EXPENDITURE ARISING OUT OF THE WAR.

HC Deb 01 October 1941 vol 374 cc613-68

Resolution reported: That a Supplementary sum, not exceeding £1,000,000,000, be granted to His Majesty, towards defraying the expenses which may be incurred during the year ending on the 31st day of March, 1942, for general Navy, Army and Air Services and for the Ministry of Supply in so far as specific provision is not made therefor by Parliament, for securing the public safety, the defence of the realm, the maintenance of public order and the efficient prosecution of the war, for maintaining supplies and services essential to the life of the community and generally for all expenses, beyond those provided for in the ordinary Grants of Parliament, arising out of the existence of a state of war.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

The Chancellor of the Exchequer (Sir Kingsley Wood)

Parliament has so far voted two Votes of Credit of £1,000,000,000 each in order that we may finance our war expenditure this year, and I am now asking for a further grant of £1,000,000,000.

The exact circumstances are these. On 27th September there remained about £146,000,000 unspent out of the last Vote, and that sum will last us nearly another two weeks. For the five weeks ended 27th September our expenditure from the Vote of Credit averaged some £78,000,000 a week, or just over £11,000,000 a day. Of that amount £9,000,000 was attributable to the Fighting Services and just over £2,000,000 to the miscellaneous group of other war services. When I asked for the last Vote of Credit in June we were spending about £10,250,000 a day out of the Vote of Credit, of which about £8,000,000 a day was for the Fighting Services. Our foreign expenditure, which had fallen between April and June, has recently increased again, but the increase represents only a small part of the total increase in Vote of Credit expenditure since June.

As I have explained previously, these Votes of Credit are available only for war services. When we include the service of the Debt and the Civil Votes, including those of our extensive social services, we are now spending in all some £13,000,000 a day. I often think it is not always easy to appreciate fully the extent and dimensions of such figures, but it is interesting to note that at the peak of our activities in the last war the Vote of Credit expenditure averaged about £7,000,000 a day and the total expenditure about £8,000,000 a day. At any rate, this can be said, whether we appreciate these figures or not, that our present expenditure has certainly involved and is involving heavy burdens upon and sacrifices by vast numbers of our people.

The further Vote for which I now ask will make a total for Votes of Credit of £3,000,000,000 during the year so far, and it should last, at the current rate of expenditure, until about the end of December. In my Budget speech I estimated that Votes of Credit for the year would require £3,500,000,000, apart from the sums required to pay for existing orders in the United States. I, of course, excluded also the value of supplies from the United States under the Lease-Lend Act. I did not try in my Budget speech to estimate the amount of payment to the United States under existing orders, because the amount was then uncertain, and, whatever it might be, it had no no effect upon the potentially inflationary gap. But, of course, it was always known that such payments would in fact be met out of the Votes of Credit, and, on the basis of the current figures, I anticipate that when a further Vote of Credit is taken, say in December, it will bring the total for the year, including the sums required for payments to the United States under existing orders, to a figure broadly in the region that I contemplated in April last.

If it turns out at the end of the year that, after deducting payments to the United States, the balance of Vote of Credit expenditure exceeds the figure that I named in the Budget speech, it will not follow even then that the excess will be of a potentially inflationary character. We shall first have to ascertain how far we have realised, and possibly surpassed, the Budget estimates of revenue, of savings and of expenditure financed out of the growing sterling balances of the Dominions and other countries. I am sure the House will appreciate that reviews of those factors can only be undertaken periodically and some time in arrear, but, from such indications as are available, I think we may say to-day that the object which I set before the country six months ago, that is, to finance the war by methods which would hold the dangers of inflation in check, has so far been achieved. The danger remains, however, and there can be no relaxation. There must, on the contrary, be an intensification of our efforts to meet those dangers.

I think it is well to-day to review the sources from which we have financed our expenditure during the first two years of the war. Our total expenditure in that period was £7,018,000,000, of which £5,668,000,000 was on war services. Of the total expenditure we met out of current revenue £2,785,000,000, or 40 per cent. It is instructive to note that in the first two years of the last war our total expenditure was less than 40 per cent. of what it was in this war and that, even so, we then met less than a quarter of it out of revenue. I think this ought to be said, that the large sum that has been raised by taxation in this war is eloquent of the unprecedented efforts made by the taxpayer. In the early days of the war it was obviously necessary to allow time for adjustments required by the transition from peace to war, but four war Budgets, on top of the already exacting Budgets of the prewar rearmament period, has left the taxpayer in no doubt now of the sacrifices required and I think it should be said that those sacrifices have been willingly made.

There have been important additions to taxation in several spheres, but if I take Income Tax and Surtax alone, the additional taxation imposed by the first three war Budgets was estimated to yield £250,000,000 a year in all, while in the fourth Budget a further sum of the same amount was levied at one stroke. The total increase of £500,000,000 in these two taxes was about one and three-quarter times the whole of the Income Tax and Super-tax paid in 1918. With the combined taxation on the highest slice at the rate of 19s. 6d. in the £, it is clear that the maximum rate has been practically reached, at least in certain ranges of income. It is probably not realised that if we so increased taxation that no one was left with more than £1,000 a year or his present net income after taxation, whichever was the less—a course which would obviously precipitate very acute problems of many kinds—the additional yield would not exceed something of the order of £106,000,000.

At the same time I would like to say that in considering our future financial problem we must not overlook the dangers that lurk in unlimited recourse to borrowing, be the methods good, bad or indifferent.

In the last two years we had to find, in addition to the Budget deficits, nearly £150,000,000 for the repayment of debt in the hands of the public and other smaller capital payments, so that in all we had to raise, by means other than revenue, no less than £4,380,000,000. Again, I would point out that figures of such magnitude such as these soon lose their reality, and I think it would be more informative if I referred in terms of percentages rather than of totals to the principal sources from which that sum of £4,380,000,000 was raised.

In the first place, 17 per cent. was covered by the realisation of our holdings of gold and foreign exchange and by borrowing balances on non-budgetary official funds such as the War Risks Insurance Funds and the Unemployment Fund. There is another striking figure. No less than 21 per cent. of the considerable total to which I have referred was provided by small savings—the net proceeds of National Savings Certificates, Defence Bonds, and deposits in the Post Office Savings Bank and Trustee Savings Banks. The achievement is not only very remarkable in itself but is a reminder to us all of how small sums, regularly saved by large numbers of people, can quickly amount to very impressive totals. I would remind the House that we are on the eve of seeing the gross total of small savings reach the notable landmark of £1,000,000,000.

There is another figure which I will give to the House. Subscriptions from non-official sources to medium and long-term market issues provided for 33 per cent. of our borrowings, and outstanding among such issues were National War Bonds which provided 19 per cent. out of the 33 per cent. I would say, and I think my hon. Friends will agree with me, that the practice of having war issues on tap has proved a notable success. Treasury Bills and Treasury Deposit Receipts taken up by the banks and other financial institutions provided 26 per cent. of our borrowings. The new system of borrowing from the banks by means of Treasury Deposit Receipts provided 12 per cent. out of the 26 per cent. and has amply fulfilled our expectations that it would prove to be a convenient innovation, though it must not be supposed that such short-term borrowings are, in any way, a substitute for borrowing as much as we possibly can direct from the public and for longer periods. I think we may regard it as a matter for satisfaction that no more than 26 per cent. of our borrowings has been achieved by additions to the Floating Debt in non-official hands. I would add one brief comment on our bor- rowing programme. I have referred before to our cheap borrowing policy which has been so successful.

Mr. Stokes (Ipswich)

Would the right hon. Gentleman explain to the House what he means by the word "non-official"?

Sir K. Wood

I will endeavour to give an interpretation if my hon. Friend desires it. I want, however, to add this further word to what I was saying. I have referred to our cheap borrowing policy, which, as I have said, has been so successful. It is of the utmost importance that we should not burden the country now, or after the war, with high interest charges. During the last war, the rate of interest on War Loans increased as the war went on until 5 per cent. and 6 per cent. were being paid. We have in this war not paid more than 3 per cent., even on the longest loans, and the House will have observed that each issue has been on terms more favourable to the Treasury than its predecessor.

No reference to the very large sums which we are spending on the war effort would be complete without a report on the progress made in the checking of extravagance and waste. On the last occasion on which I spoke, on the Second Reading of the Finance Bill, I described in some detail the arrangements which had been made to appoint a Director of Economy at the Ministry of Supply and to make analagous appointments at the War Office, the Air Ministry and the Ministry of Aircraft Production. These officers exercise general control over the economical use of materials and the salvage of material which has been used. This machinery has continued to develop, and I desire again to emphasise that every effort must continue to be made to instil in everyone the urgent need for the utmost economy. Since I last spoke we have had a further set of reports from the Select Committee on National Expenditure, which, I can assure the House, are taken into immediate and careful consideration by the Treasury and by the Departments to which they relate. Waste and extravagance in the wide sense of the term involve the uneconomic use of national resources, and while as Chancellor of the Exchequer I must normally concern myself mainly with the narrower task of seeing that Government money is not expended wastefully or extravagantly, there are certain points at which the narrower and the wider tasks tend to converge.

One example of this arises in the case of cost-plus contracts, which have attracted a certain amount of attention both inside and outside the House. I should like to say a few words about this form of contract, because there seems to be a good deal of public misapprehension on the subject; in particular, there seems to be a belief that a large amount of work is being done for the Government on the cost-plus basis and that this necessarily causes waste.

It is important to distinguish between two kinds of cost-plus contracts—the one where the contractor is paid his reasonable cost, plus a percentage on the total, and the second where the contractor is paid his reasonable cost, plus a fee for profit, fixed in advance, which does not vary with the cost of the work. I do not hesitate to say that both forms are objectionable and are greatly disliked by contracting Departments as well as by most employers. The cost-plus-percentage type has been used during the war to only a very limited extent, usually for small, urgent building jobs where it was not possible to fix a price in advance or to operate a schedule of prices. I doubt, from the information that has been supplied to me, whether it is being used at all for production contracts.

The method of cost plus a fixed fee has been more widely used, especially during the early days of the war, on building work of great urgency. Given effective management, conscientious workmen and effective supervision, there is no reason why it should be more expensive than a fixed-price contract, but it does tend to give the impression to those employed on the job that cost does not matter, with consequent waste, not merely of money, but of labour, materials and perhaps time. Departments are doing their best to avoid it and with the increased standardisation of buildings and experience of costs it is becoming increasingly possible to let contracts at a fixed price.

As regards manufacturing contracts, it is difficult to avoid the use of this method in contracts for the repair of damaged articles and in the initial stages of manufacturing a new product or a product which is new to the particular firm concerned, because of the impossibility of fixing a fair price in advance. This difficulty can, to some extent, be met by the method of introducing a maximum price in the contract. Under this system any costs over the maximum fall wholly on the contractor. This method, with various refinements, has been used over a wide range of manufactures. It is, however, admittedly less satisfactory than a fixed price, and I am glad to say that, with increased experience and the decline in the proportion of new types of products required, an increasing proportion of contracts is being let on fixed prices. For example, aircraft contracts are to a very large extent let on a fixed-price basis. I do not mind confessing that I wish it were possible for the Government, by a stroke of the pen or the issue of a simple direction, to secure that all contracts should be let at a fixed price. This ideal is, I am afraid, impossible of attainment, but the House will be glad to be assured that all Departments are fully alive to the objections to the other types of contract which I have mentioned, that their use is diminishing and that the fears that there exists here a large area of avoidable extravagance are not justified by the facts.

Let me say a word about the future. On the whole, it seems to me that there are good grounds for satisfaction in our financing of the first two years of the war. What of the future? We have to steer a middle course between excessive pessimism and excessive optimism. Resolution, self-denial and confidence must continue to be our watchwords. Certainly we must not let the task of financing ourselves for this tremendous war dismay us. Given the will to deny ourselves in the cause of victory, which we assuredly must possess, the task is clearly not beyond our resources if we make wise use of them.

I have seen it suggested that in the process of financing the war the country is rapidly "bleeding to death" and that we have practically exhausted our ability to finance the war on sound lines. Such gloom and despondency are thoroughly harmful, and are based on a quite fantastic view of our position which has no relation to the realities of production and finance. To give one example, the increase in money incomes that arises from our large war expenditure itself helps to provide and will continue to help to provide one source from which we can finance the war. The danger for the future will not lie in any automatic drying-up of those incomes but in the faltering of the resolution to restrict the spending of them. It is clear that the vision of our alarmist is still limited by peace-time considerations and that the native hue of resolution Is sicklied o'er with the pale cast of thought. I firmly believe that he will find no response in the country as a whole and that our people have the same quiet confidence in the financial as in the military future of the war.

In all these considerations it is right that I should also utter a special note of warning. Not many days go by without some plans or projects being canvassed for some immediate appreciable increase of Government expenditure. Nobody is more glad than I am that we have been able, for instance, not merely to maintain our peace-time social services unimpaired during these difficult times, but even to add new services in order to minimise the inroads which war must necessarily make on our standards of life. All new permanent projects and schemes involve, however, permanent increases of annual expenditure. It it not uncommon to hear the annual cost of each particular scheme belittled by comparison with the cost of so many days of war. The two things are, of course, in no way comparable. The war is being financed by borrowing, the burden of which after the war will be very heavy, but permanent annual expenditure will have to be met by taxation.

We may well have to face a long war, and clearly the longer the war continues and the more expensive it becomes the greater will be the efforts required to maintain the soundness of our financial position and to husband our financial strength to meet whatever further demands the war may make upon us. Certainly it means that everyone must realise the need for strict economy, still more rigorous restriction of private expenditure, still greater saving and still freer lending to the State.

All that is true, whether we are thinking of the immediate future or the post-war future. Our immediate object is to win the battle of this year's Budget and to see that our current war expenditure is not allowed to generate active inflation; and as to that an intensive and immediate effort to recapture the upward swing of saving which was in progress before the recent holiday season is vital. As regards the post-war future, a moment's reflection will show that peace will bring its own difficult financial problems and that we shall make it easier to face those problems if we continue to finance our huge war expenditure on sound lines. The size and form and cost of our war debt will clearly have an important influence on our postwar policy. It is even more important to realise that we shall undoubtedly be gravely hampered in dealing with postwar reconstruction and development if we have to embark upon them under conditions of inflation. I know that I shall have the assistance of Members of the House in bringing home to our people the plain and vital fact that by refraining from spending, and by saving and lending now to the utmost, we shall not only keep our war effort firm and strong but also help to attain the equally desirable object which animates us all, that of laying a sure and firm foundation for the advancement and progress of our people after the coming of peace.

Mr. Stokes

Before the Chancellor of the Exchequer sits down will he kindly explain what he meant by the term ''non-official sources"?

Sir K. Wood

Banks and financial institutions, etc.

Mr. Pethick-Lawrence (Edinburgh, East)

It needs few words of mine to commend to the House the Vote which we have to take to-day, which has been so ably expounded by my right hon. Friend the Chancellor of the Exchequer. Perhaps I may be permitted to say a few words at the beginning on the two topics which formed the latter part of the Chancellor's speech. On the question of the form of war contract, I commend the guarded words which the Chancellor put forward on that subject. As Chairman of the Public Accounts Committee I may say that we have devoted during this Session a considerable part of our labours to the consideration of this very vital matter, and though our investigation has necessarily been of a retrospective character I am prepared to endorse for the most part what the Chancellor of the Exchequer has said. I think everyone will agree that a cost contract, even when it has added to it only a fixed profit basis, is not an ideal form of contract; but, equally, those who have studied this matter must have realised that in some cases some such form of contract is quite unavoidable.

Let me put this simple case. It is easy when you are buying a bicycle to have a fixed price, because of the many firms which make bicycles and the many shops which sell them, and one price can be set against the other to get a figure based upon a competitive deal; but when the Government are asking a manufacturer to produce an article which has never been produced before, say an aeroplane to a new specification, or a gun to a new specification, it stands to reason that neither of the parties concerned, the Government or the contractor, can have a definite idea of what the cost ought to be. Then it is absolutely necessary, however undesirable it may be in general principle, to base the contract upon the cost actually incurred, and the only thing which can be done in those cases is to safeguard the public purse by all possible means. I honestly believe, as the result of the detailed investigations we have carried out, in so far as the year under review is concerned, that in the great majority of cases those safeguards have been carefully applied.

The great safeguard which we now have but which we did not have before the war began is the power of the Department to send its own costing accountants to examine the accounts of the contracting firm after the event. Now that the books are compulsorily opened, if required, to the costing accountants of the department, there is a safeguard to the public purse in that fact. Those costing accountants are able not merely to check up what has actually been spent by the firm, but, from their knowledge of processes, they are able to check whether the amount spent upon a particular process ought to have been spent, or whether there has been a large margin of wasteful extravagance. Even in the year under review cases were brought to our notice in which sums which had actually been spent by the contractors were not allowed as legitimate expenditure because the accountants showed that the expenditure ought not to have been incurred. I therefore say, while guarding my words, as I think the Chancellor himself was guarded in what he said, that though this form of contract is certainly not ideal it is, in certain cases, unavoidable, and, allowing for human errors, in the great proportion of cases the public purse is being safeguarded by the precautions on which this House has insisted and which are carried out by the Departments concerned.

With regard to the point made later by the Chancellor of the Exchequer, I agree that people who base their view of the effect of the financial expenditure of the country upon narrow and old-fashioned ideas of finance are unjustified. So long as the great productive resources of this country remain, there is no question of this country being bled white and there is every prospect that, for the remainder of the war, whether the war should last a long time or, as we all hope, a comparatively short time, the resources in this country will be sufficient to meet the expenditure, and that, when the war is over, there will be means of production left which ought to give not merely an income in the country equal with the income before the war but a greater income, from which a nobler country can be built up.

I agree with the Chancellor of the Exchequer that recurring expenditure is not of the same kind, and cannot be put into the same category, as expenditure for war. I would add that recurring expenditure which promotes the prosperity of the nation and the well-being of the people, and thereby fits people for greater efforts of production in the future, is in many ways more provident, and more possible to be carried through, than expenditure, however necessary, for the destructive purposes of war.

Having dealt with the two points to which the Chancellor of the Exchequer referred in the Debate, I return to the subject proper of the Vote itself. As the right hon. Gentleman stated, this is the third £1,000,000,000 that this House has been asked to vote during the present financial year. That means that we have, in the first six months of the year, already spent close on £2,000,000,000 on war purposes alone. The expenditure would have been greater but for the generous provision made by the United States in the Lease-Lend legislation. I would like to carry the point one stage farther, by adding the ordinary expenditure of the State, on top of the purely military expenditure. If that expenditure is taken into account, the total expenditure in the first six months of this year has been very close to £2,250,000,000. Of that sum, nearly £750,000,000 has been covered by taxation revenue, leaving something like £1,500,000,000 to be borrowed in one form or another. I would remind the House that the first six months of the financial year are not the best for tax collection and that therefore we need not form a gloomy prognostication that the second six months will show as small a proportion of expenditure met by taxation as has been the case in the first part of the year. On the other hand, the Chancellor of the Exchequer indicated that the total expenditure was likely to be more in the second six months—as, indeed, it nearly always has been during the war—than in the first six months. Therefore, we shall certainly see a total expenditure in excess of £4,500,000,000, and it may run up to nearly £5,000,000,000, for the whole of the financial year. I do not know exactly what proportion this sum bears to the total income of the people of the country, but I imagine that it is well in excess of half that total income. Perhaps it approaches to two-thirds.

These being the facts, I congratulate the Chancellor of the Exchequer that this is the first war year in which he has not had to introduce a second Budget. The first Budget introduced by his predecessor had to be supplemented by a second Budget. In the second year of the war there had again to be a second Budget, because the provision made earlier in the year had been inadequate to meet the situation. This year, the courage of the Chancellor of the Exchequer, stimulated by the vigorous attitude of this House representing the people of the country, has enabled us to have a Budget which, as far as we can see, will not require to be supplemented during the present financial year.

We pay tribute to the people of this country that, in spite of the unprecedented burdens that have been put upon them, these burdens have been accepted, on the whole, by all sections of our population without demur. I constantly find in my postbag letters from people who have written to me about grievances, but very few letters refer to difficulties imposed by taxation, in spite of the fact that very heavy sacrifices are in many cases making things most difficult for the people upon whom they have been placed. My belief is that the people of this country are more resolute to-day, if that be possible, than they have been in any previous stage of the war. Taking a broad view of the matter and looking round the country, I see no sign whatever of complacency or of easing-off in the war effort. Of course, nerves get frayed and muscles get tired, but, broadly speaking, so far from there being any easing off, I see a growing determination to prosecute this war to a successful conclusion.

The critical factor to-day is that the situation has been changed; the determination of Herr Hitler to pursue the war on the East as well as on the West has brought the great Republic of the East into the conflict on our side. Last year our country, as the Prime Minister said yesterday, was standing practically alone, and the whole brunt of the cruel German war machine was falling upon the people of this Island. We were bearing that burden with the traditional courage and tenacity of our people. To-day, the main direct burden of the war has been shifted to Russia. The Russian people met the shock, as everyone has realised, with exceptional fortitude and courage, and they are carrying out, not merely in the fields but on the farms and in the cities, that terribly sacrificial policy of the scorched earth which will make the most difficult tasks that it is possible to imagine for the invader. We must, I think, pay a tribute in passing to the fortitude with which that sacrificial policy has been carried out.

Our people, with their genius for grasping the essentials of the situation, have seen that it is necessary to sustain Russia by every means in their power. During the Recess I had the interesting experience of talking with a man who was in Russia during the early period of the revolution, when he came into contact with many people who were then or have since become leading figures. Incidentally he told me that he had formed a very high opinion of the capacity of General Timo-shenko. He also told me that he was present at an interview between Lenin and Trotsky when the terms of the Brest-Litovsk Treaty were first proposed. Trotsky said that it was incompatible with the honour of Russia, and Lenin replied, "But the soldiers have voted for it." "Voted," said Trotsky, "what do you mean by that? They have not had any ballot papers in their hands, and they have had no opportunity of giving a vote." Lenin said to him, "My friend, you do not realise that people can vote with other things than ballot papers. They have voted for it with their feet." By which he meant, of course, that the soldiers had retreated and had decided that, in the absence of munitions, they were not prepared to stand and face the Germans any longer. I would say that our people have voted, to-day, with their muscles, for the greatest help to be given to Russia, who is bearing the brunt of battle at the present time.

However long this struggle may last, our people will vote with their muscles as well as with their financial resources for the utmost support for that part of the front where the battle rages. And when the struggle comes to an end they will vote, with their ballot papers it may be, for the creation of a nobler Britain in which there shall be a greater chance for all sections of the population than existed before the war. Our vote to-day will be an expression of that wide feeling of determination which prevails throughout the country. I feel confident that our vote will be unanimous, and will thus be symbolic of the unanimity of this nation. For many years I have taken an active interest in political life. I have seen other wars in which this country has been engaged, but never in my life have I felt the solid, determined unity of our people as I feel it to-day. Never before in our history have the whole of the English, Welsh and Scottish peoples been so conscious of their unity, nor so filled with a common purpose to which they are prepared to dedicate their lives. It is as representing this strong, resolute and determined British people, here and all over the world, that I ask this House to support the Vote of Credit for which the Chancellor of the Exchequer has asked.

Mr. Graham White (Birkenhead, East)

If any Member of the House to-day is inclined to criticise any of the observations made by my right hon. Friend, they would not be those sentences in which he said that it was becoming exceedingly difficult to appreciate the full meaning and scope of the gigantic figures, and the magnitude of the scale, on which our national finances are now based. It cer- tainly is difficult to realise them and to understand the full consequences. Like my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence), I have no doubt that this House will unanimously support this Vote of Credit, nor do I doubt that it would have done the same had the Vote been even larger than it is, provided always that hon. Members are satisfied that the money is being devoted to the prosecution of the war and that every conceivable step is being taken to avoid wasteful expenditure.

I entirely agree with what has been said about the spirit of our people, their unanimity and their determination to make every conceivable effort. At the same time there is among them a tendency to be increasingly impatient with any evidence of waste or apparent waste which does come to light. I have had evidence of that feeling in my correspondence recently, which has indicated some criticism of the great display which is being made in the popular Press at the present time regarding some of the frills and fripperies of the trimmings of the war, such as new uniforms, new hats and new badges. It is a spirit of display which had a culminating point in one of the papers when, in great headlines, it said that Mr. Churchill was to choose the slacks for the A.T.S. I would venture to say that that kind of thing had better stop. It is having some effect upon the War Savings Movement, and it is not worthy of the kind of enterprise which we are engaged in at present.

I heard with satisfaction the statement made by my right hon. Friend the Chancellor of the Exchequer about the terms of contracts and the Select Committee on National Expenditure. It is true that there is no reason why the House of Commons should, even if it could, devote itself to a meticulous examination of estimates in these days. But it had ceased to do that before the war, owing to the pressure of business. The House of Commons, which, in Gladstone's day, was custodian of the public purse, was custodian no longer. Nor could it be; neither, in any circumstances which we can envisage, is it ever likely to be again. It is, however, an interesting constitutional fact that the House of Commons, by setting up the Select Committee on National Expenditure—which is undoubtedly doing very valuable work, with the co-operation of the Departments—has devised for itself a means of assuming in some degree the custodianship of the public purse, and has in fact got greater power of examination, suggestion and control than it ever had before. I sincerely hope that in our postwar arrangements we shall contemplate the possibility of maintaining, either in its present or some other form, some Committee system which will enable the House to maintain its wholly salutary influence on the course of public finance. In war time it is very important, all the more so because of the fact that for many reasons the control of the Treasury itself over our finances cannot be precisely the same as it was in peace time. I welcome the Chancellor's statement about the cost-plus-profit form of contract. We hope that that form of contract will become a rare exception in our finances.

I was glad, on the widest possible grounds, that the Chancellor saw fit to refer to some of the criticisms which have been made regarding the possible course of our finances after the war. If there is anything which is more likely to make our financial situation after the war more difficult, it is the kind of prognostications being made at the present time. In particular, I think the Chancellor must have in mind a publication by a distinguished citizen, who has had a distinguished career which entities him to respect and a wider hearing, but not a career which has necessarily been closely associated with finance or economics. I think it is well that statements of that kind should be subjected to some little examination, and I am glad that the Chancellor availed himself of this opportunity to refer to them. It is stated in this publication: We must face the fact that the war is rapidly bleeding us to death. After this year it will be impossible to finance this war either by taxation or by new borrowing. The war is consuming by far the greater part of the aggregate income of the population. The only course open to the Government will be the printing of worthless banknotes or some other way of repudiating our national obligations. I think it would not be unjust to say that that statement, in the main, is just nonsense. The war is consuming by far the greater part of the aggregate income of the population. Actually the reverse is the case. As long as the war continues, and expenditure continues on the present scale, the aggregate incomes of the people are increasing. There seem to be some people who take the view that there is some economic law in connection with war that it must inevitably be followed by impoverishment or poverty. That is not the case. There is no such law. What will happen to our finances after the war will depend on the common sense we apply to our problems and the scale with which we deal with them. If it was said that there was fear as to the financial and economic position of Europe and the world because of the fear lest it might not be possible to secure a reasonable political situation in Europe, that would be a ground for fear. Therefore, those who take the gloomy views with regard to finance ought, in the first instance, to devote their energies to the sphere in which they are better able to deal in trying to ensure the first condition of a reasonable peace, namely, that an atmosphere and attitude of mind throughout the world to enable a proper peace to be made shall be ensured.

What happened after the last war? It was not followed by an immense onrush of poverty. It was followed by a boom. That boom got out of hand; it was ill managed; it was not controlled. The result was that disaster ensued, as it always does. Then we rushed into the period of over-production because the world refused to deal with the problems of production and distribution, and it is in that field that will be determined the course of our after-war finances and success. There is nothing in the scale of our transactions so far which means that they should bring us anywhere near the miserable condition forecast in this nonsensical statement that I have read. We have got to remember that the only thing which would prevent a recovery after this war would be the destruction of the means of production in our own land. Provided that they are left to us and we guide ourselves with prudence and courage, there is no situation in which we cannot build up a reasonable and, indeed, a higher standard of life in this country than we have had up to the present time.

These are the facts of the situation as I see them, that we should devote ourselves to considering how we are to produce that condition when peace comes. I consider that the scale of our finances is not one which will compel us or drive us into conditions of great difficulty. I am glad that the Chancellor has been able to give us a reassuring statement with regard to the fulfilment of what he laid before us when he unfolded his Budget. There is no reason, I am glad to know, that we should have an emergency Budget and no reason to think that, within the substantial margin of error which is inevitable in wartime, his forecast should not be reasonably accurate. He forecast, I think, that there would be this year an increase in expenditure owing to production of £500,000,000. That is the important thing the House wishes to see. If the war were to go on for the same period as the last war, with the same progressive increase in the National Debt, we should find ourselves at the end of four and a half years with a National Debt of the order of £10,000,000,000. But when critics and those people who think they can deal with the future by mobilising the ghosts of the past compare our present situation with that of the last war, they forget that we have learned a good deal since then about finance.

In the last war we paid, as the Chancellor of the Exchequer told us, up to 6 per cent. for our Debt. He is much more niggardly, as a borrower, than the financiers of the Soviet Republic, who I understand are paying 4 per cent. at the present time, with some additional speculative attractions. If the Chancellor is niggardly as a borrower, he is rendering a tremendous service to the State, because if the increase in the National Debt in the first two years of the war is something like 60 per cent. of the increase incurred in the war of 1914–1918, the actual increase in the burden of interest is not more than 30 per cent. That is what is overlooked by many of the critics and many of the people who so readily don the mantle of Cassandra. They also omit to observe that the interest on Government loans is paid subject to tax, and is, later on, subject to Supertax, so the average rate of interest, the net burden on the State on the whole of that Debt, is unlikely to be more than 1¼ per cent. Therefore—again we are in the realms of speculation, but one estimate in these matters is as good as another—the total interest burden of this war, if it lasted for four years and the debt increased in the ratio I have suggested, would be of the order of £125,000,000 to £150,000,000 additional expenditure. I have mentioned this because of the gloomy speculations which serve no useful purpose, and which perhaps interfere with the War Savings Movement and add to the difficulties against which we shall have to struggle at the end of the war. It is unnecessary for me to add any word to invite support for this Vote, because I am sure that it will have the entire support of hon. Members.

Mr. Lewis (Colchester)

There is one point upon which I should like to secure a very definite assurance from my right hon. Friend the Chancellor of the Exchequer. When the war is over we shall be faced with financial problems of immense magnitude and complexity, arising from the great increase in the National Debt. My hon. Friend the Member for East Birken-head (Mr. Graham White) pointed out, I thought very truly, that the extent of the burden will depend upon the common sense and skill which we direct to its solution. I am anxious that there shall be no doubt that when the time comes we shall be perfectly free to apply all our common sense and skill to the solution of those problems. Above all, I am extremely anxious that the Treasury and the banking authorities in this country shall be free to apply their unrivalled skill and experience to the consideration of those problems. At present, our relations with the United States of America are of a very nebulous character. The Government are in close touch with the Government of the United States and we are not told much of the negotiations that go on between them. Nobody complains about that, because of the obvious importance of preventing our enemies knowing what the two Governments are planning. But I have wondered whether anything has been said about the financial problems which will arise after the war, and, in particular, whether any engagements have been entered into, or are being contemplated.

The assurance that I hope to get is a perfectly plain and categorical one. It is, that the Government have not agreed and are not contemplating agreeing to any arrangement with the United States which would tie sterling either to gold or to the American dollar. I cannot see that our war interests can be damaged by a disclosure on that point. I do not wish it to be thought that I have any but the friendliest feelings towards the United States or that I wish to suggest that after the war we should pursue any policy but one of close collaboration with them, in finance or in other ways. But Americans have the peculiarity that they are generous givers but very hard bargainers. If you ask them for a gift, you will probably get a magnificent one; if you go to them to discuss a bargain, you are certain to have a very hard bargain. I can foresee that if we are so foolish now as to enter into any commitments about the future of sterling with regard to gold or with regard to the dollar, that might prove a most awkward obstacle in any subsequent negotiations with the United States. With that characteristic of hard bargaining they might, even though it were against their own interests, allow that to become a great obstacle to us. I do not wish to suggest whether, at some time in the remote future, there may be some definite relation between sterling and gold, but I am certain that the experiences resulting from our mistaken return to the gold standard after the last war show the great danger of being too precipitate in these matters. I am for the moment concerned only to secure that when the vital time comes we may have our hands entirely free to act, as my hon. Friend the Member for East Birkenhead said, with common sense and skill in these matters. Seeing that the Chancellor is not in the Chamber, I hope that the Financial Secretary, if he cannot give the assurance himself, will communicate with the Chancellor about the matter.

Mr. Woodburn (Clackmannan and Stirling, Eastern)

The Chancellor to-day has the enormous task of trying to adjust the book-keeping of this nation to the enormous material contributions that our people are making to the war. It is a great mistake, in my opinion, for people to make extravagant statements about this country bleeding to death. This country, instead of bleeding to death, has enormously increased its production, and has risen to the occasions and is producing almost all the material required for the prosecution of the greatest war that has ever occurred. The money question is the shadow, but the material contribution is the substance. Therefore, the question of whether we are bleeding to death is not one of counters, or of money, but of whether the country is able to feed its population, and whether that population is able to work and to produce the materials required for ourselves and our Allies, and whether at the end we are going to be so impoverished that we cannot continue to live as we did heretofore.

Examining the matter from that point of view, I think some people are much too gloomy. This country is, to all intents and purposes, now a great nationalised industry. We have co-ordinated the activities of all our people, and have mobilised them by raising the necessary money from the public and from the banks and other institutions to enlarge our business. That money is not all lost; much of it has been spent upon capital assets. I myself have seen great quantities of some of the finest machinery in the world brought into this country from abroad, and, unless we are very unlucky, it will remain after the war. Our people have not lost their skill. On the contrary, large numbers of our people have been trained to a degree of skill that was never reached before in our history. Therefore, in view of all the machinery and the material that we have created, except that which has been destroyed in the war, and the skilled personnel that will exist in this country after the war, our capacity for future production will not have been decreased but enormously increased. Far from having to look forward to a time of poverty and destitution after the war, we can look forward to a great period of development for the benefit of the people of this country.

It is true that, in money terms, that effort cannot be measured in the money incomes of pre-war. Assume that the income of this nation, that is, the work done by this nation, amounted to £4,000,000,000 a year, we have brought in 1,000,000 unemployed and a million or two of married women and women who did not previously work in industry, and also another 1,000,000 who did useless work—because many people do useless work from the production point of view— and have therefore increased our workmanship by 4,000,000. Some, of course, have taken the place of men in the Army, but there is no question that the man-working hours in this country have doubled if not trebled since the war began. Therefore, if a third of the existing war effort be measured in terms of the £4,000,000,000, you cannot measure the present effort within the realm of your £4,000,000,000. Therefore, the Government and the State have to expand money terms in order to cover this greatly expanded effort, and instead of that being something to be deplored, we ought to rejoice that the country has been able to reach that development in the struggle that we have to face.

One or two points arise in regard to the working of this great effort. Are we wasting any of that expenditure? Are we expending any energy on the production of the war material that can be eliminated. As the hon. Member for Colchester (Mr. Lewis) said, this House set up a Committee on National Expenditure, of which I am privileged to be a member. It has been our duty in the course of the last two years to examine into the question of waste. We very soon found that any number of contracts were being placed on conditions that led to great waste. People were given permission carte blanche to go ahead and get the job done no matter what it cost or what was wasted. Now that could easily be condemned if the circumstances made it possible to do otherwise, but the Select Committee were faced with the choice of whether it was a greater importance to wait for three or six months and check tenders before starting to build barracks and buildings to hold soldiers and the Army that we were creating, and perhaps, by delaying the creation of the Army, risk the loss of 1,000,000 lives, or to go ahead and risk the loss of £1,000,000. If it comes to a question of economy and waste as between lives and money, this House of Commons can never say that it will risk lives in order to save a little money. Therefore, faced with that situation, we recognised, as my right hon. Friend said, that the Government had to go ahead with the job and take the risk of losing money. It is true also that in many cases where you are asking any firm to make goods it had never made before, you have to allow for that firm learning the work and take the risk of its wasting money in experimenting and in building up its plant. These were all growing pains through which we had to go in the transition from our peace industry to war industry.

But I think the Chancellor of the Exchequer is mistaken in thinking that there are not many contracts placed on the cost-plus basis. There are a great many varieties of contract. He mentioned two of them. He mentioned reasonable cost plus a percentage and reasonable cost plus a fee. But there is also unreasonable cost plus a percentage, and there may be unreasonable cost plus a fee. It is certain that many of the contracts placed in this way have been utilised not for the purpose of getting the job done, but for building up great octopus concerns which are using the contracts not only for the production of the goods required, but for the purpose of swamping their competitors. One of my hon. Friends has mentioned the case of Wimpey's. This firm has become a perfect scandal in Scotland, and indeed, I believe, in some parts of England, where this firm has not only been able to get contracts from every Department of the Government but has been able to get them on such terms that it can go to its competitors and buy up their plant and machinery and practically absorb their businesses. It is with great difficulty that any investigation can be made into this matter, and it is only after the greatest difficulty that the source of it can be traced. Nothing is causing greater bitterness and loss of morale in Scotland than a large number of firms seeing that a firm, which has no place in Scotland and has done no work there, and which, I understand, was a very small organisation before the war, has in the course of the war become so big that practically no other firm in this country has a chance of a contract with certain of the Ministries.

Mr. Stokes

Would my hon. Friend explain to the House whether Wimpey's contract was really such as enabled them to buy up the plant of their competitors, or to obtain the use of their plant at excessively high charges, because that is a very different thing?

Mr. Woodburn

They are doing both. The ordinary man in the street or the ordinary contractor who sees that going on comes to the conclusion, rightly or wrongly, that the firm of Wimpey must be able to get whatever money they require from the Government to build up their business, and they think that there is something more than meets the eye in it, and that it requires investigation. My hon. Friend the Member for Maryhill (Mr. Davidson) is pursuing the matter in another direction. That is what I say would be an unreasonable cost plus a percentage.

There are other cases where there are target costs, which is another method by which skilled estimators in the Government reach what should presumably be the cost of an article, and they offer the contract to a firm at that target cost. If the firm take more to produce it, the firm lose, and if they take less to produce it, then they get less and the Treasury benefit. That is a contract which I describe as "heads the firm lose, and tails the Treasury wins." All the contracts have certainly not been placed for the benefit of the firms getting them. Many of the firms, knowing that they cannot make excess profits, do not think that it is very material to ask for a higher price. There are other contracts at fixed prices, and contracts where a fixed price is given subject to costing, and even if a fixed price is given, the contract is still costed and the firm may get less. These varieties of cost have all been introduced in a very earnest endeavour of the departments, I am convinced, to try and limit as far as possible uncontrolled spending on the part of any Government Department, and I must pay tribute to the improvement and the development of the costing system.

At first the costing system of the Government Departments was post-contract costing. Long after the contract was finished they started to cost it. But when thousands of contracts were placed per week it became fantastic to think that you could find enough costing people in the country to go round costing these contracts. Now they have adopted a much more effective method—spot costing—by which they go to a firm, check up in the midst of its work and find out what is its efficiency while the job is going on. But there are some contracts, in engineering particularly, which are still very regrettable. I have an instance in my mind which has now been submitted to the Select Committee, and which they are now examining, but as I know of it outside my membership of the Committee I am at liberty to mention it in the House. This firm—a great motor organisation linked up with an important national rail-way—has been able to get contracts from the Air Department and stack up its works with something like £60,000 worth of machinery which has not yet produced one part for an aeroplane. This firm has been paid all these costs and the cost of keeping men standing idle for weeks be- tween different contracts and cancellation, and at the end of it they will, presumably, be in the possession of some of the finest machinery in the country which has never yet produced an article for the war.

Slackness in this matter is not confined to this firm alone. It is having a detrimental effect on morale and on firms and men in the vicinity who have protested at the way in which this firm can get away with this sort of thing while they are being costed up to the last halfpenny. On the Clyde and in the East of Scotland there is discontent about the fact that certain firms have been able, and are able, to spend as much as they like without any check. It is difficult to get to the bottom of the matter and to tie them down to specific instances. Men say, "These firms can spend what they like. Why should we refrain from asking for rises in wages when they can pour out money for no work?"

Mr. Stokes

Does that mean spending money on plant and development?

Mr. Woodburn

No. A firm says, in effect, to its men, "It does not matter whether you are doing anything or not. We keep on paying you. "One firm, in the early part of the war, had agents in public-houses offering any wages in order to get skilled engineers from key trades to go to this particular firm. Even some of our Royal Ordnance factories were subject to that kind of treatment. I want to say quite frankly that the Department and the Treasury have done everything they possibly can to try and put a check on this wasteful expenditure, but to a large extent we must depend on the good will and conscience of the people in industry. In some cases these have been lacking, and it is very regrettable. The cost-plus system has also had a reaction on the willingness of workers to pay Income Tax. I have had a letter from a miners' executive in my area who knows a good deal about economics as well as mining. He states that miners are now receiving their claims for Income Tax, and he warns me that the feeling among miners is such that production is likely to suffer by miners being disinclined to work overtime and long hours when it appears to them that they will get practically nothing for it. I quite recognise that theoretically people ought to work overtime for patriotic reasons, but unfortunately when men work 60 or 70 hours a week in the pit it takes more than that to induce them to work extra hours.

This is a deficient way in the long run of collecting this Income Tax. I have raised the question with the Chancellor, who has said that he finds practical difficulty in the way of taking money from workers when they earn it, but if it cannot be collected when a man earns high wages it will lead to trouble when he has to meet retrospective collection. I urge the Financial Secretary to put before the Department and his right hon. Friend the necessity of finding some method of deducting the tax from wages at the time the worker gets the wages and not leaving it to be deducted at a time when perhaps his wages have fallen. My friend the mining executive, therefore, makes these two suggestions: (1) that the Chancellor should find some method of making de-deductions from wages when they are earned; (2), that a larger proportion of the Income Tax that is deducted should go to national savings for post-war spending. If the miner was convinced that he would not sink into poverty after the war, he would not feel this handicap of working, as he feels, for nothing. I hope the Chancellor will give serious consideration to the suggestions. He might reply, I know, that taxation at the rate of 19s. 6d. in the £ is a tremendous drain on the people with the top incomes and those at Surtax levels. I agree, but may I submit to him and the Financial Secretary that after all the question of income and consumption is one of using up the products and labour of the nation? The country to-day is restricting consumption of that to a very small degree of necessaries, and, therefore, no amount of allocation of money would increase the possibility of consuming goods or labour.

So in this country to-day it is clear that the use of labour and consumption is restricted in that it is being allocated more and more according to some reasonable basis of rationing. In discussing the allocation or distribution of incomes, it is not a question of allocating existing incomes but a question of distributing incomes after the war, A person paying 19s. 6d. in the £ is not starving to-day because he has a very large amount of capital. Some Members of the House say they are living on their capital. I do not assume that prior to the war these people were living up tc the last halfpenny of their incomes. It can be assumed that for four years before the war they were increasing their capital by abstentions and saving, and all they are doing by living on their capital now is to go back to the position they were in four years before the war. They are no poorer now than they were in 1935. So far as they are concerned, they are using some of the savings they had. They are the people whose postwar incomes are being raised by the transfer of their capital to pay people who are producing goods to-day. They will be able to consume only after the war. Therefore, we are at this time in the midst of a very considerable redistribution of income which will be applicable after the war. I suggest to the Government that if a further redistribution of income would help production and give a greater feeling of fair play as between man and man in the country, it would be to the benefit of the war effort, and even those people having large incomes would not suffer.

I congratulate the Chancellor on the general working of his financial policy. I do not think the Government's policy has been tending towards inflation; I believe we have taken the most effective steps possible against inflation. When we think of 3 per cent. interest, we have to keep in mind the fact that in normal cases 10s. in the £ is immediately deducted from it, so that the person concerned gets 1½ per cent. interest on his money, and this, compared with former days, seems a fantastic way of financing the war. Even in respect of the 1 per cent. of the banks, if any of it were profit it would be subject to ½ per cent., and it is questionable whether the 1 per cent. does more than meet the cost of running the banks. The only question is whether, if the banks make excess profits, the Treasury keep a very tight hand on them and see that the whole 100 per cent. is obtained for the Treasury.

The final point I want to make is this. No matter how many financial investigations there may be, it is a physical impossibility to check and cost everything that is taking place at the present time, and therefore, we have to rely to a large extent on the honesty and integrity of those who are running industry and those who are working in it. From my experience in the Select Committee, I say that, while there may be cases of inefficiency and hitches in production, the great majority of the firms in this country and the great majority of the workers are working to 1oo per cent. of their practical capacity. That does not mean 1oo per cent. of their theoretical capacity, which is an entirely different thing. We are dealing with an industrial army of nearly 20,000,000 people. Anybody who has had anything to do with organising an army on the Continent will know quite well that some regiments will get out of step. The greatest general in the world cannot guarantee that all regiments will be at the same place at the same time ready for the battle. Equally, it is impossible with an industrial army, especially when communications may be bombed and valuable machine tools sunk, to ensure that production will not be very often interrupted by unforeseen events. All I say in this connection is that when these hold-ups are unavoidable, some explanation ought to be given to the workers in order that they may understand that the hold-ups are not due to inefficiency on the part of the Government or the management. Much of the discontent and irritation among the workers is caused by the fact that they receive no explanations. In the mining and shipbuilding industries especially, the employers still appear to treat the workers as though they were not civilised beings capable of understanding a simple explanation. From the point of view of efficiency and economy, a greater effort to take the workers into confidence would be beneficial to the nation and the war effort.

There has been a great deal of exaggeration concerning slackness in industry. I believe that the overwhelming number of the workers of this country are anxious to work as hard as possible in the national effort. I have come across a great many instances where, quite obviously, there have been no vested interests, no greed and no cupidity in connection with the efforts being made and where those concerned have been patriotic and prepared to leave all other matters until after the war. It is true, however, that we have not yet reached the maximum of our production. There has been a great changeover from peace industries to war industries, and the financial transition has also been a difficult one. It may be that we have reached only 75 per cent. of the possible change-over; I believe that is very likely the case. It is very difficult to get a democratic nation to adjust itself to a new atmosphere, but within that 75 per cent. some of our people have done marvellous work. They have produced machines which turn out in two minutes shells that required two hours during the last war. Some of the engineers have done things, especially in regard to the defence of this country against mines and other fiendish devices, which will give every one of us a thrill of pride when the story is told. Therefore, although we may criticise deficiencies in production and perhaps question whether money is spent in the right way, I hope that credit will be given to the workers, both technical and administrative, and to the men in the workshops, who are putting every ounce of energy they can into the patriotic task of producing the weapons with which to win the war.

Mr. Benson (Chesterfield)

The fact that this Debate is taking place at the end of six months of the financial year enables us to make a fairly simple survey of how our finances appear to be going. I thought that the Chancellor was perhaps rather more optimistic in his speech than figures would justify. Within the past six months there have been issued out of the Treasury some £2,200,000,000, and the Chancellor told us that at the present time expenditure is at the rate of £13,000,000 a day. If that be continued, there will be an expenditure in the next six months of £2,400,000,000, making £4,600,000,000 a year. That is £400,000,000 more than the Chancellor estimated in his Budget speech. In his Budget speech he also estimated that there was a gap of about £300,000,000 which would have to be met from increased saving. The increase in expenditure of £400,000,000 over the Estimate will increase the gap to £700,000,000, unless there is a commensurate increase in the Exchequer income either from taxation or from additional savings. How we are getting on is rather difficult to estimate, particularly for the layman, who has not access to the figures which only the Chancellor can have, but if we take it that the Chancellor's estimate of taxation will be realised and if we take also the rate of saving for the past six months, we find that the Exchequer income will be about £3,500,000,000. The tax estimate was £1,780,000,000 and the present rate of savings is about £1,720,000,000 a year. I am referring now to actual investments in Government securities and the savings banks, and not to more hidden investments. This means that there is a gap of about £600,000,000 to be filled. I have no doubt that the various funds the Chancellor of the Exchequer mentioned in his speech, such as the Colonial sterling balance, and various other matters, will tend to reduce that gap considerably, but nevertheless, instead of it being visibly closed since the Chancellor made his estimate of £300,000,000, the gap has been visibly opened.

I now wish to review the question of savings. By savings I mean the amounts subscribed to our various War Loans, and the amounts accumulated in the various working-class savings' organisations. Roughly, we have three sources of savings. We have the industrial reserves of limited companies and industrial companies, and we have private incomes, divided into large and small incomes. There is little or no hope of any increase in savings in respect of industrial reserves, because E.P.T. puts a limit to the amount of profits industry can make, and, therefore, puts a limit to the amount of profit that can be put to reserve and savings. In regard to larger incomes, the Chancellor knows very well that there is very little to hope for from this source. For many years the rich have not been saving. Of course, there may be reasons for this, such as high taxation, but I am not concerned with causes to-day. The fact is that the rich have not been saving for many years, and so far as war savings are concerned the rich are on the debit side. As a matter of fact the rich have been disinvesting, which, no doubt, is inevitable because of large commitments, Income Tax and Surtax ranging up to 19s. in the £. That is a fact which we must take into account in weighing up the possibilities of the Exchequer drawing additional national savings. With industrial reserves limited by E.P.T., and with the savings of the rich limited by the fact that they have been disinvesting, we are left with the really important source of savings, and that is the smaller incomes. It is to these smaller incomes that the Chancellor must look to close the gap. These smaller incomes are also important owing to the fact that they comprise the bulk of the national income.

We all read that very ingenious pamphlet of Mr. Keynes, which was published at the beginning of the war, in which he assumed, taking the estimates of Mr. Colin Clark and others, that something like 3/5ths of the national income was included in incomes of £5 a week and under. War changes have probably emphasised the importance of the smaller incomes. As we all know, there have been very sharp rises in wages, and large numbers of people who were not employed before the war are now earning wages. Therefore the proportion of three-fifths has certainly been largely increased since the war, and with it the importance of the smaller incomes as a source of saving. What are the smaller incomes contributing to our national savings? The latest figures published, those for the past six months of the current financial year, show that they have been saving something like £300,000,000. That works out, on an average, at £11,000,000 per week. The Chancellor referred to the fact that small savings were on the verge of reaching £1,000,000,000 a year. That, I think, is an optimistic way of staling the facts. The vital figure is £11,000,000 per week.

It is very difficult to form any real estimate of the total income from which those savings come; one cannot form any real estimate unless one has a statistical department at one's elbow. Taking wages, smaller salaries, the profits of small middle men, small manufacturers and small shopkeepers, I do not think we shall be far out if we say that this income represents something in the region of £4,000,000,000 for the present year. Putting that against the statement of Mr. Keynes, and taking into account the fact that our national income has jumped up very considerably since the war, and that the proportion of the smaller incomes has increased relatively to the larger incomes, I do not think £4,000,000,000 is an over-estimate, but rather that it is an under-estimate. Out of that figure these small incomes are contributing by direct savings £11,000,000 a week, which is roughly one-eighth, or 2S. 6d. in the £1. But when one realises that on a very large proportion of the national income saving is at the rate of one-eighth, and that we are spending more than one-half of the total national income, that eighth, hard as it may be for an individual to save, is not a very satisfactory figure.

In these matters I am afraid one has to take hard facts and figures as a basis for judgment. Therefore, I do not think we can be satisfied with the rate of savings at the present time. So far as we can see, the gap which the Chancellor of the Exchequer estimated is likely to be increased, and savings and taxation are unlikely to contribute to closing it. Savings which are being made in the major proportion of the national income are entirely inadequate to meet our enormous war effort. I do not wish to impute any blame, but merely to examine the facts. Under present circumstances it must be particularly difficult for people with smaller income to save, and I am not at all certain that we are going to achieve an adequate amount of savings by exhortations alone. I have previously discussed and criticised the War Savings Movement, and I do not propose to dwell on that question to-day. I think, however, that the Chancellor of the Exchequer will have to smooth the way to saving more than he has done up to the present, and this must be done in co-operation with the Board of Trade.

If we are to save on a largely increased scale, we shall have to go in for even wider rationing and price fixation. It is true that at present our main articles of consumption are rationed and the prices are fixed. The price of basic foods has risen, and these things are in short supply. It is impossible for a man doing heavy work to subsist merely on rationed food. He, or rather his wife who has to do the shopping, must go beyond the rationed foods. She has to find alternatives, and it is the expenditure on the alternatives that runs away with the money, because so many of them are not rationed and prices are not fixed. Whenever anything fresh comes on the market prices are fantastic— tomatoes at 5s. and 6s. a lb., pears at 2s., 3s. even 6s. a lb. Where you get basic necessities in short supply and people with more money than they have had before, you are bound to get expenditure on alternatives, and, if the alternatives are high in price, as they certainly have been, people will buy them first of all because they have more money than they have ever had, and secondly because they must get something to supplement the basic rations. If the Chancellor of the Ex- chequer is going to raise money he has to make it more difficult to spend. He has to see to it also that the alternatives to basic rations are also controlled. It appears to me that in the past the Board of Trade have dealt with rationing purely from the point of view of supply-—that everyone must have a certain amount of certain necessities. In future we shall have to look at it from the financial point of view also, the point of view of curtailing expenditure. If the Chancellor is going to fill the gap, he will have to urge upon the Board of Trade a joint policy based upon financial motives as well as motives of supply.

Mr. Loftus (Lowestoft)

I should like to congratulate the hon. Member for Chesterfield (Mr. Benson) on his speech, which is obviously the result of great thought and study. I have only risen because I feel that, when we vote such a large sum as £1,000,000,000 in a thin House, it is right that we should not vote it entirely without Debate and rise at a very early hour, shortly after the Chancellor of the Exchequer has concluded his remarks. There should be some comments made upon his statement in this House, whose main function has always been to pay great regard to the finances of the country. My right hon. Friend has pointed out that it is almost impossible for the mind to realise what these figures mean. When we vote such a sum as this we reach a stage where money is subordinated to materials. We have realised that whatever it is physically possible to accomplish in the war effort we will accomplish. We will use every ounce of man-power, every piece of machinery, every piece of material that we can acquire in the vital effort to win the war, to preserve ourselves and to preserve freedom for the world. Whatever is physically possible we will do, and we will then provide the money. I think that contains a lesson which I hope we shall remember in future when peace comes. We have accomplished this immense expenditure, we have utilised the whole man-power and much of the woman-power of the country, we are utilising it for utterly non-productive purposes with very little inflation so far—a certain amount, but very little. This makes one reflect that if during those bitter years 1929, 1930 and 1931 we had looked at the material facts and used some of our man-power, as we could have used it, for revenue-producing schemes, we could have raised the standard of life without any inflation whatever and largely solved the bitter tragedy of unemployment.

The second reflection is this: My right hon. Friend has said that we must regard this expenditure as in itself producing revenue which will yield heavily in taxation to pay for the expenditure. There has been an enormous increase in salaries and wages and employment—an argument which we must again remember if ever we are faced with an unemployment problem when peace returns. The third lesson is that part of this £1,000,000,000 is being used for the rationing of consumption. I think in peace-time we shall continue, perhaps on a better and wider and more logical basis, this rationing of consumption so that there will be essential nutritive food for all.

The problem before the Chancellor is twofold. He has to raise the vast sum that he is asking us to vote, in the first place with a minimum of inflation. He has been most successful so far. There has been a certain amount of inflation. I think it has been a minimum, but it is no use disguising the fact that we have reached the point where we have, perhaps inevitably, to take further steps to prevent the danger of inflation. My hon. Friend the Member for Chesterfield pointed out an interesting thing when he estimated that we were spending over one-half of our national income on the war and that the vast bulk of bur people with incomes were saving roughly one-eighth. That is not good enough. The fact of which we should all be conscious to-day is that six months ago we recognised the danger of inflation, that drastic steps would be needed to prevent it and that we were prepared to consider further steps. We accepted the last Budget with its terrible taxation as a means to prevent inflation, but the danger to-day is far greater than it was when that Budget was introduced. The reason is that when we discussed it we were providing for this great effort to produce munitions only for our own Armed Forces, but to-day we have to produce munitions for our Ally Russia. That imposes a burden which will be, I will not say intolerable, but will intensely increase the burden of production and the sacrifices involved. That is why I would beg the House to realise that if six months ago we were concerned about inflation, we must to-day be far more concerned because we have to increase our production more than ever.

How are we to guard against inflation? I agree with my hon. Friend the Member for Chesterfield that we must inevitably be driven to much stricter rationing. I do not think we can avoid inflation with present measures, and we must extend rationing to many objects which are not included to-day. There is an understandable movement in many industries to raise wages. The Government White Paper suggested a policy on wages, but that policy has not been adopted. There is no doubt that if there is a general rise in trade after trade in wages and salaries, we shall be heading towards really bad inflation. That will be against the interests of every class and individual in the country. We have to face that problem. I believe it wrong not only to raise wages but to raise salaries. I go further and say that, generally speaking, no income above a certain minimum should be allowed to be raised owing to the war. We have to face the fact that we have to make bitter sacrifices and that we must deny ourselves of things individually and as a nation and concentrate on the munitions effort in order to provide not only for ourselves but for Russia.

The second problem before my right hon. Friend the Chancellor of the Exchequer is to make the burden of interest on the future as light as possible. My right hon. Friend legitimately congratulated himself on the fact that whereas the last war was financed at 5 per cent., this war has been financed at 2½ and 3 per cent. He is entitled to full satisfaction at that contrast, but may I warn hon. Members that if every year we raise the National Debt at 2½ per cent. to the extent of double that raised in. the last war, the burden of interest will be the same? We must make every effort to minimise the burden on the future. A great deal has been done, and the interest rate is low, but has everything possible been done? I suggest that if we had a publicity campaign initiated by my right hon. Friend the Prime Minister and supported by every hon. Member throughout the country, asking people, in order to save the country, to subscribe to loans without interest, we would be astonished at the response. It has been done on a small scale without any publicity, and I believe it could be done to a greater extent with publicity. In our people there is a spirit of sacrifice, and I believe that the idea that one can only help the country if one gets 2½ per cent. or 3 per cent. does not apply under present conditions. I beg my right hon. Friend to think over that suggestion.

My hon. Friend the Member for Chesterfield dealt with the gap between genuine savings and created money, a gap which, he pointed out, amounted to hundreds of millions. That gap has to be bridged by the creation of money through the banking system. I repeat what I have said on many occasions, that where there are genuine savings, especially by the small man, rates of interest up to 2½ per cent. can be given. Where there is creation of money to bridge the gap through the banking system, the rate of interest should cover only the cost of the creation of that money. The "Economist" estimated that that cost was 1 per cent. Today on Treasury deposit receipts we are giving 1⅛ per cent. I am willing to accept the point that the servicing of Government expenditure costs 1⅛ per cent. What does concern us that it is a short-term method of raising money. These Treasury deposit receipts can be converted, and are, I think, being converted, into long-term loans at 2½ per cent. I feel that where money is created to bridge the gap it should be perpetually at no higher charge than 1 per cent. That is a point which I have made before and I would press it upon the notice of my right hon. Friend the Chancellor.

Finally, with the great increase in expenditure before us, and with the prospect that all our energies will be required to face the gigantic additional tasks of making munitions and shipping munitions to Russia, it is obvious that we shall have to give more attention than ever to the allocation of our man-power and our material. We shall have to get a scale of priorities clearly into our minds and the mind of the Government. As regards the £1,000,000,000 which we are voting today, which will buy ships and aeroplanes and guns and tanks, pay the Army, Navy and Royal Air Force, and meet the thousand and one other expenses, and also which will pay for the tanks, aeroplanes and guns for our Russian Ally, I hope that when the expenditure of this money takes place the Government will realise, as I am sure they do, that the first priority in an Island like this, either for man-power or material—steel, iron and so on—must not go to the tanks but must be allocated to shipping and to the Royal Navy, on whose existence we as a nation depend and which alone provide the means to convey the urgent help required by our Allies to-day.

Miss Ward (Wallsend)

After two such thoughtful speeches I feel that I ought to preface my remarks by apologising for a somewhat unprepared speech, but I see here an opportunity, too good to miss, to say to the Chancellor of the Exchequer one or two things which I have be en wanting to say for a very long time, and in addition it is an opportunity to raise a matter on which I feel very strongly, namely, the pay of officers. I agree with a great deal of what my hon. Friend the Member for Lowestoft (Mr. Loftus) said on matters of high finance, but I am going to deal with smaller points. After the speech made by my right hon. Friend the Chancellor I feel that so far as the big problem is concerned things are going well, but it may be that he is so much involved with the big issues of finance that he overlooks some of the smaller points, which are equally important to the war effort and on which a measure of justice in our administration depends. It is a curious thing that in this country the Treasury, which is so often the Department which prevents progress, is hotly defended by Ministers in charge of Departmental Votes, though behind the scenes they have often waged wordy battles with the Treasury. A friend of mine told me the other day that when my right hon. Friend the Chancellor of the Exchequer was Secretary of State for Air he pressed for a great many alterations which the Air Force wanted. He put them forward as the political chief of the Air Ministry, but he opposed them as bitterly now that he has become the Chancellor of the Exchequer.

Sir K. Wood

There is no truth in that whatever. I do not know who the gentleman or lady was.

Miss Ward

I can put my right hon. Friend's mind at rest on one point. It certainly was not a lady who told me. At any rate, I have confidence in the source of my information, otherwise I would not make the statement. I appreciate that when one is in a Department, one sees only the needs of that Department, and that when dealing with wider issues one may take a broader point of view, but although my right hon Friend repudiates my statement, all I can say is that it is "on dit" in the Air Force, and perhaps it will be as well for my right hon. Friend to clear up the point. I cannot go further than that, because he knows perfectly well the struggle which back benchers have to get any information on which to base their charges against the Government. But this I do know, that in this country you can always depend upon a Department defending its Vote against an attack which may develop, although what has happened is really the fault of the Treasury. I remember that when the right hon. Member for Westmorland (Mr. Stanley) was Secretary of State for War I did get in one little dig against the action of the Treasury, but although there had been a great deal of criticism from the War Office about the obstinacy of the Treasury on the point, instead of leaving it alone my right hon. Friend got up and hotly defended the Treasury. To me, that is bogus. The Treasury is entitled to its point of view; as the guardian of the public purse it is entitled to look after the general finances of the country, but if in so doing it hinders progress or creates injustice it ought to be open to attack, and I say frankly that I propose to criticise it to-day in respect of one or two matters.

I start with one small point, so that I can get myself really worked up to my major theme. I wish to say a word about the salaries paid in Royal Ordnance factories to the State-registered nurses working there and to speeches made by my right hon. Friend the Minister of Health asking for nurses to come forward to be trained and setting up a committee to discuss salaries, for he realises that the salaries paid to nurses are woefully inadequate. Ought not a Government Department to give a lead? Ought not a Government Department to insist upon a rightful standard of pay? What do we find? In the Royal Ordnance factories the scale of pay for State-registered nurses is below the standard of the Royal College of Nursing scale. I know that that scale has not been accepted by the Government, but it is not an extravagant scale. It is a very ordinary scale in view of all the skilled work put in by the nursing profession. What is the good of one Minister setting up a committee to discuss salaries if a Government Department which employs nurses does not give a lead to the country? I understand—and I hope my right hon. Friend the Chancellor will accept this—that the Ministry of Supply would like the nurses in the Royal Ordnance factories to be paid on the scale of the Royal College of Nursing, and that the opposition comes from the Treasury. Therefore, I should be very grateful for an answer. I am prepared to wait a week, a fortnight or even a month for the Treasury, but I hope that, before long, there will be an announcement that a proper and adequate scale of salaries is to be paid to the nurses in factories owned by the Government. I do not propose to talk about industrial wages. If I did, I could go on speaking for the whole afternoon. Nevertheless, girls going into armament factories may never have been at a bench before. They are doing unskilled and semi-skilled work, and they are earning good money, some of them more money than a skilled and trained nurse who put in years of work in order to gain her experience. The Government allow that to go on, and the Treasury are responsible. I leave it at that, but I expect an answer.

I come to another point. I am not raising the whole issue of pensions or of unequal compensation, but am taking one small point. With the agreement of the Treasury and under the terms of the Royal Warrant, pensions are granted to dependants of sons killed in the war, upon the basis of a need test. I heard the case of a man whose son went down in the "Royal Oak," and I fought that case for six months in order to obtain a pension for the man, and I won. The man is drawing money also from the Assistance Board. All the facts were in possession of the Minister of Pensions when the pension award was made. The award was made within the terms of the Royal Warrant. So far as this point is concerned, the conditions of the Royal Warrant are a disgrace, but I am not going on about that. After a six months' fight the man won a pension of 5s. per week. The Assistance Board then reduced his allowance by taking off 4s. 6d. per week, and the man was 6d. better off, although all the facts were known and the pension was granted on the basis of need, with full knowledge of the facts. I do not know whether that was the fault of the Treasury, or whether any arrangement was made between the Minister of Pensions and the Minister of Labour, representing the Assistance Board, to cover cases of that kind. I do not know whether the Treasury were even asked, whether they refused or whether they accepted. I know that this is a small point in relation to the general problem of finance, but, my goodness, it matters a great deal to that man in that mining village, and my blood boiled when I heard what had happened. I have given the House my views on the subject.

I come to the question of the so-called increases in officers' pay. A cynic said to me not very long ago that as long as you spent your money within your terms of reference you could spend any amount, and the Treasury let you do so. I should like to know the estimated cost per head, taking the expenditure of every Government Department, of each child evacuated. I believe that would make a grand figure to give to the country. I am not against evacuation, and I think the Government were absolutely right in providing a holiday for the children, but the parents of this country have a responsibility. I am against compulsory evacuation, but if parents want to send their children away it is a wise policy. If provision has been made, well and good, but to go on spending thousands of millions of pounds quite out of proportion to the number of children who have been evacuated, and at the expense of other people who have to give service to the State, is wrong, whether such action is inside or outside the terms of reference.

I would like to ask exactly the same question about the hostels in connection with armament factories. I am not criticising their building, and I am not saying that the girls ought not to go there, but I should like to know how much has been spent per head upon the girls who have taken advantage of the hostels. I want to know which Ministers go to the Treasury and get more money than other Ministers do. I can give the answer to that question, but I think Ministers know the answer already. To my mind, that position is false: it is not real. In this war we have to be realists. I want to see everybody fairly treated. I do not want to see those who cannot light for themselves, such as the Service people, neglected at the expense of other people, and someone has to get up in this House and speak about these matters.

I do not propose to deal with the whole issue of allowances to wives of men serving in the ranks, but what makes me mad is that Ministers wait until there is a public agitation, until public opinion, based upon knowledge, is so roused that it demands a change. Then the Treasury acquiesces. Why can you not decide what is just and honest and give it, in advance of public opinion? Is not that the job and the right of the Treasury, and ought that not to be the Treasury's policy? I know that public opinion rules in this country. Thank God this is still a free country, but why always wait till the newspapers print articles, letters and demands by people who know what they are talking about because they are mixing among the people in the country? Why wait until the usual channels of communication come into operation and we have a Debate? I have not the slightest doubt that some concession will be made in this matter, but do hon. Members think that that is the way to treat the wives and families of men who are serving in the Forces, and who are prevented by the law of the land from making their own representations, and their own agitation?

People in the industrial world have a right to go to an independent court of arbitration for their grievances to be weighed up. They do not have to wait upon public opinion or upon the Treasury. It has been rightly pointed out that a vicious spiral affects the lives and the pockets of those who are dependent upon money provided by the State. No, Mr. Chancellor of the Exchequer, we have to do better than that in this country, if we are to have equality and justice.

I come now to my main point, the announcement about officers' increased allowances. I am not experienced in the technical language of the Service Departments, and it is not for me to say the right amount of pay for officers in the Air Force, the Navy or the Army. I know it is said throughout the country that nobody pays any attention to their difficulties, their needs and their position. It is no use answering me by saying that there is the War Service Grants Committee, because I am a member of that Committee. I know our limitations and our terms of reference, and what we can and cannot do. We look round and see what has been done, after months of negotiation, for officers in the Services. Yesterday I put a very direct Question to the Secretary of State for War, when I asked whether the Service Departments were satisfied. The Minister said, "Yes." I asked him whether further representations were being made behind the scenes, and I understood him to say that there were not. That may be the political way of defending the Treasury. I do not really know, but I am not dumb and I do not live in a glass-house or in a nunnery. I try to see what is going on in the world.

During the last few days I have had an opportunity of hearing some of the views of the Service chiefs. I am not going to say which Services, but I do know their dissatisfaction. I know what their views are, and I know of some of the representations that are being made behind the scenes. I wonder whether the Chancellor would have had the courage to reduce an already very small allowance in the case of any other single class of the community, in order to meet the increases on another account, and whether he would have got away with it? He knows perfectly well the difficulties which officers face in making public representations. We know how few people in this country will stand up and ask for their rights to be considered. I am doing it to-day, because I have a certain amount of knowledge, and because I know the feeling of dissatisfaction which exists.

Our victory ultimately depends on the leadership given to our three Services, supported by the men who are in them. No matter what is said about the consideration given by the Government to the difficulties under which some of these officers—I am referring principally to the married ones—live, it is no use: we ought to see that the officers have just as square a deal as the ranks, and that the Services have just as square a deal as the industrial workers. I have come to the conclusion, rightly or wrongly, that the Service chiefs have succumbed to the Treasury. I know there is a great deal of dissatisfaction in all the Services about alterations which have been made. The people who grumble do not grumble openly; they are far too decent and modest about making their claims, and so I am doing so to-day because I think it is right. I do not know what is going to be done, but I do hope the position will be reconsidered.

As I am rather a rebel myself, I could not help chuckling when I saw the other day that my right hon. Friend the Minister of Labour, when he could not get his own way, said that he would himself take a memorandum about agricultural workers to the Cabinet. Of course, it was not in accord with the usual Parliamentary tradition, but I wonder whether the Cabinet will turn that memorandum down. I should like to see some of our Service political heads taking the same line on behalf of the officers. Do the Government think that it is in accordance with justice to pay to a trainee at a Government training centre, a man who may never have had a tool in his hand or never have stood at a bench, a wage of £3 a week, nearly the same amount as is paid to a lieutenant who has the responsibility of leading men? Then you take men who have worked their way from the ranks through the O.C.T.U., men who have the quality of leadership, and you say to them, "If you are a lieutenant and married, you are to have 2s. a day deducted from your lodging allowance"—or whatever it is called— "and if you are a captain with one child, you are to have 2s. a day deducted from your wife's allowance, and 1s. 6d. a day from your child's allowance, a total of 3s. 6d." We were asking for an increase. I am not criticising the basis on which the awards have been made; I am rather glad that allowances have at last been given for families. I think that is a good policy and a wise policy, but I wonder who took the decision to try and balance it up by taking something from the niggardly, measly little allowances already granted?

To turn now to a very different thing. I am told there have been some new Army regulations. I may be starting a hare, and I confess that the War Office takes so long to give any explanations about anything that I have to raise it now because it may be a year before I get another opportunity. An alteration has been made to the regulations which defers the grant of rank to men coming from the O.C.T.U. I do not know what the technical explanation is and I have not been able to find out. A case was brought to me and I asked the War Office to confirm or reject it. I got no answer, and so I told them that if I did not get an answer to-day, I should have to raise it here. There is a suspicion in the minds of some officers that this is a Treasury way of saving a little money. I will go no further, but if it is true, I shall take another opportunity of raising it. If it is not true, I shall be very willing to apologise. I have waited for this opportunity for months and months, and I am delighted to have it.

One more word about the War Service Grants Committee, because I beg the Chancellor not to put that up as the method by which officers' rights and claims are adjusted. We know that whatever recommendations may be made by the Advisory Committee to the Minister of Pensions, the latter has to go to the Treasury to fight the case, if he agrees with our recommendations. The Treasury has the right to accept or reject. I would like the Chancellor to see how carefully the terms of reference were drawn up for that committee when it was set up. Another word regarding advisory committees, in view of what appeared in the "Times" yesterday. Advisory committees are set up in Government Departments; they have no powers and merely advise. Ministers are always referring to advisory committees and they always take the advice of those committees, but advisory committees have no power or right to go and argue with the Treasury. I wish the Government would set up less advisory committees and give a little more power to a few people to examine conditions and then make sound recommendations. It is a lovely thing for a Department to have an advisory committee to hide behind.

I was very amused the other day when I addressed a question to the Financial Secretary of the Treasury. I asked him how many advisory committees had been set up during the war. He said there were so many that it would not justify the work to find out how many there were. I did not want to put his Department to that inconvenience; I had got what I wanted. An advisory committee is something which many Departments are very pleased to have because they help them out of many holes and difficulties. I almost ought to say to the Chancellor that I am sorry, but I know he would not like to deprive me of my pleasure. This is really a vehement speech, delivered with all my heart. We have not forgotten his good work as Minister of Health. Somehow he must have altered since he became Chancellor of the Exchequer. He ought to have had a part in "Dear Brutus." Then, if he had started as Minister of Health, he would still, as Chancellor, be the same. Unfortunately he has not carried out that tradition, because he has changed. I ask him, in the ordinary interests of justice, to find out whether, in connection with the money that is spent for which he has no responsibility, but which has a vital effect on the general life of the nation, the terms of reference could not sometimes be tightened. I ask him also whether he could not do something to bring about a proper balance between the industrial and Service and the Civil sides of our expenditure, thereby making the sacrifice which the community is longing to make, and is making, to the war effort, really a sacrifice on terms of equality.

Mr. Sexton (Barnard Castle)

It seems rather ungentlemanly to rob the hon. Lady of the woman's prerogative of the last word. In this case it was not only the last word, but a very vigorous criticism of the Chancellor of the Exchequer. Ever since I came to this House I have been impressed by the right of the Commons in matters of finance, and in a small way I have taken part in almost every Budget Debate during the time I have been a Member. This tremendous Vote of Credit, like the other tremendous Votes of Credit that have been before the House these last two years, is an alarming one to me when I consider its immense size. I can remember, when I was a small boy, counting the halfpennies and pennies out of my money box. When they totalled one shilling I thought I had done very well. I was never much of a financier, and I never thought that I should be sitting discussing a Vote of Credit for f,1,000,000,000. I cannot grasp it yet; I do not suppose any Member can. That £1,000,000,000 has to be found evidently, and it is our duty, right and privilege as Members of the House to look carefully into these questions of Votes of Credit to see that they are obtained in as fair a manner as possible from all members of the community in the form of taxation or borrowing, and to see, further, that they are spent wisely and well; that, in common parlance, we get value for money.

It is essential in peace-time to scrutinise Votes of Credit and expenditure, but it is more essential in war-time, especially in such a war as we are engaged in at present, because man-power and material power are conditioned by finance. And not only our own man-power and material power, for we have now undertaken an additional obligation in going to the assistance of our gallant Allies. Probably we shall have to find more money still. This money has to be found, and the Chancellor is trying to find it in various ways by the savings of the people and by borrowings. On the savings side, the direct savings side, I think it is right and proper that the small investors should be complimented on their magnificent work. I was pleased to hear that the small investors were nearing the £1,000,000,000 mark, I took it from the Chancellor of the Exchequer. It is a prodigious effort for the small savers in this country, in the small space of time that the movement has been in existence, to aggregate almost £1,000,000,000. We ought to let it go forth from this House, not that we are satisfied, or that we think we have reached the ultimate goal, but that we are complimenting these small savers and adding a word of encouragement to them to carry on the good work for another year, and another year still, until the war is finished.

But I noticed that the Chancellor seemed, to me at any rate, to skim over those people who ought to be able to lend larger sums of money. He did not make it clear to my mind that he was either complimenting them or that he was satisfied with them. I should like to hear, sometime, exactly how these larger savers, as I call them, are lending to the Government. It seems to me that they are withholding their savings on account of the rate of interest. Perhaps, if I were a financier, I should do the same, but I notice in the newspapers, and other people are noticing it also, that speculation still proceeds on the Stock Exchange, that there must be some money to burn somewhere as it were, and we are wondering whether some of this money cannot be roped into savings. I was pleased to hear the Chancellor speaking about avoidance of waste and extravagance. That call goes out, I take it, to every person in this country. Waste and extravagance in time of peace are bad, but waste and extrava- gance in time of war are criminal. Not only that, but waste and extravagance are right-hand supporters of Hitler and the enemy. Therefore I hope the people of this country will take further warning from the words of the right hon. Gentleman in this Debate and try, as far as possible, to avoid any waste and extravagance.

I have noticed a number of those invaluable Reports of the Committee set up on National Expenditure. The Chancellor has told us that they are scrutinised, examined and acted upon. We are all very glad to hear that. I have just a small point on waste that I asked the Secretary of State for War about in a Question. That was, that we are spending public money on our soldiers, who are going on the grouse moor fells and beating for shooters. The right hon. Gentleman looks as though he does not know anything about it. I asked a Question about soldiers going on grouse moors in the North of England and beating the fells for shooters, for which these soldiers got no pay except what they were getting from public funds. It is a small point, but it represents the violation of a principle. I object to paying taxation part of which is to be paid to soldiers for beating on the fells for shooters. I have no objection to the shooters having their sport, but let them pay for it. The soldiers get no pay except liquid refreshment. I was given to understand that nobody in the agricultural line had asked for these men, who, although the Minister said that they were not living in an agricultural area, were actually living in an agricultural area. I live in that area myself, and I know that it is purely agricultural. The fact that the farmers had not asked for the assistance of the military is perhaps because they could not obtain them on the same basis as the shooters did. If they could have had them for liquid refreshment and, no pay it is possible that there would have been a great demand for them.

I come to the question of inflation and the White Paper on wages. We are told, and we accept it, that the Government have done valuable work in stabilising prices of certain commodities; but, as in the last war, there is a lag between the cost of living and wages. The cure may be to stabilise the prices of more commodities, and then it might be possible to do something about stabilising wages. I do not know, but so long as there is that lag so long will you have that chase which is called inflation. Many people in this country are of opinion that with wages fixed on a dead level, as widows' pensions arc almost on a dead level and as work-men's compensation is, it is not fair to ask the people to bear the burden of the increased cost of living. Some means should be devised by the Government. The question of increased pensions would not arise if the Government would only stabilise the prices of far more commodities and reduce the gap between income and expenditure. This total war is going to mean total sacrifice. If needs be, we shall all have to go on a siege income and a siege ration. As far as I can see, going around my own constituency and the neighbouring constituencies, the people who have considered the question are behind the Government, even to the sacrifice of siege incomes and siege rations, in their efforts to win this war.

Sir Stanley Reed (Aylesbury)

I think everybody here will agree with the hon. Member for Barnard Castle (Mr. Sexton) that in time of war waste and extravagance are a crime. I go further than that, and say that any expenditure on anything which can be done without at such a time is as much a crime as waste and extravagance. I want to speak on a subject which is constantly being raised in this House, and from the corollary of which Members steadily run away. That is the question of inflation. Inflation is always hanging over us. It is perhaps the most deadly enemy we have to meet. If inflation comes, the responsibility will lie 90 per cent. on the Members of this House. I say that definitely, and without fear of contradiction. I am regular in my attendance at this House, and I listen regularly to Debates. Scarcely a day has passed while I have been a Member of this House when there has not come from one side or the other—all parties are equally guilty— demands for more expenditure; for more allowances here, for higher pay there, for greater consideration somewhere. Those demands are often based not on the needs of the individual concerned, but on the fact that somebody else is getting more, or is in a more favoured position. If the House goes on as it has done and listens to arguments, such as were put forward from the other side only to-day, in favour of higher pay and allowances, higher this and higher that, not because they are imperatively needed to meet the economic requirements of the individual or the class owing to our reduced living standard but because other people are getting more, then, as sure as night follows day, the curse of inflation will fall upon us, and it will fall most heavily upon those members of the community least able to bear it. The greatest service we can render to the people of this country is to drive home to them, day in and day out, that a reduced standard of living for all is imperative, for our own safety, and, above all, in preparation for the years which are to come.

I am looking beyond the needs of today: I am looking to the future. I am convinced that the future is going to be a grim one. We must prepare ourselves, in season and out of season, to meet that day when it comes, without shock and without social disturbance. So far from criticising the Chancellor and the Treasury for being too harsh, I would say if they have sinned they have sinned in not being hard enough. This argument about the dead hand of the Treasury is trotted out in the House and in the country too often to cover poverty of thought and inadequacy of information. Our most serious dangers are not in the dead hand of the Treasury, not in the control of the Treasury, but in emotional appeals here and there to which the Treasury is right to turn a deaf ear. The Treasury is our greatest safeguard against the greatest danger that we have to face; and that is the peril of inflation, which hangs over us to-day, and which I regret to say—and I say it with all respect—many Members on all sides of this House are doing their level best to bring down upon us.

Mr. Austin Hopkinson (Mossley)

There is one small point that I wish to raise in connection with the statement of the Chancellor. My recollection is that he stated during his speech that in the case of aircraft production the vast bulk of those contracts were on a fixed-price basis. Will he kindly correct me if I am mistaken? Then I take it that it is correct. Can he inform me from whom he got the information and whether he has taken any steps at all to find out whether he has been misinformed or not? The statement to which I wish to call the attention of the House is simply that the vast bulk of aircraft contracts are on a fixed-price basis.

The Financial Secretary to the Treasury (Captain Crookshank)

I think I can put my hon. Friend at ease. My right hon. Friend is checking it up, but I do not think that the word "aircraft" was the accepted word. He was speaking about the whole total of all the contracts which had been let out by all Departments. I do not think that he made any reference whatever to aircraft contracts, but the aircraft contracts, the whole lot of them, can be checked up. My right hon. Friend was giving a general review of the whole of the contract position, which, he pointed out, was much better than it had been a year or eighteen months ago, and it is that which the right hon. Gentleman opposite, who with the public has been very much concerned about all these contracts, was good enough to support.

Mr. Hopkinson

May I take it that, although I was incorrect and my memory failed me, the Chancellor of the Exchequer did not say what I thought he said, but that what he actually meant to say was that the vast bulk of all war contracts were on a fixed-price basis?

Sir K. Wood

I will read what I said. I was referring to a particular method, and I said: This method with various refinements has been used over a wide range of manufactures. It is, however, admittedly less satisfactory than a fixed price, and I am glad to say that with increased experience and the decline in the proportion of new types of products required an increasing proportion of contracts is being let on fixed prices. For example, aircraft contracts are to a very large extent let on a fixed price basis.

Mr. Hopkinson

May I ask what the right hon. Gentleman implies by "a very large extent"? What sort of percentage to total aircraft profits?

Sir K. Wood

I think that my hon. Friend had better put a Question on that matter.

Captain Crookshank

I think that it had better be explored in another way; I am not prepared to deal with it off-hand now. The Debate has been very wide and has shown that the views on the general financial situation explained by my right hon. Friend have the general acceptance of the House, and it is not therefore necessary on this occasion, as it is sometimes, to enter into detail and go through everything that has been said. I must say something with regard to the speech of my hon. Friend the Member for Colchester (Mr. Lewis), because he asked for an assurance from the Government with regard to what might happen to sterling vis à vis gold or the dollar, and he wanted an assurance that the Government had not contemplated agreement with the United States on that matter. I know that my hon. Friend has unfortunately been away from the House for a considerable time owing to ill-health, but that Question has been asked before and answered quite categorically. All I need do is to remind him of the reply which my right hon. Friend gave on the 10th December, 1940, to a Question put by the hon. Member for Ipswich (Mr. Stokes), in which he asked: Whether he will give an asurance that no undertaking, specific or implied, has been or will at any time be given 1o the United States of America that this country will return to the gold standard after the war without first consulting this House. The answer was: There has never been any question of giving any undertaking of the kind suggested." —[OFFICIAL REPORT, 10th December, 1940; col. 785, Vol. 367.] That still stands, and for the further comfort of my hon. Friend I would say that one must remember that anything that has to do with the gold standard requires legislation and it would be necessary for this House, as was the case when it happened after the last war, to deal with it should it arise.

Mr. Lewis

Is my right hon. and gallant Friend in a position to say that no understanding has been come to between ourselves and the American Government as to linking sterling in any way with gold or the dollar after the war?

Captain Crookshank

I cannot take it any further than what I have said in reference to it. These are not matters to be lightly bandied about, and a shade of meaning of one word or another might cause very great difficulty. The statement to which I have referred conveys the position of the Government, and I would ask hon. Gentlemen to leave it at that. If my hon. Friend wants a further considered statement, as he or any other hon. Member is entitled to receive, perhaps he will put a Question on the Paper and give my right hon. Friend the chance of putting exactly the words that are suitable. Words are very often open to misinterpretation when used on matters of high policy in this House. Even if my hon. Friend has not tried to lead me into a trap, I hope that he will not let me get even into the danger zone.

The other remark I wanted to make on the main issue was to the hon. Member for Chesterfield (Mr. Benson), whom I am sorry I did not hear. I gather that he was very anxious and that he thinks that sufficient savings are not coming in at the moment. It is true that there is room for improvement there. One of the solutions, as I understood it, is that a great deal more rationing should take place, and rationing as a whole should not be looked at only from the point of view of the supply position but also from the point of view of my right hon. Friend respecting expenditure. That is a point which has long been considered by the Departments concerned, and it is not a matter solely for the Board of Trade or for the Exchequer. But there again, I am not prepared, in reply to the speech of the hon. Member to-day, to make a considered answer on behalf of the Government about it, but it is not a matter which has been entirely overlooked.

That, I think, in view of the general acquiescence of the House with my right hon. Friend's statement, very well deals with everything which it is necessary to say in general, but I am extremely obliged for the words which have just been uttered by my hon. Friend the Member for Aylesbury (Sir S. Reed) where he tried to pin the responsibility of the risk of inflation where it rightly lies, and that is in this House. It has been reiterated by myself not only in this House, but elsewhere, that further expenditure on this, that and the other thing, increases the amount of money available in the pockets of the people for spending. That is the real danger. I hope that hon. Gentlemen will read what he says, and when taking, as I am sure they will, their share in the forthcoming campaign for further savings, perhaps they will use extracts from his remarks as a background for their speeches.

There is only, therefore, one other speech to which I ought to say anything, because it was outside the general stream, and that is the speech of the hon. Lady the Member for Wallsend (Miss Ward). I do not know whether I am to accept every word used in her speech as being really intended to be true.

Miss Ward

I do not know what my right hon. and gallant Friend means. But as far as anybody can believe what they say, I believe that what I said was true. I would not dream of saying anything to the House that I did not believe.

Captain Crookshank

I am sorry, but twice the hon. Lady said something or other made her mad, and I was hoping that that was not quite true. She apparently wishes it to be thought so.

Miss Ward

There are different sorts of madness. Sometimes it is a good thing to be mad.

Captain Crookshank

But it is better to be accurate. In some of the statements she made she was so wide of the mark that I do not want to weary the House by controverting them now. All I would ask is that the House should not accept all she said. For instance, she observed that a trainee drawing £3 a week was better off than a junior officer, which is absolute nonsense.

Miss Ward

I am sorry to interrupt, but I did not say any such thing. I said that to pay £3 a week to someone who had never handled a tool was unfair in comparison with a junior officer.

Captain Crookshank

That is exactly what is so gloriously inaccurate. They are nowhere near the same level. The junior officer gets something like us. a day, and over and above that his allowances, rations and all the rest of it. The figure is not comparable at all with 60s. a week. If my hon. Friend has a good case it is not really helped by over-exaggeration. When talking about marriage allowances she said that certain officers would have so much taken off per child, and so on, but nobody Is to have any deductions at all. It is quite misinterpreting the effect of these marriage allowances, although I do not want to argue with her on these points.

Miss Ward

Is there a different scale payable to officers to be commissioned in 1942, compared with the scale which is being drawn now?

Captain Crookshank

I do not intend to argue all these points.

Miss Ward

But could my right hon. and gallant Friend answer that point? Could he say categorically whether it is the same scale or a different scale?

Mr. Speaker

We cannot go on like this.

Miss Ward

On a point of Order. My right hon. and gallant Friend must not misinterpret what I said to get himself out of a difficult situation.

Captain Crookshank

It is not such a difficult situation as all that. I would have adopted other means if it had been. As a matter of fact, these small administrative details are really questions for the Ministers who have to answer for their Department in this House. Generally speaking, I am saying that, with regard to the marriage allowance concession which was recently announced, there was no deduction in any particular case. There was a choice of scale for particular officers. Most of the points which my hon. Friend has raised to-day have been raised by her in correspondence with me or by Questions. What I would like to impress upon her, if I can—although I am not very hopeful —is that when she tries to put the blame, as she calls it, on the Treasury, she must realise—as I am sure every other hon. Member except herself realises—that these are matters of Government policy and there is such a thing as Cabinet responsibility. When she quotes something about the Minister of Labour saying that he would take a memorandum to the Cabinet, it is not an unusual thing to occur. In fact, that is the way in which a great deal of business is carried out. Proposals are made by Departments, discussed and considered, and eventually a decision is reached, and for that all members of the Government are equally responsible. The collective system of responsibility is one which obtains here, and, therefore, I hope she will cease from apparently trying to create prejudice as between Government Departments, and saying that my right hon. Friend always stops everything. He does not stop everything. Concessions are made, and all members of the Government are entitled to such credit as there may be for the result of their collective wisdom.

My hon. Friend said she wanted to get a lot of things off her chest, and, having done so, I hope she will not do it any more, but will realise that in these matter? there are careful consultations and no doubt on many occasions a certain amount of give and take, as is necessary between people who have to carry out a policy which has her assent as well as the assent of practically every other Member of this House. I hope she will be a little more reconciled and that she will find that a good many of the complaints that she made to-day are not really justified. It is entirely wrong to say, as she did say, that what the Treasury did was to hinder progress and create injustices.

Miss Ward

Has my right hon. and gallant Friend seen my letter to the Ministry of Supply?

Captain Crookshank

I do not know anything about letters to the Ministry of Supply.

Miss Ward

But I have heard that it has been sent on to the Treasury.

Captain Crookshank

I am not prepared to be cross-examined about my correspondence, but I am prepared to say that when my hon. Friend says that the Treasury exists to create injustices and hinder progress she is making baseless allegations against a fine Department, presided over by a Minister whose speech to-day has won the admiration of everybody in this House except, possibly, that of herself. That being so, I hope that the fundamental principles which were evident in the speech of my right hon. Friend in regard to the Vote of Credit will win the same acceptance beyond these doors as they have done here, because he has shown once more, quite clearly, the lines on which we hope to advance in the coming months before we have to come to another Vote of Credit. Hon. Members have echoed him in saying that very great sacrifices will have to be made by everybody in this country if we are to continue, as we have been able to do so far, to keep our financial structure right.

Question put, and agreed to.

Resolved, That a Supplementary sum, not exceeding £1,000,000,000, be granted to His Majesty, towards defraying the expenses which may be incurred during the year ending on the 31st day of March, 1942 for general Navy, Army and Air Services and for the Ministry of Supply, in so far as specific provision is not made therefor by Parliament, for securing the public safety, the Defence of the Realm, the maintenance of public order and the efficient prosecution of the war, for maintaining supplies and services essential to the life of the community and generally for ail expenses, beyond those provided for in the ordinary Grants of Parliament, arising out of the existence of a state of war.