (Oxford University)

I hope that a simple seaman will be excused if I do not follow my hon. and learned Friend into the deep waters that he has navigated so confidently and well. I hope the Committee will not be surprised or shocked if I say a few words on the subject of the Purchase Tax on books. I approach the subject with some sense of delicacy, as one who was, at least, a professional author, but I approach it with a good conscience, because since the war began I have not been able to write books, and as long as His Majesty requires my services elsewhere it is not likely that I shall be able to write one. Also, as a representative of that great centre of light and learning, Oxford University, I feel that I may say something on this matter.

I hope that the relations of Oxford and the City of London will always continue to be friendly, but when I hear the representative of the City of London referring to a tax on books, the "machine-tools of education," as someone has said, of the great craft of literature, the great profession of learning, as a tax upon a mere "hobby," to be compared with golf, then that is a mind with which I can make no contact, and I do not propose to try. I address myself, with much more confidence, to the Chancellor of the Exchequer. Great qualities, such as geniality and tact, have carried the right hon. Gentleman from one office to another, with the good will of all and the hopes of many, as you may see some cheery reveller staggering from "pub" to "pub," emerging from each with such a radiant smile that no one has the heart to stop his passage to the next. But, in this affair, without intention, I am sure, he has added insult to injury.

After receiving a deputation of the highest authority, led by the Archbishop of Canterbury and including men of the greatest light and learning, he dismissed the whole thing as if it were merely a question of "the publishing trade" having to suffer the same as other trades. There is much more in it than that. Let me give an example. Twelve months ago I was invited by the Ministry, of Information to address the citizens of Bath at a mass meeting, on the subject of "Our liberties." I gave the delighted citizens of Bath a long and wordy address on that subject, and they went home so well fortified to meet the enemy that the Ministry of Information asked permission to print my address of 6,000 or 7,000 words as a pamphlet. About the same time my own publishers asked whether they could print it in the ordinary way as a book, paying me royalties; but, from patriotic motives, I said, "No, let the Ministry of Information do this, though they will give me a small sum in advance, and no royalty at all." Well, now, here we have the Ministry of Information saying that it is so important that my words should go forth to the people that they ask me to accept an unprofessional and un-generous reward; and here we have the Treasury saying that the consumption of my words must be limited, and they must place a tax upon it. What crazy nonsense is this?

I have been sent a copy of "The Bookseller," on the front page of which is written: Books are part of the cause for which we fight—Dear Mr. Segrave, I am very glad to know that the list of books to he published here during the summer and autumn is, as usual, going out this year to carry the reminder that freedom to write and read is part of the cause for which the British Empire and Commonwealth fights. …—Duff Cooper. Which is the right horse here? I am anxious to find out what is in those woolly heads. Does the right hon. Gentleman desire, or does he not desire, in his extraordinary language, to limit the civilian consumption of domestic hollow-ware, brushes, brooms and, as he said finally, with that charming smile, books. Does he really desire to "limit the consumption" of Bibles and Prayer Books? I suppose I cannot get an answer to that? If he does, there is still a niche in that Lobby, and he may go down in history as the first Chancellor of the Exchequer to put a tax on the Word of God.

But I do not believe that that is his intention. I believe, to do him justice, that he will agree that there was never a time when books could do such a service to the community, by inspiration and comfort and the energising of the people, whether it is the lonely soldier in his dugout or the lonely civilian in his dugout or the lonely widow at home. Therefore, it must be that he desires to limit the purchase and sale of books, of unspecified quality and quantity, but only at home. For not only his predecessor, but he himself, and the Minister of Information are desirous that the export trade should continue; and the export trade is surprisingly large—about half the home trade. Now, may I finally observe, for the hundredth time, that a book is not like a bottle of whisky; nor indeed, is it much like domestic hollow-ware. You might well say, "We shall not sell any whisky in England; we shall keep it all for export and send it to the United States." That, I imagine, could be done effectively; but you cannot do that with books, because the export of books depends on a prosperous home industry. No one would publish a book of mine purely for publication in America. The export trade is a kind of overflow from the main basin. So, if you seriously damage the home trade in books, you may say goodbye to your export trade. But perhaps the Chancellor agrees with the queer observation of my hon. Friend the Member for Aylesbury (Sir S. Reed), who says, "We do not want any more new books and new ideas; let us take down the classics, and be content with the old books, the old ideas." That is what the French generals said. That is what the last Government said.

Sir Stanley Reed (Aylesbury)

That is what the French generals did not say. If they had taken out the little work, with which they are familiar, called "The Maxims of Napoleon," there would have been no débacle.

Mr. Herbert

But the point is, whether books are modern, or classics or the wretched works of the Senior Burgess of Oxford University, they all have to be bought or sold and pass over the counter. Hon. Members seem to visualise the citizen reaching up and taking down from his shelves the works of Thackeray or Scott. But the soldier in the dugout cannot do that. His books, whatever they are, must be purchased, and the result of this tax will be that he will have fewer books—and fewer good books. My hon. Friend says that the result of the tax will be fewer bad books and more good books. The contrary will be the result. It is the "trashy modern novel," or at least the sensational success, which carries the losses on the portentous and no doubt more worthy works. One rare and spectacular, and, in my case, unique success can carry the losses on 12 more worthy works, such as "How I Built up the Air Force," by Viscount Woolwich, or a great legal tome like "Caldecote on Co-ordination."

These are facts, and I know what I am talking about. Two book publishers have gone out of business, and one was the publisher of the great and portentous War Memoirs of the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George). It is a pity that they did not have a few trashy novels to keep them in business. There is the "Life of Marlborough," a magnificent work by a magnificent man, published at 25s. a volume, which will, I suppose, be 28s. a volume now. I should like to see the publisher, who, when this tax is in being, would undertake the publication of a work like that. But I do not wish to exaggerate in a good cause. I am not going to say that all publishers in London will go out of business, though two have gone and there certainly will be more, but there certainly will be fewer books, and fewer good books. I say further, that if but one good book, one good writer, one new thought and one new invention is held back from the public by this tax, it is bad and barbarous and ought to be abolished. I am not thinking so much of pennies as of principles.

I was reminding the right hon. Gentleman just now of a book that I have here, "The History of the Taxes on Knowledge" with which I hope the Treasury officials will try to become acquainted, because they seem to have forgotten, if they ever knew, that it is only 70 or 80 years since the great fight against the taxes on knowledge was fought and won in this House. They were taxes on the free communication of mind, on the movement of thought and on the free expression of opinion. These taxes were finally wiped out between 1850 and 1870, and the principle was then established that we would not put any taxes upon the things of the mind. That principle has stood firmly against every attack since then and has survived two major wars. It has remained for the right hon. Gentleman the Member for West Woolwich (Sir K. Wood) to break it down.

It is a sad and shocking thing that at this time in this titanic conflict, when we are saying, and saying truly, that there are arrayed, on one side, the spirit of force and, on the other, the forces of the Spirit, we should have sunk so low as to be seeking to put a tax upon, and to treat all learning and enlightened literature in the same way as we should treat brooms or something which is kept under the bed. The right hon. Gentleman had a great opportunity. He might have said, "However many Hitlers are at the door, however many dangers and difficulties confront us, we are not so down and out and so poor in resources that for the sake of £500,000—which is my estimate of the yield of this miserable tax—we are going to do this barbarous thing." That appeal I should have addressed with confidence to the right hon. Gentleman's predecessor, because, whatever his detractors may say, he had a real love and understanding of the language and fine things that make literature. I say, with regret, that I believe I shall address this appeal without avail to the right hon. Gentleman. In friendship and courtesy I will not give reasons why I say that. But well may the shades of Milton, of Caxton, of Sheridan and of Charles Dickens, and of those brave men, who in the last century fought and won the principle of free enlightenment, groan in their honoured graves to-day to think that that lamp which they hung on the walls of Westminster has been clumsily torn down at last by a Chancellor of the Exchequer, who, at this hour of civilization, sees no important distinction between boots and books.

6.5 p.m.

Sir Joseph McConnell (Antrim)

We have heard a good many speeches this afternoon, and there have been one or two very depressing speeches. It was said by many that there was a gap to be filled. I think that it would be better for this Committee if we tried to fill the gap. I noticed that one of the slogans in one of the newspapers on the morning after the Chancellor of the Exchequer made his speech was "Plan to check buying wave," and I began to think who were the people who were buying. I did not know of any of my intimate friends who were buying. I have taken a good many walks during the last fortnight through Mayfair where every other house is for sale, with no buyers. In fact I am told by those who live in Mayfair that the male topic everywhere is how to get their clothes turned. There is no buying by the man-in-the-street. He has not the money with which to buy surplus things any more than has the man of Mayfair. You hear tales being spread, which, if they are right should be admitted, and if they are wrong should be denied. You hear tales from the Orkney Islands to Land's End that building contractors' workmen are receiving £8, £10 and £12 a week. If that is so, these must be the people who are spending.

One also hears tales—and they come from a seemingly reliable authority—that dockers are getting very high wages and that when they work on holidays they get double wages, and if they work overtime on holidays they get four times their ordinary wage. We shall not fill the gap if this sort of thing is going on. I am sorry that the Minister of Labour is not present, because he has made a very good shape-up so far, but when the next interim Budget comes along he will have to give an account of his stewardship and state how he has helped the Chancellor of the Exchequer to close the gap. His responsibility then will be at least equal to that of the Chancellor. Facts have to be faced. We cannot go on paying these big wages. If the war goes on for two or three years, the people who are being taxed to-day will be exhausted, and the people who get the big wages will be living on their own tail.

The right hon. Gentleman the Minister of Labour must tell labour that the huge war-time wages in some trades must be stopped. I know the working men of this country, and if they are told the truth, they will play the game. The new finance of the hon. Member for Lowestoft (Mr. Loftus), which I understand to be a mixture of Douglas credit and post-Dr. Schacht Germany, will only lead them up the garden to disaster—

Mr. Loftus

The hon. Member is misquoting me.

Sir J. McConnell

I have got to the point I want to make. I did not like to come to it crudely. What my hon. Friend said was that all the fault lay with the great King William III after he came to the throne. I would ask him whether he agrees with the Stuart finance or that established by William III? Which does he like?

Mr. Loftus

The Stuart finance.

Sir J. McConnell

You like the brass money of James II. My hon. Friend said it would be well if the power got back to the Crown. I would advise my hon. Friend to read again the "Drapier's Letters" and find out why the Crown allowed another to issue those spurious halfpennies. If the Government start any sort of fancy finance, the Bank of England will have to be brought in at the end to liquidate such finance. When I hear people talk about the fancy finance in this House, it reminds me of when I was a boy. There was a great showyard in Belfast, and we used to go there on Saturdays. There was a man there who could pull out teeth without causing any noise because he had a very good band playing. The other thing was that he had a great hair restorer, and his words were these: "Place it on the centre of your left hand, and then on the part of the head that is bald, and in the morning the hair will be growing up the bedpost."

Mr. Denville (Newcastle-upon-Tyne, Central)

That was Sequah.

Sir J. McConnell

All that we have heard here this afternoon about fancy finance is in the same category. In my opinion the suggested fatuous expedients to evade the real issue are as fraudulent as Sequah's hair restorer.

6.14 p.m.

Viscount Wolmer (Aldershot)

I do not propose to follow my hon. Friend in the details of the very interesting and amusing speech to which we have just been listening, but I will try to bring the Committee back for a few minutes to the main centre of the problem with which the Chancellor of the Exchequer has been attempting to deal. In nearly every quarter of the Committee there has been a full realisation of the intense gravity of that problem, and an attempt to look at the problem from a national point of view, although we may hold very different opinions as to the remedy. The one exception to that attitude this afternoon has been, I regret to say, my hon. Friend the Member for Oxford University (Mr. Herbert). He made no attempt at all to deal with the national economic or financial position.

Mr. Herbert

rose—

Viscount Wolmer

I will allow my hon. Friend to interrupt me on a question of fact but not on a question of opinion. I listened to his speech with great enjoyment and I hope he will listen to mine, although I am afraid I cannot promise him the same amount of enjoyment. My hon. Friend made no attempt to deal with the national financial and economic problems but gave a brilliant lecture on the wickedness or even the obscenity of taxing books.

Mr. Herbert

That is not so.

Viscount Wolmer

I would say with all respect to my hon. Friend that it is very easy for those who are associated with literature to regard their profession as so important and sacrosanct that it ought to be treated differently from any other form of activity. That, I submit to the Committee, was the plea which my hon. Friend made.

Mr. Herbert

I thought I had made it clear that I was speaking mainly as the Senior Burgess for Oxford University, a great educational institution to which the Noble Lord used to belong, and it is really a gross travesty to suggest that I was speaking for a kind of selfish profession.

Viscount Wolmer

Nobody is better qualified to talk on this subject than my hon. Friend and to represent the case for literature against any taxation on books. All I am saying is that he has not made out a case for the treatment of this form of national activity in a different way from any of the other important activities of this country.

Mr. MacLaren (Burslem)

You are imputing a personal motive. It is not fair.

Viscount Wolmer

My hon. Friend knows me much too well to think that I would ever imply a personal motive to him. That was not the attitude about which I was complaining. I was venturing to rebuke a famous exponent of literature for saying to the House of Commons "This is holy ground on which you must not tread." That is an attitude which the Chancellor of the Exchequer cannot admit, although I have no doubt that he would very much like to do so. My hon. Friend speaks as a representative of Oxford University but if he goes to his constituency what will he find going on there? He will find that Oxford University has shut down its normal peace-time activities and has now switched over a very high proportion of the great abilities and knowledge to be found there to national war work, as it did in the last war. That is absolutely right; that is the part which one would expect from Oxford University in these circumstances. If the doctrine of my hon. Friend is pushed to its logical conclusion, he would expect to find Oxford University going on exactly in war time as it does in peace time. But his constituency is not doing that, and I am sure he would be the last person who would ask them to do so. He himself said that he has stopped writing books and is serving in His Majesty's Forces. That is symbolic of the situation with which the Chancellor has to deal, which is that all normal peace time activities which are not essential to the winning of the war must be curtailed in order that the war effort may be expanded. That is another way of saying that consumption must be curtailed. The consumption of books must be curtailed just as much as the consumption of other things which are necessary to human life as we understand it—and I certainly put books in that category. The Chancellor of the Exchequer must assist in the curtailing process by this tax on the purchase of all commodities.

I was very much interested in the speech of my hon. Friend the Member for East Ham, South (Mr. Barnes). He certainly recognised the national position but said that in his view the Purchase Tax was altogether evil, and hinted that a better and juster way of curtailing consumption was to carry Income Tax down further than the Chancellor proposes, and rate the lower incomes more steeply than he has done. I agree that the Chancellor has not put a sufficient tax on these incomes, if only for the reason that in a large number of cases they are the incomes which have been increased since the war began. Where people have increased their incomes they are naturally and quite legitimately desirous of indulging in expenditure and consumption of which they previously denied themselves. Therefore, from the point of view of the limiting consumption, I believe the Chancellor of the Exchequer would be doing more by taxing well-paid artisans than he can possibly do by adding 9d. to the Super-tax. He will not limit consumption to the same extent in that way because the people paying Super-tax will merely economise by reducing the number of people they employ. Most of the people they employ do not earn wages of £4, £5 or £6 per week, and while great hardship will be inflicted on those who lose their employment, there cannot be the same reduction of consumption as there would be by the method of direct taxation of highly-paid artisans. I do not think, though, that that would really cover the problem because even if every class was taxed up to the hilt, it would still be necessary to try to guide the purchaser to invest as much money as possible in War Savings Certificates and War Loans than expend his salary on consumable goods. At the present moment we have no alternative. We must induce people to refrain from consumption, books and everything else, and cut down their consumption to the minimum, and save what they can and put their money into War Loans, thus enabling the maximum effort to be concentrated on the war.

The hon. and learned Member for Montgomery (Mr. C. Davies), who is always very fertile in his constructive suggestions, did not shirk the problem but I think his solution was one that would be quite unworkable. He wanted to control all production and pool all retailers, so that the retailer whose business had disappeared could share in some of the prosperity of the retailer whose business increased. As I listened to him, I felt it would be perfectly impossible to carry out such a scheme, even if we had all the leisure of the piping times of peace with which to do it. The number of officials required would be legion; there would be as many officials as non-officials, and at the end you would have the most perfect system of Socialism which any hon. Member can imagine, something more bureaucratic than anything which exists in Russia or Germany to-day. Therefore, I do not think the House of Commons can really regard that suggestion as practicable. The only way in which we can guide the energies of the nation into the right channels, induce them to refrain from consuming and put all their efforts into war production, is through taxation.

Here let me say that I am very sorry my hon. Friends of the Labour party have shown so little sympathy with Mr. Keynes. I feel that the case he has put forward has never really been answered. People have said they do not like it. Well, all forms of taxation are unpleasant. The great merit of Mr. Keynes proposal was that there was some hope of wage earners getting the benefit of their war taxation in peace time. It was a most ingenious and attractive suggestion—I do not say it was unattended by grave difficulties—but I think his plan has been put aside more on account of the novelty of the proposal than of any inherent weakness in the scheme itself. These are not times when we can afford to reject any proposal or plan merely because it is novel, and I congratulate my right hon. Friend the Chancellor of the Exchequer for what is novel in his Budget while criticising him for what is old and trite. He must get beyond increasing the beer, tobacco, whisky duties and Super-tax and must think of new ideas if he is to deal with the problem which confronts us. He has not dealt with it, and I do not think he claims to have dealt with it. I urge him to take his courage in both hands and put frankly to the people of this country what he and his advisers consider to be the best plan to enable us, as a nation, to withstand the stress of this war. I am sure the people will respond to him if he gives them the lead.

6.28 p.m.

The Financial Secretary to the Treasury (Captain Crookshank)

As far as I know, it has never occurred before that a Financial Secretary to the Treasury should be connected with four Budgets in the space of 15 months—and each Budget has seen the imposition of heavier burdens on the taxpayers. Each time, criticisms have been raised from a different angle and each time I have, on behalf of my right hon. Friends, done what I could to assist in replying to these criticisms. I hope, however, that I am not qualifying as a sort of glorified Vicar of Bray. Nevertheless, the fact remains that circumstances on each of the four occasions have rapidly become different from the circumstances of the immediately preceding Budget and I think my right hon. Friend on this occasion—his first occasion on a matter of this kind—can be reasonably satisfied, even if not completely satisfied, with the tenor of the speeches which have been made here.

If one may look back, at the time when my right hon. Friend's predecessor in- troduced the first war Budget in September last everybody was then full of praise, because it was so early in the war, and so unexpectedly early. Nobody had anticipated that a Budget could be produced so soon. Everyone was grateful for the speed that was being shown in putting on at once very heavy taxation. Then, in the ordinary Budget of this year, in April, the criticism which my noble Friend had to face was not so much that taxation was not very big. The fact that he had already announced in the previous September the increase in the Income Tax seemed slightly to have softened the blow—until the actual moment when the assessment came out—but for the time being the additional tax impositions rather cast into the background the main criticism which emerged, namely, that he was not expecting to spend as much money as hon. Members and some of the financial pundits thought he should. On the present occasion, again, in so far as there is any criticism of my right hon. Friend in the third war Budget, it is not that he is not thinking that vast sums of money are going to be spent, but that he is not finding enough taxation towards that end. The criticism changes with the change in events, and I think, in common fairness to my noble Friend and to the last Budget, which I helped to defend, it is only right to say that, even if hon. Members did at that time think he was not budgeting for sufficient expenditure in the current year, he always made it quite clear that the figures that he gave were provisional and in the nature of the case could only be a guess, and, of course, it is true that the subsequent changes which we now see quite clearly must involve heavier expenditure during the financial year had not then occurred. The Low Countries had not been invaded and France had not disappeared as a belligerent. It is only right to say that with regard to the first Budget proposals of the year enshrined in the Finance Act so recently passed.

But, so far as my right hon. Friend is concerned at present, I have seen a whole collection of expressions of opinion about this Budget. While it is true that some of the writers say that the taxation of the better-off classes has reached practically its limit, others take a contrary view. Some say that taxation falls disproportionately on those with smaller incomes, and others say particularly the Income Tax should be brought further down the list of incomes. In fact, as so often is the case, these criticisms cancel themselves out to a very considerable extent, though, of course, both sets of them are indicative of great bodies of opinion. So far as expressions of opinion from outside the country are concerned, however, if hon. Members will look at the earlier telegraphed comments from the United States and the Dominions, they will see that the outsiders, who sometimes see quite a lot of the game, are impressed, not only by the size of the burden which my right hon. Friend is asking the Committee to approve, but also by the way in which his speech was received in this Committee the day before yesterday. A comment in one New York paper is, "Commons approves taxation without a whimper," and in another: Nothing could more convincingly demonstrate the determination of the British to throw the last ounce of their strength and fortunes into the defence of their country. It may very well be that we have not reached the limit of taxation, but it is at any rate some satisfaction to find that the sacrifices now being made are considered by those outside to measure our grim determination in this matter of bearing the sacrifices necessary to win the war. I think the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) yesterday more or less agreed with that aspect of the question.

I have been asked a considerable number of questions with which I will try to deal. Of course, some of the larger issues, more especially those raised by my hon. Friend the Member for Lowestoft (Mr. Loftus), would require a great deal more time than there is at my disposal. I should like to read his speech again, because, like ancient Gaul, it was divided into three parts owing to interruptions outside his control, and my recollection of it is not so lucid as it ought to be to deal with such an abstruse subject. First of all, I will deal with one or two points with regard to Income Tax. I should like to bring up to date a comment which I made in the Budget Debates in April. Criticisms were made at that time by the then Opposition that a sufficiently heavy burden was not being put on the higher ranges of income. I said it was interesting to compare at what rate of income chargeable to tax persons lost, through taxation, half their total income. See how rapid has been the change. At this time last year, under the impact of the last peace-time Budget, half a single man's earned income was taken from him if his total income was £17,000. In April, after the first Budget of this year, half such a person's income was taken at £8,500. Now, to complete the picture, I have to say that, as the result of the changes in Income Tax and Surtax proposed this week, the taking away of half the income occurs at £5,500 approximately. Whatever else may be said of people who are in that region of income, this means a most astonishing change of circumstances in only 12 months, and the right hon. Gentleman the Member for East Edinburgh recognised that point, not only in the speeches that he made in April, but I think he repeated it yesterday that, whether limits have or have not been reached, there are limits to the amount that can be taken without allowing a period for readjustment.

While browsing on these figures, I came across another consideration which shows how rapidly circumstances for this class of the population are changing. Of course, the total income, the figure which comes first in these columns, is a figure of income which no one ever received, because since living memory taxation has been such that that is merely the income from which the calculations are made. But this, I think, is the astonishing fact—it certainly shows the changes that are occurring in the ranges of income of £25,000 and above—that what is left this year as a result of this Budget to persons above that income is in practically every case half what was left to them last July. In the case of an income of £25,000, what was left last July was just under £12,000 after all the taxation had gone. What is left under this July's proposals is just under £6,000. So it goes on. It shows the difference, and it shows another thing which my right hon. Friend must unfortunately keep in mind, and that is that people who have had such changes come to them are not going to be able at present to make loans to the State on a scale which was possible for people who, 25 years ago, had an income of £25,000. That is why so much stress is being laid, and must go on being laid, on the campaign in which all Members of the House have been good enough to take part up and down the country for the War Savings movement. Now that the big money especially is not where people thought it used to be, in order to carry on successfully the borrowing campaign it must be brought home to those who now have it, and my right hon. Friend is quite certain that all Members will do all they can to help on the campaign carried out under the very able leadership of Sir Robert Kindersley and in which those thousands of voluntary committees of people of all sections of the community and all kinds of political and other views co-operate.

Now, the raising of the standard rate during the financial year instead of at its beginning makes a difficulty, and, while a statement has already been published in the Press, the Committee will perhaps allow me to repeat some part of what was said, not only in order to have it on record so that they can conveniently turn it up, but because it is important that I should say what my right hon. Friend intends to do on this point in the Finance Bill. The increase in the standard rate to 8s. 6d., although it applies to the whole Income Tax year, is of course not legally operative until the date of the passing of the Finance Bill into law so, strictly speaking, tax might legally continue to be deducted up till that date at the rate of 7s. 6d. This may lead to some complications in the case of companies which have already prepared warrants, because they may already have made their preparations showing a deduction by reference to 7s. 6d. at a date which might be after the passing of the Finance Act. No one knows exactly on what day that is going to be, for if we do not know in the House, people outside cannot, and they may find it impracticable at this stage, possibly amongst other things because of the waste of paper, to destroy those warrants and make out new ones. Therefore, it will be necessary for the Finance Bill to contain a provision legalising deductions by reference to the rate of 7s. 6d. though they are made after the passing of the Finance Act, but with the proviso that that cannot carry on beyond 1st September. That ought to give sufficient time to deal with that difficulty. Also, in view of the fact that the increased rate of 8s. 6d. is to apply for the whole year, adjustments will be necessary to make good under-deductions of tax where tax has been deducted by reference to the tax of 7s. 6d. from payments made between 5th April, 1940, and 1st September, 1940, and the Finance Bill will contain provisions relating to those adjustments. In order to reduce as far as possible the necessity for subsequent adjustments, it may be found convenient in the case of payments to be made before the passing of the Finance Act—when legally 7s. 6d. is all that should be deducted—to arrange for deduction by reference to the rate of 8s. 6d. It will be necessary to put all that right in the Finance Bill.

Mr. Pethick-Lawrence (Edinburgh, East)

I take it that in the main, subject to these points about dates, the provisions for dealing with dividends paid on or before the date of the passing of the interim Budget will follow broadly the same lines as were followed in the Budget in September, 1931, which also was an interim Budget and raised the same questions.

Captain Crookshank

That is so. Several hon. Members have asked questions about the deduction at source of Income Tax due in respect of salaries and wages, and I am glad to have an opportunity of saying something more detailed on that matter. The new proposals have two objects. First, as the rate of taxation increases it makes the burden of the lump sum payments on 1st January and 1st July increasingly difficult for the taxpayer to bear, and therefore, it reduces the hardship if some system for spreading the payments more evenly during the year can be arranged. Secondly, from the point of view of the Exchequer, there is an advantage that we should get more of the Income Tax spread over instead of concentrating the payments too much in large lumps at long intervals. Of course, there is nothing very revolutionary in this, because it already exists as a method of paying Income Tax on the emoluments of officers paid out of public funds in the Fighting Services and the Civil Service. I have lived under that system all my life, and I can assure hon. Members that any fears which they may have in this respect are groundless. It is as well to remember, however, that all we are proposing to deal with is the payment of the Income Tax due under Schedule E in respect of income arising from employment. Any other tax liability which an employé may have in respect of any other income which he may possess will not be affected.

This is the way in which the system will work. The assessment will be made, as it is now made, upon the employé, and he will get the usual notification. If he has any question to raise about the correctness or otherwise of the assessment, it will be a matter for him to take up with the inspector of taxes, but assuming, as is the normal case, that there is no disagreement between the employé and the Income Tax authorities, the Collector of Taxes will send a notification to the employer, who will not have had anything to do with the assessment, who will be completely ignorant of how the tax has been computed, and who will merely receive the notification from the Collector of Taxes of how much tax is due. I repeat, the employer will know nothing about the employé's circumstances, how the tax has been arrived at, what allowances there were or were not, and so on. The scheme will be compulsory for all individuals receiving income from employment, whether salaried staff or wage-earning staff, whether company directors or factory workers. It will come into force for the current year; that is to say, it will apply to the tax which is due on 1st January next. After the assessment has been made, the employer will receive notification of what he has to deduct.

There are two big classes of persons concerned. First, there are those who are concerned with yearly assessments, and secondly, there are the manual workers whose assessments are on a half-yearly basis. With regard to the first of those classes, those assessed on a yearly basis, the notification will be received by the employer in October, and the deduction of tax due on 1st January will be made in the months from November to April. The employer will get the notification from the collector of taxes, he will divide the sum up among the number of pay days, and make an equal deduction on each occasion. Then, in April, he will receive the notification of what is due for the next July instalment, and that will be deducted in the months from May to October. Secondly, there is the very large body of manual workers who are weekly wage earners, and who are assessed in a different way. They are not assessed in the same way as ordinary taxpayers, but half yearly on the basis of the income which they have earned in the half year just closed. That is the existing law. In their case, the tax on their earnings from 5th April to 5th October this year will be assessed as soon as possible after the end of that period, that is to say, after 5th October. Clearly it cannot be done in sufficient time for any payments to be made in November. The tax is due, as in the case of the others, on 1st January, and therefore, my right hon. Friend's proposal is that the notification should be sent some time before that date and the deductions will then be made in the six months beginning 1st January and ending on the 30th June. The same will apply to the next half-yearly period. In their case, therefore, no deductions will be made until the tax is due, that is to say, 1st January, and the tax will be spread over the 12 months beginning on that date. One has to recognise that in the case of persons employed weekly their wages may be subject to considerable fluctuations, and there is there a difficulty which has to be watched. I cannot give all the details now, but what is proposed is that, in order to prevent hardship, no deduction is to be made which would reduce the net earnings in any week below £2.

To return now to the position of the employer, all that he has to do, having received the notification, is to divide the money up in equal instalments as I have described, and collect from the weekly, monthly or quarterly payments. One hon. Member asked what will happen if a firm goes bankrupt. If that happens, nothing will occur to the detriment of the employé who has paid his tax, but as far as the firm is concerned, the tax which it has collected will be a debt due to the State. The employés position towards the Revenue will not be worse one way or the other. The employer will have to pay to the Exchequer the amount which he has collected during the month not later than the 15th of the next month, so that the money will be passed so far as practicable straight to the Exchequer.

Mr. David Adams (Consett)

What is to happen in the event of an employé being dismissed?

Captain Crookshank

In that case, the employer will not be paying him. It is not only a question of an employé being dismissed—he may change his employment. Such an employé may already have had some deductions made while employed by a firm. If he leaves that employment, that firm will have finished with him; the amount of tax which has been deducted will have been recorded and will fall back to the collector of taxes. The collector of taxes will then seek to collect the balance of what is still due either directly or by making arrangements in exactly the same way for the next employer to be notified of how much tax remains outstanding; and the deductions will then be made in the new place of employment.

Sir Frank Sanderson (Ealing)

I am fully in agreement with my right hon. and gallant Friend's proposal, but in the case of a large number of junior employés, when it is known that they will not be subject to any tax, will it be necessary for the employer to deduct Income Tax in their case?

Captain Crookshank

There is no question of an employer ever deducting anything of his own accord. All that happens is that when a person who is subject to tax has been assessed, when there is no dispute about how much is to be paid, then, and only then, is the employer notified of the tax burden in respect of that person, and the deduction is made. There might be some dispute about the assessment which would drag on so that the notification would not reach the employer before the six months began. It is hoped to get the notifications out by October and for deductions to be made in November, but as a result of a dispute it might be that the employer would not get the notification for two months, for instance. The deductions would then have to be made at such a rate that the complete amount of the half year's instalment would be collected by the end of the half year. Again, if a matter went to appeal, it would be possible for the employé to ask that the amount of the tax which was not in dispute should be deducted in this manner, and that could be done. Finally my hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne) asked what will happen if there is any question of refunds. That will have nothing to do with the employer. Any refunding that has to be done will be done by the Income Tax authorities in the ordinary way.

I should like now to deal with two points concerning the Purchase Tax which were raised by the right hon. Member for East Edinburgh. The right hon. Gentleman was anxious about forestalling, and on that point I will give a warning. The Purchase Tax Bill which was introduced in the House was discharged on the same evening as the Budget Resolutions were agreed to in Committee. One of the Budget Resolutions enabled a tax on purchases to be made. But neither the Committee nor the country need think that because the Purchase Tax Bill was withdrawn, every word and comma of it was withdrawn. Far from it. The general machinery and arrangements which were then outlined mutatis mutandis will no doubt find their way into the legislation that has been foreshadowed by my right hon. Friend. Therefore, if hon. Members like to look up the Purchase Tax Bill which has been withdrawn, and study Clause 24, they will see that there was a provision to prevent deliberate forestalling in this way, that the Commissioners, if they were satisfied that there had been stocking up between a wholesaler and a retailer on a scale out of proportion with the normal volume of business, might declare such part of the deliveries which had been made before the coming into operation of the tax as they thought fit to have been made after the coming into operation of the tax. That warning was clearly designed to deal with any gross case of exploitation which might have occurred between the time when my right hon. Friend's predecessor first announced the proposals and the date on which the tax comes into operation. That warning still stands, and I hope it will be noted by anyone concerned.

The other point which the right hon. Gentleman raised was that the Purchase Tax might lead to an increase in the retail price beyond the value of the tax. My right hon. Friend the President of the Board of Trade assures me that the position, so far as it concerns goods to which the Prices of Goods Act has been applied—which in effect covers practically everything with which the Purchase Tax is concerned—is that it will be illegal for a retailer to charge any percentage on the tax itself; he can only under the law, add the actual amount of the tax. A further point he raised was whether a retailer could now write up his goods to future replacement costs. The answer is, under the Act a trader can bring into account only the cost of goods actually in stock and those on order under firm contract. Therefore, he cannot add anything in respect of the tax to the prices of goods already in stock, except in so far as he may be averaging the cost of those goods and of the goods on firm order. I think that answers the points put by the right hon. Gentleman the Member for East Edinburgh. In order that there shall be no misconception in the future, I should like to point out that when the hon. Member for East Ham, South (Mr. Barnes) spoke of a tax of 12 per cent. he was talking about an average calculation my right hon. Friend gave in his Budget speech. The Resolutions, however, talk about a tax at the rates of one-sixth and one-third of the wholesale value.

The hon. and learned Member for Montgomery (Mr. C. Davies) asked a statistical question of a financial nature. He thought the figure of expenditure was larger than it should be and he was not quite sure what the position was of trading accounts, such as in the case of the Department of the Ministry of Food. What appears in the Vote of Credit expenditure is the actual trading, services, purchases, etc., less receipt of sale. It is only the net figure which appears there, and not the gross cost. My right hon. Friend wishes me to say something à propos of the various questions asked, both now and at Question Time, regarding the Tobacco Duty. Hon. Members in all parts of the House have spoken of the hardship, as they say, which will accrue to soldiers, airmen and the like, as a result of the heavy increased taxation in this field. Hon. Members will realise that that question involves a great many factors, and that I cannot give them any kind of answer now; but I can say that my right hon. Friend will obtain the views of the Service Ministers on the matter, in the light of the increases he has proposed in this Budget.

I think that I have now completed all I wish to say except for one final word. Hon. Members in all parts of the House have very properly spoken of the sacrifices which the war is entailing on every section of the community and which will inevitably continue. Members in all parts of the House have reminded us that we should do what we can to check unecessary consumption, because that is one of the ways in which we can most safely finance the war. That conception, however, has by no means permeated into every mind.

I was rather distressed to find, yesterday, in one of the newspapers a home budget showing the effect of the new taxation imposed by my right hon. Friend as compared with the taxation last week. The home budget was for a husband in receipt of £500 a year with a wife and two children. I am not contesting the figures they worked out, but whoever concocted them evidently did not think it was curious at a time like the present to anticipate such a family envisaging in the next 12 months that the husband would buy two suits of clothes and two pairs of shoes, and that his wife would buy three best frocks and six other frocks; that there would be a considerable expenditure on real silk stockings, and that the wife and daughter between them could reasonably spend as much as £5, this year in time of war, or 1 per cent. of the family income, on cosmetics. If there are such people contemplating an expenditure of that kind—that is to say, nine dresses for one woman—it seems to me that there is complete misconception of what we are up against. That sort of thing may have more circulation or less circulation, I do not know. But I do think that those of us who are concerned here with watching national finance, whose business it is to try to give a lead to the nation in regard to what should be done, should do what we can to point out that what is left over, after the necessities of living have been provided for, should be lent to the State for the period of the war. There should be no question of anybody, whether the income is £500, £5,000 or £500,000, spending that sort of proportion on clothes and luxuries of the kind I have indicated. And so I am quite sure that my right hon. Friend is right in leaving to the consideration of Parliament the Resolutions upon which he has founded his Budget.

Mr. Herbert

May I ask if the remarks I addressed to the Committee are so wholly contemptible that they deserve no reply whatsoever from the Financial Secretary?

Captain Crookshank

No, they are not contemptible in the sense the hon. Member for Oxford University presumably means. But there are 18 Budget Resolutions. He happened to deal with one very small, however important it may be to him, part of one Resolution which will come up for discussion at a later stage. I thought that as we had arranged to continue with other business we should not take up any more time at this juncture with the matter on which he has spoken to-night.

7.9 P.m.

Mr. Muff (Hull, East)

I am sorry the Noble Lord the Member for Aldershot (Viscount Wolmer) is not in his place. I listened with interest to his somewhat personal attack upon the Senior Burgess of Oxford University (Mr. Herbert). In this regard, Oxford University is, I think, well able to look after itself, but I am concerned about "Aldershot University" and similar universities which have sprung up in the country with between 1,000,000 and 2,000,000 graduates and undergraduates. As one whose duty it is to visit these places in my capacity as a welfare officer, I find that at these new universities all over the country they are asking for books. They are not content with singing choruses like "Roll out the Barrel," and similar hymns and anthems. I wish to put the positive suggestion to the Chancellor that before he fully makes up his mind he should consider exempting books below the value of 1s. or 9d. Those 2,000,000 or 3,000,000 men who are now in our universities, as I call them, learning a new technique are more and more in need of relaxation. They are reading more and more and I am assailed on every hand with demands for books and magazines.

If the right hon. Gentleman could exempt books from the Purchase Tax—not cheap and nasty literature, but cheap literature of the highest standard—he would be doing these men a good service. I am glad that the Financial Secretary has given some hope of a concession with regard to tobacco for the soldiers who are now, not in a British Expeditionary Force abroad but in a great expeditionary force at home. The late Chancellor was able to solve the problem of giving a ration of cheap tobacco to men who are fighting overseas, and it is not beyond the wit of any man, especially of the present Chancellor, to give a modest ration of tobacco to those who are in an equally important expeditionary force, a crusade even, at home.

Question, 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, put, and agreed to.

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