§ Order for Second Reading read.
§ The Chancellor of the Exchequer (Sir Kingsley Wood)
I beg to move, "That the Bill be now read a Second time." I do not think that the House will expect me, in asking it to afford a Second Reading to the Finance Bill, to review again the financial problems of our war economy and the measures which we are taking in relation to it. In my recent Budget speech I dealt with those matters at length and, I hope, comprehensively. To-day, I desire to add only one or two brief observations upon them.
The House, and I think the country as a whole, have shown very general agreement with the Budget and the conceptions upon which it was founded. There was in particular one proposition which I sought to emphasise in my Budget speech and which I would emphasise again, namely, that the function of taxation in war-time is not merely to defray from revenue as much as possible of the current expenditure of the Government but to check the development of an excess of purchasing power over the available supply of goods and services. We must, certainly, not regard public finance in time of war from a too narrow financial standpoint. It should be, and I have endeavoured to make it, a central feature of a much wider economic policy. That wider economic policy must obviously be adapted to the needs of the changing economic situation, and so, accordingly, must be the security of our Budgets. That is why I have felt it my duty on this occasion to make very drastic proposals.
The Battle of the Atlantic and the Battle of the Mediterranean strike our imagination as main features of the strategic position at the moment, but they are, no less, main features of the present economic situation. So is the fact that our war production is now getting into its full stride. Those major features and that major fact determine, in a very large degree, the supplies of goods that can be made available for civilian consumption, and it is to that condition of affairs that the present Finance Bill is adapted. It is the corollary in the financial sphere of the great war 1608 effort which we are making and of the intensity of the struggles in which we are engaged.
Accordingly, as I think every one of my hon. Friends will agree, at this moment we need both very heavy taxation and continuously increasing savings. The great War Weapons Week for London is now in full swing. I am confident that everyone who realises all that is at stake will make this an occasion to drive home the need for still greater sacrifices in the restriction of expenditure, coupled with continuous saving. I am indebted to many of my hon. Friends for the help they are giving. I spoke to Lord Kindersley this morning, and he told me that up to the end of banking hours yesterday the London total had reached the magnificent figure of £70,250,000; so already we are within striking distance of the target of £100,000,000.
I hope that this week will carry us still further towards the national target of genuine savings which I set in the Budget. We need this year a further £200,000,000 to £300,000,000 added to our rate of genuine savings; and, despite the increased burden of taxation, I think I gave good reasons for my belief that the War Savings Campaign could accomplish this object. It is too early yet to judge how the country is responding, especially as in the few weeks which have passed Easter has intervened, but I note with gratification that the figures of smaller savings—which are probably the best immediate index of the response—show a further advance over those for the earlier part of the year. I feel justified in taking this as an earnest that every individual in the country will play his part in reducing consumption and increasing savings, recognising that the Budget proposals and the other steps taken are soundly designed to avoid the disaster of inflation and to enable us to prosecute the war until victory is attained.
I would like to emphasise again the constant necessity for the avoidance of waste and extravagance in connection with our large expenditure. The Budget, as I have said, was generally accepted, but such heavy sacrifices as it entailed can only be on the basis that the great sums raised shall be wisely spent. It is true that the rapid growth of our expenditure is not in itself evidence of waste, but rather of growing production; 1609 but, obviously, the more we spend, the more important it is to eliminate waste and extravagance, and the larger the expenditure, the greater is the danger. Nor is it true that it is evidence of waste that we have reached a rate of expenditure per day in this war about double that which was reached in the last war. Any such argument entirely disregards the increase in complexity of modern armaments over the last 25 years.
While it may be true that there is no great amount of what I would call deliberate waste, what there may be is thoughtless extravagance in varying degrees in the day-to-day operations of many individuals. This can best be combated—as it certainly must be, to the greatest extent—not only by supervision, but by instilling into everyone a realisation of the rigid need for the utmost care, as a patriotic duty. So that in everything they do they realise how vital it is to save money, in order not only to keep down expenditure, but to reduce the demands which the war makes upon materials, so many of which have to be brought from overseas.
The Ministry of Supply a few months ago appointed a Director of Economy, who has been hard at work, both in that Department and in consultation with other Government Departments, in impressing the need for economy, partly by preventing undue use of materials, but also in the equally important ways of substituting cheaper and commoner materials for the more expensive and rarer ones and of recovering from scrap anything which can be used again.
The War Office and the Air Ministry have each appointed a Controller-General of Economy, to exercise general control over all matters connected with salvage and to ensure that the utmost economy is practised in the holding, use and disposal of materials of all kinds. I am glad to know that a large number of anti-waste committees have been established in units, for recommending and initiating measures for the prevention of waste. Analogous action has been taken by the Ministry of Aircraft Production to secure economy in the use of materials in the agency factories. Through this machinery, which I am glad to know is rapidly developing, a continuous drive is being maintained to secure that in the Fighting Services and 1610 in the Government production Departments rigid economy in all its aspects is practised as an essential element in their day-to-day work. The total number of people who will pay Income Tax in this country has now been raised to 7,800,000. It is no more than bare justice to all of them that every step should be taken to prevent any waste of the nation's resources at this critical time.
The Finance Bill is a long, and, as I think my hon. Friend the Member for South Croydon (Sir H. Williams) has appreciated, a rather complicated, piece of legislation. That, unfortunately, is generally the case with Finance Bills, whether the Budget is simple in its composition or whether it involves a great number of separate proposals, for each such Bill has to include a good deal of legislation which is more or less formal, and to pick up numbers of points which arise in the course of the year and which require the attention of Parliament. My right hon. Friend the Member for Devon-port (Mr. Hore-Belisha), who has been Financial Secretary to the Treasury, will appreciate that anyone who might like to try his hand at drafting will find that it is not always easy to express what is required in ordinary, everyday language.
It is not necessary for me on this occasion to examine in detail the contents of the Bill; there will be later opportunities for that. I will content myself now with mentioning one or two points of general interest. The House will have observed that the repeal of the Medicine Stamp Duties is not dealt with in the Finance Bill. In my Budget Speech, I explained that the proposals for the repeal of those duties would be accompanied by certain further legislative provisions, to be included in a Bill to be presented by my right hon. Friend the Minister of Health.
§ Sir Francis Fremantle (St. Albans)
What does my right hon. Friend mean by that? Can we be quite certain that that part of the bargain will be carried out this Session?
§ Sir K. Wood
I am just coming to that point. My right hon. Friend and I have agreed that it would be more satisfactory, from every point of view, that the repeal of the Medicine Stamp Duties and the other provisions should figure in the same Bill. As all the provisions could not be 1611 included in a Finance Bill, we have thought it the most convenient way, to meet all points of view, to include the proposals as a whole in a separate Bill which is to be presented very shortly by my right hon. Friend.
A good deal of interest was taken in the proposals which were made, and which, I think, received general acceptance, as to post-war credits. The House will find in the Bill provisions for the recording and eventual crediting of post-war credits. The opportunity is taken in Clause 5 of the Bill to meet certain points which were raised in our earlier discussions. In particular, we have made provision for the post-war credit to be divided between husband and wife, either by agreement or in accordance with the methods of apportionment laid down in the Clause. The House will also find that we have provided that the amount which is to be credited to any individual is to be exempt from Death Duties in the event of his death before the actual crediting of the sum involved. The Clause also provides, in Sub-section (4), that any assignment or charge on the amount to be credited or any agreement for such an assignment is to be void. This, I hope, will close the door—I think it will—to speculation in these credits, which, I am sure the House will agree, would be most undesirable and detrimental to all concerned.
§ Mr. Benson (Chesterfield)
Can the right hon. Gentleman say whether the credits would be subject to tax as in the case of Excess Profits Tax?
§ Sir K. Wood
We can come to that in the course of the discussion. I would call attention to Clause 26 of the Bill, which contains far-reaching powers to deal with transactions designed to avoid liability to Excess Profits Tax. The House will see that the Clause is drawn in wide terms, and I think that they will, I am sure, agree with the view which I expressed on an earlier occasion that attempts to avoid taxation obligations in this time of national trial are doubly to be condemned. I have considered with some care whether to take some similar general powers to deal with avoidance in the Income Tax and Surtax spheres. There is, however, a distinction to be borne in mind. In 1612 the case of the Excess Profits Tax we are dealing with a temporary war-time impost where the taxation provisions are very recent, and where we must see that the Revenue authorities are properly armed to deal with any method of avoidance as and when it arises. In the case of Income Tax and Surtax not only do the taxation provisions go back a long way, but there are on the Statute Book numerous detailed Measures designed to close loopholes which have been discovered from time to time by the ingenious tax-avoiders. On the whole, I think it is true to claim that these tax-avoidance provisions, which we have had to insert from time to time and year to year, have fulfilled their object, and as at present advised I do not consider it necessary to arm myself with general powers comparable to those that I am proposing in the case of the Excess Profits Tax. But I want the House to know that I intend to keep this matter under constant review and examination, and if I should be satisfied of the need for wider general powers, I should not hesitate to seek them and to ask for them with retrospective effect.
The only other provision in the Bill to which I would refer is that contained in Clause 37, which provides certain relief from Death Duties in the case of death due to the operations of war. This Clause provides for the extension to civilians whose death is due to injuries caused by the operations of war of relief from Death Duties similar to that given in the case of the Armed Forces, and this relief will be retrospective to the beginning of the war. There are two important concessions involved in this particular provision. In the first place, in the case of successive deaths, for example, a father and son, such deaths being attributable to the operations of war, Death Duties will be chargeable only on the first death. In the second place, where duty is chargeable on a death attributable to the operations of war, the first £5,000 of the estate will be exempt from charge, and there will be partial relief of the remainder dependent upon the age of the deceased and in accordance with the normal expectation of life. The measure of the relief which we are giving is similar to that given in the case of the Armed Forces, and will similarly apply only when the property passes to near relations.
1613 There is one other matter which is not at present dealt with in the Bill but to which I would like to refer. I have received representations from various quarters regarding the unexpected effect produced by high rates of taxation upon various kinds of payments due to be made free of tax. I am examining the whole question to see whether it is desirable or feasible that some amendment of the law in this respect should be made; and I hope to be able to make a statement in the near future. I am advised that, if such action is decided upon, the necessary provisions could be added in due course to this Finance Bill.
In the Budget speech I referred, in connection with our financial problems, to the great assistance that we were receiving from the United States of America, and, in conclusion to-day, I would like to refer to the contribution that the Empire is making so notably to the common war effort in the financial sphere. Australia and New Zealand have to meet heavy expenditure outside their own countries, and they are applying an increased amount of their sterling resources towards these current external war costs. They have, besides increasing taxation, imposed many import restrictions and a number of rationing schemes. They are finding to an increasing extent, as we have found, that the essence of war finance is to do without luxuries and amenities, to spurn delights and live laborious days, so that as large a proportion as possible of the national effort should be directed wholly to winning the war. I discussed these matters with Mr. Menzies when he was here and found that his general views on these problems were just the same as our own. I need do no more than mention the importance of South Africa as the chief gold producer of the world, or of India as the source of multifarious supplies.
I would, however, like to pay a special tribute to the help given to us by Canada, a dollar country, in the financial field. The Canadian Finance Minister, in his Budget speech on 29th April, referred to our very large need of Canadian dollars, and said that these needs up to the present had been met to the extent of about two-thirds of the total by repatriation of Canadian securities and accumulation of sterling balances by Canada, and to the extent of only one-third by shipments of 1614 gold. No gold has been shipped since December, 1940, and the Finance Minister told his hearers that Canada has pledged herself to finance the bulk of British purchases in Canada, which he estimated at £200,000,000 to £300,000,000. This, of course, is a very large sum in relation to Canada's resources. For example, her total Budget revenue, last year, was under £200,000,000, which is to be increased this year by additional taxation, to over £300,000,000. As the House knows, we are obtaining from Canada war supplies of many kinds together with food and raw materials; and we could not obtain these vitally necessary supplies without the splendid help which Canada is ready to give us on the financial side.
In the same Budget speech, the Finance Minister announced a series of wide and substantial tariff concessions on United Kingdom goods. His Majesty's Government have told the Canadian Government that we appreciate to the full the magnitude and generosity of these measures, and I am sure the House of Commons will wish to endorse that message of thanks.
Nor must we forget—and it is as well to look on this side of things to-day—the generous help given to us by the Colonial Empire, by way of direct financial contributions to the Exchequer, as well as in many other ways. Gifts for general war purposes have been reaching us continuously, ever since the outbreak of war. In addition, many Colonies are making us loans, often free of all interest. This help, so freely given, often comes from Colonies with but small resources, and I am sure it is deeply appreciated by the whole country.
Fortified, as I think we are, by this invaluable Imperial co-operation and help, I now ask the House to afford a Second Reading to this Bill. It implements the Budget proposals, which are formidable and unprecedented, but I believe that by means of them we shall be enabled to deal effectively with many of our pressing financial problems, and, certainly, as the whole country is determined shall be done, prosecute the war effectively and unceasingly until victory is attained.
§ Mr. Pethick-Lawrence (Edinburgh, East)
I am quite sure I am expressing the feelings of the House as a whole, in saying that we heartily agree with the 1615 tribute which the Chancellor of the Exchequer has paid to the Dominion of Canada for the generous and wholehearted methods which they have taken to help us in our financial position. We know the people of Canada, with their wide hearts in their wide country, and we acknowledge the great obligation which we owe to them in this respect. Before I come to the details of the Finance Bill, I should like to make a few general observations which seem to me to be appropriate at this juncture of our national affairs. I remember it has often been said of the 1914–18 war that on the international front we won the war and lost the peace. Be that as it may, when we come to the home front and the financing of the home front, I am inclined to think, whether the financial control of this country may or may not have been bad enough to jeopardise the winning of the war, that undoubtedly we lost the financial peace.
I think it is worth while paying a little attention to how it was that our finances in the last war were so bad, in order that we may see how far we have already avoided the mistakes which we made on the last occasion, and in order that we may be quite sure that we do not make the same mistakes in the future. What were the mistakes we made during the last war? I think the first was that we allowed the terms of borrowing to be dictated by the lender and not by the Chancellor of the Exchequer. The House will remember that rates of interest went up and up—I think they reached over 6 per cent. before the war was finished and during the aftermath. In the second place, we failed to attract to the State enough purchasing power to pay for the war. The taxation began too late, and was inadequate. We did not get, what the Chancellor was so careful to lay stress upon, genuine savings as the foundation of our loans. As a result of that, we encouraged what were really sham loans, which did not limit the purchasing power of the people who subscribed to them. In reality they were purely inflationary measures. What were the results of this bad finance during the last war? The first was an inadequate drive to convert peace economy into war economy, and thereby the actual success of the war was jeopardised. In the second place, as I 1616 have already pointed out, there was a steady rise in the rates of interest. In the third place, there was a cumulative fall in the value of money, and fourthly, there was an unnecessarily great swelling of the National Debt.
Those were the mistakes which were committed in this country during the last war, but after the war still further mistakes were made. In the first place, immediately following the war, we allowed an unchecked demand greatly to outrun the supply of commodities, with the result that there was a most unfortunate boom, which was the precursor to many of our subsequent troubles. Then we allowed a few currency cranks, wearing the uniform of orthodoxy, to play havoc with our economy by dragging us back to the pre-war Gold Standard, thereby creating a colossal slump. I pause there to remind the House that a currency crank can be one who wants deflation and, equally, one who wants inflation. I would hesitate to say at the present moment which is the more dangerous. There is no doubt whatever that in the early days after the war we were completely given over to currency cranks who believed in deflation, which brought the direst consequences on this country. The next mistake was that we construed the phrase, "getting back to normal," as meaning a return to an economy that functions only under conditions of scarcity, such as no longer exist in the 20th century. Finally, by failing to deal with the National Debt and by deflation, to which I have already referred, we gave to vested interests a stranglehold on the national life. These were the things we did in and after the last war, and I gather that in all sections of the House there is considerable agreement with the presentation of the facts as I have put them forward.
What have we done, and what are we doing at the present time, to prove ourselves better custodians than those who sat on the corresponding benches during and after the last war? First, let me interpose what in my opinion—and I think I shall get general agreement—are the desiderata of finance during and following a war. During a war I do not think anyone will deny that the object of finance is to promote and establish the maximum conversion of economy from peace to war, and after a war it should be the object of finance to help build up a 1617 stable and lasting economy, not only equal but superior to that which existed before the war began. Let us see, then, so far as we have gone, how far we have improved on what was done before. The Chancellor—and I am using the term in the sense of the holder of the office—has fixed an upper limit to the rate of interest. I say upper limit advisedly, because he has never said that the interest should not fall below 3 per cent. but that this figure was the maximum which was to be paid. The present Chancellor has actually agreed, I think, to put that into statutory form in one instance. That is, of course, an immense advance on the principles which prevailed in the last war, when double that figure was reached before the war was over or shortly after it concluded.
Secondly, during the year in which war broke out and in the present year, Chancellors of the Exchequer have shown that they are not afraid to make drastic inroads on the resources of private individuals and their purchasing power. There was, I think, a slight lapse in 1940, for which I do not think the present Chancellor was responsible, when the demands made on the purses of individuals were not felt to be sufficient, even by the House itself. But we all recognise the very substantial efforts of the Chancellor of the Exchequer in the present Budget and in the Finance Bill which is before us at the present time. With the exception of an hon. Member who recently joined the House and made a speech, I think most of us believe that the Chancellor has gone a long way towards doing what could be done at the present time. The Chancellor has enlisted, and has always stressed the importance of enlisting, genuine savings. Although, of course, there will always be investments in loans in some way, I think that a large part of our investments at the present time do represent genuine savings, and even where they do not they are not inflationary —they are simply reinvestment of capital which has been redeemed for some reason or other.
There is still a good deal of money to be obtained. It is quite a mistake to think that these new taxations exhaust all the money in the country. They do not and cannot be doing so, because the money coming into people's pockets is to a great extent the money the State is spending. The only reason why you cannot take all the money by higher taxation is because 1618 of the differentiation among different members of the community. There are certain members of the community who have large resources which are untapped and which, if they cannot be taken by taxation, can be put at the disposal of the country by actual lending to the nation. There is no reason why, with good will and determination, we cannot reach the whole figure of £200,000,000 or £300,000,000 additional genuine savings to which the Chancellor has referred. We can win the financial war only if we continue, by means of taxation and genuine savings, to cover the whole of the gap which the Chancellor exposed to us in the earlier stages of our financial proceedings.
What about the position after the war? It is essential to take steps to meet it even now. The war may end earlier than some people suppose, and we must avoid the special boom which took place in 1919. A boom is a most natural event. The process of production is slow; it takes a long time to restart, and when a war is over those who have made a great effort not at all unnaturally wish to have a "beano." That is all right if they confine their spending to a limited amount, but if people who have considerable means think they can at once, after a war is over, jump into large expenditure, then we shall have the same boom that we had before, when purchasing power deliberately put into an attempt to buy things utterly outran the means of supplying their requirements. The Government must be prepared to prevent that taking place. Equally, they must take steps to prevent the kind of slump which followed later on. They will, I feel certain, not be given over to the currency cranks who want us to go back to the Gold Standard, and they must see that in other ways we do not get deflation. It cannot be said too often that deflation is no cure whatever for previous inflation, in the same way that it is no cure for a person suffering from a burn to put him in a pack of ice. Inflation and deflation are two separate evils, and the imposition of the one does not help to get over any ill-effects which have arisen from the other.
Thirdly, the Government must see that we do not get this stranglehold of vested interests. That is very liable to occur unless steps are taken to prevent it. On 1619 the last occasion on which we discussed finance, I told the Chancellor of the Exchequer that I hoped the Government would make some pronouncement as to what they would do after the war, and I suggested that they might announce that they were in favour of a levy on capital. Since then I have received letters from a number of people who look upon me as a "kill-joy" who wants to destroy the little wealth there is in the country. I am not in the least desirous of destroying people's enjoyment, but I am thinking of the nation as a whole, and I realise that, in some shape or form, the country and future generations will have to be freed from the millstone which will hang round their necks if vested interests and the immense amount of war debt have to be met by the new generation.
§ Mr. Craven-Ellis (Southampton)
Would not a capital levy be deflation? The right hon. Gentleman has been saying how injurious deflation would be to the country, and now he is winding up his speech by advocating a capital levy, which is one and the same thing.
§ Mr. Pethick-Lawrence
I am afraid I am not yet winding up my speech. I do not agree with the hon. Member that a capital levy is necessarily deflationary. The two things are not by any means necessarily connected.
§ Mr. Pethick-Lawrence
It would take up too much time if I went into the matter at any great length. I simply want to put one point to the Chancellor of the Exchequer. The Chancellor must begin to think how he will deal with the enormous debt. Already the gross amount is nearly £12,000,000,000. To that one has to add all the cost of finishing the war and clearing up the mess of the war afterwards; the Chancellor is to pay 20 per cent. to the Excess Profits people and he is to pay something back to the Income Tax people; and in addition, we shall have in front of us the immense task of dealing with the international and internal situation after the war is over.
§ Mr. Hammersley (Willesden, East)
Am I to understand that the right hon. Gentleman is now advocating a capital levy on 1620 similar lines to the capital levy advocated by the Labour party after the last war? I gather he is not advocating a duty on the increase in war wealth, but a capital levy on the whole of the capital.
§ Mr. Pethick-Lawrence
I explained on the last occasion when I dealt with this matter that I thought a capital levy on the increase of war wealth would be a very trivial affair and one that would not be worth attempting to carry through. But if the Chancellor rejects my proposal, what is the programme of the Government? I think it is time the Government told us a little bit how they envisage the future. It is too early to have details, but the Government must face the problem and not simply drift into a position without facing the facts. Finally, the financial system has to help to create an economy that will face up to modern conditions. We cannot merely go back to the pre-war economy. That was based on the 19th century conception of scarcity. The essential element in the 20th century is potential plenty. Every head of a business knows that it is not production, but sale, that is the problem, and it was that which, in the early years of the 20th century, and more particularly in the years between the last war and the present war, put the check upon production. We can produce in abundance. The financial system which follows this war has to be relevant to the new economy.
I have taken longer than I intended in speaking on the generalities, and I shall not detain the House for more than a few minutes with regard to the particulars of the Finance Bill. Most of the points are really Committee points. We have discussed already on the Budget Resolutions the Bill as a whole, and the great major issues of the Bill; and the points to which the Chancellor has drawn our attention, important as they are, are mainly Committee points. There is the very important provision to check evasion of the Excess Profits Tax. The Chancellor has done very well to insert that provision, and I hope we shall have a chance of discussing it in detail at a later stage. I think he has done very well in extending the provision concerning relief from Death Duties to the case of civilians and not only to the military population. I was interested to hear his point about the effect of the Income Tax on sums which are, by 1621 contract, arranged to be paid free of tax. I had had that point brought to my attention and I was hoping that the Chancellor would say something about it. I think that, among other things, it applies to mortgages in certain cases. There is one other matter which was referred to in earlier Debate, but on which the Chancellor has not so far seen his way to make any concession, and that is with regard to Income Tax and travelling expenses. I can quite understand that the right hon. Gentleman may not see his way to deal with that on any large scale, but there has been brought to his attention the case of people who arc blitzed out of their homes, who normally have no travelling expenses, but are forced now to reside some distance from their work and to travel to it at some considerable expense to themselves. I think he should give that matter consideration, as I think he promised to do, and see whether something cannot be done for such people.
I now reach my concluding remarks. In the main, the Bill is a thoroughly sound Measure. It is horribly inconvenient to everybody, but we all recognise that we have to pay this bill in order to win the war, and everybody, in all parties and throughout the country, is determined to win the war, and to win it handsomely. I have, in my remarks, ventured to impress upon the Chancellor that he has to begin thinking of the future, because, avoiding as we have done a very large number of the mistakes that were made during the last war, we have also to avoid the mistakes which led to very serious consequences in the years after the last war. We have to win the financial peace just as we have to win the financial war.
§ Mr. Clement Davies (Montgomery)
I should like to join with the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) in expressing our gratitude to the Dominions and Colonies for their most generous action in regard to men, material, and now, finance. Without making any distinction between any one of the Dominions or the Colonies. I want to express our tremendous gratitude, and also to say that their enthusiasm heartens us and that we look with gratitude to all that they have done, and look forward with equal gratitude to all that they are undertaking to do, on our behalf.
1622 In ordinary times of peace, the Budget is the measure of the Government's activities in social reforms and such provision as they have to make in preparation for defence; but in war time, the Budget and the Finance Bill provide the measure of the nation's war effort as a whole. The Chancellor of the Exchequer proposes to raise £1,800,000,000 in taxation and £1,900,000,000 by loans from savings, and another £500,000,000 from the Dominions, making a total, all told, of £4,250,000,000. That is not all devoted to the war effort. £700,000,000 of it goes to ordinary purposes connected with the running of the country, reducing the amount to £3,500,000,000. Then one has to deduct from that £3,500,000,000 a sum of somewhere about £150,000,000, which is the expenditure on subsidies to keep down prices. So the actual war effort is measured at the rate of £3,350,000,000. I am going to make three points with regard to that: (1) It is not enough; (2) the Bill, in spite of taxation being so heavy, will not prevent inflation; and (3) it inflicts unnecessary hardships.
With regard to my first point, I was glad to hear the Chancellor referring to the tremendous efforts which we now have to undertake. We are now entering the fourth phase of the war. The first period ended with the fall of Poland and the agreement between Germany and Russia. That gave Germany security upon her Eastern fronts. It gave her valuable coalfields, looted foodstuffs and added to the plant, machinery, industries and various ores which she had already obtained from Czechoslovakia, and it also gave her some 2,000,000 or more slaves to work upon her food production. The second phase ended with the collapse of France, and that gave her more industries, more machinery and more plant and loot from five countries—Norway, Denmark, Holland, Belgium and France. It gave her much needed bauxite, iron-ore, coal, looted steel, food and shipbuilding material, and it gave her bases for aeroplanes and submarines so as to enable her to prepare for the blockade of this country. The third phase has just ended with the conquest of Greece, and (hat gave her further security on her South-Eastern borders, added to her loot and gave her the agricultural products of all the countries under her dominion— Hungary, Rumania, Yugoslavia, Bulgaria and Greece—and gave her access to the Eastern Mediterranean. It added vastly 1623 to her fuel-oil resources, which she can now bring partly by sea, partly by road and partly by rail and has put her in direct communication with Turkey, so that one can get some of the much needed ores, such as chromium, which Turkey can give her. So we are entering now on the fourth phase. A drive through Syria, Iraq, Palestine and Egypt is now beginning, and there will be, of course, increasing efforts in the Atlantic battle from Dakar to Norway to try to block our sea routes, to put a stranglehold upon the jugular vein through which flow food, munitions of war, materials necessary for our defences and for our very existence.
I have gone through all this to show that it is necessary for us to put forward our full maximum effort. We must mobilise our full maximum strength. We are not yet pulling anything like our full weight. It has been estimated that we have not yet exceeded 60 per cent. of our potential war effort, or potential strength. What are the comparative figures? We know that in the six years prior to the outbreak of war the amount spent in preparation by the enemy was £6,000,000,000, compared with our expenditure of £1,200,000,000, and that their expenditure put them in such a position that production could go at full flow, whereas a very large part of our expenditure since the outbreak of war has been in the preparation for production. But what is the war effort of Germany to-day? We have not the very latest figures, bur we have the figures for the last quarter of 1940, and we know that in that quarter her expenditure was at the rate of £5,500,000,000 per annum to £6,000,000,000. The figures come from various sources and are checked by various statistical departments, and I challenge anyone to say that they are incorrect. [Interruption.] I will not take up time by going through them again. I had the same controversy exactly 12 months ago, when we were able to give the comparative figures for that time, when all that was being proposed by the then Chancellor was a war effort at the rate of £2,000,000,000. The hon. Member agreed with me that that was not enough. I am saying again to-day that it is not enough. That is without reckoning loot and without reckoning Italy's contribution.
1624 Our amount is £3,550,000,000. We can reckon the Dominions at another £800,000,000, and America is put at £1,000,000,000. Add all this together for the coming year—a total of £5,150,000,000. The American contribution will not be limited or governed by her capacity or her willingness to make or to lend but by the power and capacity of the ships to transfer to and land the goods in this country where we need them. Our effort is not enough. There are deficiencies in it and there are deficiencies in our munitions production, in our food production, in our shipping production and particularly in the user of our shipping capacity. We have to mobilise all our wealth, all our property, all our interests and all our man-power. Everything is in the balance to-day, and all should be put in the scale on our side without fear and without favour. Our property in any event is at stake, but, more than property, our life is at stake, and, more than life, the very liberty of the individual and the liberty of the community are at stake.
My second point was that the Bill, in spite of the taxation being so heavy, would not prevent inflation. The Chancellor wants to raise £3,700,000,000. He estimates that he will get by taxation £1,800,000,000, and out of people's savings he will be able to borrow £1,900,000,000, and so avoid inflation. But will he deny that there has been inflation already? Will he deny that there has been a tremendous consumption of stocks which have not been replaced? And will he deny that we have been eating into capital, and partly living upon our capital? Last year he borrowed £1,550,000,000. How much of that was inflation money? It is estimated by those whose duty it is to go into these figures that the amount of inflation contained in that £1,550,000,000 was of the nature of some £400,000,000.
In spite of that and the increased taxation from £1,500,000,000 last year to £1,800,000,000 this year, the Chancellor estimates that he will increase the so-called savings from £1,550,000,000 last year to another £1,900,000,000 this year. He estimates that he will get this extra amount because of extra wages and earnings. It is true that there are increased wages and that more people are being employed, but unessential commodities are to be lessensed, industries are to be concentrated, manufacturers are 1625 to be limited in their output, and some will have to be closed down altogether. With that the profit-earning capacity of the people concerned will go. On top of this comes an extra taxation of £300,000,000. All these matters will lessen savings and not increase them. A part of the £1,550,000,000 last year were transfers from one security to another. That is even taking place today. There was a statement in the papers only this week that one company in London has transferred £5,000,000 towards this new savings effort. Is it to be suggested that that £5,000,000 was tying idle or that it was not invested in some other form?
§ Mr. Molson (High Peak)
In cases where there is a transfer of that kind, is it not the case that there must be some saving? If certain investments are sold in order to effect investment in the War Loan there will be a genuine saving.
§ Mr. Davies
My hon. Friend has missed the point. It does not mean increased savings. It means that savings in one form have been transferred to another form. It does not add to the savings which the Chancellor requires. Part of the £1,550,000,000 consisted of money which was invested abroad which the Government took and for which they paid sterling to people in this country, who could not do better than invest it again in the Government. I am certain from my experience throughout the country that part of the loans made in war weapons weeks were lifetime savings which cannot be repeated this year. Finally, stocks have been heavily depleted and not replaced. That reservoir is running down. Men everywhere are using up capital and the reservoir is limited in its capacity. In my calculation the Chancellor will not get the £1,900,000,000 savings that he requires. He will get it only by inflation, which is always nature's cure for the inevitable wounds caused by bad finance and bad economics.
My third point is that the Bill inflicts unnecessary hardships. Taxation is at a level which kills individual enterprise and destroys any sensible plan for reconstruction. May I give one instance? The difference the Government draw between the investment income of the rentier and the earned income of the entrepreneur is 1626 negligible. In the higher ranges it is practically nil. On pages 14 and 15 of the White Paper issued with the Budget the amount of taxation on earned income and investment income is shown. On £2,000 earned income the taxation will be £850 and on investment income £931. On £3,000 earned the taxation win be £1,462 and investment £1,537. On £5,000 income the taxation is £2,837 and £2,912 respectively, a difference of only £75. That means that no distinction is being drawn between enterprise and the good fortune to be in possession of investments. That means the death of enterprise and individual effort. No allowance is made for those who labour on a decreased income and have to carry obligations which were incurred in the pre-war period. The effect of this increased taxation and of the effort to keep going by living on capital, which many are doing, eating into and depleting their stocks, will be to reduce working capital. We cannot reduce working capital indefinitely without endangering the continuity of production; and by endangering the continuity of production we endanger the continuity of our war effort. The Bill, therefore, inflicts unnecessary and, indeed, damaging hardships, damaging upon the individual primarily, but damaging also upon the whole community.
Last year I indulged in three prophecies. One of them was wrong. It was that that would be the last Budget of the old financial kind that could or would be introduced. A Budget introduced on the old traditional lines suitable for peace-time is unfitted for a total world war of this colossal magnitude. The Chancellor has introduced a Budget on the old lines. I say that he will not get the money, that there will be inflation, that that inflation will increase, and that the Bill introduces unnecessary hardships. Far more important is the fact that our war effort as disclosed by this Budget is not enough. The Budget and this Bill should provide an economic solution and be based on central economic planning which would mobilise every one of us to do our best and to do that best in the most useful way. We should be put in the position where our best efforts can be put forward. Property should all be mobilised to this one end.
What should we do? In the first place, we must conserve our shipping space to the absolute essentials. In the second 1627 place, we must manufacture substitute articles wherever we can do so in this country. In the third place, we must get out of our land what it has got in raw materials, such as iron ore and timber, but especially must we get all we can in the shape of food. In the fourth place, we must cut down our consumption to the bone and so free labour for the essentials of our war effort. In the fifth place, all articles ought to be completely rationed. All consumption commodities, food, clothing, boots, shoes and things of that kind, must be rationed. All other articles which absorb material or labour that can be diverted to the war effort should be rationed directly or expenditure on them should be rationed. What would be the effect of doing this? I have calculated that it would provide a sum in savings alone of some £2,500,000,000, and that without any danger of inflation.
§ Dr. Russell Thomas (Southampton)
Does my hon. and learned Friend propose that 3 per cent. should be paid on those savings or that the money should be just taken?
§ Mr. Davies
It would be actual savings of money which people could not spend. It would be better that people should be asked, as they are now being asked, to give it to the Government. There is a way of giving it to the Government without interest, and people are doing it not by actually lending it to the Government but by not using it in consumption. They are benefiting the Government more than the people who ask for the payment of interest. 'It would put all of us on an equal footing so far as commodities are concerned. Thirdly, it would have an effect upon the morale of the people, because one would not be getting privileges which were denied to another, and at last we should be all on an equal footing. In the fourth place, it would ease our shipping problem and enable us to plan our imports properly so as to make the very best use of them. Fifthly, and this is the major step that is required for economic stability, we should have mobilisation of labour and a proper wages policy. Lastly, and probably even more important than all these, it would have a tremendous effect upon opinion in America and in the Dominions because then the people there would realise that we are showing determination not merely 1628 in words and in spirit but in actual action. We should be putting every ounce we can into the scale, and our action then would be such as to make them realise that we are determined to go on, and that by that determination we shall win. The enemy is straining every nerve and using all the means in his power. Shall we do less? Can we afford to do less? Can we dare to do less? Is there any man in this country or in the House who desires to do less? I think the unanimous answer is, "No."
§ Sir John Wardlaw-Milne (Kidderminster)
I think the House must feel grateful for both the speeches which we have heard following that of the Chancellor of the Exchequer. The right hon. Gentleman himself also must, I am sure, be satisfied with the reception which he had when he introduced the Budget some little time ago. It is well however that there should be some criticism of the Finance Bill, not only because of its many far-reaching provisions but also because I do not feel that it would be good for my right hon. Friend if he never encountered any criticism at all and was unable to sharpen his debating powers upon those criticisms which he might expect to receive in Budget Debates. The hon. and learned Member for Montgomery (Mr. C. Davies) has made some interesting suggestions, and I must agree with him when he says that inflation is already taking place. I am afraid that those who watch these matters carefully can have very little doubt that that is the case. I do not say that it is inflation that is out of control. A good many people would agree that it is impossible to win this war or, indeed, any war without some form of inflation. Inflation is inevitable, and the whole problem is whether we can control the inflation which is bound to follow from an outbreak of war. If it is the work of the Government, as I see it, to try to control that inflation, to do that they have to consider not only the question of curtailing consumption, which is a very important thing in itself, but curtailing consumption in such a way as will release productive resources for the war effort, because if they do that second thing they will, in fact, have achieved the first, and to a large extent secured the control of inflation.
1629 The White Paper shows some extremely interesting figures. I think the Government have already been congratulated in previous Debates upon the fact that that White Paper was produced. It was a very excellent move in our financial procedure. The White Paper shows that between 1938 and 1940 the national income increased by more than £1,100,000,000, but to my mind the interesting point is this, that, of that increase, profits and interest accounted for £336,000,000 and wages for £663,000,000. I want the House to notice those two figures, because to my mind they are fundamental when we are considering what are our present problems. Before I come back to the difference between these two items let me direct attention to another paint. During this period direct taxation increased by £376,000,000 and indirect taxation by £225,000,000. It is well known that wages bear only a small part of direct taxation, and a part only, but a much larger part, of the indirect taxation. Profits and interest bear the largest share of the Income Tax, naturally, the whole of the Excess Profits Tax and most of the Surtax and Death Duties. I am sorry to have to go through all that, but it is to bring out this point, that it is quite clear that the largest increase in free income has accrued to the wage earners. It should do so, and I do not quarrel with it at all, but the fact is that it did, and if inflation is to be controlled then the Chancellor of the Exchequer has two courses open to him: either he must tax wages further—let us face it—or else he must control any excessive rise, particularly of an unequal character.
When the Chancellor was speaking earlier to-day I was very glad to hear him emphasise the necessity of controlling waste and that it is personal waste in addition to national waste which has to be controlled. The chief increases in taxation in this Budget are being imposed upon people who are quite unable to curtail their consumption any further—I am speaking in general terms, but to any large extent they are unable to do so; and if they have to live on capital, as some will have to do, that, of course, releases nothing to the Government, and helps the Government in no way at all. It comes back, therefore, to this proposition, that one of the difficulties we are 1630 in to-day is that we have no control of-wages at all. The last thing of which I want to be accused, and I hope I shall not be, is of making an attack upon wages. That is not my point at all. I am not considering what a man earns; what I am thinking about is how the country is going to meet the bill and avoid inflation. The uncontrolled part of the bill is the wage rate. Make your minimum standard of wages whatever you like— I have no quarrel with that at all—but what you must do if you are to win the war is to control the expenditure in some way, just as you are controlling the earnings of capital and controlling enterprise. It is fundamental to the problem of to-day that we should have a proper wage policy, not necessarily involving either a cutting down or an increase in wages; but whatever it is, let us have a definite wage policy on which the Government can base their financial policy, without which they cannot win the war.
§ Mr. James Griffiths (Llanelly)
I do not for a moment deny that there is a problem of a proper wage policy, but it would be interesting sometimes if we could hear from hon. Gentlemen opposite what they mean by a proper wage policy.
§ Sir J. Wardlaw-Milne
I will try to explain, without going into too much detail. In this country at present, a vast number of people have been brought into industry and are working for the Government. You may say to-day that almost everybody is working for the Government. In addition to that a large number of people have been conscripted for the service of the State. There is no quarrel between those two branches where they actually start. A man is conscripted to work for the war effort in the Army, on a comparatively small rate of pay, and he understands that that is his obligation to the State. As you gradually increase, as we are doing, the earnings of those in munition factories, you steadily increase the difference between the earnings of those two sections of the population and that is dangerous, to begin with. It has a dangerous effect, because men begin to object to their fellows getting a different rate of remuneration from themselves.
The second difficulty which arises, without a wages policy, is that you have two sets of people paid different wages for 1631 doing practically the same work—not necessarily the identical work but the same class of work—and, as the pressure grows, and it will grow steadily, on every human being in the country to give service to the State, there is increased demand in respect of payment for essential work. Every employer working for the Government is now almost without interest in the question of what the rate of wages should be. The result is the absence of a normal opposition to an increase in wages. Let us leave aside any prejudices or questions that have been raised in the past. When every employer has to produce goods on competitive terms, the natural desire is to cut down charges and costs, because otherwise the business cannot pay in competition with those in the same trade. To-day, it is a matter of indifference to the employer what his costs in wages are, because the State is paying. The consequence is this growing snowball of rising wages and rising costs. In itself it would not matter, if it were not for its effect, which, combined with an increasing scarcity of consumer goods, is an inflationary one, upon the national effort.
The real object of the Chancellor of the Exchequer to-day is not simply to raise money. I remember discussions in this House during which a former Prime Minister spoke of the necessity of having cottages for everybody at 10s. a week. What utter nonsense. It is no use talking about 10s. a week. It does not matter what a man pays for his cottage provided he earns enough to pay the rent as a reasonable portion of his earnings. Therefore, the real business of the Chancellor of the Exchequer to-day should be not only to find money—which is comparatively simple—but to maintain its value. If he does not maintain the value of money, the increased wages are merely a snowball movement from which the people who earn the wages are no better off. In fact, they are worse off. It is essential that the Chancellor of the Exchequer should devote his attention not to the prevention—because it cannot be prevented—of inflation but to the control of inflation and to maintaining the value of our money. This can be done only if he has some definite form of wage policy in the same way as he controls other forms of expenditure.
§ Dr. Russell Thomas
For a controlled wage policy such as is suggested you must have complete control of the prices of commodities.
§ Sir J. Wardlaw-Milne
I am just coming to that point, if the hon. Member will allow me. I entirely agree. Any inflationary movement is caused by the increased expenditure of the State, aided by a diminishing supply of goods. When the individual consumer cannot spend his money in the usual channels but concentrates on a reduced supply of goods, one of the great dangers of inflation is on the move. I want to point out to the House that the real lesson is not only for the present but for the future, because if the goods which the consumer wishes to buy cannot be created in sufficient quantities, there will be just as much danger then as there is at the present time. In fact, the danger of inflation may be with us in an even more definite form after the war than it is while the war is being waged.
In his Budget speech, the Chancellor of the Exchequer dismissed with slight reference the large sums of money that have been spent abroad. I mention the matter because it will probably come up during the Debates upon the Finance Bill. He indicated that those purchases were financed largely out of reserves and that they had little inflationary effect at home. I wondered whether that was wholly true. The individual holder of any foreign investment has to be compensated in sterling, and this means new money. If that new money goes, as perhaps some of it does, into Government securities and is not spent on consumer goods, little harm may be done, but normally—and here, again, I follow my hon. Friend opposite —that money would go into investment in industry or trade and, much more likely than anything else, into the provision of exports. But exports can be increased only by diverting labour from home production. This cuts down the supply of goods here, and again results in a further inflationary effect upon prices.
Spending at the rate we do abroad at the present time, we must, in the end, depreciate the value of sterling in terms of other countries. That, again, puts up the prices of everything we buy from non-sterling countries. This is not a problem of the moment perhaps, but it is one that cannot be ignored because we are bound to face it, not only after the war but 1633 possibly before the war ends, and the solution will to some extent depend upon the nature of the settlement of our purchases from America. The repayment of this 20 per cent. bonus, less tax, whatever may be the rate at that time after the war, is a good move. This reduction of E.P.T. by repayment after the war may have far-reaching results in connection with our future Budgets. The principle adopted there is one to which, so far as I know, the Treasury have never shown any desire to adopt in previous years with similar forms of taxation.
There is no adjustment in this Budget of the burden of taxation between those whose incomes are already charged with very heavy and definite commitments from which they cannot possibly escape and those who spend their incomes as they please. My hon. Friend gave very interesting figures showing the taxation as between the rentier and the entrepreneur. There are other difficulties in the present demands. There is the fact that the taxation makes no differentiation between the man and woman with very large commitments and quite unable to get out of them, war or no war, and those who have few, if any, commitments at at all. That is an aspect of taxation which, sooner or later, the Chancellor of the Exchequer must take into account. The simplest example is the difference between the married man with a large family and a bachelor. At the present moment, there is nothing in the Government's proposal to show that they pay any attention to those differences of liability under which various citizens labour. Clearly, one of the ways of dealing with matters of that kind is the much discussed question of family allowances. Probably that is one solution into which the Government will inquire. The well-to-do man has, of course, to eat the same kind of food, to buy clothes, furniture and other things as the man who is less well off, and in those respects they should be rationed equally and drastically. There is no other way in which we can succeed except by the most stringent rationing of all sections of the population equally. But that does not alter the fact that there are people who have large expenditure to face in the way of wages, upkeep of houses and so on, that they cannot possibly avoid, and as taxation stands at present no account is taken of that.
1634 I do not want to weary the House with details, some of which could, I think, best be dealt with when we come to the Committee stage, but I have been a little concerned with the amount of discussion I have seen in the Press on the subject of savings. The progress that is being made is very remarkable and we must all be very glad that it is growing so rapidly. But the criticism is sometimes made, and rightly made, as to how much of these savings are real savings. Not even the Chancellor of the Exchequer can answer that question. It is one of the most difficult questions before us. I sometimes wonder, when I see that the Government borrow money from the banks, whether it is really in the national interest to pay the banks a higher rate of interest than they would otherwise get, which is, after all, what we are doing, and whether it is very sound finance to pay three per cent. for money on which the banks would otherwise obtain only a half or one per cent. These are questions which it is very difficult to answer. We do want real savings — every penny, from everybody —and it is a matter of congratulation that the campaign has been so successful. I join, however, with my hon. Friend opposite in saying that I do not yet see on the part of the Government any planning ahead to deal with the problems of finance which this war will call forth. I congratulate the Chancellor on the way the Budget has been received and on the happy way in which everyone has reacted to being taxed more and more. But we have got to look ahead. We can do a great deal by the elimination of waste. There are two ways of realising this objective, to raise the money or not to spend so much, and I am delighted to hear his remarks on that second aspect of the subject.
Immense sums, however, have to be raised, and the question is, Can they be raised by ordinary methods at all? That is the real problem facing the Chancellor. To finance the war we must maintain the value of sterling by controlling inflation so far as we possibly can. We can only do that by rationing far more strictly than at present, and by a wage policy which, whatever it may do in the way of providing good wages—and nobody is against that—will prevent inequalities the result of which will destroy 1635 our own policy. I am very much afraid, from what I see of Government factories, that much effort is still wanted throughout the country to win this war. If I were asked to make a statement, or to make a guess, as to the extent to which the country is behind the war, I should say that psychologically it is 100 per cent. behind it. But in regard to working for victory it is not yet a 100 per cent. effort. It is nothing like it, and I should say that this country to-day is not working more than 75 per cent. of the extent to which it ought to work. Something is needed from the Government to bring about the extra effort required— not only the control of expenditure, which is essential, and a real cutting down of personal and Government waste. That is essential, but behind that there should be a policy which insists that every man and woman should do their utmost by compulsion if necessary, while all that they may expect in return is sufficient to enable them to carry on until the day of victory.
§ Mr. Benson (Chesterfield)
As usual, we have had an interesting speech from the hon. Gentleman who has just spoken, but I should like to point out that high as our taxation is, on the vast majority of the ranges of income it is still sufficiently low to allow all that variation in commitments of which he spoke. I will not say that that applies to the very highest ranges, but to the majority of income ranges it does, and it is the existence of that variation of commitments which prevents the Chancellor from putting up taxation to what one might describe as the logical level.
§ Sir J. Wardlaw-Milne
I do not quarrel with that, I agree, but at the same time it is only fair to remember that some of those commitments are pre-war.
§ Mr. Benson
It is because of those commitments that the Chancellor still does not take more than 10s. at the £4,000 level. I think the problem which we have to face is primarily a problem of savings. The Chancellor has fixed taxation, and I hope we shall not have to indulge in a second Finance Bill this year. He is now looking to savings to fill in a very large gap. He has made various interesting calculations and has concluded that the final gap which will have to be filled in is approximately £500,000,000 of additional savings over and above what we 1636 have done in the previous year. It is a very large sum. I think this matter is one to which we ought to address our minds more logically than we have done in the past. During the Budget discussion my hon. Friend the Member for East Middlesbrough (Mr. A. Edwards) and myself ventured to offer some criticism of the way in which the Savings Campaign is being run. We criticised War Weapons Weeks, not on the grounds that they should not be held, but that their method could be improved. Our criticism was that War Weapons Weeks are aimed primarily at the collection of private savings, as industrial savings come to the Chancellor of the Exchequer automatically, and that, therefore, to include in War Weapons Weeks totals what I might call industrial money, the reserves of companies waiting for investment, is entirely wrong. It confuses the issue, and gives an entirely wrong impression of the result of the War Weapons Week and of the effort which is required to maintain the rate of savings.
Further, the habit of making a target for one particular week is wrong, and the target is fixed upon an entirely inadequate basis. Very few targets are fixed unless the organisers know that they are going to get a great deal more. I know of one small place where they fixed the target at £2,000. They already had an industrial cheque for £2,000 in their pockets. That is not fixing a real target. But the main point is that our effort must be an annual effort. There must be 52 War Weapons Weeks in a year. It is not the violent spasmodic effort of one week that will bring in the money which is required. One should announce to the districts, not a target for one week, but the amount which they should raise each week for 52 weeks of the year. That would give some indication of the real task which confronts them. The impression given when a district has surpassed its target for a War Weapons Week is that it has done magnificently. So it may have; but it is a very dangerous thing in war-time to give people the impression that they have done more than is demanded of them.
As a result of those criticisms of ours, which were intended helpfully. Lord Kindersley has broadcast what he calls a complete reply to "the ballyhoosters" —because, I think, my hon. Friend and I used the term "ballyhoo" His reply 1637 is that in 1940 the average of small savings was 4s. 8d. per head per week. In the 132 War Savings Weeks it jumped to £3 17s. 3d. for the districts concerned, which produced in small savings a sum of £22,500,000. That reply is very disturbing—at least, it disturbed me. To begin with, it is extraordinarily inept. It is no reply at all to our criticism. Lord Kindersley evidently has completely misunderstood the criticism. We did not want to stop his War Weapons Weeks. We only wanted to improve his methods. What is more disturbing still is that Lord Kindersley apparently has misunderstood the objects of his own War Weapons Weeks. The amount raised in any one week is not important—at least, it is fractionally important, as compared with the amount raised over a whole 12 months. While the Chancellor asks for small savings amounting to £500,000,000 to £700,000,000 a year, Lord Kindersley broadcasts the statement that he has made a complete reply to his critics because War Weapons Weeks have raised £22,500,000. Lord Kindersley is quite out of touch with reality. But, thank goodness, he has a competent staff of people who know their jobs. The staff that runs the War Weapons Weeks have no illusions about the importance of their targets. They spend their whole time in the districts where there are War Weapons Weeks, doing the real thing, organising a machine for permanent collections. The War Weapons Week is not important.
§ Mr. Benson:
Yes; it is a very good advertisement. But Lord Kindersley is under the impression that he has given a complete reply to the critics who suggest that the War Weapons Weeks method is not entirely adequate. I suggest that we should direct our publicity to the real problem, which is the annual amount of saving in a given district, not the amount for one special week. It is not a complicated matter to calculate roughly what any district—an agricultural district or an industrial district; a wealthy city or a depressed area—can and ought to produce in private savings in 12 months. The whole of our publicity in that district ought to be directed to telling our people what they must do. The war weapons week is a first-class advertisement. It gets the people interested. It gets the savings 1638 groups going. But the people should be told what they are to do during the next 12 months.
This problem of saving is so important that I hope the House will bear with me when I analyse the problem. The Chancellor in his Budget speech referred to £500,000,000 to be provided by savings. To-day, he spoke of real savings of between £200,000,000 and £300,000,000. I am not sure where the balance is to come from, whether from unreal savings or not; but the real savings which we have to get in this coming year must amount to a very large sum. They cannot come from industrial concerns. Excess Profits Tax, which has already been discounted in the Budget, will see to that. There is no possible increase from industrial savings: the money must come from the private individual. We can rely on little from the rich. For many years the rich have ceased to be a source of national saving—probably because of the increasing rates of taxation in the higher ranges of income. The recent very heavy increases of taxation on the higher ranges will prevent any more saving coming from that direction. Take the Surtax payer. The Chancellor's predecessor told us in 1940 that after Surtax payers had paid taxation, the total income left to them was £260,000,000. The Chancellor has in this Budget imposed upon them anything up to a further £70,000,000 of taxation. In addition to that, the War Damage Contribution will be a fairly heavy levy. The total amount of income left to the Surtax payer will be considerably less than £200,000,000. The commitments referred to by the hon. Member for Kidderminster (Sir J. Wardlaw-Milne) and consequent disinvestment will entirely discount any real saving from that source. We have to look the facts in the face. The source of savings must be the working-class and middle class in this country. That may or may not be a pleasant fact, but one must look the facts in the face, and these are the facts.
There is a very strong counteracting influence which works far more steadily and radically than appeals and propaganda, and that is the instinctive desire upon the part of everybody to maintain the standard of living to which they have been accustomed. Hon. Members opposite in past Debates have often referred to the importance of gain as an incentive. The desire to improve the standard of living 1639 is nothing like so powerful an economic motive as the desire to maintain the existing standard of living. Many years ago Webb pointed out that strikes were far more readily undertaken to protect the standard of living than to gain an increase in that standard. This instinctive desire to maintain that to which they have been accustomed is the main difficulty in attracting savings. War means a reduced standard of living for everybody, and you cannot get away from it. It is a reduction in the standard of living just at the time when the majority of the people in this country are handling more cash than they have ever had before. You get that contradiction which it is difficult to drive into the heads of the people. A large number of things we require are drastically rationed, and a large number of other things have completely disappeared, but with the instinctive desire to maintain the standard, you have the housewife making desperate efforts to obtain some alternatives to what she has been accustomed hitherto in order to make up for the commodities which have been rationed or have completely vanished from the market. You find that these alternatives, themselves in short supply, have risen in price infinitely more than the normal constituents that go into our cost-of-living index. I have not made a deep or detailed examination of prices. But there were three prices which I happened to notice last week. Lettuces were 1s. each.
§ Mr. Benson
Spring lettuces, if you like, at a shilling each. Tomatoes were 7s. a pound. They are among the two alternatives that are available. I also saw that venison, which was difficult to sell at 8d. a pound before the war, being a very unpopular meat in this country, was being sold at 2s. and 3s. 6d. a pound, a clear case of profiteering. The point is that the people trying to keep up their standard of living and having far more cash available than that to which they were previously accustomed, naturally force up the prices of these things. That is the problem. It is not the problem of the staple or rationed articles but the alternatives for which everybody is searching. If we are to solve our savings problem we shall have to stop this leak in the family budget, which is due to the need 1640 for purchasing unregulated alternatives to the normal standard of diet and consumption at very high prices. It does not take very much to wipe out a wage of £4 a week in view of the present prices that one has to pay for what are very nearly necessities. The right hon. Gentleman is spending a very large sum of money in subsidising staple foodstuffs to keep down prices. Such subsidies, now amounting to nearly £100,000,000, will be wasted if the prices of subsidiary and alternative foods are allowed to rise without any check and control.
I admit that there is no simple remedy for this state of things. All the alternatives are in short supply, and if we are to keep down prices, it can only be done by a very much wider system of rationing and a more drastic system of price control. I am not looking at this matter from any other point of view except that of the flow of savings. You have to prevent two things—undue purchases and purchases at undue prices—and that can only be done by drastic rationing and price fixing. There is no simple solution to this problem; and the Chancellor of the Exchequer is not going to get a simple, broad solution. It is a question of unremitting attention to innumerable details. In the fixing of prices he will be up against one very serious snag, and that is the chaos in our distributive system. The distributive system, with the labour employed, has expanded during the past 20 years out of all recognition. There has been a larger expansion in the number of people employed merely in distribution in the past 20 years than has been the case in any other industry. This chaotic overgrowth of distribution was a heavy burden on the community in time of peace, but now, with an enormous reduction in the quantity of goods to be handled, the burden has grown out of all proportion. It has to be tackled.
The right hon. Gentleman the President of the Board of Trade is hard at work producing schemes for the concentration of production. If the Chancellor of the Exchequer is to obtain the savings that he requires, he will have to see to it that there is a great deal of concentration in distribution in order that he may be able to fix prices which will be reasonable to the consumer, leave a margin for savings, and give an economic return to the distributive machine. If the Chancellor does not do 1641 that, the multiplicity of middlemen and the inordinate number of shopkeepers are simply going to eat up the money which ought to be flowing into the Exchequer. In the case of controlled foods, a good deal is being done. For example, before the war there were 18,000 slaughterhouses in this country, and now exactly the same work is being done by only 800. Some similar steps will have to be taken with regard to the distributive machinery as a whole, unless, as I have said, we are to allow the money to be eaten up which ought to be flowing as savings into the Exchequer. It is this lack of regulation and control which is the big hindrance to efficient saving. I hope that I have not bored the House with very obvious remarks and a very obvious analysis of a very obvious problem. The fact that the problem is not being tackled is my defence.
§ Mr. Denman (Leeds, Central)
Every section of the House will wish to join with the Chancellor in gratitude to Canada for the efforts she is making, and for the munificent proposals he has mentioned to us. Perhaps nothing better can be said on the subject than to say that it is exactly what we should have expected from our Allies and friends, so wholeheartedly with us in this common endeavour. We have listened to-day to some extremely interesting Budget speeches, but I think we can more usefully employ the very short time which is left by confining our attention more rigidly to the Finance Bill, in the hopes that our comments may assist the Chancellor in dealing with the Measure in its later stages. Budget Debates are always of interest, and I like especially the theses and excursions which, from time to time, my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) puts before the House. But our time is short, so I propose to deal with one or two purely Finance Bill topics, based on the Budget Statement and the Resolutions we have passed.
The Chancellor has, in this Bill, accurately fulfilled the promises he made to us. Indeed, he has gone beyond his promise in the case of Death Duties on estates of civilians killed by enemy action. Here I believe the House will unanimously agree in thanking him for his proposal to meet the hardship of estates having to pay the full amount of Death Duty, as if 1642 people had lived their full and normal lives. Another point, which is not yet in the Finance Bill, but which the Chancellor led us to hope may be there, is the question of tax-free charges. It is a point which I put before the Chancellor and his predecessor in correspondence some time ago. These cases do involve a real grievance, which I trust the Chancellor will be able to deal with during the Committee stage. The sort of case which an accountant in my constituency put to me—and he tells me it is not at all an uncommon case in Yorkshire—is that of a family business, which has been left, by will, to one member of the family, with charges on the business to other members of the family, those charges being payable tax free. That was a perfectly simple arrangement when Income Tax was 2s. 6d. in the £, but when Income Tax has reached 10s. it imposes an extremely heavy charge on that type of business. My accountant friend tells me that there are cases where he thinks it might mean bankruptcy.
Another subject with which I should like to deal is the question of Excess Profits Tax. Here again the Chancellor has fulfilled his promise. He is dealing with wasting assets in a way which is subject to some criticism by those interested. It is said that an attempt to discover with precision, for taxation purposes, the life of, say, a tin mine, is scarcely practicable. In any case, it would involve so much expert examination, and examination of properties perhaps at the other end of the globe, as scarcely to be worth while undertaking. It is suggested that some easier form of dealing with wasting assets should be discovered. I am sure if there was such a form that the Chancellor would adopt it, but I am not myself in a position to make any positive suggestion. The allowance in respect of additional capital, if borrowed, meets a real need. I would suggest, however, that the Chancellor has not really met the Basic requirements which must be met if Excess Profits Tax is not to be excessively injurious. It must have many injurious repercussions, but still it might be possible to lessen the evils which are inevitable in a tax of that kind.
While welcoming the tax of 100 per cent., I suggest it might be possible to give more elasticity to the basic standard, because as the tax stands there is no reward 1643 at all for additional productive efforts. An industry with which I am very familiar is the rubber-producing industry. I do not consider it ought to claim any special treatment, But it is not a bad example of what is happening to a good many industries called upon to produce something in the nature of an additional 40 per cent. compared with a few years ago. It produces, and will go on producing, but it is not allowed to make a single penny more by reason of that increased productive effort. I do not want it to pay more dividends, and I do not want the 100 per cent. to be changed, but I consider that as a result of that increased productive effort more should be made available to reserve. That, I believe, could be done by a greater elasticity in the basic standard. But, of course, the 20 per cent. that can now be put to reserve and will be paid after the war is some remedy for the position to which I have referred.
The real evil of this tax, as is known to everybody in the House, is that it stimulates extravagance, as was pointed out by the hon. Member for Chesterfield (Mr. Benson) and others. I was glad that the Chancellor referred especially to Clause 26, which I attempted to understand with only partial success. I believe it is the intention of this Clause to deal with cases where firms have indulged in expenditure which will be paid out of sums that would otherwise go to E.P.T. It deals with cases where one of the purposes of a transaction is the lessening of the liability of E.P.T., but when I read the Clause I could not make up my mind whether that would cover every case in which additional expenditure would be out of surplus funds or whether it would refer to exceedingly few cases. In my experience of E.P.T. I have not found people who go out with the deliberate intention of lessening their liability for E.P.T. In the case of Surtax I have come across people who have gone through most elaborate devices and indulged in what, in the Statutes, we call artificial transactions, in order to lessen their liability for Surtax. But I have not come across that kind of thing in relation to E.P.T.
The process is different. What happens is that a management desire to make some added expenditure, perhaps see some 1644 useful way of spending money, and having decided that, they consider where the money is coming from. They say it will come out of surplus profits, which, if not so used, would go to E.P.T., and they are naturally encouraged to embark upon that expenditure. Let me take a simple and common case—that of wages. People get round the table and discuss whether there should be a rise in wages. All parties at the table know perfectly well that the rise will not come out of surplus funds. It will come out of State funds, because but for that rise it would go to E.P.T.
§ Sir Frank Sanderson (Ealing)
The hon. Gentleman will appreciate that industry does not grant increased wages merely because the demand is made and because the increase would be paid out of E.P.T. There is a good reason why; they always have an eye upon the state of affairs at the end of the war.
§ Mr. Denman
The hon. Gentleman interrupted me too soon. I never hinted that a wage increase would be granted. I was indicating the position where everybody knew that if an increase was granted, it would, in fact, come out of Government money. That may or may not be conclusive influence in a given case, but my point was this: In that case the management know that the money will come from E.P.T. Is that the case in which, in the words of Clause 26, one of the purposes of the expenditure was reduction of E.P.T.? I find it extremely difficult to say at what stage the knowledge that expenditure will lessen one's liability to E.P.T. is the same as a purpose when one makes an expenditure in lessening liability for E.P.T. If they coincide, the Chancellor has within his net what I think he would agree would be an unreasonable number of cases, and the more so, because this provision is retrospective. It seems to me very hard, if a firm was told that one of its objects in creating a wage increase was a lessening of E.P.T., that the sum so expended must be deducted from its standard profits and not from its surplus profits. I hope the Chancellor will tell us what he really has in mind and say what type of cases he proposes to meet. All of us would agree that anything in the nature 1645 of artificial transactions designed to avoid E.P.T. ought to be sat upon retrospectively. But if he is to try and catch the perfectly normal and almost inevitable happenings in the conduct of business, I think it would be creating a real hardship.
There is one further point in that connection. This matter is to rest upon the opinion of the Commissioners. Will the Chancellor assure us that the Commissioners will be prepared to give an opinion on a case put before them in advance? It is exceedingly hard to conduct business if you are about to make an expenditure and you have no idea where the money is coming from. Take another very common case. Suppose one of your employés is conscripted for military service and you decide to pay him the difference between what he has been earning in your employment and his military pay. That may be extra expense which will come solely out of E.P.T. I think you ought to know before you do it that it is a matter on which the Commissioners are likely to have an opinion on Clause 26. Whatever you do, I suggest that this tax is bound to cause a certain amount of slackness in economy and of extravagance. I think it is inherent in any scheme in which a management sees that the whole surplus revenue is handed elsewhere to spend.
Hon. Members must not think that this is a particular disease of capitalism; it applies quite as much to socialised organisations as to private organisations. It was the system under which Post Office finance was regulated some time ago. The Post Office had to pay over its old surplus revenue as the Treasury might like, and that was only because there was within the Post Office a Treasury officer who kept a very tight control on all expenditure. What E.P.T. is really doing is to introduce that old and discarded system of Post Office finance into industry in general and not to put within the offices of the different firms anyone who can exercise Treasury control.
§ Mr. Benson
Does the hon. Member suggest that the Post Office Fund was instituted to give the Post Office an economic incentive?
§ Mr. Denman
No; I simply say that it was found to be an exceedingly bad system, and one that was not conducive to 1646 the highest efficiency, that all the profits 0which the Post Office made should be handed to the Revenue. As the hon. Member knows, that system was altered. The Post Office were told to pay a certain fixed sum to the Revenue and the balance was left largely with them to be dealt with at their own discretion. That illustrates my point that the old Post Office procedure was a quite unsuitable method of dealing with surplus profits. The resultant evils are quite obvious. The resultant evils of this encouragement to extravagance and slackness in economy arc that production costs are bound to rise somewhat. The after-war position, with which we cannot unduly concern ourselves at the present time, will be that our industries will find great difficulty in competing in overseas markets. But there is one other evil which I think the Chancellor of the Exchequer should particularly have his eye on, and that is the possible loss of revenue. Although he is getting the 100 per cent. Excess Profits Tax on a reduced amount, he is losing Income Tax and Surtax on the higher amount that would have been available in profits but for the encouragement to extravagance of the Excess Profits Tax. I do not say that at the present moment the Chancellor has anywhere reached the point at which he is making a loss on the transaction, but I think he will have to consider the risk of loss of Income Tax and Surtax that is caused by the extravagance in the management of companies. I have occupied all the time I wish on this subject. I congratulate the Chancellor on a Finance Bill which, I am sure, he will have no difficulty in getting through the Committee stage. There are points that will arise which we can suitably discuss on the Committee stage. For the moment, I wish to say no more in commendation of this Bill.
§ Sir Frank Sanderson (Ealing)
I wish to pay my tribute to my right hon. Friend the Chancellor of the Exchequer on his speech in opening the Debate. He made a very comprehensive statement which I feel sure the House and the country will accept in the spirit in which it was made. My right hon. Friend has introduced a Budget which is very drastic in its measures and demands great sacrifices. Those sacrifices will be made provided that the money which is raised by taxation is spent economically. The hon. 1647 Member for Central Leeds (Mr. Denman) made special reference to the incidence of the Excess Profits Tax, and it is to that matter that I want particularly to address my remarks. I know that it is unpopular to discuss the incidence of high taxation, and I assure my right hon. Friend that I do so in a spirit of helpfulness. None of us expect at this critical time to do other than pay to the maximum of our ability, but it is well to consider the matter when it can be shown that the incidence of taxation minimises the country's efforts and places industries in a position that will make it difficult, if not impossible, for them to recover to normality after the war.
In discussing the Excess Profits Tax, one is rather disposed to imagine that it is a very simple process of merely taking what may be termed the cream from any balance sheet, namely, the whole of the profits which may have been earned in excess of the average of the years preceding the war. In practice, of course, that is not the case. This is what really occurs. In the course of the development of industry, new plant and machinery are installed, and larger stocks have to be carried, all of which requires capital to finance it. When a company arrives at the end of its financial year, it finds that, with the incidence of the Excess Profits Tax at 100 per cent., it is left with fixed assets which have been paid for not out of profit that has been earned during the year, but out of the accumulated profit of preceding years. I think I can best illustrate my point by giving three examples, taken at random, which demonstrate the harshness of the 100 per cent. Excess Profits Tax. I see no reason why I should not mention the names of the companies. The Coventry Gauge and Tool Company made a profit of £232,000 last year. Out of that it paid £210,000 in taxation—91 per cent. of the whole. Another company, Barrow, Hepburn and Gale, which is, I believe, the largest tanning and leather manufacturing company in the country, made a profit of £627,000 last year, and paid in tax £548,000, no less than 87 per cent. of the whole of its profits, leaving it with a net profit of £79,000, that is, £10,000 less than their profit of the preceding year, when they earned £400,000 less profit. In recent years, that com- 1648 pany has had to write down its capital by no less than £2,300,000. The last case which I want to quote is, I think, even more clear; it is the British Celanese Company. Last year it made a profit of £977,000 and paid £635,000 in taxation.
§ Mr. Silverman (Nelson and Colne)
Will the hon. Gentleman inform the House what dividends these companies paid?
§ Sir F. Sanderson
Yes, certainly—out of which they pay £635,000 in taxation, leaving a net profit of £342,000. In this case the company has not paid any dividends upon its preference issue of £4,250,000 for the last 10 years, and it has paid no dividend on its ordinary shares for the past 20 years. In fact, it has never paid an ordinary dividend at all. I find it very difficult to believe that it is in the interest of the country as a whole that practically the whole of the earning capacity of a company should be taken when it is unable to meet its obligations to its preference shareholders, and I cannot help but feel that in cases of that character my right hon. Friend should be more generously disposed. Indeed I think it is very difficult to lay down a hard and fast rule. I should like to congratulate him on his decision to grant E.P.T. concessions to mining and other companies with wasting assets. I would suggest, however, that it is vital, if the concession is to be of any real value, that it should be on very much more simple and straightforward lines. To carry out the regulations to be formulated by the Treasury, particularly in time of war, when the transport of mails from Africa and other parts of the world is unreliable and slow, would make it impracticable, if not impossible. I venture to suggest that it would be far more practical and economical to grant an average concession to all. This would prevent an army of accountants and mining engineers directing their attention to non-productive work at a time when their services are so urgently required in other directions.
I pass from E.P.T. to Surtax. I realise here, too, that I am on dangerous ground. I wish to demonstrate that with a 10s. Income Tax, we really have arrived at saturation point in regard to Surtax. In my opinion the incidence of the high Income Tax and Surtax will bring about diminishing returns. From incomes over £10,000 my right hon. Friend takes no less than 19s. 6d. in 1649 the £. It is profitable for large property owners to forgo the whole of their rents. The 6d. in the £that they retain does little more than cover the cost of collection and the necessary solicitors' and accountants' fees. That brings me to a point which I have consistently urged. I have asked my right hon. Friend whether he could see his way to permit, as a charge against income, costs incurred by accountants in preparing that income. There is surely a greater reason to-day why it should be permitted. It seems grossly unfair that one has to provide accountants to prepare one's Income Tax and Surtax returns and that the cost has to be borne out of the slender net income remaining.
I recall the case of the Prime Minister's salary which the House voted for him, based upon the principle that the dignity of the position warranted such an income. To-day, when Income Tax and Surtax are deducted, the Prime Minister's salary is £3,160. If the House really desired that the Prime Minister should enjoy a salary of £10,000, it would have to vote no less than £266,960 per annum. It may not be considered expedient to pay the salary free of Income Tax and Surtax. I suggest that it is in the interest of the country that the Prime Minister should have a salary which would relieve him of any financial responsibility. I am not referring to the Prime Minister of the day, but to any Prime Minister whoever he may be, and I suggest that he should not pay Surtax but should be subject only to Income Tax. My right hon. Friend the Chancellor may wonder whether I include him in what I am saying. My reply is in the negative, because I feel that if he and other Cabinet Ministers were relieved from the burdens which they impose upon others they would not appreciate the magnitude of direct taxation.
I will give one other figure to demonstrate the magnitude of modern taxation. When a man has an income of £10,000 a year taxation leaves him £3,160 net. Any income in excess of that amount pays in Income Tax and Surtax no less than 19s. 6d. in the £, leaving only 6d. in the £. I had a case brought before me only last week of a certain great industrialist who offered to sacrifice his commission, which amounted to £10,000. He stated that in these 1650 times he would like to forgo it. When one realises that what he was really forgoing was not £10,000 but £250 a year, one will appreciate that his magnanimous gift was not so great as it appeared to be. I demonstrate these points because it is obvious to me that the incidence of Income Tax and Surtax is so heavy that my right hon. Friend will get a reduced amount in the form of Surtax. People will not take the income, and if they do not take it, my right hon. Friend will not get the Surtax on it. He will get only the Income Tax. I suggest that it would be expedient to consider whether the ceiling for Income Tax and Surtax together should not be 18s. in the £. I suggest that amount because my right hon. Friend in the greatness of his heart is to reduce the Excess Profits Tax, approximately, to that amount. I really think that it would be worth my right hon. Friend's while to consider whether he should not, even at this late hour, make the ceiling of Income Tax and Surtax a figure not exceeding 18s.
I claim that the incidence of this high taxation strikes at the economic structure upon which our business, our institutions and our life are built. How is a man in the region of the larger incomes to meet the expenditure of his life insurance premiums? Obviously he cannot do so and his insurance will have to go by the board. Questions of education, public schools and universities, subscriptions, donations and so forth are also affected. The question of real savings has been raised by several hon. Members. I was pleased to hear an hon. Member say that we must look in future in the main for the savings to come from the wage-earning classes. In 1938 the national income was £4,415,000,000 and in 1940 it was £5,568,000,000. Of the increase, Excess Profits Tax took £210,000,000, and of the balance of £943,000,000 no less than £663,000,000 was due to increased wages. It is obvious that it is in the main to the wage-earning classes that my right hon. Friend must look for his savings.
I must refer to the cost of the interest and management of the National Debt because it is a matter which is to the credit of my right hon. Friend. In the financial year ended on 5th April, 1941, the cost was £230,000,000. My right hon. Friend estimates that this year the figure 1651 will be £255,000,000. Many Members have expressed the view that the increase is becoming serious and that is an important fact which my right hon. Friend must always bear in mind. But has the House forgotten that in 1930–31, the interest and management of the National Debt cost £292,000,000, namely, £37,000,000 in excess of the cost to-day? That is attributable to two factors. The first is my right hon. Friend's financial policy by means of which he is borrowing money at a rate of interest as low as three-quarters of one per cent, and in the main on a basis of 2½ per cent.
In the last war we were paying no less than 6 per cent. upon Treasury bills. The change is due to my right hon. Friend's predecessor, who was responsible for reducing the interest paid upon a great part of the National Debt. At the present rate of national expenditure it will not be until October, 1943, that my right hon. Friend will be faced with the same weight of interest and management expenses as was borne in the year 1931. To have achieved this result great credit is due to my right hon. Friend the Chancellor. After the war world competition will be unprecedented in its severity. We shall enter the struggle to retake our position as the world's greatest exporter, stripped of a great portion of our foreign securities and exchange, with a great portion of our shipping lost and our industries depleted of the reserves which they would have built up in normal times. These considerations must not be lost sight of, and we should prepare the way to meet them now whilst there is time.
§ Mr. Mander (Wolverhampton, East)
I find myself in general agreement with the proposals in the Finance Bill, and intend to confine my remarks to one subject only, on which I put a Question to the Chancellor of the Exchequer last week, when he was good enough to say that he would give it careful consideration. I refer to the anomalous position of British subjects who are at present residing overseas, more particularly those in the United States of America. The points I am putting forward and my proposals for a solution of them are not made, I can assure my right hon. Friend, without full knowledge and upon the very best advice which I have been able to obtain. I suggest that the 1652 law should be altered in order to make available for the full purposes of the war the property and services of British subjects who are living abroad. I do not intend to deal with the question of evasion, though when we come to the appropriate Clauses I may have something to say about that as it affects British subjects overseas. The position is that British subjects living overseas are not subject to the foreign exchange regulations, are not liable to pay British taxes upon income arising outside British territory, are not liable to military service, and do not come under the provisions of the Trading with the Enemy Act. The last two are matters whch obviously do not come within the scope of this Debate, but as regards the first a British subject living in the United States has no obligation to declare his dollar holdings, and the Government cannot obtain them by making a vesting order.
There are a number of instances of British subjects who have deliberately moved to the United States. Some of them lived on the Continent, and when the collapse of France came they went to the United States—I do not say deliberately in all cases. There are British subjects there who are enjoying large dollar incomes and are not accountable to our taxation. The absurdity of the position is that if instead of going to the United States they had gone to any part of the British Empire they would have had to surrender their dollar securities to the British Government. I understand that a substantial leakage has taken place, and is going on now, through the West Indies, and in particular through Jamaica, and I hope that my right hon. Friend will consider carefully whether it cannot be stopped, because my information is that substantial sums in sterling have gone through that channel to the United States and are being used free from any form of control or taxation. That sort of thing is harmful to our cause on the other side of the Atlantic. At a time when Americans are making sacrifices to help us, for which we are very grateful, it is very unsatisfactory for them to see British subjects in uncontrolled possession of large incomes and nothing apparently being done about it in this country. They are inclined to think we have not done all that we could, and they are right in so thinking. I suggest that British subjects resident or domi- 1653 ciled outside British territory should be made to declare all their foreign holdings and the Treasury be given power to requisition those holdings, taking each case on its merits. No doubt the length of residence abroad would have to be taken into consideration, and possibly there ought to be some income limit because we want to deal only with cases where substantial sums of money are involved.
Then we come to the question of Income Tax. Americans living outside the United States have to pay United States Income Tax, except upon earnings they may obtain in the particular country of residence. I suggest that in the same way British subjects in the United States should be made liable to British taxation. Some of the incomes in question are very large, yet there is no legal liability on the possessors of those incomes to support the war at all. In particular, there is a group of British actors in Hollywood in that position, and a great deal of criticism which is going on amongst Americans would be avoided if such persons were made to contribute their share towards the common effort. I am sure that proposals of this kind would be heartily welcomed by all decent British subjects living in the United States, many of whom would welcome being placed in a position where they were made to stand together with us who are living in the home country.
I suggest that the Income Tax law should be amended so that all British subjects living abroad with an income exceeding a fixed sum—perhaps it might be £1,000—should be liable to pay the standard rate of British Income Tax, after credit had been given for the tax paid in the United States. If, say, a man had an income of £3,000 a year, and the British tax was 50 per cent. and the tax in the country of residence 25 per cent., then he would have to pay a 25 per cent. tax to this country. That would end the extraordinary anomaly under which British Government officials who are recruited locally in the United States are exempt from all tax. For instance, the members of the British Purchasing Commission and the members of the British Air Commission recruited in the United States—British subjects—are exempt from this taxation, whereas their opposite numbers who are doing the same kind of work over here are liable.
1654 The Chancellor of the Exchequer no doubt will say that he quite agrees with all I have said, in equity. He will say that it is sound common sense, but how are you going to do it? I will address myself to that point. Enforcement is possible if you really wish to do it, and certain sanctions can be applied. I suggest, first of all, that, if there is refusal either to surrender dollar holdings or to pay tax, the refusal should render the person liable to a very heavy fine or a long term of imprisonment. You have to apply pressure to these people to make them stump up. Some are anxious to pay and some are not. You could not prosecute them in the United States or extradite them, but you could lay down that if ever they set foot on British territory they will be liable immediately to arrest and prosecution, and that if the particular country in which they are now living were to come into the war as an ally of ours, we should take the matter up with that ally with a view to the surrender of those persons. Another method could be the revocation of passports and deprivation of British nationality.
All the things which I have mentioned would have considerable weight upon the persons concerned. They should be liable to forfeiture of all their assets in this country, and the Crown should have the right to seize any interest in any property which they may have over here. They should be treated as enemy aliens under the Trading with the Enemy Act. Those are perfectly sound and practical proposals which could be put into operation, and they do not go beyond the necessities of the case, if British subjects are deliberately running away from their duty, and from what we pay willingly and gladly here, in spite of the heavy burdens of the war. Not many persons would resist cumulative pressure of the kind I have outlined. Drastic as many of the proposals are, they do not go beyond the necessities of the case. The Dutch are doing something of the same kind to their citizens living abroad in similar circumstances.
In this connection, it should be laid down that no British subject should leave the United Kingdom without giving an undertaking to hand over any foreign exchange that he might later on acquire. There have been several examples of exit 1655 permits being granted when there has been no control over the amount earned. I suggest that there should be an obligation upon the persons concerned to file a return as to their income from overseas every three months, and a duplicate of the Income Tax return made in the United States should be added. Existing permits should be revoked if obedience is not given to these requisitions.
§ Mr. Mander
No, I have not, but I understand from the best sources that it would be well worth while taking the necessary steps to carry out my suggestions. I hope that my right hon. Friend and his financial advisers will give this matter the further consideration which it deserves. If persons living overseas are made to pay their fair share of taxation they will still be spared the bombs which we get here. They ought to be only too delighted, as I am sure a great many of them are, to be brought into line. If my right hon. Friend puts into force some such measure as I have suggested he will achieve three results. He will obtain substantial sums of money by way of revenue; he will silence some perfectly legitimate criticisms by American citizens made at the present time and he will be helping a large number of the British subjects concerned who want to do their duty to feel much happier than they do now.
§ Mr. Spens (Ashford)
I apologise to my right hon. Friend that I was not able to be here this morning to hear his speech. Perhaps it may be some small part of an excuse to say that I have been occupied in one of these cases which arise under the Bill. I am only too delighted to find that he is considering the problem which has been raised, with a view to possible legislation. I am certain that this is a field in which, at a very early stage, and particularly as the war progresses, more and more legislation will be required. The matter is far too technical for me to deal with in detail at this moment. I wish to address my remarks to one or two subjects which I feel, I hope not without good reason, require further consideration.
I notice that, generally speaking, people talk of the Excess Profits Tax and deal with all the problems which 1656 arise out of it, as though it had no sort of relation with any other taxation in the country. That is a fundamental mistake. You cannot possibly separate the Tax from the present rate of Income Tax and from the other contributions which have to be made under other Acts, all bearing upon industry, and you cannot regard it as unrelated to the general problem of what is going to happen to business premises and factories which are destroyed by enemy action. Somehow or other, you have to get a clear picture of the extraordinarily complicated financial situation in which industry finds itself at the present time. Therefore, in putting forward my criticisms I feel a great deal of diffidence. I do not think it is possible for any back bencher to get a complete view of the present financial situation. I can well understand that many criticisms may have a very swift and easy answer. If so, when some of us try to think out these problems and find ourselves in doubt we may comfort ourselves with the idea that perhaps we are not the only people who share that doubt.
The thing which worries us very much is the total effect of the taxation on the physical well-being of our factories, workshops, industries and so forth. In normal times you have the double position that every industrialist is entitled, before he pays Income Tax, to claim certain deductions for the upkeep of his plant, premises and so forth. Everybody knows that every really well-run business, year by year, has to put back into the business a very substantial part of its surplus, which is the taxable profits of the business, and that any company which distributes by way of dividends the whole of its taxable profits is simply on the road to ruin as fast as it can possibly go. Leave out for a moment the Excess Profits Tax, and let us consider the effect of the rise of Income Tax to 10s. in the £. It means that that fund, which in normal times is the source from which these sums may go back into the business, is decreased by the enormous difference between peace-time Income Tax and present war-time taxation. Therefore, in any event, there is left a very much smaller sum out of which the necessary reservations may be made to assist the business.
In addition, war-time industries—and by war-time industries I mean those which are directly contributing essential goods 1657 for war-time purposes—are being pressed by the Government to work at the fullest possible pressure to increase their output in every way, and they are therefore driving their plant and machinery to the utmost capacity. Of course, the output goes up—I hope it goes up enormously—and then in comes the Excess Profits Tax, and what the firm is left with is the standard profit of the standard pre-war period. Everything else is taken, and the standard profit is taxed at 50 per cent. To my mind, that creates a very frightening picture. It can be dealt with in two ways. It can be dealt with by seeing that depreciation and maintenance allowances are very generously interpreted. There are regulations—they are far too technical to go into on the; Floor of the House—which I believe enable a very generous attitude to be taken up by the officials concerned, and I believe that that generous attitude, under the direction of my right hon. Friend, can be encouraged and developed. I impress upon him to the utmost of my capacity my hope that he will encourage extreme generosity, and if necessary see that other regulations are made which will enable the most generous attitude to be taken up.
One has to go a little bit further than mere maintenance. The history of British industry indicates that our prosperity depends on the drive and originality of our industrialists, and that means development and experiment. Both are equally important, and the cost of development and experiment, in a large number of cases, was met out of savings of taxable profits in the case of a really prosperous industry. As far as I can see, that fund has gone altogether for the time being. I cannot see how it exists at all under the present system of taxation. It may be that because all the important industries are now controlled by Departments of the State an industrialist can go to the appropriate authority of the Minister of Supply, or whoever it may be, and urge that a particular experiment is valuable and may assist in the winning of the war, and in that way he may be able to get the money. I think, however, that there is a great deal of difference between borrowing money in that way through a Department of State and being allowed to keep money earned by the firm by increased production and using it, no doubt with the approval of some representative of the 1658 Government, in direct development and experiment. I suggest to my right hon. Friend that the most careful investigation is required as to whether or not the provisions of the 100 per cent. Excess Profits Tax should be modified so as to enable additional sums, with the approval of the Treasury, to be put to purposes which might lead to the winning of the war.
1 would like to go one stage further. I have not listened to the whole of the Debate, but I have no doubt that other hon. Members to-day have emphasised that after the war competition will be terrific. The one nation that is going to lose in that competition is the nation whose industrial machinery has been allowed to fall behind. There is no question about that, and therefore", simultaneously with the winning of the war, somehow or other we have to be absolutely certain that our plant, machinery, workshops, and everything that is really essential to our peacetime production are kept up to the highest possible pitch. I am a little anxious as to whether a person who has his factory blown up will not be in a better position than the one who has to work at 100 or even 150 per cent. capacity during the war. At the end the latter may find that his machinery is worn out because he has not been able to improve it. I put forward these ideas to my right hon. Friend, because I honestly feel that we need some kind of a committee to study the commercial repercussions of the high taxation of industry.
There is another point in regard to which high taxation is causing a great deal of difficulty at the present time, although I have no doubt that many hon. Members will have less sympathy for what I am now going to say than they have shown up to now. But you have to take the facts as you find them, and in fact in this country to-day there is a certain number—not a great number—of very substantial settled landed estates, some of them in the country and some in the towns, and it is in regard to those in the towns that I particularly want to say a word. Where they are in individual hands and have not been turned, as so many of them have in the past 20 years, into a limited company, it is very well known that at the present time it is impossible to obtain any allowance for management, the collection of rents, legal advice, accountancy, surveyors' fees, or 1659 anything approximating to what in fact the running of a large estate absolutely necessitates.
What is going to happen? Take one of these large estates in any of our big towns which has been well battered. Rents have gone down. Tenants are in a position in which they have never been before. There has never been a greater requirement for good management and good advice for everybody concerned. I, as a Tory, would put it in this way. In the interests not necessarily of the individual but of the community, while that system obtains— and it is certainly going to obtain during the war—is it not necessary that there should be some additional allowance for management, and so forth? This is, I believe, already a pressing evil in some towns; and it wants examination.
My right hon. Friend has given, not a general exception to mining companies, as an interjection from the other side of the House would suggest, but an exception to mining companies which have obtained a certificate from the Treasury to the effect that their efforts are absolutely essential for the winning of the war. That is a very different, and a much narrower, proposition and it is, I believe, essential for the winning of the war. On the other hand, when that certificate is granted, I most respectfully suggest, it opens up to accountants and to members of my profession a prospect of being able to assist the revenue by their earnings to a very substantial extent. I cannot agree that that is good machinery during the war. If relief is to be given to these companies, the great bulk of which are working in distant parts of the world, it is not going to be easy to find out what their deposits are and in what year their deposits would, in normal circumstances, run out. I suggest that we have to find some much simpler procedure. My right hon. Friend might take some simple rule of thumb. I have ventured to make one simple suggestion in a letter to him. Whether that is the best suggestion he will get I do not know, but the last thing we want at the present time is to have inquiries of this sort, which must involve a great deal of the time of men who ought to be employed on quite different matters.
It is obvious that a great number of hon. Members realise that we are going 1660 through the greatest financial revolution we have ever gone through in this country, and the person who has speeded that revolution on its way, and at a pace unexpected in some quarters, is my right hon. Friend the Chancellor of the Exchequer, by means of this Finance Bill. I do not believe that anybody objects to the sacrifices which my right hon. Friend is calling upon us to make, but you cannot have a financial revolution of this sort without causing an enormous number of cases of terrific personal hardship. That process is very much assisted at the present time because in so many cases, under different Acts of Parliament and Regulations, private property, businesses and so forth are being taken over and managed by the Government. Nobody with any professional knowledge of the immediate results of these Measures can fail to have come across a number of such cases. My right hon. Friend has not altered, in any shape or form, anybody's immediate liability, in respect either of companies or individuals, for the payment of taxation and insurance. Indeed, he should not do so, but I am sure that he and those who work under him realise the number of cases of personal hardship which will arise, and he and his Department, in conformity with their public duty, should show such consideration as is possible to those who have a very hard task to fulfil in paying taxes of this description.
§ Mr. Price (Forest of Dean)
The hon. and learned Member for Ashford (Mr Spens) has raised, among other things, the question of the taxation of industry. We cannot envisage industry to-day as working within the framework of peacetime. Everything is overlaid by the activities of the State, and the old standards of company finance must, inevitably, go by the board. At the same time, I think the Chancellor is wise in having made a reservation from Excess Profits Tax with a view to meeting the situation after the war, if it should prove—and this is the big question—that industry ever goes back to the pre-war position. On that subject, the hon. and learned Member and I would, no doubt, disagree. It seems to me that a much greater control by the State over, at any rate, certain industries is inevitable after the war. I will not go further on that subject.
The Debate, so far, has shown that uneasiness exists in regard to the long view 1661 of the nation's finances and the necessity for looking for new methods of finance. Old measures, surely, cannot find these enormous sums. It is as much a question of cutting down private expenses as of raising funds from taxation of private incomes. It seems that the rationing of commodities, far more strictly than has been the case up to now, will be a most important weapon for keeping the nation's finances straight. That, of course, is outside the scope of the Second Reading Debate on a Finance Bill. However, on a short view, I think the Chancellor is to be congratulated on this Bill. He may not be able to tell us all that he has in mind for future Budgets, and the fact that we have come to our present position by slow stages leads me to hope that the next Budget will show an even greater appreciation of the long-term interests of finance than the present proposals do.
Stated briefly, it seems that the problem this year at any rate is to secure as much as possible of the increased income which has been created by the activities of the State. The Treasury must suck back the purchasing power which it has itself created. That is how Germany financed her rearmament and how she is now financing the war. The methods of a wage tax and a turnover tax are the principle instruments by which she attains her end. The Chancellor of the Exchequer is doing something of the same kind, but he is doing it more scientifically than it is being done, one understands, in Germany. The complicated schedule of Income Tax on wages, with allowances and deferred payments, is an indication of that. Nevertheless, there are some anomalies which my right hon. Friend will, I hope, rectify in future Finance Bills. The first Budgets of this war raised heavily the taxation upon the higher incomes, and this Budget has carried the process still further. If it is raised any more, I am inclined to agree with the hon. Member for Ealing (Sir F. Sanderson)—although I would not put it quite in the way that he has done—that the Chancellor might as well fix some limit. I would not put a ceiling to it; I would put a floor to it. The hon. Member would not raise Income Tax above 18s. in the £. I would put a floor to it in this sense. I would secure that there should be no incomes above £1,000 a year, by putting 20s. in the £ Income Tax on everything 1662 above that figure. I suggest that those who are now in possession of such incomes would sooner meet death by decapitation than the "death of a thousand cuts" to which they are being subjected to-day. It might certainly involve a moratorium on civil debts and make it impossible for persons with incomes of over £1,000 a year to carry on their family obligations and pay insurances. But, after all, we are now, as an hon. Member rightly said, living through the greatest financial revolution the country has ever had. We are in it, and I do not think that the condition to which these people would be subjected would be any worse than the slow process by which they are now being strangled.
It is not there the problem lies. We cannot finance the war by the taxation of these higher incomes. Everybody knows that who looks into the facts. If you took every income of over £500 a year, it would yield only £620,000,000, which, I believe, would be merely "chicken-feed to the dragons of war" The Chancellor of the Exchequer is bound to come down to the lower incomes and to proceed by slow stages. One would have liked to have seen something similar to what my right hon. Friend is doing now started last year, as Professor Keynes suggested. At any rate, the Chancellor made a step in the right direction when he imposed upon employers the duty to disclose statements about their employés' incomes. There has been up to now a gap in the source from which revenue has been drawn in the neighbourhood of the £5 a week or £250 a year group, and if that is not dealt with in some way or other, inflation is inevitable. Therefore, the Chancellor of the Exchequer is to be congratulated on having extended his taxation into that sphere of incomes. He has done it in a way which will, I think, to some extent, sugar the pill. In the lowest grades of these incomes the deduction will take the form of a deferred payment; in the higher grades it will take the form partly of deferred payment and partly of Income Tax. The right hon. Gentleman has in this Budget realised Professor Keynes' plan, which was put forward last year.
There is only one matter of regret that I have to mention. The Chancellor has made no provision for family allowances. I believe that it is possible to finance a 1663 scheme of this kind out of the existing sources of taxation. It could have been tacked on to this Budget, if the Chancellor of the Exchequer had seen his way to prepare the necessary measures by which it could be done. It would not increase purchasing power except where it was most needed. We do not want to raise purchasing power in such a way that it would put an increased demand upon commodities. People with small incomes and the sections of the community most in difficulties, with large families, earning no very large incomes, must be helped even now. There must be no question of failure to do that because it might raise the purchasing power of that section of the community. In war time particularly, prices are an immense burden on that section of the wage-earners who have large families.
In many ways our industrial and economic system is unfair. The wage system gives only the same wage to a man with no family, as to a man with a great many children. The State ought to take cognisance of this fact and allow, by a system of family allowances, for this inequality. The State does make some allowances to-day. It recognises, by a system of children's allowances for Income Tax, that the man with a family requires some greater recognition in the payment of his tax. Men serving in His Majesty's Forces also are entitled to allowances in this way. Unemployment benefit and public assistance take cognisance of this fact. The service allowances alone come to about £20,000,000, unemployment assistance and public assistance allowances to £16,000,000, and the Income Tax allowances to about £10,000,000, making a total of about £40,000,000. If the sum of 5s. a week were allowed per child to every family, financed out of a scheme of this kind, the amount would probably come to somewhere in the neighbourhood of £120,000,000, and against that, £40,000,000 could be deducted from the old allowances to which I have referred when he recast the whole system. I believe that in some future Budget it will be desirable to merge the whole system of children's allowances into one big scheme. The very complicated and unsatisfactory system, by which we recognise in a half-hearted sort of way that children of working-class and middle-class families should 1664 be allowed for, ought to be carried out in a more scientific way than is the case at present—not a bit here and a bit there, for in that way large categories of people are left out. At present, if a man is serving with His Majesty's Forces, he will receive some recognition, and if he earns an income of so much a year, he will receive recognition, but it is the poorly remunerated man with a large family who gets no recognition. I plead for a more scientific and uniform method of dealing with children's allowances. Out of the nettle of inflation, I hope the Chancellor will pluck the bud of financial stability. I believe he is doing it in this Budget, but let him go one step further and pluck the bud of family allowances, which will be a great social reform.
§ Mr. Molson (High Peak)
Last year I ventured to criticise the Budget, which was introduced in August, on the grounds that it did not—