HC Deb 08 April 1941 vol 370 cc1439-523

Considered in Committee, [Progress 7th April.]

[Colonel Clifton Brown in the Chair.]

Amendment of Law.

Question again proposed, That it is expedient to amend the law relating to the National Debt and the Public-Revenue, and to make further provision in connection with finance."—[Sir K. Wood.]

Mr. Pethick-Lawrence (Edinburgh, East)

In the very restricted time at our disposal, I am sure, I shall best be meeting the wishes of the Committee if I waste no time in throwing bouquets, but come straight to the merits of the Chancellor's proposals. I shall submit them to three tests. In the first place, do they face up to the facts; in the second place, will they deliver the goods; and in the third place, are they fair?

The answer to the first question is contained in the supplementary White Paper with which we were presented yesterday. I will say at once that it is precisely the kind of analysis for which we have been waiting ever since the war began. I think it does the highest credit to the able men whose services the Treasury can now command, and to the Chancellor himself for his decision to take the public into his confidence in this matter. Possibly some statistical experts may call into question some of the figures. I do not know. Certainly I am not going to do so; I have not the knowledge; and I doubt whether there are many Members of the House of Commons who will venture to criticise the bases of these figures. I am content to assume that the facts are broadly as set out by the Chancellor in that White Paper.

That being so, I approach the second question from the same angle as the Chancellor of the Exchequer himself has done. Wars can continue to be prosecuted for quite a long time with a system of the most atrocious finance. If that had not been the case, the last war could never have gone on for four years, for in every country the financial means were exceedingly bad—not excluding this country, although I think that in many ways we did better than most of the others. Therefore, when I ask whether this Budget will deliver the goods I am not meaning whether the war can continue to be prosecuted. What I am meaning is what the Chancellor meant: will it enable us to get through the years 1941 and 1942 without that vicious device of inflation, so unfair in its incidence at the time, so destructive of public confidence, and so devastating in its after-consequences, as inflation is bound to be, and has always been whenever it has been a means of financing a war?

When the Chancellor, as a result of his own analysis, gives a positive answer that it will enable us to get through without inflation, he, of course, makes three assumptions. The first is that the amount of money that will be spent through Votes of Credit is not substantially more than the £3,500,000,000 which he estimated yesterday. Of course, that can only be a guess; but I think it is probably justifiable, as far as our knowledge permits us to form a judgment at the present time. The second assumption that he made is that his new taxes would yield what he anticipated, and that question, I think, we can safely leave to the Treasury. They have formed conservative estimates in times gone by, and I shall not be at all surprised if the actual yield of the new taxation comes fully up to, and possibly exceeds, the revenue which the Chancellor expects to derive from it.

The third assumption was that, in spite of the heavy additional burdens of taxation, the savings of the people would not only come up to what they were last year but would exceed them by something like £200,000,000 or £300,000,000. I noticed that when the Chancellor of the Exchequer said that, the Committee was rather inclined to be derisive, but I think that he is right, and that what my right hon. Friend the Member for Keighley (Mr. Lees-Smith) said is the answer to the question. It must be remembered—and it is what so many people forget—that every penny that the State spends goes from the pocket of the State to some individual in the country and, therefore, as the expenditure of the State goes up, so does the income of the country go up. There is, therefore, no reason whatever why the country should not find both this £250,000,000 of additional taxation and still be able to save the additional £250,000,000 and bring it to the Chancellor of the Exchequer in the form of investment to promote the war effort.

I come now to the third question, which is the most important and necessitates some examination of detail. I will deal first with the Chancellor's proposal relating to the Excess Profits Tax. When the 100 per cent. proposal was first put forward, it seemed to a great many people as thoroughly sound, but it has not proved quite so satisfactory in practice. At the time it provides no incentive to economy, on the contrary it encourages waste, and it does not, when war is over, leave industry with any resources for re-adaptation to conditions of peace. Therefore, personally, I am inclined to support the Chancellor's proposal. Others may take a different view, but, in my opinion, it is wisely framed. I have, however, certain reservations. I hope he will continue to strive for equitable administration of the tax as a whole, that is, between one industry and another. I hope he will take vigorous steps to disallow extravagant expenditure being offset against revenue. I hope he will also insist rigidly that, when it comes to repayment according to the scheme he put forward yesterday, the repayment will be made only under stringent conditions which really make for the turnover from war to peace. I need not remind the Committee that there is already provision for the replacement of wasting and wasted assets in a business, and we have to be on our guard that it is not paid twice for the same sort of thing.

But there is also another matter which I hope the Chancellor of the Exchequer will review. Excess profits have been construed solely as income profits, and it is notorious that certain classes of industry, notably shipping, make a great deal of money out of appreciation of capital. Chancellors of the Exchequer have constantly turned down any suggestion for the inclusion of windfall profits arising from appreciation of capital, within the scope of Excess Profits Tax. I hope that the Chancellor of the Exchequer will have that under review, because there is a good deal of feeling that, while some industries will be very hardly hit by this tax, other industries, just because their profits are in that category, escape the burden altogether.

Finally, I hope the Chancellor of the Exchequer will be rigid in not letting this repayment in any way go simply as additional dividend or bonus to the shareholders. We all remember what happened in regard to the railways in the last war. The railways were paid a sum of money which was to be merely in lieu of capital replacement, and I think I am right in saying that it was all used up in dividend and bonus shares. That sort of thing must not be allowed to happen again. That is all that I have to say with regard to the E.P.T. at the present time. No doubt there will be many further opportunities for the discussion of this question, and many different views will be expressed in different parts of the Committee.

The second great point in the Chancellor's Budget is that he is imposing no fresh, and no increases in existing indirect, taxation. I can assure him that I and all my friends sitting in this part of the Committee will support him in what he has done in that respect. We have long taken the view that indirect taxation, although it may be very easy to administer, lacks discrimination in its imposition and means that people are unduly and improperly affected who ought to be left alone while others are not called upon to pay according to their ability. So we are thoroughly glad that the Chancellor of the Exchequer, on this occasion at any rate, has taken our view.

I come to the next of the Chancellor's proposals—the subsidies that he is going to give in order to prevent price increases. I hope it will be quite clear to the Committee that these price increases which the Chancellor of the Exchequer is going to try to stop are not inflationary increases. These are increases, as I understand them, which will arise owing to the greater cost of bringing the goods to market or bringing the services into use over and above what they would be in ordinary times of peace. The Chancellor of the Exchequer is not only justified but is acting on sound lines in determining, as far as it lies within his power, through these subsidies to stop price increases. Here again, I wish to give the Chancellor a warning. I hope he will be careful to see that his subsidies are not frittered away in enabling the persons who bring these goods to market to make greater profits and to take less care in keeping prices steady than they otherwise would. If he avoids that pitfall he will have the support, certainly of my hon. Friends and myself, and I believe, of all sections of the Committee and of the country as a whole.

In the next place, I note that the Chancellor has imposed no new fancy taxes. In times of peace Chancellors may amuse themselves, and may gain a certain amount of credit, by adopting some of the suggestions which are put forward from all quarters, some wise, some foolish. I am sure, however, that the right hon. Gentleman is right, in this time of stress and strain, when we do not want any new officials if we can possibly help it, when we do not want any delay in getting the money, and when we do not want to cause unnecessary irritation, to have confined himself to well-established methods and to have worked almost exclusively—indeed I think exclusively—through the Income Tax. Therefore, it is to this tax that we have to direct our main attention.

Sir William Davison (Kensington, South)

The old patient oxen bear it every time.

Mr. Pethick-Lawrence

I think the hon. Gentleman will admit that the Chancellor of the Exchequer has, in this case, done what he has so often advocated and has spread the burden over sections of the population other than that so frequently represented by the hon. Gentleman as being specially burdened by Income Tax. On the occasion of all three Budgets presented since the war began, the House of Commons has said to the Chancellor of the Exchequer for the time being, "You are not taxing us enough." Unusual as it is when new burdens were being imposed, that in fact was the verdict of the House of Commons and even of the City. The Chancellor, in this case, has brought in a stern Budget, and I do not think that that criticism will to-day be levelled against his present proposals. This increase of 1s. 6d. in the £ on all taxable income, does impose a very severe burden on every class of old and new Income Tax payers, and the reduction in the allowances, other than children's allowances, will be felt acutely, especially by those in the lower ranges of income. The Chancellor is, in effect, saying to the people, "I am asking you to give until it hurts," but I believe there will be a response of which this country can be proud.

A great many points are raised by these new proposals of the Chancellor, such as the proposal to alter the allowances and still more by the most interesting proposal of all, namely, that to return part of the payment when the war is over. These raise a great number of small details and administrative points. I do not know whether hon. Members will wish to devote themselves to such points to-day. Personally, I desire to get on to one or two major questions and I will not pursue those detailed matters further now except to put two points in the form of questions. First, I should like to know whether it is part of the right hon. Gentleman's proposals to open a Post Office Savings Bank account for every citizen who pays Income Tax and has not already got such an account. If he does not contemplate that course, I should like to know precisely how this promise to repay all of us who are affected by this proposal is to be implemented. My second question is a still smaller one but is yet of importance. There are many cases of husbands and wives each having incomes, earned or unearned, who pay Income Tax. Unless they make a special request it is the husband who pays the Income Tax on behalf of both and then they settle it between themselves as they think right. In those cases, who is to receive the return on the additional payments now being called for?

There are other questions which will possibly be canvassed by many hon. Members during some of the Debates on the Budget, but I pass on to one major question which must be raised to-day, because it is fundamental, and whether I and my hon. Friends ask it or not, it will certainly be asked by a considerable number of the 2,000,000 new Income Tax payers, and by many others in the lower ranges of income, who are being called on to make heavy additional sacrifices. They will say to the Chancellor of the Exchequer and to us, what was said to King David by Nathan the prophet. They will say, "The rich have vast resources, and we have but one ewe lamb. Why must the little that we have be taken when so much is still left to the others?" The answer to that question, of course, is that what the Chancellor needs to-day to prosecute the war is not capital wealth or the title-deeds of wealth, but income and purchasing power.

The Chancellor told us yesterday that of the incomes of the very rich, the highest slice—not the whole income as was incorrectly stated in some of the Press— would contribute 19s. 6d. in the £. He told us that a man would require to have £66,000 a year gross, before he would get as much as £5,000 a year net as income. Those are indisputable facts. Therefore it is true that if the Chancellor wants to get the purchasing power for the prosecution of the war, he has to go to where purchasing power exists. Taking it in the broad, he has to go to the large bulk of the receivers of income if he wants to find enough purchasing power to meet his case. I agree that that answer goes a long way to meet the question and to justify the Chancellor's action but in my opinion it does not go the whole way, not even with the Chancellor's additional provision that part of the tax will be refunded after the war. To be really fair, we have, also, to bring into the picture the vast resources of wealth held by the rich and the super-rich. As everyone who has thought about the subject knows, it is only those resources which enable many of the well-to-do to meet their existing liabilities and in some cases—not many I hope—to keep up an unnecessarily extravagant standard of life.

Before the war broke out, I advocated the imposition of an annual tax on capital at a low rate. That proposal was turned down at the time and was again turned down later. In spite of the fact that I seem to have converted one of the Members on the opposite side of the Committee, I do not propose to renew that suggestion to-day. I consider that it is now too late for it to make a substantial contribution to any of our war problems. But unless the proposal to institute an effective levy on capital immediately the war is over is carried out, then not only will post-war Budgetary problems be almost insoluble, but the future activity of the country will be clogged by the immense National Debt.

Though that is in one sense a post-war problem, I think it ought to be raised and settled now. I am not prepared to let it go on until the war is over and then to have the issue fought out. The time is now, when we are demanding sacrifices from our men who are upholding our country at this moment in the South-Eastern corner of Europe, and the time is now when the Chancellor is demanding very heavy sacrifices from persons of humble means. I remember very well my wife once talking to a working girl on the subject of marriage, and the girl said to her, "It is all very well. When you are being courted it is a case of you can 'ave this, and you can 'ave that, but when you are merried to them, if you do not belong to them body and soul, you gits it on the 'ead." We do not want to be put into that position when the war is over. We realise that we are all standing in together to-day, giving what we can at the present time, and that every section of the population is prepared to make sacrifices. When the war is over we do not want to return to the old, bad, extravagant divisions of society, in which glaring contrasts of weald and poverty were obvious. If we are not to have this levy until after the war—and I have taken that view—we want to make sure now that the adjustment will be made when the war is over.

I would remind hon. Members that during the last Government Mr. Chamberlain himself, as a counterpart to the proposals for the conscription of life and labour in the war, stated that he contemplated, indeed promised, that there would be some kind of capital levy when the war was over. But he confined that promise to a scheme for a levy on increases of wealth during the war. I believe that proposal to be administratively difficult and quite inadequate to meet the immense figures which we shall then have to face.

Sir John Wardlaw-Milne (Kidderminster)

Surely my right hon. Friend does not suggest that Mr. Chamberlain proposed a capital levy on wealth in words and conditions which we usually understand?

Mr. Pethick-Lawrence

I thought I explained precisely what Mr. Chamberlain proposed. I am within the recollection of the Committee, and I think it will be found that I am correct. I said that he said there would be a kind of capital levy, namely a levy on increases in war wealth, and if the hon. Member looks up the facts, I do not think he will find that I have misstated them. I say that that form of capital levy will be administra- tively difficult and utterly inadequate to meet our case. What I want to put to the present Government is that they should review the situation in view of the subsequent facts and should consider whether they are not now able to go a great deal further than Mr. Chamberlain went then. I would remind the Government, and Members of the other party opposite, too, that no less a conservative than Mr. Bonar Law—whose name they all cherish—himself strongly favoured a real capital levy at the end of the last war but was overruled by a majority of his own party.

I hope, then, that as a result of the review which I am asking the Government to make, the Chancellor will be empowered at a later stage of our financial discussions to give a firm promise that a substantial levy on capital will be imposed at the end of the war. I hope he will couple this with a statement that there will be no substantial deflation after the war such as brought about the appalling havoc in employment and industry at the end of the last war. Only if these two promises as to the future are made and kept shall I regard the burdens imposed on our people to-day as fair. They are a splendid people; they have stood up to all the trials which this war has brought them with glorious courage and determination. They have stood up, and will stand up, to all the burdens which the Chancellor has imposed, or may have to impose, in the future. I only ask that the sacrifices to be made shall be fairly imposed on all sections of the community. I believe that the Committee will support me in saying that we owe this to them in return for the trust they place in us.

Dr. Russell Thomas (Southampton)

As this is the first time I have risen to address the Committee I am sure the Committee will extend to me the usual gentleness which they always give to people in my position and, therefore, relieve any natural trepidation from which I may be suffering. I want, if I may, to discuss a few points upon which I think the fiscal policy of this country should rest. A great burden is laid upon us—a burden which we cannot get rid of—for the time being in any case, do what we may—but, nevertheless, we must endeavour to carry that burden in the most efficient manner. What we have to do then, is, to redistribute national expenditure so that it corresponds with the planned redistribution of our national resources. The primary object of the Government should be to extract from the pockets of the private citizens sufficient purchasing power to pay for Government output. That should be the primary object of the fiscal policy of this country. In times of peace, the matter is a simple one. The distribution of the income of the citizen offers no particular difficulties. A married man, with two children and an income of £500, retains £475 for himself and spends £25 on Government services. In time of war, when the Government is rapidly expanding its spending powers, equitable distribution is not so easy. There is a tussle between the private citizen and the Government. The private citizen still wants to maintain as far as possible—in fact it is almost instinctive in every one of us—his standard of living. He will do this in one or two different ways such as by drawing on past savings, and in this way try to obtain the things he used to have for himself and his family. There is a constant tussle betwen the Government and the private citizen. The Government must endeavour to curtail the spending power of the private citizen. That is the first object which the fiscal policy of the country should have in view.

The second object, which is closely associated with the first, is that, now that we are engaged in a war of this sort, the Government should not only extract from the pockets of the citizen sufficient purchasing power to enable him to pay for its own output, but should also leave sufficient in the pockets of the citizen for him to obtain the essentials of life, and this should be distributed and arranged so that it should be more or less equalised for all members of the community. All of us must maintain our health and strength and keep a roof above our heads, and possibly obtain one or two of the luxuries of life, such as tea or tobacco, which are essential for maintaining our morale. The Government ought to have these two objects behind their fiscal policy, one being to extract from the pockets of the citizen sufficient to pay for its own output, and the second being, that the citizen and his family should have sufficient for his essential needs.

Let me put the matter in a concrete way. Let us imagine that the total national income is £6,000,000,000 or £7,000,000,000. Roughly speaking, the Government requires for its own purposes about three-fifths of that income, which would leave only two-fifths in the pockets of the citizens for their own requirements. That should be roughly the proportion. If the Government leaves in the pockets of the private citizen more than two-fifths, we are in danger. If the citizen calls upon his past savings and increases the two-fifths, we are also in danger. The same amount of goods will be available, and there will be more money in the pockets of citizens than there should be for the purchase of those goods. In that case, we should be in danger of slipping down the slippery slope, or, if you like, climbing the vicious spiral of rising wages and rising prices. The dangers and horrors of inflation would lurk around the corner. Anybody who remembers Vienna in the days when poverty and starvation stalked the streets and struck terror into people's hearts, will realise what I mean. The Government can inflate in various ways. They can do it in the straightforward honest-to-God way, and print more Treasury notes. The Government would not be so simple as to do that. It can borrow from the banks by printing some more Treasury or bank notes and tendering more bills; in this case, one gets an inflationary condition which is out of all proportion to the amount of the tender. If the Government is very impecunious, it can go to the Bank of England and borrow, say, —25,000,000. This can be easily done, because the Bank of England does not need to keep a minimum cash ratio or a minimum short-dated security ratio. In these various ways, the Government could bring about an inflationary condition without the public realising what was happening.

I do not believe that in last year's expenditure there was inflation to any degree. The Chancellor of the Exchequer, however, was lucky, because the Budget Estimates of last July were short of what we required for war purposes to an amount of about —400,000,000. The Chancellor thought, at that time, that the war would cost £9,500,000 a day, and did not realise that the war effort would constantly expand and develop. I believe that he reckoned he would raise the rest, about £2,107,000,000 by borrowing. Fortunately for the right hon. Gentleman, there were certain overseas resources, and other funds, which came to his rescue to fill up the gap. What I want my right hon. Friend to realise is that, although he proposes filling up the gap this time by borrowing and high taxation, as the war develops, and as it is developing now in the Balkans, it may cost more than it is costing at the present time. A gap may occur in the future, and then inflation might creep in.

If then we do not finance the war by that objectionable method with all its dangers, what other methods are left to the Chancellor? My right hon. Friend has two methods open to him—one is borrowing, and the other taxation. These two methods attempt the same thing; they remove purchasing power from the private citizen: but they are completely different in their advantages and defects. Let us consider borrowing. When I say borrowing, I mean genuine borrowing, and not borrowing from the banks or from the citizen who has an overdraft at the bank; I mean genuine borrowing when the citizen actually saves something out of wages and salaries. In the last war, I believe that £7,000,000,000 was ostensibily raised from the pockets of private citizens in War Loan. In 1914, the whole of the national income was not much more than £2,300,000,000. Yet, during five years, the Government raised £7,000,000,000 out of War Loans, and at the same time raised £2,700,000,000 in taxation. The fact is that the national income was doubled during that time, although there was not much increase in employment. What we have to be very careful about is that we do not borrow from the citizen and find that he is borrowing from the bank.

I want now to turn my attention to the effect of this borrowing. If it is genuine, it is nothing more than a charge upon the future output of the country, and, fundamentally, it should be condemned. It means that a citizen can put his savings into Government loans and in years to come he can sit back and enjoy the output of the country. Whether he is entitled to have any interest at all, I am not so sure. If one studies the history of usury, one finds that in the days of the very early Church usury was not allowed. Interest was not paid. Loans were made only to impecunious people who were on the verge of starvation, and it was considered a sin by the Church to charge such people interest. As economic development and enterprise grew, it became customary to charge a certain amount of interest. People said that if they had a loan and they put that loan into something that was highly profitable, the person who lent the money might well consider that he should share in the prosperity. Otherwise he might have said that he could have gone into business on his own account, or he might have spent his money on luxuries or in riotous living. The present Government's borrowing makes no differentiation between the poor lender and the rich lender, as represented by the multimillionaire companies. The Government is in a completely different position compared with persons engaged in private enterprise. The Government is the agent of the lender and the spender and makes no profit out of the war. The Government is merely expressing the will of the country to obtain victory. I do not know whether there is any moral reason at all why any interest should be paid to those who can afford to forgo it.

There is also an economic side to this. In point of fact, if the Government had a loan which was to produce a return—supposing the Government had a loan in order to pay for a railway—there would be some argument for paying interest, because the Government would receive extra profits by way of fares and so forth, and would be entitled to pay some interest for it. Not only would the national output be increased, but the national income would also be increased. But, when the Government build battleships and tanks for the safety of the Realm and for victory, there is no increase in the national income after the first year. There is nothing with which to pay interest, and therefore I do not see that we have much claim, if we lend our money, to any of the future output of the country. The question at the present moment is not a capital levy; the great thing is to stop profits being made. I do not believe that the Chancellor of the Exchequer will entirely succeed in filling this gap by borrowing. I consider that Lord Kindersley has been unjustified in the claims he has made in that respect, because in pre-war days we only saved about £700,000,000 a year, and for the first 320 days of the war we only saved £660,000,000. Admittedly, before the July Budget of last year, we were saving at the rate of £4,000,000 per day, but that is only £1,400,000,000 per year, and it has not increased much since.

In order to fill up the gap it may be essential to save a great deal more, but if we do that we shall be piling up colossal liabilities for the future, which will mean high Income Tax and check enterprise. Then let us turn to the other means by which the Chancellor proposes to finance the war—that is by taxation. Taxation is always highly unpopular—borrowing is much more popular because it puts off the evil day. By taxation we are facing the burden placed upon us, immediately and at once. Taxation is generally divided into direct and indirect taxation. The right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) feels, like myself, that the Chancellor was wise in not extending indirect taxation. For myself, I have always been against indirect taxation, because it puts the burden upon those who are least able to bear it—upon those people, many of whom are already below the poverty line. It also embarrasses the Government because, if the Government extends indirect taxation, it has, in a war of this kind, to help those families suffering from the effects of it. We know that indirect taxation at the present time is fairly extensive. In prewar Budgets it was considered fair to raise taxation equally, as between indirect and direct taxation. It was always half-and-half. I consider that we have always suffered in this country from financial conventions. I do not know why that is. Finance is governed, of course, by certain inexorable laws, but on top of them there are masses of all kinds of conventions, dating back to the Tonnage Act, of 1694, when Parliament unwillingly handed over its sovereign powers to twelve men. William Paterson and his companions must have had their tongues in their cheeks at the time. I am glad that the Government have not extended indirect taxation, which is already burdensome enough to those who can hardly make ends meet.

On the other hand, I am glad to see that the Chancellor has extended direct taxation, although we do not like it; and no one can possibly like it. I believe that a good deal of this dislike is psychological; no doubt due to the standard rate. After the last Budget many newspapers pointed out that a man with £20,000 a year was left with only 2s. in the £. That sounds dreadful on the face of it, but last year the man who received £20,000 a year, who was married and had two children, paid only 14s. 6d. in the £, and this year he will have to pay only 16s. 1d. Last year, he was still left with about £5,400 upon which to live, and this year he will still retain £3,006. A man with £2,000 a year, who is married with two children, paid 6s. in the £taxation last year, and will pay 7s. 9d. this year. I repeat therefore that these people are still left with a considerable amount upon which they can live. A man with an income of £2,000 a year was left with £1,400 last year, and will be left with an income of £1,224 this year. A man in similar circumstances with an earned income of £500, only paid is. 5½d. in the £ last year, and will have to pay only 3s. ½d. this year. Last year he still retained an income of £463 upon which to live which will be £424 this year. I do not want to bore the Committee by repetition, but this is a total war, and there is still a considerable amount of income left for these people.

Therefore, I say to the Chancellor of the Exchequer that he is not taxing enough. I say that with all seriousness. 1 see that he has extended Income Tax to more wage earners. We have had the anomaly, that out of 23,000,000 persons who are income receivers, 8,000,000 of these only were liable to taxation, and only 4,000,000 produced any tax. This, because the others got off as a result of the allowances. I am glad that the Chancellor has extended taxation in this direction. As I say, I do not think he is taxing enough, because if there was inflation and if we load ourselves up with borrowing, and if the spectre of want stood at our door, as it might very well do, the Chancellor of the Exchequer would have to adopt other methods, and control the whole of the industrial production of the country and the banks, and make us all its employés like soldiers. If I had said that three years ago, I should have been amazed at myself. I am a lover of liberty, and anyone who knows me for a few minutes will soon know that 1 love liberty and instinctively dislike discipline and regimentation. Indeed, now that I am old enough to analyse my own mind, I believe that I instinctively dislike all forms of Government. However, I am prepared in the name of liberty to hand my liberties over to a group of honourable men so that they shall hold them in trust until this war is over. Let the Chancellor of the Exchequer go ahead. We are a very peculiar people. The British people are willing to allow their bodies to be conscripted for the Army, the Air Force and the Navy, they are content to allow compulsory conscription for industry, yet when it comes to their material affairs they hesitate. I would say to those who claim that by severe measures we are removing all incentive, that the only incentive is victory. The alternative is the Gestapo, the concentration camp, letting our people suffer like the people of Poland, and allowing them to be bled white like the people of occupied France. Where would your materialism be then? Who will have material rights?

I believe we should continue to tax and tax, and if necessary let the Chancellor bring in a further Budget and remove more of the purchasing power of the people. Let the Government explain to the people once and for all that this is a total war. I believe then that only two things would be necessary for victory. One is that we maintain a sufficient command of the sea so that we shall continue to obtain our supplies from our great and glorious Empire with its illimitable resources and from our great friend, and almost Ally, the United States. The second is that we tax and tax and pull in our belts and imbue ourselves with the spirit of ancient Sparta. Then, indeed, I believe we could maintain this war sufficiently long to exhaust the enemy, defending ourselves from the midst of our ruined homes and cities, but knowing that we are preserving the seed of liberty, which we shall plant again when the war is over and tend until it matures and brings forth, not the base materialism which stultified us in the past, but the rich fruits of justice and human dignity. Then this nation, this great Empire and those great States across the seas, yea, even the world, under God, shall have a new birth of freedom.

Mr. Graham White (Birkenhead, East)

The hon. Member for Southampton (Dr. Russell Thomas) has sat for some months in the House without venturing to take part in our Debates. Today, in his first speech he has spoken with a facility, knowledge and real ability which would lead one to suppose that he had had long experience of the House. The interest which his remarks have created and the assent that they have received in many quarters lead me to say that we all hope he will not allow so long a time to elapse before he takes further part in our discussions. With much that he has said, I am in complete agreement, and there is also so much in the Budget with which I agree, that I propose on those aspects to say little or nothing. I thank the Chancellor of the Exchequer, however, for having in the course of two hours given us a more realistic and thorough account of our war finance and effort than has been done since the outbreak of the war. It was a considerable effort. I do not think he has closed the gap, but he took us over some rough roads, and, when he left them, he had put up signposts indicating ways in which the gap could be closed. It was the most realistic Budget that we have had since the war broke out. The criticism has been made that it does not indicate the full extent and scope of our war expenditure. I make no complaint about that. This Budget is not like the three previous Budgets. The Budget estimate of April, 1940, was far short of the actual expenditure, and thank God it was. Had our war effort remained at the level forecast in April, 1940, or even at the level forecast by my right hon. Friend, which was some £400,000,000 below actual expenditure, we should indeed be in a sorry case.

I make no complaint that the Budget does not attempt to give an accurate forecast of our total war expenditure. Having regard to the nature of our expenditure overseas and the problems raised by the Lease and Lend Act, it is quite impossible to attempt an accurate estimate. The expenditure that we must incur must be the maximum of which we are capable in carrying out the maximum war effort. That must be the object, and I hope it will be realised, whether the expenditure is in this country or out of it. The country will, I believe, stand up to any burden that it is asked to face, provided it is satisfied that the maximum effort is being made and that the burdens are being distributed equitably and justly. The Budget in two or three ways proposes to alleviate the difficult financial situation which will remain after the war, in particular with regard to the Excess Profits Tax and also the refund to the direct taxpayer. I approve the arrangement with regard to the direct taxpayer, and also the arrangement with regard to the Excess Profits Tax.

I should like to utter a word of caution with regard to the refund to the direct taxpayer. I hope that that refund, and the basis upon which it will be repaid, will be determined by agreement in the House. Those familiar with the history of the veterans' war bonus in America will realise how undesirable it is to make the distribution of a capital sum subject to electoral competition. Unhappily there will be, as a consequence of the Budget, a far larger number of direct taxpayers who will be unable to pay their taxes out of income than there has ever been before. I want to appeal for sympathetic and elastic treatment of tax collection in the interest of those who have directly suffered from the war in the matter of losing their property through bombing and those who have had to provide two homes and the vast number whose current income is already being expended in maintaining their families in different parts of the country owing to evacuation, and I would add the large number of individuals whose income is largely reduced owing to war conditions, I hope that the sum that is being accumulated for the direct taxpayer will be promptly available for widows, and it might well be considered whether in some cases it might not be related to proposals for insurance policies.

The Chancellor has put up signposts indicating a greater measure of price control and has foreshadowed a greater measure of rationing, and that is a path which I think he will and ought to follow. I regret again that he has done nothing to deal with the preposterous and utterly indefensible scale of children's allowances. Eighteen months after the outbreak of the war we are approaching a real system of war finance. If we are to proceed with greater indirect and direct taxation, by greater rationing and price fixing, the necessary complement of that is a system of family allowances. I quote the words "preposterous and utterly indefensible" from a speech in this House of the Secretary of State for India not more than 12 months ago. The one thing which in time of war and of strain we cannot neglect or throw away is the future of the nation as represented by the children. Our economic system, which maintains a wage system that pays no attention to family responsibilities and at the same time a social service which does, is illogical and, as the Secretary of State for India has said, "utterly indefensible." 1 am not one of those who would willingly suggest that there are people in any Department of State who are idly standing by waiting to put their hands to carrying out a task of this kind, but the groundwork is done, and if it were carried out, it would reduce our chaotic system of allowances to something like order. After all, we have the right. hon. Gentleman the Minister without Portfolio with a Department, which, at least, might give this matter their attention forthwith. They could not put their time to better advantage.

I would refer for a moment to the observations of my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) with regard to a property tax. This is not the first time he has rendered a service by drawing attention to this matter. It is clear that, having regard to the rate at which the National Debt of this country is advancing, it is a problem of great and growing magnitude. I am bound to say that the growth of the National Debt, in comparison with the other issues of the war, leaves me cold. If we are raising a problem which will have social and political consequences owing to the increasing amount in proportion to the national income which must be voted to the rentier class, even though that class is constantly changing and growing as time goes by, nevertheless— this problem—and I would not say a word to diminish its seriousness—is one which is our own domestic concern, and in the spirit in which we are conducting the war we can settle it afterwards. The only difference between my right hon. Friend and myself with regard to this tax is this: He said that as the State now requires spending power, it does not require the title deeds of property and that it is too late to go on with this during the war. My statement has always been that, bearing in mind those very points which he has raised about the necessity of immediate spending power for the State, it was always too early to begin. I am in principle entirely in favour of such a tax. I believe that it will be necessary and that the more we consider it as a possibility in our fiscal apparatus, the better it will be. My right hon. Friend referred to converts in other quarters of the House. It may be that there are, but it is a matter which calls for dispassionate consideration.

I would like to say one or two words about the proposal with regard to the Excess Profits Tax, because there are two features in connection with it that have not been mentioned in the course of this discussion. The importance of the tax lies in the fact that it is a political levy. That is almost more important than its revenue qualities, which are, of course, very considerable. If it could be proved, following some observations in the report of the Committee on National Expenditure on the subject, that the State with the rate at 100 per cent. was in fact losing money, it would be the duty of Parliament to alter it, even though the political consequences were undesirable. I do not, however, think that is necessary, and I am glad that the rate of the tax is to be maintained at 100 percent. It is' a matter of the utmost consequence that people should not think when they are working hard that other people are making money out of the nation's necessities. That is one of the most important factors in the war. There are other things which are happening in connection with the Excess Profits Tax. It is a fact that this country, with its native genius, resource and ingenuity, will, provided the means of reconstruction are not broken in our hands, devise some means of carrying on when the war is over. The Chancellor showed that he had this in mind when referring to the reduction in the rate of interest which has taken place and is continuing to take place, and when he said that this would smooth the path for the development of industry after the war. I think that he is right in that.

In the meantime, while the war is proceeding, machinery and plant are being worked double time in a multitude of cases, and firms are unable to renew them. That is regarded as a normal thing in war-time up to a point. It is a means of liberating sums for war purposes, but with the Excess Profits Tax at 100 per cent. and the additional heavy charge for fire fighting and the new tax for war compensation because of enemy action under the recent Act, firms are being denuded of funds not merely for paying dividends, but for the purpose of renewing and maintaining their plant or making extensions. The answer may be that if a firm is making something for the Government and requires extra plant, it can apply to a Government Department for an advance of money on terms. The amount of negotiation and investigation which is necessary, however, is such as to nullify the advantages. If we are to have an industry which is to recover at the end of the war it must be allowed to retain in its coffers the sums which are necessary for the renewal of plant and for maintenance and equipment when the war is over.

I am not sure whether in the discussions on this subject we have given enough consideration to a change which has been brought about by the co-operation— generous co-operation, as I believe it is— of the United States. In this world, when an unlimited pagan force is bludgeoning all decency and chivalry into destruction, I hold that the increasing understanding and co-operation of the American and British peoples is the most significant event, possibly the most important event, that has taken place since the war started. It is a guarantee that decency will again rule in the world at some time, and we cannot be too grateful for the growth of that understanding. I want to refer to it, because there are two aspects of the matter that ought to be borne in mind. The first is that I think we are apt to forget the enormous figure which the United States is prepared to devote to the common cause—already something like £8,300,000,000— and we are perhaps apt not to realise sufficiently that this enormous sum has to be raised in America herself. That means a great effort on her part, amounting in course of time to a transformation of her economy and the point which I want to make in this connection, and which is related to one raised by my hon. Friend the Member for Southampton, is that we shall make a great mistake if we think that because that great effort is being made our problem about the supply of dollars is solved and in any way relax our efforts to maintain our dollar resources.

We should be doing little to reciprocate the generous movement in the United States of America if we were in any way to relax our efforts to curtail every item of consumption which involves transport by ships and, above all, calls for dollars. Let us also not presume to read anything more into that Act than is covered by its title. It is a lease Act, but we must also remember that it is a lend Act and whereas no difficulty which I can foresee should arise between ourselves and the United States of America which cannot be and will not be solved, let us not again make the mistake which we made at the end of the last war—with regard to our borrowing in U.S.A.

One other point to which I should like to refer comes back to the issue raised by the hon. Member for Southampton regarding the possibility of closing the gap by means of additional genuine savings. I agree with him, if I understood his argument, that our achievements in respect of genuine savings have been somewhat overstated. It is not impossible, I am convinced, to raise a further £200,000,000 or £300,000,000 by means of genuine savings —not impossible, though it will be very difficult. But let us be under no illusion about the matter. The genuine savings this year and last year have been swollen by some adventitious items which will not recur. There was, for example, the £400,000,000 of money, which maybe said to be largely invested in the National Savings Movement, which was issued by the Treasury when they requisitioned securities. Various large sums in compensation have also tended to swell that fund, also the gradual liquidation and dispersal of stocks.

I think we ought to ask Lord Kindersley and his able and enthusiastic organisation to re-orientate a little the direction of their propaganda. War Weapons Weeks are an admirable thing. They are almost as infectious as is an auction in raising prices in raising the totals which have been secured. But the important thing, the vital thing, in this country is not actual lending, but reduction in private expenditure and reduction in consumption. If we secure that, lending becomes a secondary con- sideration. Therefore, I say that we must be under no illusion about what we have done in the past but realise that if we are to approach anything like the figure which has been mentioned by the Chancellor of the Exchequer we must have an active and a convincing propaganda backing up the measures already taken by rationing and price fixing, so that not one hour of labour should be demanded and not one penny piece of expenditure incurred which we can do without. It is only upon those terms that we can hope to dose, or even get within measurable distance of closing, the gap. What the Chancellor of the Exchequer has done is, it may be said, to reduce the gap from a valley to a ravine, but it is clear that there will have to be afar greater reduction of consumption in this country if the gap is to be finally closed.

This Budget, which is, as I say, the first realistic Budget, has had, I think, a favourable reception. A remarkable thing about all the war Budgets up to now is that not one of them has met the apprehensions or the fears of the taxpayer. There has been no single occasion up to now when the taxpayer has not been willing to shoulder the burden, and even to express the view that it should have been larger than it was. The one thing which the citizen of this country does expect is that our war effort shall be the maximum of which we are capable, and also that the burden shall be distributed in a manner which is manifestly equitable. Those are the two things for which we have to strive. If the Government can convince us, and I think it can, that we are moving in that direction, then it is for the private citizen to adopt a motto like this: To work harder, to spend less; to produce more and to consume less. That, really, is the only economy which will carry us through towards the end of the war.

Mr. Hely-Hutchinson (Hastings)

I offer my respectful congratulations to the Chancellor of the Exchequer for giving us, for the first time in any Budget speech to which I have listened, a very real economic review of the country's position.

In order to cover what I have to say in a short time, I hope that the Committee will forgive me if, instead of long, flowing phrases, I indulge in a series of short barks. My right hon. Friend the Member for East Edinburgh (Mr. Pethick- Lawrence), in a speech with the general tenor of which I agree, made one or two observations from which I find it necessary to differ. He called attention to the need for taxation of the appreciation of capital. I suppose that, unless the relations between the Government and the taxpayer are to be on the basis of "Heads the Government win and tails the taxpayers lose," we should have to offset appreciation by depreciation. I can assure my right hon. Friend, after 30 years' experience in the City, that the sum of depreciation and obsolescence is always greater than the sum of appreciation, and the difference is only made good by savings out of income. Therefore, if that particular form of taxation is to be done fairly, it will result in the Government getting nothing.

I agree with my right hon. Friend's suggestion that in this Budget indirect taxation is not desirable, but I think there is something to be said for the general principle that if it is our purpose to stop people spending money, it is a good thing; to make it more expensive for them when they do spend. My right hon. Friend commented with approval on the furtherance of the principle of subsidies. I agree with what he has said, subject to the provision that we must not fool ourselves as to the real cost of raw materials and semi-processed goods entering into production. He also made some observations on husbands and wives. There was then only one hon. Lady present, and there are none now, to represent the wife's point of view. I agree with my right hon. Friend's point of view, but I would refer him to the Macmillan Report on the advantages to be gained by husbands and wives in respect of their Income and Surtax assessment if they live apart instead of living together.

My right hon. Friend also spoke of the necessity that there should be no post-war deflation and at the same time he advocated a post-war capital levy. The process by which a capital levy comes into operation is deflationary, and I do not see quite how to reconcile those two principles of my right hon. Friend's speech. In general, on the subject of inflation, 1 beg to suggest that we need have no fear, provided that confidence continues. By confidence, I mean trusting our Government and trusting each other; for this is a problem, not of money and finance, but of men and materials. To the extent that men and materials are available, finance will look after itself, provided that we trust each other. The essence of trusting each other is the principle that promise is as good as performance, when you trust a man.

May I now refer to the maiden speech of the hon. Member for Southampton (Dr. Russell Thomas), which I would like to say is the finest rhetorical effort to which I have ever listened. In the course of his speech his enthusiasm carried him away a little, particularly when he spoke of not allowing multi-millionaire companies to have any interest on their subscriptions, say, to Government bonds. I do not know how he proposes that companies like the Prudential Assurance, with £300,000,000 of assets, would be able to live up to their obligations to their policy-holders unless they were allowed interest on their money. Does he include among multi-millionaire companies the large Cooperative Societies with £300,000,000 of assets? Would he like to come with me into the City and there endeavour to find a company with a capital of £5,000,000, all of whose stock was owned by a multimillionaire? He would be likely to find that the stockholders of a £5,000,000 company numbered about 5,000, and that the average stockholding was £1,000. Apart from that, his speech was a remarkable contribution to debate, as such.

I had the advantage of making the introduction to my Budget speech a week ago in the columns of that well-known Tory newspaper, the "Daily Herald." For greater security, I have obtained a copy of the interview which there appeared. I understand that, subsequent to the article appearing in the "Daily Herald," several letters were received by the Editor of the newspaper from correspondents suggesting that one of his rich banker friends had been pulling his leg on April Fools' Day. I shall read to the House a short extract from that interview. The general burden of the article which I contributed to the "Daily Herald" was that the Government would obtain no more money by taxing the Surtax payer, because the only effect would be to compel the Surtax payer to sell some of his capital assets, which would have to be bought by somebody who would otherwise buy Government bonds from Lord Kindersley. In other words, the Government would cause the Surtax payer to sell some of his assets to the very people from whom Lord Kindersley was trying to get money. The reason for that will appear later.

Mr. Woodburn (Stirling and Clackmannan, Eastern)

Surely, the hon. Gentleman will agree that there is one distinction, even if what he says is true. In the case of taxation the Government will not have to pay interest, while they will have to do so in the case of Government bonds.

Mr. Hely-Hutchinson

There is no dispute about that at all. I fully agree. I ask the Committee to consider two points. In the first place, I regard myself to-day, as always, in speaking in the House of Commons, as on my honour to tell the truth. In the second place, I would like to plead that what I tell the Committee is not unrepresentative of the general position of those Surtax payers who carry considerable responsibilities. The only part I want to read from the statement which I made in the "Daily Herald" is this: After I have paid my taxes and the money I have promised, under contract, to pay for the education of my children, insurance for my wife and children after I die, rent, rates and maintenance of the London house I cannot live in, and my political expenses, I am left with about £1 a week a head for each of the persons dependent on me. I shall say more about that point later, but I would like to mention that, as a result of this Budget, that 1 per week is reduced by 16s. a week to 4s. per week per head, and that it has to cover everything except education and the clothing of the children—absolutely everything. I think the Committee should bear that fact in mind when considering the ewe lambs of the poor and the enormous resources of the rich.

What ways are there in which a man in that position can deal with the situation? He can repudiate some of his contracts. If he does that, his honour is involved. Moreover, he would be abusing his position, for the source of his income is very likely due to the fact that he has a reputation for not repudiating his contracts. Therefore, he will naturally put this means of regularising his position last. Secondly, he can sell some of the savings put aside for his wife and children. We have to make the assumption that he has such savings; he may not have them. He may have put a considerable amount of his savings into trust for his wife and children and may have very little left outside indeed. Even if he does sell his savings, which may be in the form of Government bonds, what does he do? He sells those Government bonds to somebody who otherwise would buy Government bonds from Lord Kindersley. Therefore, if he has to sell his savings, the net result is that the Government do not get any more money by taxing that Surtax payer, although it is right to say that the Government will not have to repay the money which it gets in that way.

Thirdly, he may shed some of his responsibilities. Here is something I would like to tell the Committee: If I were to apply for the Chiltern Hundreds to-morrow, I should save myself £530 a year net, after taking into account tax, on my Parliamentary salary. Some Members will probably say that this is obviously an instance of a Tory Member buying his seat. I will give some, not all, because of shortage of time, of the details of the kind of expenditure that the hon. Member for Hastings has to meet in politics. Until recently I was subscribing £300 a year to the Hastings Conservative Association, which was paying its Conservative agent £250 a year. Owing to evacuation, the war and the fact that the people who live in Hastings are very hard pressed, many of them having lost their businesses, and there being no subscriptions worth while coming in to the Association, unless the Member for Hastings subscribed that £300 a year there would be no money with which the Hastings Conservative Association could pay its agent. Some people may ask, as there are no politics going on, why there should be an agent. The answer is that the Conservative agent handles a lot of things which I could not handle myself. I may get letters from old age pensioners in trouble or from people who are evacuated and so on, and my agent goes and looks them up.

Very well, what can we do? Suppose I reduced my subscription from £300 to £50 a year, and I took over the payment of the agent's salary, £250 a year. Owing to the fact that this man works for me, I can go to the Income Tax authorities and say that he is in the nature of a political secretary for me. If I can succeed in doing that, I shall save 15s. 9d. in the £ tax on that £250, and the effect will be that the taxpayers will pay £197 out of that £250 salary. The taxpayers as a whole will be paying more than three-quarters of a Tory agent's salary. And yet, how else can I reduce my political expenditure and continue to live up to my responsibilities? Surely, by far the simplest thing to do, if I am hard pressed and do not want to sell my savings and my children's savings, is to apply for the Chiltern Hundreds.

At the moment the board of one of the banks in the City is meeting, and I have been informed that it is at present considering whether or not it should invite the hon. Member for Hastings to become a member of that board. I hope to be told to-day whether that will be the case. I have no power to make them elect me. I did not approach them; they approached me. They did not consider my name until they had examined my whole record for 30 years back, even to such details as asking why I resigned a particular directorship 10 years ago, whether it was because I was incompetent or dishonest or of my own free will. My whole record was examined, because to hold a directorship of a bank one must have a clean record in regard to character, competence and living up to one's contracts. There is a free election by the board which the candidate cannot in any way influence. What happens if that honour is conferred upon the hon. Member? The gross annual fee that he will receive will be £1,333. The tax last year would have been £950, but this year it will be £1,050. He will have £283 a year for himself, but it will involve him in certain additional living expenses which will come to about £250 according to his present estimates. He will therefore receive about £33 for becoming a rich city banker and becoming separated from his family for a large part of the year. If it is going to be possible for the banks to get people to serve, whose character and records they have carefully tested, surely the banks will have to pay them more money than will realise for them a net sum of £33 a year.

When I see the hon. Baronet the Member for Barnstaple (Sir Richard Acland) complaining in the course of the Debate on the last Sitting Day that the directors, in paying tax-fret compensation to direc- tors were throwing the burden of taxation on to the shareholders, there are two points to which I should like to draw his attention. One is that all companies which to my knowledge pay tax-free compensation to directors have already limited that to a certain rate of tax, and are tending to get rid of it altogether, because it is impracticable; and secondly, that it will be necessary under these circumstances of higher taxation for such companies to offer higher fees to attract directors if they are to get the people whom they want. Therefore, I am inclined to sigh with the prophet Job, when I read the remarks of the hon. Baronet: Who is this who darkeneth counsel by words without knowledge.

Mr. Woodburn

May I say one word? In the case of directors' fees which are paid from profits, has not the company already collected for the Government the Income Tax on them and, therefore, all that would remain to be paid on the net profits fees paid to a director would be Surtax?

Mr. Hely-Hutchinson

I do not fully understand, but in the calculations which I gave to the Committee £33 was the net sum of money which the hon. Member for Hastings would receive from the £1,333 gross—as grossed up to account for Income Tax. Is it surprising that, confronted with such facts, the hon. Member for Hastings should be inclined to shed some of his responsibilities and to spend some of the leisure so obtained in, shall we say, writing an answer to the '' Hope of a New World "by his Grace the Archbishop of York? That I did last week, and I came to the conclusion that the answer to that very spiritual and valuable work is that the "Hope of a New World" lies in two things, in maintaining faith in a free economy and in recalling that charity begins at home, that a man's first duty is to his family. But, just as it is true that renunciation is the greatest of Christian virtues, it should not be forgotten that resignation is the most powerful of weapons in politics and in business alike. Resignation is the right to strike, including the duty on occasion so to do. In respect of this, I would like to suggest that the children of this world are in their generation wiser than the children of light. The point I desire to make to the Com- mittee—and be it remembered that in what I have said I desire at all times to maintain my right to be regarded as an hon. Member, and that in the facts I tell this Committee, I tell the truth as I know it— is that the country frustrates itself when it withholds, from those whom it asks to carry responsibility because it believes they can carry responsibility, the means of fulfilling that responsibility. What is responsibility? It is the obligation to account to someone for a policy, just as to-day I am accounting to this House for my policy in regard to the disposal of my private means. This is the antithesis to the dictatorship which we are fighting against in Europe.

Now may I come back to the Budget? There is one thing in my right hon. Friend's speech which I would like to underline. He said: The task of the Chancellor of the Exchequer is, therefore, determined by circumstances largely outside his control." — [OFFICIAL REPORT, 7th April, 1941; col. 1333, Vol. 370.] True, his task is determined by and has to do with the prosecution of the war; it is the expenditure of the Service Departments which, broadly speaking, determines what the Chancellor's problem is. But the answer he must give is itself conditioned by the compromise within the Cabinet; and this Budget clearly reflects that fact. For instance, the reduction of Excess Profits Duty is a first-rate proceeding which meets with the general approval of the Committee. But later on we find the compromise. The 20 per cent. reduction is to be regarded as an income credit subject to Income Tax. Let that go; I accept it as a broad compromise. Then tax is laid heavily upon persons with a small income, and the compromise is that later they will get it back. I think that is an excellent compromise.

In this Budget and especially in these features of it we may recognise processes of reasoning which a year ago led Mr. Keynes to place his finger on the spot and then later to recommend a certain plan. I always thought that the Keynes point was right. I always thought that the Keynes plan was slightly wrong. The measure adopted in this Budget cannot be described as the Keynes plan, but Mr. Keynes himself and all mathematicians will appreciate exactly what I mean when I say that even if it is not the Keynes plan it is the square root of the square of the Keynes plan. Mathematicians will appre- ciate that that is something on which one may place both a negative and a positive interpretation.

With regard to the 10s. Income Tax, I should like to say that I prefer it to 9s. 6d. I prefer to have my head chopped off with the clean axe of 10s. than to have it hacked off with the blunt saw of 9s. 6d. I am glad that the Chancellor of the Exchequer did not fall for the specious Excess Profits Tax on individuals. He gave some practical reasons. I am going to give a spiritual reason. A differential tax is bad at any time, but it is more permissible when one is dealing with corporations, which have only a fictitious personality and no soul at ail, than when one is dealing with actual individuals, who have souls and real live personalities, and whose incentive to effort would be killed by any such specious form of taxation. I am also glad that he did not follow up the suggestion for a capital levy in wartime, for in point of fact—and this applies even after the war—income is the only taxable thing, for the simple reason that you cannot eat the dining-room table, you can only eat off it; nor can you send away the twentieth part of a dining-room table; you have to sell the whole thing. I fully realise that after the war, if we are to escape from the self-frustration of a closed economy, we shall have to submit to some surgical operation in taxation. What that surgical operation will be I do not attempt to forecast. It will be something in the nature of a capital levy, but how deep we shall have to put the knife in will depend on the size of our economic unit after the war. It will depend on what are to be the relations between the British Commonwealth of Nations and the United States, and I dare to include China as well.

There is only one thing in the Budget about which I would like to express tempered regret, and that is that my right hon. Friend has not seized the opportunity further to reform procedure in respect of Income Tax law, but, in mentioning this regret, I am fully aware of the many administrative difficulties in the way, and of the fact that it might be unwise to tackle those administrative difficulties in wartime. But the particular thing I should like to suggest to him is that he should follow up what he did last year, about collecting Schedule E at the source, by trying to take Schedule E in respect of the year 1941 calculated on the income of the taxpayer in 1941. For Schedule E falls particularly on the very class of people whose incomes have benefited during the war. Let us take the case of a fitter who two years ago or last year may be was unemployed, or underemployed, and was earning £200 a year, but who is now earning £400 a year. This year he will have £400 with which to pay Schedule E tax calculated on his £200 income of last year. Next year, of course, he will be taxed on that £400 a year, but when this great boom comes to an end, there is going to be a year in which the Schedule E taxpayer is unemployed. In that year he will only have 36s. a week, but he will have to pay the tax on £400 a year.

Let me give the Committee an example. Here are three photostatic copies of the earnings of a young man of 25, and I ask the Committee to consider those earnings. He is a young fitter in an aeroplane factory, doing valuable work and doing it well, and I would like to ask the Committee to compare this young fitter's earnings with the net earnings, which the Committee heard about a quarter-of-an-hour ago, of a merchant banker who has been a merchant banker for 30 years. These are the weekly figures: first week, £17 17s. 8d.; second week, £22 6s. 5d.; third week, £24 14s. 11d. Let us call it £20 a week gross, or £1,000 a year, on which his tax, if he had to pay tax on that income this year, would be £327. But, as a matter of fact, the tax he will have to pay this year out of that £1,000 a year will be calculated on his earnings last year, which may have been £300 or £400. Suppose the war comes to an end—which is what we all want to happen—next year: that poor chap's income will drop back to £200 a year, and out of that he will have to pay £327 in tax calculated on his present £1,000 a year. How is he to do it? He is not going to do it. The revenue is not going to get the money, and I therefore suggest to my right hon. Friend that there might be something to be said for trying to get Schedule E working in such a way that it applies to the income of the taxable year itself. I appreciate the very great administrative difficulties that there are in the way. I hope, however, that hon. Members, when they compare such instances as I have given of a merchant banker and a munition worker—and I am not trying to build up a whole case on one instance— will also not try to build up a whole case on one instance, and that the hon. Member for Stoke (Mr. Ellis Smith) will not build up a whole case on one instance either. I hope that we shall not hear the whole of the financial community condemned for the sins of the Hooleys, the Hatrys, and other financial scallywags whose names begin with an H or two.

If we regard this Budget as a whole, I think that even those whose heads are already under water and who will be pushed a little further will nevertheless say that they will take a deep breath and somehow last until the end of the war and come up smiling at the end of it. I think the taxpayers as a whole will accept these successive doses of fiscal medicine with a wry face, but perhaps with some good humour. I am not quite sure that "good" is the right adjective to use; it might perhaps be better to say that they will accept them with the dry costive humour of Nebuchadnezzar, seeking purification by the eating of grass, and Remarking as he munched this novel food, It may be wholesome, but it is not good. On the whole, I approve and support the Budget with all my heart, particularly because it contains an element of the mass sacrifice for which I have perpetually appealed in speech after speech during the war. That mass sacrifice—and the mass sacrifice includes merchant bankers who have very cheerfully joined in it—is the only echo that we at home can offer to the thunder of Admiral Cunningham's guns, the rattle of General Wavell's muskets—and to the drone of Air-Marshal Longmore's engines up above.

Mr. A. Edwards (Middlesbrough, East)

I have listened with Interest to the speech made By the hon. Member for Hastings (Mr. Hely-Hutchinson), in which he has mixed a great deal of self-pity with a certain amount of sophistry. Humour and logic do not often go together. He has given us the case of the poor merchant banker, for whom we are supposed to weep, and then told us of the extra appointment that the merchant banker may receive in the course of the day. If he asks how it is that such a man can only retain two or three hundred pounds out of the much larger salary which he receives for work which he can do in his spare time in addition to all his other operations, the reason is that he has been so grossly overpaid in the past that perhaps he is living to-day on unearned income.

Mr. Hely-Hutchinson

I did not think there was anything in my speech which could be translated as self-pity. But the hon. Member is making the assumption that I am able—or that someone in my position is able—to finance the deficit. Surely he cannot make that assumption until he has seen an inventory of my assets.

Mr. Edwards

I am not very much interested in the inventory of the hon. Gentleman's assets. He has described a certain aspect of his own position; but I am not referring to him, but to a certain merchant banker. Many merchant bankers get appointments on boards of directors when they have no competence to serve. I could not help thinking, when he was speaking, that we on this side might have nominated a certain number of people to that board of directors who could have done the duties, and the bank could have retained a certain part of the £1,300 a year. He did not seem to take into consideration the deductions that a working man would make.

Mr. Hely-Hutchinson

Would the shareholders have supported the nominations which hon. Members on that side would have made?

Mr. Edwards

We do not know whether they will support the nominations before the board to-day. I assume that it is a foregone conclusion.

Mr. Hely-Hutchinson

The shareholders will have an opportunity of rejecting it at the next annual meeting.

Mr. Edwards

That is one aspect of the particular problem. In connection with the remarkable maiden speech of the hon. Member for Southampton (Dr. Russell Thomas), it seems to me that the hon. Member comes to this House almost as a symbol of the rapid transition which is taking place from orthodox Capitalism to practical Socialism. There was sound common sense in his speech, which should be of value if hon. Members who were not present will read it. I thought the Budget statement yesterday, on the whole, very sound, and a very good performance by the Chancellor under great difficulties. The right hon. Gentleman is to be congratulated. I am glad he included some suggestions of mine which, in the past, he thought rather ridiculous—not worthy of serious consideration. I think he has done a great service to the country in adopting one of those suggestions. I will refer to these later.

When it was pointed out yesterday that wealthy people who pay the highest ranges of Income Tax and Surtax have only 6d. left out of every £, I thought that working people are bound to ask how it is that those wealthy people can keep up so high a standard of living on so small a residue of their original incomes. In order to have £5,000 a year, for instance, a man must have an original income of £66,000. We know many establishments which cost many times £5,000 a year to keep up. Either the proprietors have fabulous incomes or they are being allowed to spend their capital. The Chancellor said that his purpose was to restrict spending power. It seems to me that there should be some method of rationing expenditure, whether from income or from capital. He has not mentioned any proposal for preventing the accumulation of war fortunes, although the late Prime Minister told us that it is intended to deal with them. The big fortunes made in the last war were made not so much out of war profits as out of capital appreciation. The Eller-man fortune, for instance, which was made out of shipping, was one of the most thoroughly dishonest fortunes ever accumulated in this country. It was blood money, if ever there was such a thing. Here was a fortune of £7,000,000 invested of London property, which then grew into £35,000,000, all of it made out of capital appreciation; and hardly any of it taken in taxation. Already the value of shipping has increased very much since the war broke out. So has the value of land. Agricultural land has appreciated by 20 per cent. in the last six months. Is the Chancellor going to do anything with this kind of fortune? Is he going to do anything with the accumulation of vast fortunes? That is a very serious question indeed.

When one analyses the question of a capital levy, one sees some real difficulties from some points of view. I think there is more to be said for a capital tax. The Chancellor should give very serious consideration to the question of some form of capital tax. I agree that there is another side to that. It might be argued that we are rapidly increasing our capital assets, and that at the end of the war our capacity to produce will be greater than it was at the beginning. After the war there should be not a lower standard, but a higher standard, of living, for the simple reason that our capacity to produce will be tremendously increased.

As to Excess Profits Tax, I am very glad that the Chancellor has dealt with that difficult problem in the way he has. I am perfectly satisfied. I have an Amendment on the Order Paper to reduce the tax to 85 per cent. —an Amendment with which many of my colleagues did not agree. That is the beauty of this side of the House—we disagree without being disagreeable. I want to remind my hon. Friends that what I asked the Chancellor to give by the front door he is giving by the back door, with a great deal added. In connection with the 20 per cent. which he is going to allow, I would point out that, under existing conditions, where exceptional wear and tear has occurred the local inspector has discretion to put aside until the final day of reckoning certain sums which are to be spent on depreciation and so forth. The amount is to be allowed in full if and when it is actually spent. Is that provision to be rescinded and this 20 per cent. allowance to take its place? If not, these people are going to get the allowance twice; and that will be a very dangerous precedent. Could the Chancellor deal with this point at the end of the Debate, because it is a matter about which some of us on this side are very concerned?

I think the Chancellor has made it clear that this 20 per cent. is to be ploughed back into the business, and is in no case to be distributed as profit. Is there to be provision made that the money must remain in the business? I do not quite know how you can ensure that permanently. I hope that something will be said about it. There is an anomaly which arises. There is an actual case of two firms with the same amount of capital and almost exactly the same turnover, making almost exactly the same profits of £12,000. Owing to one of the firms having a prewar standard and the other not, one firm will return in Excess Profits Tax £10,000, and the other only £2,000. If the war goes on very long, there will be very serious dissatisfaction on the part of many firms which are in that position. It must be remembered that while you are justly taking from many people who are making profits during the war new business which would be developed and make reasonable profits, there are other companies which are not doing so well now and will not have the opportunity to go on increasing, and yet they are in fact being guaranteed their pre-war standard. I do not know whether the Chancellor of the Exchequer intends to deal with that matter, but he did not do so in his speech yesterday.

I would like to say something on the question of inflation. This was one of the main aspects of the speech of the Chancellor of the Exchequer yesterday. He said that he was presenting himself to the problem of avoiding the vicious spiral. The only person in this country who can produce or allow inflation is the Chancellor of the Exchequer himself. With the controls that We have to-day and the capacity to fix prices that we are exercising, the Chancellor of the Exchequer can fix both the quantity and the price of things in a manner which would make inflation impossible. He himself has taken the only serious step that I can see towards inflation. Inflation means that you get a less quantity for the same money, or you pay a lot more money for the same quantity. If that means inflation, look what the Chancellor of the Exchequer Has done. I put a Question to his predecessor about a year ago as follows: To ask the Chancellor of the Exchequer whether he has given consideration to the possibility of providing a Government subsidy as is at present provided for checking food prices for all increased costs due to war in order to spread the charges equitably throughout the entire community and prevent rising prices in the case of commodities. The reply was: No, Sir. Such a course would be open to many objections. The policy which I recently announced in relation to essential food prices affects a number of staple commodities of importance in the cost of living to wage-earners. To extend the policy as the hon. Member proposes would, while putting an incalculable burden on the Exchequer, stimulate the consumption of all manner of commodities. I do not see how it would be a burden on the Chancellor of the Exchequer at all. I do not think, in fact, that the Treasury gave serious consideration to that point.

Since the war broke out the price of raw materials throughout the world has increased by only 11 per cent., but the price of those materials in this country has increased by 70 per cent., mainly due to freights. The cost of bringing a machine tool from America to this country has more than doubled, and there is a war risks charge which is more than the original cost of the freight before the war. The result is that when it arrives in this country the whole of the amount goes on to the machine tool. The bill goes to the Ministry of Supply and comes back to the Chancellor of the Exchequer, who tells us that it is putting the charge upon him. It is the original charge, plus a percentage of profit all round, for nobody handles machine tools without some profit. He receives a bill for far more than he would have to pay at the first stage. This sort of thing is bound to add to the expenditure more than the revenue that he gets from these things.

I will give an instance of where inflation began in my own constituency When war broke out the Government insisted that the steel makers must themselves bear the extra cost of freight. What a remarkable thing. We bear the cost of the war charges, for the protection of convoys, but the extra cost of the ships in which the cargoes are carried must be borne by each individual industry. The result was that before long the steel trade had to ask for an increase in cost, and they were given an increase. Every manufacturer in this country who uses steel knows that the industry has to put up prices as a direct result of the action of the Chancellor of the Exchequer. He just could not help putting prices up. When we take into consideration that at every stage in that cycle somebody gets a percentage of profit, there is the added percentage on this increased cost due to the Chancellor's action. We cannot undo what has been done during the last year or 18 months, but as the Chancellor of the Exchequer established the principle in his Budget Speech yesterday of the stabilisation of prices, he should see to it that that overcharge due to the war should be turned over to the Government, in the first instance, by means of a subsidy, and then there would be no justification for raising prices. I hope that now the Treasury have taken this step, the Chancellor of the Ex- chequer will, on this occasion, give the matter very much more serious consideration.

There is another matter that I want to press upon him. Last year he took off certain Import Duties. I have raised the matter more than once in this House about removing Import Duties. To charge Import Duties upon goods coming to this country is sheet lunacy. There are 60,000 people employed by the Customs authorities in collecting a colossal sum of money which the Chancellor calls revenue. One-third to one-half of this total could be directed to useful productive work if he cut off Import Duties. There is no good reason why these duties should be collected. Leaving out beer and wines and such like things, the bill for the remaining things comes back to the Chancellor of the Exchequer.

Sir Frank Sanderson (Ealing)

Would the hon. Member remove Customs Duties from luxuries coming into this country?

Mr. Edwards

We have no right to have luxuries coming into this country.

Sir F. Sanderson


Mr. Edwards

You cannot have anything coming into this country without a permit, and to issue a permit for anything other than what is required for the war effort is a crime. No one has a right to issue these permits. If the various Ministers are doing their job, nothing is coming into this country which is not of Government account,' unless it be expensive wines, beer or tobacco. I neither smoke nor drink, and it is not for me to express an opinion about these things, but there may be a time when the country will have to say that we must limit this sort of thing. Very little has been done yet. I have never taken any part in temperance reform, because many of the reformers I have known would have driven me to drink. I have stood on my own ground; I do not like it, and I do not want it, but I leave other people to do as they like.

The Chancellor said that the steel industry must stand on its own feet, because he could not afford to sacrifice revenue. He has deliberately put £3 2s. 6d. a ton oft the cost of steel to compensate for the higher cost of bringing it from America. You might just as well charge the cost of a battleship to the steel trade because the battleship ' protects the material. The Chancellor put 3d. a ton on coal to compensate for the loss of the export market. Everybody who sells coal had to put up the price. So, too, will the price of steel go up by £3 2s. 6d. a ton, plus a percentage of profit. Every penny goes back to the Chancellor, and it is not good enough, when the matter is raised time and time again in the House, if the argument is sound, for a year to be lost before action is taken. I hope the Chancellor will apply his logic to the question of import duties and stop forcing up the price of things for which he himself has 1o pay. I think the same would apply to petrol and vehicles. Vehicles that are not used to-day for the Government effort should not be used. The controller of petrol is not doing his job, if he allows it, and the Government are paying at least 90 per cent. of the cost of the petrol tax and the vehicles tax.

I think a serious case can be made out for controlling absolutely any form of inflation and any rise in the cost of living. I want to register a protest against speeches which have been made by Members in this House and what was, I think, implied by the Chancellor yesterday, although he did not say it. He warned us that this concession to labour was dependent on wages remaining where they are. He said that if wages rise, the cost of commodities must also rise, but that depends on the point at which you cut into the cycle of events. Wages have never yet caught up with the increasing cost of living. It is hot fair to Members at this late stage to say that every time wages rise costs go up again. The first increase was not in wages; it was merely following the increased cost of living. As regards saving, I would like to ask to what extent we are really saving in this country. I get a little tired of all the "bally-hoo" in the country about war savings when I find out that most of it has come from banks and insurance companies. Let us cut out this humbug. Do not let us fool our people and spoil our efforts by this sudden magnification of the war effort. Let us cut out the building societies and the banks. I know that in my town they gave £50,000 each—a magnificent effort —but it would have been far better if we could have been told that we saved £200,000 or £300,000, rather than being "kidded" that we saved a million. Will the Minister have a word with Lord Kindersley about this matter, because people would rather know the real figure —atleast they would in Middlesbrough— instead of being treated to all this "ballyhoo?"

Yesterday we heard the sweet voice of the Chancellor but beheld in his speech the hand of Mr. Keynes. I think Mr. Keynes' proposals were practical. What working people do not actually save somehow becomes absorbed in the cost of living, and they find themselves afterwards with nothing left. I am glad that the Chancellor has at any rate taken up some part of Mr. Keynes' plan. Will the Chancellor answer this one remaining question. What real advantage is it to him to have people drawing money from the bank, where they are getting a nominal amount of interest, probably I per cent., to hand it over to him at 2½ per cent. interest? How is that really assisting the war effort? There must be a tremendous amount of money lying at his disposal if he likes to take it at a very low rate of interest.

Sir Peter Bennett (Birmingham, Edgbaston)

I also am a newcomer, and as this is the first occasion on which I have ventured to address the House of Commons since I took my seat, I am sure I shall be afforded the kind consideration which is always given to a Member making his maiden speech. Something like 20 years ago there was a report on the machinery of government which contained something that rather amused me. It said that except for once a year the Chancellor of the Exchequer was not a hard-working member of the team. But since I have been in this House it seems that the Chancellor has always been sitting on that bench or speaking from that Box. He has piloted the very difficult and laborious War Damage Bill through the House, and he had a little trouble with the Determination of Needs Bill, and now we are facing the result of the colossal Budget which he presented yesterday. I almost wished as I listened to him that I was living in America and that he was talking in dollars instead of pounds.

I wish to say one or two words from a purely industrial point of view I agree entirely with the Prime Minister of Australia, Mr. Menzies, that our second best will not do. We must not worry too much about our economic position after the war; we must get on with the winning of the war. But this Budget does present an opportunity for a moment or two, at any rate, of looking forward to the time when this nightmare will be over and the dawn of another day will start. The problem then, as I see it, will be one of finding work. The House of Commons will have a great deal to say on the subject and will pass it on to the Government, and the Government, no doubt, will to a very great extent pass it on to industry, because speed is the essence of the contract. I have spent the whole of my life since my early twenties in the one task of finding work for men and keeping them there as continuously as I could. When that day arrives I believe it can be helped by the taxation policy which we have adopted at the present time. Finance will be of paramount importance. I entirely agree with every word that has been said about taking the profit out of war. I may say that when I was asked to give my services to the Government for the duration of the war, and took leave of my business friends in October, 1939—when the Excess Profits Tax was 60 per cent. —I strongly advised them that if they could obtain a fair and equitable standard and proper allowances, they should go out and ask for a 100 per cent. E.P.T. I got agreement with them, and sent that message to the Prime Minister of the day, but it was some time before the 100 per cent. Excess Profits Tax was imposed. I mention this to show that from the very outset I, and many with whom I have been associated, have taken the view that all profit should be taken out of war and that an Excess Profits Tax of 100 per cent. was the right thing.

When the Chancellor's predecessor first talked of the new Excess Profits Tax, which was eventually imposed at 60 per cent., I and a number of others visited him and gave him examples of what we knew were hard cases under that tax. We asked him to take steps to see whether something could be done to meet those cases of developing industries—industries that were developing work which the nation would need for the conduct of the war. We were told that those were special cases and that they must be looked into. But the Revenue authorities are finding it extremely difficult to arrive at an equitable standard, and, of course, their views differ very much from those of prudent business men as to what is fair and equitable. The result is that at the present time many firms are working all out and making substantial profits, but they tell me—and I am certain they are correct—that they have no hope for the future. These classes were promised special treatment, but, apart from them, industries generally are gravely concerned at the way in which their cash and liquid resources as a whole are dwindling away. Firms have to carry larger stocks to cover themselves against difficulties of transport and controls. They have an increased wages bill to meet, largely because they are employing additional men. They have stocks insurance, and now they have the war damage contribution. At the same time, they find that their customer, the Government, is not paying them as rapidly as they used to pay each other. They cannot raise capital, so they must go to the banks. None of us likes being in the hands of the bank. We have fought all our lives against it, but now we are forced into the hands of the banks, and we are worried about it.

The easy course, and one which many people are adopting at the present time, is to say that it does not much matter, that we must get on with the war, and leave these problems until the time comes. Some of us have been through this sort of thing before, and we know that when the time comes, it will be a very difficult time. During the last war, I was engaged in making magnetos, a valuable war commodity. We were a new industry. I was fortunate enough to foresee that the day would come when there would be trouble, so I sold my business to a larger company, and I was under their shelter when the time came. Others did not do so, but hung on to their businesses. The result was that all the young firms which had grown up faded out later on.

At the present time, there are many new and developing concerns. I am not at the moment speaking particularly of the large firms. I am certain that interests will come to their rescue and look after them. I do not know whether hon. Members realise how very few in percentage an; the large factories in this country. The latest figures available are those for 1936, and in that year 77 per cent, of all factories in this country employed up to 25 people. Those employing from 26 to 250 people accounted for roughly 20 per cent.; only 3 per cent. employed over 250 people, and of this 3 per cent. only 1 per cent. employed over 500 people. Therefore, something like 97 per cent. of our factories are of a small or medium size. Those are the ones I am worried about. They contain young and energetic men who will do something for us in the years to come. It would be a tragedy if they were crushed out, as some of us are very frightened they will be.

Every possible reserve will be needed in the years to come. It is for that reason that we are grateful to the Chancellor for his gesture with regard to the extra 10 per cent., which is to be held over. The Chancellor explained that it was really 10 per cent., although he talked about 20 per cent. We are very grateful for this, and for the 8 per cent. which has been given for the capital which will be borrowed. We are very grateful, but like Oliver Twist, we always want more. I am certain there are ways and means which the Chancellor can adopt to help us. We are taking it that there is no question that when we write down our stocks, that will be dealt with. There is also the question of redundancy of plant, buildings and machinery which have been provided since 1937, and which lose their value owing to the war and are to be given a special allowance for Excess Profits Tax. I understand that the Chancellor is prepared to give us that also for the Income fax. That will be a very valuable help. It is the sort of help for which we are looking. I hope it will apply to all industries, and not only to special war industries, because the ordinary industries will need greater help if they are to stand the strain that is put upon them.

At the present time, the President of the Board of Trade is engaged in telescoping industries. Some are to be closed down, and there is the hope that when the time comes they will be resurrected. Again, let me remind the Committee that we shall need all these industries if we are to get our people back to work. There will be grave hardships. I was very pleased to see how optimistic the President of the Board of Trade was when he made his statement on that subject. I hope his optimism is justified. I am frightened of the casualties. I know of family concerns that will have very heavy expenses to meet and very little income from the share they are to have when they part with their business to someone else. Will the Chancellor on this occasion apply the rules of taxation so that the maximum assistance may be given to these people who are to have their businesses closed down with the hope that they are to come to life afterwards? It may be convenient to treat them as continuing businesses, or, on the other hand, the Income Tax procedure may be better for them if they are treated as terminated businesses. I know that is asking for the best of both worlds, but I think this is such a special case, this closing down with the hope of starting again, that it is one of the occasions when those concerns might be given the option. I hope my right hon. Friend will be able to do this. There are others, who, I am certain, will not be able to keep going unless they are provided with something in the form of loans free of interest in order to maintain their fabric ready for the day when they can start again.

Finally, I come to a very old question which has already been mentioned in the Committee. I refer to the depreciation allowances for extra wear and tear. It is a very old matter, and it has been met by successive Chancellors with small allowances in peace-time. But at the present time there is continuous running of our machinery. If there is not, there ought to be. There is new labour being put on to the machines. One hears a good deal about new labour being trained, but one does not hear so much about the damage this new labour does to the machines. I assure hon. Members that it is very great. At the same time, we have very much less time and labour for the maintenance of these complicated machines. I know that is recognised, and that we shall get an extra allowance. I am quite certain that there will be a difference between what we think is adequate and what the Revenue officials will consider the right amount.

It is the same with all non-earning capital. There is a vast amount of expenditure in businesses which the Revenue authorities insist is capital, but which we know is expenses. In fact, there are always two balance-sheets, the balance-sheet of the company and the balance-sheet which our auditors prepare, showing us what is written back, and all the charges disallowed by the Revenue authorities, accumulating right back over the years. For instance, we provided a sports ground, and we put up a pavilion and fitted it with shower-baths. We did it because we like to do these things, and because it is a very paying proposition for any company which can afford to do it. The more a company does these things, the better is its return in co-operative spirit between itself and its workpeople. But the Revenue authorities treat that expenditure exactly in the same way as if it was for a new factory filled with plant. It is all capital expenditure with them. We could add a great deal more of non-earning expenditure, which the Revenue officials insist is capital, which we know earns nothing. Where is it coming from? In the ordinary days we did not worry very much, because we took it out of our earnings and savings. But to-day there will not be any earnings and savings because of the 100 per cent. Excess Profits Tax and the 10s. in the £ Income Tax. It is called capital by the Revenue authorities, but I am sure we shall not get capital from the capita! market because it earns nothing. We see our cash disappearing, and no chance of replacing it out of our earnings, due to taxation and all these special charges which will have to come out of capital.

I am puzzled how industry is going to finance its return to normal conditions when the time comes. On the occasion, to which I have referred, when I went to the Chancellor's predecessor and discussed the question of the imposition of the Excess Profits Tax at the early stages, they talked about cutting out profits, and I made the remark that it was not a case of making extra profit, because we would willingly work for nothing, but of a guarantee that as a result there would be no loss. A study of some recent reports shows the tendency in that direction. The hon. Member for Walsall (Sir G. Schuster) made an able statement to his shareholders the other day, and I commend it to hon. Members, because it shows very clearly the point I am trying to make. We are not complaining about the high rate of taxation. This is a war which we are all out to win. We are not complaining in the slightest degree, but what I am asking the Chancellor of the Exchequer is, Will he help industry to meet the difficulties it foresees, which I am quite certain he already knows. and about which he is worrying? Will he help us to meet them, by what I may call a realistic application of the taxation procedure, instead of basing it entirely on theoretical lines and precedents of the past, which have been built up ever since Income Tax began, and when people were concerned whether Income Tax should be 9d. in the £or is.? We used to put up with the differences between ourselves and the Revenue authorities with a shrug of the shoulders, but to-day the position is quite different. Industry will need every ounce of assistance which can be given to it in order to have its machinery ready for restarting when the change comes. The war will come to an end one day, and we in industry want to be in as good form as we possibly can to find employment for the men who have fought for us, and those who have worked for us, during these terrible days.

Mr. Denman (Leeds, Central)

On a point of Order. Is it in accordance with our normal civil habits that when an hon. Member is speaking another Member should put on his gas mask?

The Temporary Chairman (Major Milner)

I am not prepared to rule that it is out of Order to wear a gas mask in the Chamber, but I certainly think it would be much better to wear it outside, if at all.

Sir George Schuster (Walsall)

It seems almost inappropriate to congratulate the hon. Member for Edgbaston (Sir P. Bennett) on a maiden speech, because he can discourse to us from such a ripe experience and with such polished assurance, but that does not diminish the measure of congratulation which he deserves for a speech to which we have listened with the greatest possible interest, which was backed up obviously by his own great practical knowledge. Naturally, I pay him this compliment with added pleasure because of the very handsome compliment he has just paid to me. Perhaps in another way it is less appropriate that I should follow my hon. Friend because I propose to cover something of the same ground.

But before I turn to these special points I should like to follow many other speakers in expressing my very great feelings of congratulation for the manner in which my right hon. Friend the Chancellor of the Exchequer has this year presented to us our financial problems. I really think it was an epoch-making Budget speech, in the sense that for the first time we have had the Budgetary problems presented to us as an integral part of the general problems confronting the country. I should like also to endorse what was said by the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) in appreciation of the White Paper which has been circulated with the Budget Statement. I hope that that is a first step in a process which will be followed up. I hope so because in present days, when the support of public opinion is so necessary, and when the public is so deeply interested in these economic problems, it is of tremendous importance that they should be clearly informed as to the facts, as they can be by statements such as this prepared by the Government experts, who alone are qualified to produce work of such a kind. The White Paper has enlightened us on the underlying problems with which we have to deal.

I particularly like the Chancellor of the Exchequer's statement and, indeed, his proposals, because I feel they are facing realities. He has not tried to put us off with the ordinary jargon of finance, but has taken us down to the underlying realities with which we have to deal. One way in which my right hon. Friend has faced these realities is by a measure which required a certain amount of courage, and which I am convinced is right, and that is in the extension of Income Tax liability to another large class of no fewer than 2,000,000. In that connection I would point out that I believe this is another subject on which something analogous to the White Paper on National Resources would be of value. We hear a good deal about equality of sacrifice, and obviously if the people in the lower grades are asked to bear heavier sacrifices, they want to be assured that the richer people are shouldering a comparable burden. That justifies very many rates of tax, but when we turn to consider the results, the fact is that, however heavy the burden which is put on the higher classes of the community, they cannot really make a serious contribution to raising the revenue which is needed. I think it was my right hon. Friend's predecessor—or possibly it was the right hon. Gentleman himself—who gave us a calculation that if the total incomes of everyone in excess of £2,000 a year were confiscated, that would only produce something like £70,000,000 a year. A large sum perhaps, but nothing in relation to the scale of our total requirements. I think it would be extremely valuable to have a statement showing what could be raised from the various strata of income. It would be very valuable for the public to know that for explaining the necessities of taxation, and I want to reinforce this point by adding that the War Savings Campaign also would be very much helped by a document of that kind. We need to let the wage-earners know that it is their extra earnings which provide the only chance of raising sums on the scale that is required for the war effort, and we want to bring it home to them that, unless they save an adequate margin, not only will it be impossible to finance the war without inflation, but it will also be impossible for them to get any benefit themselves out of their own extra earnings. I believe that arguments of that kind would be greatly assisted if more information in a simple form could be put before the public.

I want to turn now to some special points. As I have said, I welcome the general plan of the Budget, and I hope no one will interpret anything that I have to say as expressing any sort of opposition to heavy taxation. The hon. Member for Southampton (Dr. Russell Thomas), who delivered his maiden speech from this bench to-day, said we had much bigger things than that to think about. We have all got to tighten our belts and be ready to face anything. But something more than selfish interests are involved. My right hon. Friend mentioned the national financial front as a very important section of the war front, and he said it must be well held. But the national financial front cannot be well held unless the underlying industry is also in a sound financial position. Public finance cannot be in a sound condition if the general body of business is not in a sound condition, and I feel that some of the existing measures of taxation and the methods by which they are applied are endangering the stability of the whole structure of our economic enterprise. The combined effect of Excess Profits Tax— whether reckoned as 100 or 80 per cent. — the burden of Income Tax at 10s., and the contributions for war damage premiums, is undoubtedly to drain the cash resources of business in a dangerous way. The result is that the taxes which may be drained from these people often do not represent genuine payments, but can only be met by increasing their overdrafts at the banks. That creates a misleading situation.

There are various points on which I wish to touch. I hope, first, that my right hon. Friend may still consider going somewhat further in the way of elasticity to meet special hard cases in the matter of Excess Profits Tax. Not that I want to plead for benefit to any particular interest, but I think at present very grave injustice is being done, and I cannot believe it is in the national interest that grave injustice should be done anywhere. These things damage the general morale of the public.

But I want to speak more fully about the effect of Income Tax and the way in which it is collected. Generally speaking, I believe it is true at present to say that any business which makes up its accounts on sound lines finds that it has to pay Income Tax on an income which is 20 to 25 per cent. higher than the figure which those who are running the business feel it safe to regard as their real profit. That was not a serious matter when Income Tax stood at moderate rates. It was not serious, or at least it was a thing that could be put up with, even with tax at 5s. in the £. But with Income Tax at 10s. it is becoming a very serious matter indeed. Let me give one simple calculation to show how serious it is. I was speaking on this to my own shareholders last week. In the group of companies for which I am responsible we have this year £140,000 of these "disallowed" items. Let me take as an easy figure for calculation a round sum of £150,000. If you have £150,000 which you say ought to be set aside from your profits for depreciation, repairs, etc., but which the Revenue authorities say are not deductible expenses, you have to make, with tax at 5s., a profit of £200,000 to give you your £150,000. But if the tax is put up to 10s., then in order to provide that same net figure of £150,000 you have to earn £300,000. In fact, you have to earn an extra £100,000, and obviously, with E.P.T. sitting on the top of you, you cannot possibly earn anything extra. The net result is that these companies are being forced to distribute to the Government money which, in the interest of maintaining the sound financial position of their business, ought not to be distributed. What I want to urge on my right hon. Friend is this: I think the time has come when the whole method by which our taxes are assessed should be inquired into, not from the point of view of helping any selfish interest, but simply from the point of view of getting a sound and impartial appreciation of the effect of the present system of taxation on the financial stability of business in general.

The whole matter of these disallowed items is a complex one and I will not go into details. But there is one point which I might mention upon which I find myself in agreement with what has been said from the opposite benches. Many things which the Revenue authorities regard as capital—capital losses, capital replacements—are, from the point of view of running a business, really income items, and a great many items which are treated as capital should be brought in and treated as current assets of a business, which have to be replaced. I admit that, once you bring in capital losses in that way, you must on the other side bring in capital profits. There are many businesses where capital profits have played a very important part. The shipping industry is a case in point which has already been quite rightly mentioned. This inclusion of capital losses and profits is the practice followed in the United States. It has been open to abuses there, but these need not be repeated here and I think we could move in that direction and at the same time safeguard ourselves against the abuses. But it all comes back to this, that the time has come when these matters deserve a fresh review, and we want to see what is the effect of our tax system on the general stability of business.

Another matter upon which the Chancellor touched but did not explain fully, so that we cannot fully discuss it to-day, is the subsidy policy. I should like to ask my right hon. Friend to give us some fuller information on that. Perhaps he cannot do it now, but it is a thing that we ought to discuss in this House. I do not feel happy about it. I am not going to join with those who would like to see a move forward with indirect taxation in the Budget. But when you start introducing subsidies you are going backward—getting into reverse gear as regards indirect taxation. You are withdrawing with one hand what you take with the other in the form of indirect taxation. The right hon. Gentleman the Member for East Edinburgh speaking against indirect taxation, said that he objected to it because it was completely indiscriminating and fell with injustice. That remark is sound, but does it not equally apply in the reverse case of subsidies? Is it not arguable that subsidies also fall in an indiscriminating way and may give benefits to a large number of people who do not need them? You subsidise the price of bread. It may be very desirable and necessary for people who are earning small money, but not at all necessary perhaps for 75 per cent. of the bread that is eaten.

I wonder whether the £120,000,000 or so that is being spent on subsidies is really being spent to the best advantage. I want to know what are the elements which justify these subsidies? I can understand that if you want to keep the cost-of-living index stable and if, not owing to any rise in prices to the primary producers, but merely owing to the special war condition rise in freight and insurance, the cost of certain things has gone up, there may be a good case for a subsidy. That kind of element of increased cost may possibly apply to wheat, which is, I should imagine, the largest item for this subsidy. But how much of the subsidy which we are paying on wheat and bread is accounted for by higher freights and insurance? And how much by the price we are paying to the Canadian farmer? And is the price we are paying the Canadian farmer more than a reasonably remunerative price in normal conditions? If it is not, we are up against a permanent situation which ought not to be met by a subsidy of that kind. I understand that another important portion of the subsidy may be going to milk. It is quite clear that in the case of milk there are no unnatural war items like high cost of sea freight and insurance, so that our main factor is the price which the producer ought to get. Are we satisfied that the price has been fairly assessed? And if our object is to keep down the retail price of milk, are we satisfied that we have tried every other method which is available for its reduction. A very interesting report was made some months ago to the Ministry of Food by a strong business committee under the chairmanship of Lord Perry, which in- dicated that vast sums could be saved in the distribution of milk; but I have yet to hear that the scheme which they recommended has been adopted or even that anybody is thinking of adopting it.

All these points are illustrations of an important question—whether we are doing our best to see, where prices are high that everything is done to keep down the cost of getting the goods into the hands of the consumer? Or are these subsidies being fallen back upon as an easy way of getting out of a difficulty which ought to be met by other means? I hope that my right hon. Friend will give us much fuller information on the Government's subsidy policy. That again is a subject that might very well be treated in one of those excellent little White Papers so that we may be told exactly where the subsidy payments are going, and what are the factors which justified falling back on a scheme of subsidisation.

The general argument I understand is that we need these subsidies in order to keep the cost-of-living index from going up, and that that is required in order to prevent wages going up and the whole vicious spiral starting. For this reason one would like to know also what is to be the complementary wages policy, because we are bound to feel that if the Chancellor's whole programme is to be complete it must be balanced by a complementary wages policy. No one, I think, would wish to suggest that the principle of liberty in wage negotiations should be taken away from the workers, or that the war emergency should be taken advantage of to keep wages down to an unduly low level. Nor am I seeking to argue against the standard of wages being fixed by ordinary methods of negotiation in relation to the cost of living. But one is entitled to ask that something should be done to ensure that the whole cost of production is not increased by uncontrolled employers bidding prices for labour in particular industries and forcing the rates up out of all relation to what may be the standard rates for the industry. There is a great deal going on which is quite outside the orderly negotiations of wage rates. That, again, suggests one of the loopholes through which increased prices and the need for measures like subsidies are creep- ing in, not because of the necessities of the case, but because all the details that ought to be attended to are not being attended to. I hope, therefore, that on the question of wages policy also we shall hear more on a later occasion.

I have only one point to add in conclusion. We hear a great deal about inflation. I often think that some Chancellor or his advisers may feel it: desirable to put up a statue to the bogy of inflation in Whitehall opposite the entrance to the Treasury. Inflation has been used to cover and justify, if not a multitude of sins, a multitude of oppressive measures of taxation. At some time perhaps there may be an opportunity of even saying a word in favour at least of moderate and controlled inflation. It is a process that has aided us not a little in past history as a support to a rising tide of prices which helped to float off the burden of past wars. A steady rise in prices has indeed enabled us successfully to overcome difficulties from one generation to another over the centuries. But perhaps that is out of place to-day. And I do not wish to suggest any doubt or weakening in our purpose during the war to avoid artificial or uncontrolled inflation. That purpose is a strong justification for the most stringent measures of taxation.

But there is another consideration which ought to weigh equally in our minds. My right hon. Friend has been able to present figures to us on this occasion which do not look so terrifying as they ought to look for one reason, and one reason only—the generous attitude that has now been taken by our friends across the Atlantic. Therefore, one of the strongest reasons for our subjecting ourselves to measures which are so stringent that without a shadow of doubt they represent the maximum effort possible is to let our friends on the other side of the Atlantic feel that we are not taking advantage of their generosity to get ourselves easily out of our own difficulties. We often hear that we are fighting for freedom. So we are, but we are fighting for a great many other things which are necessary elements in our way of living. In a Budget Debate, perhaps, it is relevant to mention another thing for which we are fighting. We are fighting for something which represents another essential part of our way of life, and that is respect for obligations, written or un- written. As we fight our way through all these difficulties let us not surrender any of those things that we are fighting for. One of these, and one of the greatest services we can render to the world is to keep alive the belief that men should keep their word and do their utmost at whatever cost to meet their obligations.

Mr. Benson (Chesterfield)

My hon. Friend the Member for Walsall (Sir G. Schuster) raised the question of variations in capital and their relationship to Income Tax. That is a difficult and dangerous matter to deal with, and I would like to warn the Chancellor that if ever the Government come to regard fluctuations in capital as something that must be taken into account for Income Tax and if they are prepared to consider the variations in capital in a given balance sheet, then the Board of Inland Revenue will come off very badly. On the other hand, I should like to warn industrialists that if they introduce the question of the taxation of capital fluctuations, it cannot stop at merely balance-sheet entries, not merely at the question whether some little expenditure shall or shall not be set off against Income Tax. If we are to start the taxation of capital fluctuations; the whole growth in the capital value of this country must be taxed, and I am afraid then that capitalists would suffer just as badly as the Chancellor of the Exchequer would if he took the narrower interpretation. If we want taxation of capital let us have it, but let us have proper taxation of capital, and not merely the proposal, so frequently put forward, that certain expenses which the Board of Inland Revenue refuse to admit as current expenses shall be allowed. If we are to tackle capital taxation we must do it on a proper scale, and not merely as a method of subsidising possible hidden savings.

This is the first time I have been able to congratulate the present Chancellor of the Exchequer, or any Chancellor of the Exchequer, on his Budget, and I must say that I congratulate him whole-heartedly on a very courageous Budget. To raise Surtax and Income Tax to 19s. 6d. upon incomes at one end of the scale, and to put a fairly heavy burden upon wages at the other end of the scale, requires courage. and the Chancellor has shown that. He is also to be congratulated, as many hon. Members have said, on the production of this White Paper. So far as I know, it is the first time that a Chancellor of the Exchequer has taken the country into his confidence and said, "These are the facts upon which I am constructing my Budget." I think that the production of that paper is as valuable as the real war Budget he has introduced. It places us in a better position to criticise, and in a better position to congratulate if congratulations are desirable. He has done a very great service, because I feel that no other Chancellor of the Exchequer will dare to start backsliding now. In future, we shall be entitled to know upon what the Chancellor's calculations are made.

My right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) said that he accepted these figures, that others might like to criticise them but that he was not prepared to take the risk. Well, fools rush in where angels fear to tread. I have examined them, but only cursorily, for one has not had much time to study them since the Paper was issued. I feel that it is important that the White Paper should give not only a correct picture so far as the actual figures are. concerned but also give a correct impression of the position, and I am rather doubting whether it does. If one takes Table 3, on page 5, one gets the impression that the whole of our last year's war bill has been paid out of the realisation of genuine assets and out of genuine savings, that there has been no suggestion of any inflationary money being pumped into circulation. Frankly, I think that is too good to be true, particularly when one turns to page 11 and looks at Table A, where one sees that there has been a growth in expenditure in the fourth quarter of 1940 at the rate of £400,000,000 a year. That is personal expenditure; I do not mean Government expenditure. During the whole of 1940 there was a steady decrease in the volume of expenditure, concurrently with a very considerable decrease of the volume of goods available for purchase. Frankly, that rather looks, I will not say like inflation, but as though there had been a certain amount of unwarrantable purchasing power floating about.

I really think those tables are not quite accurate. The supposedly ger uine savings shown in the White Paper are a residual figure, and in the computation of that residual figure have been included £325,000,000 of Treasury Deposits by banks. Surely one must look askance at that figure before allowing it to appear in genuine savings. I am aware that the Chancellor of the Exchequer has deducted certain sums from that figure of £325,000,000, has taken away what probably represented undistributed profits of companies, leaving something like £250,000,000 to appear as real genuine savings. I think one must allow £100,000,000 to £150,000,000 as pure un-adultered bank credit. That is a guess, a measure perhaps of my sceptism rather than of my calculations—but I think it is unquestionably a very considerable item. That means that you reduce your six months' savings as represented by the White Paper to something like £450,000,000, and that your genuine savings are at the rate of £900,000,000 a year.

If we are to judge the importance of that figure of £900,000,000 a year we have to judge it against the background of the normal savings that took place before the war. Normal savings were generally admitted, as the White Paper says, to be something like £400,000,000 a year. In addition to that we now have to reckon with other things: with delayed repairs, lack of renewals and also the very heavy encashment of stocks which cannot be replaced. So if one puts what one might term the present normal automatic savings of the country at £500,000,000 I do not think one would be very far from the mark. Deduct that from the £900,000,000 which the White Paper shows to be the annual rate of savings, and it gives an additional saving due to war effort of £400,000,000. Frankly, that is not good; in fact, it is rather depressing. Those are personal savings, savings by private individuals out of their definite income, and it does represent clearly and definitely the maximum of the diminution in expenditure due to war conditions. Frankly, I do not think we can feel satisfied, particularly in view of the demand which the Chancellor of the Exchequer will make that there should be an enormous increase in savings to close the gap. As a matter of fact, the right hon. Gentleman met a certain amount of scepticism when he said what he was going to derive from savings.

There was definitely a sceptical feeling in the Chamber, and I heard it expressed outside also that the right hon. Gentleman would not get these savings because of the enormous increases in taxation and because of the more or less compulsory savings which he has introduced. I do not think there is the slightest doubt that the first impact of the Budget upon savings will be bad, but as has always been the case, we shall adjust ourselves. Ultimately, once the shock has been absorbed, savings will be collected once again.

For many years the savings of the rich have become increasingly unimportant in our economic system. Practically the whole of our saving has been automatic, through the reserves of industry and the steady flow to the Provident Societies and Insurance Companies. The rich have for many years been of negligible effect. This change removes, of course, one of the reasons for keeping them, because if you remove people's raison d'êtreyou might as well abolish them straight away, and I have never heard of any rational defence of the rich except that they supply capital to the community.

I am sure we shall get a large increase in savings provided that two things happen. The first is that the Chancellor succeeds in pegging prices and the second that the War Savings Campaign is handled better than it has been handled up to date. My hon. Friend the Member for East Middlesbrough (Mr. A. Edwards) referred to the "bally-hoo" of War Weapons Weeks all over the country. To begin with, the target figure is always put low—intentionally, in order that there may be a great success. Then, as my hon. Friend said, industrial money is put into it. Local companies keep their reserves for investment. In these efforts the bad habit has grown up of local banks putting money in too. They have no right to put money into the War Weapons Week. If the Chancellor wants money from the banks it can go in as Treasury deposits at 1⅛ per cent. I suppose this policy is based on the idea that nothing succeeds like success. That is true up to a point.

In this matter there is very grave danger. We are asking people to make sacrifices which will be difficult to make. If they see that their local War Weapons Week has produced twice as much as they were told to expect it to produce, it will not matter how much Lord Kindersley argues; they will say, "We have done our bit." You then get the impression that public saving is doing all or even more than it ought to. The matter should be approached from an entirely different standpoint, with a little more reality and a little less bluff. If we explain to the people the real needs of the situation, as the right hon. Gentleman has done in the White Paper, our War Savings Campaign will be more effective. I suggest that in War Weapons Weeks you definitely exclude bank money and industrial money. Those sources of money may be dealt with otherwise if they do not flow in automatically. Taking a given year, it ought not to be difficult to calculate the quota needed from each area, taking into consideration the population and the standard of wages, etc., enjoyed. Ina munitions area you will expect a higher standard than in an agricultural district. People ought to be told that, on the best calculations that the Treasury can make or that the War Savings Committee can produce, it is up to their districts to produce so much in the way of savings during 12 months. They could then estimate whether or not they were pulling their weight in the war effort. To create the feeling that an area has done twice as well in savings as the authorities expected, instead of creating the conscious knowledge that an area is, say, still £5,000,000 or £10,000,000 short of what it ought to produce if it pulled its full weight, is a mistaken policy. If we give the people a genuine target, they will not fail.

Sir John Wardlaw-Milne (Kidderminster)

I would like to add my congratulations to the Chancellor of the Exchequer upon the exceptionally arduous task which he performed yesterday and upon the success of his physical effort in speaking for more than two hours to the Committee and holding our interest as he did so. On the whole, this is a sound Budget. I entirely agree with what has been said by previous speakers who have congratulated the Chancellor on taking the country entirely into his confidence in the statement which he made yesterday. The Budget shows what a burden we have to bear now and to some of us it shows still more clearly, perhaps, the extent of the burden which will have to be borne at the end of the war. That is another matter on which some of us perhaps expected my right hon. Friend to speak yesterday and it is one which weighs heavily upon the minds of a great many people.

I was gratified to hear the references made by my right hon. Friend to the work of the Select Committee on National Expenditure. Speaking of the 32 Members of the House who work on that Committee, I can truly say that that tribute will be much appreciated and is well deserved. They have worked extremely hard, not only when the House was sitting, but on other days as well. There are sometimes 10 or 12 Committee meetings every week, and a number of the Members spend days from time to time in rather uncomfortable journeys to different parts of the country. They certainly deserve the thanks of the country for the valuable voluntary work they are giving in this time of war to the national effort.

The Budget must, of course, be considered as a whole. It really consists of three separate parts—the decision to keep down prices of food and essential commodities, compulsory saving and the reliance on voluntary contributions to loans and further taxation. Already, in the course of this Debate we have had an interesting speech from my hon. Friend the Member for Walsall (Sir G. Schuster) on the subject of these further subsidies to keep down the cost of food. Like him, I would like some further information about that, if it is possible for the Chancellor to give it to us. I feel that this policy requires a little more elucidation than the Committee has had so far. It is a difficult policy to carry out, and I am not at all sure that we can fully realise what its implications may be. A good deal also has been said as to the effect on the Chancellor's mind of what is called the Keynes proposals. I do not in the least object to these proposals having been given partial effect to—I think it is probably a good thing—but when I hear the Chancellor speaking of the gap of £500,000,000 which we have to meet I wonder whether he has taken into full account both compulsory saving and also the effect of these further subsidies.

The Chancellor gave a very frank statement on the dangers of inflation. Un- like some other hon. Members, I share his fear of inflation; in fact, the only difference between us, perhaps, is that I am not sure that I agree with him that there has been no inflation so far. I am perfectly confident in my own mind that there has been inflation, and that we have inflation to-day. I do not say that it is uncontrolled inflation, and I do not believe that a certain measure of controlled inflation is necessarily harmful. I think that, up to date, the Chancellor has been able to control it, and I congratulate him very much on having done so. But it does not alter the fact that the danger of further inflation is very close to us, and that the difficulties of controlling it are becoming greater. The Chancellor depends, of course, upon the various measures which he indicated to prevent that inflation getting out of hand, but I am afraid that I must repeat what other hon. Members have said, namely, that unless there is some Government policy to control an excessive rise in wages as well as prices, there is bound to be further inflation. That does not mean that we want to prevent an increase in wages if it is justified, and certainly we do not want to prevent an extra reward for extra effort. If we have not that, we shall not do our best to win the war. But we are in a position, in which a large number of people are getting very high wages over and above those to which they have ever been accustomed, and at the same time there is a shortage of consumable goods for purchasers. The result, if we are not careful, is bound to be inflation. It would be very easy to give examples of what is going on, but most hon. Members already know the facts, and I do not wish to weary them with the details.

There are other difficulties which which we are faced in connection with war work at the present time. First of all, a number of men and women are able to avoid working on some of the ordinary working days of the week by working overtime, Sunday time and so on. That is bad to start with. You get a situation in which, to take an extreme case, people can work from Friday morning to Monday night and earn as much as they would earn in any full ordinary week. That is because of the extra wages which are paid on these special days. Some of this work, perhaps, cannot be avoided so long as certain in- dustries, of benefit to the war effort, must work overtime. But, as hon. Members are aware, the Select Committee on Expenditure has over and over again drawn attention to the dangers both to health and to national effort of this overtime work. There is no doubt in my mind that in most cases we should be better off if we could avoid altogether this excessive work. We would avoid the danger which is in front of us financially; I believe that it would benefit the health of the workers and that we should produce almost as much as we do to-day in the way of munitions.

Only the Treasury can say whether this estimated gap of £500,000,000, of which the Chancellor spoke, is optimistic or accurate. I have my own views. But, at any rate, the idea that the gap is going to be met by an extended borrowing of £300,000,000 this year is, to my mind, very optimistic indeed. I hope and trust that I am wrong, but I am bound to agree with some of the Chancellor's critics on the other side that real borrowing of true savings is not likely to produce all that he has received this year plus a further £300,000,000. I wish that I could think so. I entirely agree, and I am sure that the right hon. Gentleman agrees, that what he wants to borrow are true savings and not borrowings raised from bank loans.

A great deal has been said in the Press in the last few months regarding what has been called costless credit. There is a suggestion that the banks create very large sums which are promptly lent to the Government. Certainly not much is lent to industry in these days. It true that the banks raise and lend the money, but I think if is also true that the services which the banks perform require, let us say for the sake of argument, one half per cent, on all the money deposited with them. As in war the banks are really lending the bulk of their money to the Government at 1 per cent. or thereabouts, all that is happening is that, to the extent of that money represented by one half per cent., the Treasury is in fact subsidising the public who get certain services from the banks for nothing. The real point, however, is that to-day, whatever the effect upon industry may be in time of peace—and the Committee know that on previous occasions I have spoken against the system of purely bank money and of the necessity for a reconsideration of the matter after the war—in time of war the banks' money is almost all being lent to the Government at 1 per cent. or thereabouts.

Mr. Loftus (Lowestoft)

Surely the banks have the option of converting the one and one-eighth per cent. loan into two and a half or three per cent. bonds?

Sir J. Wardlaw-Milne

Yes, but I am not going into that, nor am I going into the whole matter of the banks' procedure. All I am saying now is that there is something to be said for the argument that there is a danger in raising from the public loans which in fact come from bank advances, and that what the Chancellor wants, as he has said, are true savings. I find it a little difficult to believe that we shall be able to raise as much money by way of borrowing as we have done in the last financial year, plus a further £300,000,000. If my fears are well-founded, we come back to the fact that the gap will be a good deal more than £500,000,000.

I entirely agree with what has been said by my hon. Friend the Member for Edgbaston (Sir P. Bennett) as to the effect of the Excess Profits Tax on certain companies whose works are now being expended, or which in previous years have been spending capital on machinery and other extensions. which are only now coming into operation. I think the Chancellor and his advisers have not gone as far as they might to deal with these cases. At any time we choose, or in any year we choose, there are bound to be a number of companies which have been expending capital to bring new machinery or new methods of production into operation and which in consequence are extremely badly hit by the sudden imposition of a tax at too per cent. The 10 per cent. to be repaid after the war—and it may even be less than that, for the 20 per cent. is subject to the Income Tax of that day— is a step in the right direction, but I am not one of those who believe that the Excess Profits Tax of 100 per cent. is desirable. I think it is excessive, I think that, to some extent, it destroys initiative, and I firmly believe that at a lower rate of tax the Treasury would actually get more money. However, it has been accepted and I am not prepared to argue about it now, but I do say that in the case of companies which have spent a great deal of money from which they are only now beginning to get a return in output, whether it be for the war effort or not, it is unfair to prevent them from getting the benefit of what they have done in previous years. Some alteration might have been made in the standard years by taking in another year, in order to get a more equitable average, and I would suggest to the Chancellor that it might still be possible in the Finance Bill to make some adjustment to meet such cases. An hon. Member who spoke earlier to-day said that we wanted to be fair to everybody. We do not want unfairness, and those are cases in which, I think, unfairness occurs.

One hon. Member said he did not object to the Income Tax at 10s. in the £. I cannot believe that there is anybody who does not object. We all object very definitely, but that is not the point. I do not think anybody expected less than 10s. in the £, and the whole country realises the tremendous tasks which the Government have before them and the problem which faces the Chancellor. But I am sorry the Chancellor did not take the opportunity of the war to simplify the whole Income Tax Acts. I am behind my right hon. Friend, so I cannot see his facial reaction to this horrifying suggestion, but, some day, some Chancellor will have to face the matter. My right hon. Friend has plenty of courage and there is an opportunity, even in time of war, to bring about a simplification of those Acts of which every Chancellor has spoken adversely. They contain complications which everybody connected with the calculation of Income Tax liability regards as onerous and unnecessary. I hope this work may still be done, whether this year and by this Chancellor or not, and I think it is the duty of hon. Members to press for it.

Mr. Benson

Is not the hon. Gentleman aware of the simplification which was introduced three years ago?

Sir J. Wardlaw-Milne

Yes, but I do not want my right hon. Friend to be discouraged on that account. Something more than that is needed. I regret that the Chancellor so lightly dismissed the idea of a tax on excess private incomes. I realise the difficulties, and I realise that there would be hardships requiring a careful consideration of exceptional cases. There are such difficulties in the case of every new tax. If it is right that we should tax companies—and to begin with I never believed that it is right to tax companies, since the income of the companies goes to individuals, whom I should much prefer to tax—if, I say, it is right to tax companies to take the profit out of war, it is equally right that we should tax individuals for the same purpose, and if it can be shown that a man's income has definitely increased as a result of the war, I see no reason why he should not have to pay a tax on that excess as much as in the case of an industrial firm. I suppose it is too much to ask that the Chancellor should consider that proposition in the immediate future, but I do hope that he will reconsider the attitude of the Treasury in this matter. It seems an extraordinary thing for people to stand up in this Committee and suggest further taxes, but we live in extraordinary times. Such a tax would certainly not affect me, but I hope my right hon. Friend will believe that I would have made the same proposal if it had affected me. It would not affect many of us perhaps, but it would affect some people, and I object to individuals benefiting by the war as much as or more than I object to business concerns benefiting by the war.

I congratulate the Chancellor on putting a very clear statement before the people of this country. It is strange in a Budget Debate that, even with this very clear exposition of the problems before us, I still have the impression, rightly or wrongly, that the Government do not entirely trust the people even yet. They do not seem fully to realise that the people of this country want to be told what is in front of them, and are prepared to meet every burden put upon them to the best of their ability. We may differ on the methods to be adopted, but the fact is that the people, whether it be in connection with their own labour, wealth or earnings, are prepared to be conscripted. If conscription is necessary, they are prepared for it, both in regard to the work they do and what they are paid for doing it. They are also prepared to be conscripted in regard to any wealth which they may have and which may contribute to the war effort. I congratulate the Chancellor on helping people to face the facts and I am sure that he will never go wrong however widely he takes the country into his confidence, and however frankly he puts before it the problem with which we are faced.

Mr. Wedgwood (Newcastle-under-Lyme)

The Chancellor has produced a remarkable Budget. I am not here to congratulate him upon his Budget, but I do congratulate him upon presenting it in an entirely original way; and I congratulate the Committee upon having had today an extremely well-informed and interesting Debate. I do not remember any occasion when two new Members of this House have made such distinguished contributions as we have heard from the hon. Member for Southampton (Dr. Russell Thomas) and the hon. Member for Edgbaston (Sir P. Bennett). I do not think I have ever heard a finer maiden speech than that of the hon. Member for Southampton; and I do not think there have been many maiden speeches more appropriate to the occasion made in this House. I hope the Government will have that speech reprinted for circulation in all munition factories in this country. I agree with every word of that speech. The main point was that it was the business of the Government to extract from every member of the community all that he has, except enough to keep him alive and in health. That is the first time that that has been said in this House, Many of us have been thinking that that is what we shall have to come to. I am certain that we shall, sooner or later. We are not thinking now about taxation; we are thinking more and more of surviving, and of how little this country can manage to carry on. We see more and more people going into uniform; and, as time goes on, we shall more and more be kept by the State. But that will not alter our determination to win the war, in spite of hardship, and, as soon as the war is over, to restore our rights, our liberties, and our freedom of action.

The Chancellor of the Exchequer presented his Budget in an entirely original fashion. He dealt throughout with the gap, and the implications of the gap, between what we were spending and what the Treasury were getting in. He argued that by the dimensions of that gap we could judge the probability, or the degree, of inflation. I do not think it is correct to say that inflation is measured by any such standard. You cannot measure inflation by the difference between Government expenditure and Government income, including loans. Inflation must be measured always by the difference be- tween the production of wealth and the consumption of wealth in any country. If we produce more than we consume— including the Government and every private individual in the country—there is not inflation, but deflation. Savings will increase. If, on the other hand, we consume goods in excess of production, inflation must take place. [An HON. MEMBER: "We are doing it now."] Of course, we are. It is perfectly true that you can, by borrowing money, postpone the time when the inflation will actually take place, but, according to the canons of economics, inflation is measured by the difference between production and consumption. So the Chancellor ought to look increasingly at our annual Budget.

Mr. Lipson (Cheltenham)

The right hon. Gentleman said that inflation is caused when consumption is greater than production. If that is the reason for inflation, where does money come in? He seems to think that by borrowing money we can overcome the difficulty.

Mr. Wedgwood

If consumption exceeds production, we are eating up our capital. For instance, our American shares are sold in America, and the Government pay us for those shares in pounds. That means that we have less production from America and that we have pounds, giving a larger demand for production in this country. But, apart from that, I am not. talking of the money question. It is the mere fact of the difference between production and consumption in any country, whether it increases or decreases, that regulates the danger of inflation. Inflation may be postponed for a time by borrowing money. The Chancellor has borrowed money for the duration, and at the end of the war that money will be available for expenditure. That means that in this Budget he has, I believe, definitely postponed the risk of inflation until the end of the war. At the end of the war it must come. If we are all to have a large amount of notes, printed by the Government, inflation will come then. But then it will be all right. We shall want inflation then. It has been pointed out that inflation is extremely desirable when trade is bad and we have a lot of people out of work. At the end of the last war we got inflation for a time. As we allowed the £ to drop, everybody became prosperous. It was when deflation came along that we had trouble. I think the Chancellor's scheme is, from a national point of view, sound. Inflation will come at the end of the war, when we shall have plenty of people at work, and we shall have the production demanded by the increased money in circulation.

My criticism of this Budget is, first, that it does not tackle the question of the taxation of land values. We are living at a time when values increase with extraordinary rapidity; and as inflation takes place, they will change even more rapidly. This is an occasion when we could start taxing land values without putting any burden upon the country. I want to refer to the White Paper, for which the Chancellor has received so much gratitude. I do not think it is really of very great value. Certainly, it is of no value in measuring the danger of inflation. Take "Salaries." Under this head, of course, come all Government salaries. It is quite possible to show an enormous increase in national expenditure by increasing the salaries paid by Government and other public institutions, but that is not an increase in wealth. It is an increase in charges upon the national production. Take the first item. Rents have increased from £352,000,000 to £370,000,000. That may be the income of private individuals, but it is not the income of the country. I do not know whether mortgage interest is included as profits, or whether other income comes in or not. I do not know whether debenture interest is taken into account. Whether income from debentures or from mortgages is part of the income shown I do not know. In any case it occurs twice over.

Take an illustration. Supposing any of us were foolish enough to pay our wives solely for looking after our houses, would that come in twice over—in our incomes and their incomes? That would follow with regard to wages. Take domestic service. If you included in the total amount of wages received by wage earners in this country all the sums paid, not for production but for domestic service, obviously you would be getting an entirely fictitious figure as to the national income. You would be getting all the charges on the income as well as the income itself. From that point of view, I wish the Chancellor of the Exchequer had been asked not so much to provide the figures, which really are no guide, except for him for Income Tax purposes, but to provide instead some statement showing what the annual production of wealth in this country was year by year. That is a much more difficult thing at which to arrive. There have been estimates made of it in times past, and it has been extremely useful to know where we were. At the present time I believe that we are spending a great deal more than we are producing, and I am not certain that the time is not coming when the Government, even on their wages, will not be spending more than the wealth produced. In that case we shall be in a very dangerous position. We shall be drifting more rapidly towards taking from every individual in this country the greater part of what is produced and seeing that he has left enough on which to live.

The right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) was all in favour of a capital levy. I do not think that a capital levy is a practical proposition. It misses out a very important thing. A capital levy cannot be levied upon land, buildings and houses without a valuation. If you cannot get a taxation, you cannot get a valuation. If in the salaries that are being paid not only in Government offices, but in private industries at the present time we include all the bonus grants, the salaries in my life-time must have gone up four times what they were 30 or 40 years ago. These things are all going up, and the capital levy does not touch them. I prefer the Income Tax to a capital levy, but Income Tax is not a very wise taxation. It may be convenient for the Treasury, but it is very inconvenient for industry. There has been a change made this time. In future you are to take a share of the profits from the big farmers. You may get more money from such a tax, but it will have the disastrous effect of penalising the good farmer and benefiting the bad one. The one who allows his land to go down and shows in Schedule D that he has made no profit will escape the tax, but the man who is a good farmer and makes two blades of grass grow where one grew before and makes a handsome profit will be heavily fined to the extent of 10s. in the £. Exactly what applies to the farmer applies also to industry.

The hon. Gentleman the Member for Walsall (Sir G. Schuster) has shown an extraordinary case of a firm which could not keep up their works. The less the profits the less the Income Tax, and the more they can push on to the annual expenditure of the.firm the better. The Excess Profits Duty of the last war produced a number of managers running motor cars at the expense of the taxpayers, and there were all sorts of ways of painting the works and repairs which could be adopted for the purpose of securing reduction of Excess Profits Duty. I am certain that the best way in which you could avoid the ill-effects upon industry of the present very high Income Tax is to increase the percentage allowable for depreciation at the present time of one per cent. and five per cent. on machinery. The result of this small exemption is that businesses must slowly go bankrupt, because they cannot keep up their work to scratch on the allowances made, for with the Income Tax at 10s., plus E.P.T., it is almost impossible for them to spend money on their works. The real difficulty is in scrapping machinery and in putting in better machinery. There is no allowance for that, and therefore factories gradually go down.

The perfect tax would be a tax on land values. I want to emphasise that it is not Income Tax, but the total amount in the country available for taxation that really matters. We are in for a total war, and to win this total war we do not mind how much the Government take so long as they leave the people in this country with enough on which to live, but we do object to paying over everything that we have to the Government unless that money is economically spent, and unless we feel that it is not being wasted. I would like to join with many other hon. Members in this Committee who have seen the work done by the admirable economic Committee over which the hon. Gentleman the Member for Kidderminster (Sir J. Wardlaw-Milne) preside. I wish to thank them for the splendid work that they have done. I only wish they had made ten times the economies. I am certain that the more power we give to that economic Committee to coerce the Treasury and the Departments, the better it will be for the economic condition of the country.

Sir Irving Albery (Gravesend)

Anybody who has listened to this Debate must recognise that in a general sense the Chancellor's Budget has had a very welcome reception, and he has every reason to be satisfied. Personally, I do not propose to devote any time to discussing inflation or the different and general means ho is adopting to bridge the gap in the present Budget. His general financial policy meets with approval. He is keeping conditions stable in this country and is controlling inflation. I wanted to say that because I have risen, perhaps not unnaturally, not so much to notice those things which have been well done as to complain of those things which I do not think have been done so well as they might have been. I particularly wanted to say that, because there has been so much praise for the Chancellor of the Exchequer that I did not want people to think that I did not appreciate the good points, but T still have a grievance which I wish to voice. I referred to it on an earlier occasion, and it has also been referred to to-day by my hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne). Broadly speaking, it is that, so far, the Government in their general legislation, and more particularly in their Budgets, do. not seem to me to have made the slightest real effort to put a bigger burden upon those persons who are profiling by the war, and, on the other hand, make no real effort to mitigate the burden on those persons—and there are many—who are suffering very severely. No account seems to have been taken of the completely different circumstances in which different sections of the community find themselves to-day.

It has been suggested—and I must admit that the suggestion is one which seems to have some merit—that if profit was to be taken out of industry, then some of the extra earnings of the workers in industry, where those profits have been increased owing to war conditions, should go to meet the war effort in a larger proportion than those of the workers who had remained more or less stable. I cannot see in theory that anybody can say anything against that proposition, although I admit that it is difficult in practice. At the time of the last Budget it appeared to me that the Chancellor was rather attracted by the idea. After his statement yesterday it seemed that he had come to the conclusion that it is not a practical proposition and that he evidently does not intend to pursue it any further. I did not feel very convinced by one or two of the difficulties which he mentioned. For instance, he stated that £150, or £3 per week, might be a starting point for the levy. I would never have suggested that. I would have said somewhere near £4 or £5. He said that if there were two workers doing the same work and getting the same wages, one earning £8 a week before the war and the other earning £8 against a possible £4 a week before the war, there would be a grievance, because they would be doing the same work but would be subjected to a different amount of tax.

I do not think there is very much in that, because it would not happen in many cases that a man employed in a certain industry would have been earning half as much as the other before the war and earning the same amount after the war. Even if that were the case, a man earning £4 a week before the war might be paying a rent of 15s. a week, whereas a man earning £8 might be paying a rent of £2. Obviously the fixed charge for one would be very much higher than the fixed charge for the other, but apparently there is no chance of winning the Chancellor's approval for such a scheme, and it would be no use pursuing it further in this House. I maintain, however, that nothing, especially with the burden of taxation as heavy as it is to-day, matters more than that the burden should be fairly and equitably adjusted. Even physical burdens need changing from time to time. But if the Chancellor cannot meet that difficulty in the way I have mentioned, there is still another way in which it could be mitigated. A considerable section of the community is being really hard pressed to-day and needs more assistance.

Consider for a moment the large number of married men, many with families, who have been called up for one of the different Armed Services. It does not matter whether they happen to be officers or privates, because there are many men serving in the ranks who used to earn £300, £400 or £500 a year, and who have families, houses or flats, insurance premiums and other fixed charges to meet. These men are taken away from their livelihood and have to give their service to the State. Many are being paid half as much as they earned in normal times.

This Budget will hit these people terribly hard. Many have big liabilities which they still have to carry. I was glancing just now at what the position of somebody who had an income of £500 a year before the war would be in these days. On this salary the Income Tax payment for the year 1939–40 was £8 6s. 8d. Let us suppose that a man who is serving in one of His Majesty's Forces is receiving £350 a year and it may well be that many have suffered a bigger drop. On this £350 he is to be asked to pay £24, against the £8 which he found before when his income was £500. One of the difficulties in reducing expenditure is that you cannot reduce rates and cannot always reasonably reduce rents or insurance premiums and various other things. The example I have given is, I am sure, one of many that can be found throughout the country. It is a hardship that has fallen on a class of persons who are making their full contribution to the war effort and yet are gaining no extra remuneration.

These inequalities and the uneven distribution of the burden are not only very serious to the people concerned, but they definitely tend to lessen morale, which the Government should do everything in their power to correct. I hope we shall be able to consider later whether we can allow persons of the kind I have described some additional personal allowance under their Income Tax. If the suggestion I make is not a good one, then it is the duty of the Government to find a better. I suggest that to the personal allowances for such people there should be an amount added equal to their rent and rates in so far as their earnings are less than their pre-war level.

There are two or three other matters I want to mention. There have always been in the collection of Income Tax a good many inequalities and grievances. In normal times, when the Chancellor tries to have a strictly balanced Budget, it is extremely difficult to get these matters corrected, as the Chancellor never seems to have even a small sum which he can use for the adjustment of some grievance which has existed for a good number of years. I suggest to the Committee that the present would be a very good time to tackle some of them. As a matter of fact, £10,000,000 or £20,000,000 spent or wasted matters very much, but £10,000,000 or £20,000,000 used in redistributing the burden will not matter very much to the Chancellor to-day. What one might call exact budgeting has passed for the time being.

One of the old hardy annuals for which I have never been able to understand the justification is why a man and wife are not allowed to be assessed separately for Income Tax purposes. Women have every liberty, many of them are earning their livelihood, some of them are earning more than their husbands, they have the vote, and some of them are Ministers of the Crown. The refusal to allow a man and his wife to be assessed separately for Income Tax is not equitable, and it has not any sense. I cannot see any justification for continuing this joint association for financial purposes of a man and his wife. Another injustice arises from Death Duties. You do not really tax a man when he is dead; the people who really pay the tax are the man's successors. It seems to me to be unjust that when a man dies and leaves six children, the same tax should be paid upon moneys inherited by six persons as would have to be paid if the man left one son and the whole of the money went to that one son.

Finally, I want to refer to quite another matter—the sale of requisitioned dollar securities in America. Although my right hon. and gallant Friend the Financial Secretary may not be able to say anything on this matter to-day, I hope that something may be said on it on some future occasion. I cannot help feeling some doubt as to whether the liquidation of dollar securities in America has been carried out with the greatest skill which could be brought to that task. At present everybody has to register his dollar securities. The Treasury then requisitions certain blocks of securities, ships the securities to America, and then offers them for sale. That does not seem to be a very efficient method of procedure. If I had to do the job, the securities would have to be registered, I would know exactly what securities I was to get, and I should then say to the people with whom I hoped to negotiate in America, "There are certain American securities which I can get hold of. If anybody thinks them sufficiently attractive to make me a bid for them, I will requisition them. Let me know what you can bid for them, and I will requisition them if I think the price you are willing to give me is good enough."That would give some basis for negotiation. Apparently, what has been done is that the securities have first been requisitioned, then shipped to America, and when they were already in the United States, have been offered for sale. In fact, the Government were in the position of saying," We have bought this line of securities, we have to sell them—what is the best price you will give for them? '' That does not seem to me to have been the best way of negotiating the sale of important lines of securities. I hope that on some future occasion we shall receive an answer on this matter from the Government.

The Financial Secretary to the Treasury (Captain Crookshank)

Perhaps it would be convenient if I reviewed some of the speeches that have been made. This happens to be the fifth Budget with which I have been concerned, and I do not think anybody before has had so long a run of Budgets as that. The speech which I now rise to make is always the most difficult of the series which I have to deliver during the Budget Debates. The most difficult speech which the Chancellor has to make is that which he delivers when he opens the Budget. The Financial Secretary's most difficult speech is this one, because he has to try to answer questions which have been put to him at very short notice, and, of course, he has to grasp all the ideas and details which have been in the Chancellor's mind in producing the Budget, because, as is well known, the Financial Secretary has no responsibility for the scheme of the Budget, but simply has to help the Chancellor to get it through the House.

On behalf of my right hon. Friend, I must say that he is gratified at the reception which has been given not only to his stupendous achievement in his two hours' speech yesterday, but to his proposals themselves. No one has criticised them. It was reported to me that one hon. Member went so far as to describe them as "humdrum." The British are known for what the grammarians call meiosis, but that is a supreme example of understatement. Perhaps the evening newspaper which has a headline "Taxpayers Mobilised" is nearer the mark, particularly if we change the word to "paralysed," because I think a great number of people, when they come to realise what the impositions will mean to them, will wonder at the congratulations that have been offered to the Chancellor and ask themselves whether their representatives are really doing them a good service.

The first thing I must do is to correct a misprint in the Chancellor's statement. It is not what the Chancellor said and has caused some inconvenience already. In column 1311 of the OFFICIAL REPORT—I would not have bothered the Committee with this, but we must have it on record— the Chancellor stated: the figures which I shall give to the Committee are comparable with a total of Government expenditure under all heads, that is, excluding … The word "excluding" should be "including."

Mr. Pethick-Lawrence

Perhaps the right hon. and gallant Gentleman would not mind reading the passage as it should stand?

Captain Crookshank

The passage should read: I will, however, say that the figures which I shall give to the Committee are comparable with a total of Government expenditure under all heads, that is including for this purpose the value of any supplies that may be provided by Lease and Lend assistance and the amount of payments in the United States under existing orders, which before the end of the financial year will be far beyond the figure of £5,000,000,000 which I have seen mentioned in various quarters. There is another correction which arises out of something which was not said in this House, but in view of the very wide audience to which it was addressed, I think I must refer to it. Last night on the B.B.C. —it is unusual to refer in the House to statements made there—I was surprised to hear a statement, in the ordinary announcement, summarising what was said by my right hon. Friend: The Budget. The huge ' Save as you pay ' scheme"— There might be some question about that as a definition of the Budget— has generally been warmly approved. Here are its main proposals, which come into effect in November. They do not come into effect in November at all, but forthwith. All payments which have to be deducted at source and dividend payments and so on will be deducted at 10s. as from the time of the Statement.

Mr. Pethick-Lawrence

That will be 5th April?

Captain Crookshank

That being the Saturday before the Statement, it will take effect for the whole period. It will be a great pity if anyone is under the misapprehension that that is not going to be done. I can understand what may have been in mind, and that is that under the system of deductions off weekly wages decided in the last Budget, these ran over a period of months, and the higher rate therefore—the Income Tax this year —would become deductable in the case of weekly wage earners at the new rate as from 1st January, 1942, because they are paying on the old rate now. That may be the cause of the confusion.

Mr. Gallacher (Fife, West)

It is mixed up with the Patent Medicine Duty.

Captain Crookshank

That reminds me, seeing the hon. Member, that he himself was mixed up yesterday. I would not have mentioned it but that he kept talking about a new tax on wages. There is no new tax on wages, but there is a new rate of Income Tax in so far as some people who had a tax on wages will have to pay it at a different rate. It was a misapprehension which I am sure was not intentional. It is a mistake to say, however, that there is a new tax on wages in this Budget. It is nothing of the kind. I am glad to have the opportunity of putting the hon. Member right on that point.

The next point I should like to bring to the notice of the Committee is that relating to the Financial Resolution about another National Loans Bill which hon. Members will see on the Order Paper. Of course, my right hon. Friend is going to talk a great deal in his Budget about borrowing, and this is only a common form. We had a National Loans Act in 1939, and we had one last year, and we shall have to have one this year. We shall ask for borrowing powers up to the total amount of the Supply of the year, plus £250,000,000, as we did last year. We shall take the opportunity in the case of future war loans of relieving ourselves of the obligation which at present exists of having to issue Government stock transferable by entry in the books of the Bank of England. In fact, it is not so transferable at present owing to the Emergency Act we passed in September, 1939.

Transfer by entry cannot be done now for any existing stocks; transfer is only possible by instrument in writing.

Mr. Pethick-Lawrence

Before the right hon. and gallant Gentleman leaves the question of these misstatements, may I point out that I am not quite clear on the second point? I think he said that the new rate of wage payments would not come into effect until 1st January. Is there not something in what has been said —and I have seen it in the Press and thought it was correct—that some of these new wage payments will start on 1st November this year?

Captain Crookshank

It is correct that the weekly wage-earner begins on 1st January. My right hon. Friend will remember that there were two classes—two six-month periods—of weekly wage-earners. The great bulk will fall in the new class, and mostly all the 2,000,000 are of that category. They will come in as from 1st January. The other wage and salary earners will come in on 1st November. I am sorry if I telescoped my remarks too much.

The discussion to-day has ranged very wide, and I must say that I am always astonished how many Members are able so soon after the opening of the Budget to be able to speak in such a direct way on so many abstruse subjects. I certainly do not intend to attempt anything of the kind myself, and I will stick to the ground. I would like to take up one point about War Weapons Weeks made by one or two hon. Members, because it is of very great importance from the point of view of the whole campaign for saving money. As the Committee knows, there is the question of what we are to raise by taxation and what we are to get by way of borrowing. I think the hon. Member for Chesterfield (Mr. Benson) was very unkind—unusually so—on this subject when he talked about the War Weapons Weeks as being nothing but ballyhoo. He thought that by rather more austere methods we should be aisle to get a lot of the money in. The fact remains—and I have been over a good deal of the country from Edinburgh to Plymouth, and Belfast to Swansea, which shows the geographical distribution of the unfortunate people who have had to listen to my speeches on the subject—that it is found that the general excitement which the bands and the dis- play of Civil Defence workers causes does have a considerable effect in focussing attention to what is going on. I agree that the test of the success of the War Weapons Weeks is not to be found so much in the hundreds of thousands of pounds they get that week, or so many pounds per head.

The real test is to see whether, six weeks afterwards the general level of savings in the area has gone up or not as compared with, say, six weeks before the War Weapons Week. You have to give it some margin both ways. I had it tested some time ago, and I asked the Savings Committee to get out figures for various places showing whether the War Weapons Weeks were having that effect or not. It was very satisfactory to find that the result of that propaganda had been good and, after the War Weapons Week was over and the excitement had died down, people were going on saving at a much increased rate. It may run to 10 or 15 or even 20 per cent. more. I am not saying that there is not room for still further improvement, but if you apply that test over a considerable number of places, it really is quite good.

Mr. Benson

This is an important matter, and I do not want the right hon. and gallant Gentleman to misunderstand. It is not that I objected to advertisements and bands and reviews, but, first of all, there is a target fixed which is too low. You get money which is automatically flowing but which gives people the impression that they have done far better than they really have. I certainly want a more austere method of assessment—I will not say collection. You must have advertisement, but let us tell the people it is the private savings of the area that we want and not money borrowed from the banks, and they must achieve so much in a given time if the area is to pull its weight.

Captain Crookshank

I do not think I disagree with what the hon. Member says when he puts it in that way, but I think he has rather changed the emphasis of what he said before. Different people go about the country in War Weapons Weeks, and different speeches are made. The hon. Member stresses that side where he goes, and perhaps others will do the same in future. The hon. Member for East Birkenhead (Mr. Graham White) made a point which is also worth recollecting— I think Lord Stamp has made it recently —that what you have to emphasise is not so much the money that you are going to get in but the fact that what you are after is reducing consumption. The money that does not get spent in that way my right hon. Friend will be able to look after one way or another. That is a point of view which also requires considerable emphasis. I am sure that those who are concerned with directing the propaganda of the Savings Movement, Lord Kindersley and his committees, will read with interest what hon. Members have said in the House. That there is a great need for reduction still in consumption and in personal expenditure is quite clear. If one can trust one's own eyes, there is a great deal of money still being spent which in war-time may not all be justified. I asked for figures and I was astonished to find that the number of private cars under licence during the last quarter of the financial year 1940–41 was 77,000 higher than the year before. This number refers to private cars and does not include those on Government service.

Mr. Leslie Boyce (Gloucester)

That means that they are not included in Home Defence Service at all?

Mr. James Griffiths (Llanelly)

Has the right hon. and gallant Gentleman any figures showing how many private cars have been bought up by Government Departments?

Captain Crookshank

No, Sir. Another example is the consumption of beer. My right hon. Friend is extremely gratified at the increased revenue that we are getting there. One cannot tell from the actual figures whether it means that the higher rate has brought the money or whether there has also been higher consumption. But the provisional figures for last year compared with the year before are 600,000 barrels. It may be that when the final figures come out, we may find that the actual quantity of tobacco consumed may have been higher, in spite of the increased tax, last year than the year before. Therefore, if the hon. Member's thesis is right and what we have to do is to reduce consumption, war savings propaganda should keep its eve on that; there is still room for saving in that direction in different parts of the country.

The hon. Member for Stoke (Mr. Ellis Smith) yesterday quoted an extract from a recent issue of the "Economist" about contributions to War Weapons Weeks. We have no evidence whatever that banks are lending to private individuals in order to enable them to subscribe to Government issues. I think that is what he meant. We have no evidence of that being done, with one exception, which my right hon. Friend mentioned, that there were cases, no doubt, where for one reason or another banks might temporarily have made an advance when they had a certainty that it was shortly going to be repaid from other resources. For example, someone might want to invest in War Loan the proceeds of what he was going to get by the surrender of American securities and there might be a time lag between the handing over of the securities and the money being received here.

Mr. Loftus

Are not the banks directly subscribing in the localities to these War Weapons Weeks?

Captain Crookshank

That undoubtedly is the case, but I see nothing objectionable in that. The banks are entitled to invest their money, and if they choose to invest it, so much in one town and so much in another instead of the whole lot centrally, in various forms of Government loan, there is no reason why anybody should take exception to it because that would be part of their normal investment policy.

May I also congratulate the two hon. Gentlemen who made maiden speeches to-day? We had one from the hon. Gentleman the Member for Southampton (Dr. Russell Thomas), who did something which is rarely attempted and, I should think, seldom so successfully achieved, by making a long speech including quotations, figures and statistics without any notes. It was a remarkable feat and we shall all look forward to future efforts of that kind, because one thing from which the House of Commons has suffered lately has been that too many speeches have been read. The hon. Gentleman the Member for Edg-baston (Sir P. Bennett), who succeeded the late Prime Minister in the representation of that constituency, made a most effective contribution on the more technical side of the Excess Profits Tax.

Other speeches were made on that subject, which will come up for discussion in greater detail on the Finance Bill. No useful purpose will be served by my making any remarks on it now nor, indeed, in expatiating very much on the other point which, surprisingly enough, has figured very little in the Debate. I expect that my right hon. Friend probably thought that the innovation—for innovation it undoubtedly is—of creating a post-war credit out of taxation to be secured through the reduction and abolition of allowances, would have been the subject of a good deal of comment. It might come in for praise or for criticism, but at least one thought it would be mentioned; but practically no one to-day has said a word about it. The right hon. Gentleman opposite asked among other questions who is to get the refund, if the husband has paid the wife's contribution. I do not want to go into such a difficult point at this stage, but, generally speaking, the answer, in common sense, must be that the person who does the paying gets the refund. How husband and wife apportion it afterwards is their concern. All that part of my right hon. Friend's proposals, as he said yesterday, will be as Parliament hereafter determines.

Sir Percy Harris (Bethnal Green, South West)

I was specially asked to raise the point about the death of a man who has made contributions. Will his widow be entitled to it, provided the money is left to her?

Captain Crookshank

I should think that the legally appointed representative would be entitled to it in the normal course. Parliament, however, has to decide this matter in detail. There will not be any hurry about it. It is a postwar affair, and at the proper time we shall decide what is the best way of dealing with it. 1 can only repeat that I was really rather surprised that so little had been said on that novelty.

Mr. J. Griffiths

There is one point which will arise later which I should like to mention now, as it will give the right hon. and gallant Gentleman an opportunity of looking into it. It affects working-men who will come under the new Income Tax credit scheme. I wish to know whether the amounts which will be credited to them will rank as savings which are exempt from the operation of the means test?

Captain Crookshank

I am afraid that I cannot answer that question without further consideration. That is just the sort of point which will have to be carefully thought out by Parliament, and I am much obliged to the hon. Member for giving us a signpost that that is one of the things to be looked into. Perhaps it was not surprising that so much has been said about the other White Paper. Here, again, I am not one of those who are prepared to answer questions on it offhand, because I should think it might be termed "the economist's dream," particularly the second part of it. For the very few who understand these things, it will be, I am told, a mine of information, but for the rest of us I think we had better perhaps take it that it is a sound exposition of the foundations upon which my right hon. Friend has built his Budget, which has received so much acclamation in this Committee, and leave it at that.

After all, we are faced with these tremendous burdens. One can pick and choose all sorts of interesting figures from those tables, but I would call attention to only one set of figures, because I think they are most striking. In 1939–40, two years ago, the inland revenue was £582,000,000, and this year it is estimated that it will be £1,143,000,000, which is just about double. That is a most significant increase. Obviously it is an increase which will bring hardships and difficulties to a great number of people, and I think it would really be helpful to their constituents if hon. Members would do what they could in really explaining this Budget to those amongst whom they move, explaining it far more than ever they have done before. I know that normally we try to explain the Budget, but such occasions have always excited a good deal of antagonism, because of the play of party feelings. Today, judging from the discussions here, everybody seems to be agreed that the position has to be faced. Hon. Members have accepted the dictum of my right hon. Friend the Chancellor when he said in introducing his Budget: The Committee will appreciate that the primary object of these proposals is not to obtain taxation for taxation sake, nor to raise revenue for the sake of revenue, but to make a considerable cut in purchasing power during the war, and thus avoid the ever-present dangers of inflation." — [OFFICIAL REPORT, 7th April, 1941; col. 1329, vol. 370.] That is the object which my right hon. Friend set before himself, and I think we can all help by explaining to the people in the country that these difficulties and hardships have come upon us in order to prevent worse things occurring. My right hon. Friend would wish me to say that he is, indeed, very grateful for the reception which has been given to his proposals, and we hope that in the subsequent stages of the Budget we shall be able to thresh out the details in a manner satisfactory to all concerned.

Mr. Loftus (Lowestoft)

I have listened to my right hon. and gallant Friend the Financial Secretary with a great deal of interest, and I would say that I, like, I am sure, every other hon. Member, will carry out that most excellent advice which he has just given us to explain the Budget to our people, showing the need for a reduction of consumption of all kinds, how the Budget is an instrument to reduce consumption, and explaining that with stricter rationing in the future what supplies are available will be fairly distributed among our people. Reference was made to the subscriptions which are given directly by banks to War Weapons Weeks. Time does not permit me to go into that matter now. I will refer again to the two excellent maiden speeches to which we have listened and which made this a most memorable Debate. In the speech of my hon. Friend the Member for Edgbaston (Sir P. Bennett), his technical knowledge and the advice he gave founded on that knowledge proved immensely valuable. The speech will repay study by every Member of the Committee. What struck me most were the grave words of warning he uttered that the effect of present taxation, especially of the 100 per cent. Excess Profits Tax, may well be to destroy the small businesses of the small men who, on their own initiative, have started to build the future big businesses. If this destruction should happen, it would be a very evil turn of events for our country.

A remarkable committee set up by the American Parliament has been working for three years to investigate the economic condition of the United States, and it has just issued several reports. I believe they occupy 72 volumes, in which it is pointed out that wealth in the United States, and the power which goes with wealth, are becoming concentrated in ever fewer hands. They point out also that oppor- tunities for private initiative and individual enterprise in the United States are lessening, weekly almost. Our country has been built up on private initiative and individualism. Wealth, as our very great man Sir Francis Bacon once said, is like muck, best when well spread. I hope, even though taxation must injure individualism and initiative to-day, that we shall restore full opportunities after the war. I have pointed out to some of our hon. Friends above the Gangway that the collective mind, whether of the State or of huge combines of finance capital, can organise and can distribute, but cannot create. You require the individual; the individual alone can create.

We had a most moving maiden speech from the hon. Member for Southampton (Dr. Russell Thomas). It raised the temperature of the Debate. It warmed us all up, and, in particular, it appealed immensely to me, because I heard certain sentiments expressed which I have ventured occasionally to mention myself, sentiments about —

It being the hour appointed for the interruption of Business, The CHAIRMAN left the Chair to make his Report to the House.

Committee report Progress; to sit again upon the next Sitting Day.

The remaining Orders were read, and postponed.