WAR FINANCE AND BORROWING POLICY

HC Deb 16 December 1942 vol 385 cc1968-2044

Motion made, and Question proposed, "That this House do now adjourn."—[Mr. James Stuart.]

Mr. Pethick-Lawrence (Edinburgh, East)

I understand that it is the wish of the House on the Adjournment to have a Debate on the basic principles of finance, more especially in relation to the matters of loans and credit. We are making rather a later start than some of us had hoped, and I shall be very careful to be brief in introducing this Debate, as I know that there are a number of Private Members in all parts of the House who desire to express their views and have them examined by the Chancellor of the Exchequer. I am sure that he will listen carefully to what is said, and I hope he will keep an open mind, for it has been the experience of my life in this and other fields—an experience which was quite unexpected—that truth is frequently hidden from the wise and prudent and revealed unto babes. Hon. Members who follow me in all parts of the House, are at liberty to put themselves into whichever of these categories they prefer. Expressed more simply, I have noted that scientific and practical discoveries are sometimes made, not by persons of wide knowledge and trained intellect, but even accidentally, as it were, by those with slight acquaintance with the subject who often use untechnical, illogical and even fallacious arguments to defend their true thesis. I say this in reinforcement of the appeal to the Chancellor of the Exchequer to listen with an open mind to all that is said.

Be that as it may, I do not think that anyone will disagree with me when I say that we have had a complete revolution in finance in the course of the last two or three decades. The great Gladstone, no mean financier in his day, would be shocked out of his senses if he were suddenly restored to life and confronted with modern ideas and methods of finance. What are the elements of this revolution? First and foremost, the gold standard is not only dead, but damned. In the second place, the State has regained supremacy over currency. In the third place, the volume of credit, though normally controlled by the banks, is, as Mr. McKenna has recently pointed out, in fact decided by Government policy. In the fourth place, the price of credit, both long and short, though apparently arrived at by mutual bargaining, is in reality dictated by the Government. This may not accord with some popular opinion or even with some orthodox opinion, but I do not believe it will be disputed by anyone who knows the actual facts. In the fifth place, the general level of prices, including the cost of living, can be, and is to-day, regulated by the Government. And in the sixth place, it has been discovered that that which is economically possible cannot be financially impossible. When I made a somewhat similar statement to that a little while back I was subjected to some criticism, but it is really a sober statement of fact. It means that what the nation wishes to do and has the economic power to do, financial means can be found to bring about.

I would like to pause for a moment to consider the implications of this. In my view, it disposes completely of the exaggerated view held by some potentates of finance of their right and even of their duty to veto projects of national expansion on purely financial grounds. But I hasten to add that it does not justify the idea held by others of an opposite school who, seeing that the State can create credit, think that by creating it indefinitely the State can create unlimited wealth. What it really does is solely to substitute an economic sanction for a financial sanction. It is still true that we have to cut our coat according to our cloth, but the cloth is an economic cloth, and not a financial cloth, as it used to be in days gone by.

If I may interpret what I believe to be the wishes of the House, I want to ask the Chancellor of the Exchequer how far he recognises he has these powers which I have broadly sketched out, and, if he agrees and in so far as he agrees, what use does he propose to make of them? That applies both to the time during the war and to the period after the war. Dealing first with credit, are we making the most desirable terms with regard to long-term lending? The borrowing for the last war, as everyone remembers, was at an increasing rate of interest. It might be described as a five per cent., or even a six per cent. war. The present war may be called a three per cent. war. The question I want to put to the Chancellor of the Exchequer—and I believe it is what is desired by several Members of this House—is whether there is anything sacrosanct about this three per cent.? Could it be brought down to, say, 2½ per cent. and, if so, what are his reasons for not doing so? A subsidiary question to that relates to his Tax Reserve Certificates. Is he satisfied with their working, or does he consider in any way that these Tax Reserve Certificates have been abused and have been used in certain cases to evade the payment of Income Tax and Surtax?

Somewhat similar remarks apply to the question of short-term lending. Broadly speaking, short-term borrowing, whether by Treasury bills or by Treasury deposit receipt payments, is roughly on a 1 per cent. basis. In so far as this money is derived from the banks, who are employing in this way the current and deposit accounts of their customers, I want to ask the Chancellor of the Exchequer whether he is satisfied that the extra work imposed on the banks justifies this margin of profit, and whether the rate of interest on deposit accounts should be retained.

Turning to the post-war world, I would like to direct the attention of the Chancellor to the fact that increases in bank deposits—already over £1,000,000,000 more than they were before the war—are likely to continue into the post-war period when it is quite likely that they will be earning much more than 1 per cent. rate of interest. Is it the Chancellor's view that this is likely to be so, and, if so, does he envisage any steps to secure for the community a substantial part of these accruing profits?

But, important as these questions are, far more important in my view, and I am sure in the view of the House and the country, is the whole future of industrial life and employment here after the war. Many difficulties and complications will arise, and international and domestic decisions of the greatest importance will have to be made. Some of these do not directly concern the Chancellor, but what does concern him essentially is the influence upon the post-war industrial effort of monetary policy. After the last war following further inflation, disastrous deflation took place. Prices tumbled, industry wilted and unemployment soared. I believe it is common knowledge in this House that if we repeat that mistake after this war, there can be no future for the country. There can be no implementation of the Beveridge Report, and we shall be crippled with the burden of taxation to meet the impossible obligations of the National Debt. I need not add that rocketing inflation would be equally ruinous. It would destroy confidence, it would render the Beveridge provisions nugatory, and it would plunge the whole country into a morass. I would ask the Chancellor, therefore, this further question. Is he satisfied that he has adequate powers to keep inflation during the war, and, in the period immediately following it, within narrow limits and to prevent any subsequent deflation such as proved so disastrous in the years following the last war? If we can avoid both these extremes of inflation and deflation, then, with the power of production freed from the constricting Bed of Procrastes imposed upon it in days past by the gold standard, and with a wise national policy in foreign imperial and domestic affairs, we shall be able to have full employment and use to the utmost the knowledge and technique which have been acquired during the twentieth century.

If, coupled with this, we have a more equitable distribution—for, as has been said, "Wealth, like muck, is no good unless it is spread"—I see no reason why in a few years after the war we should not be able to double our pre-war output. I see no reason why the national income should not reach £10,000,000,000 as against £5,000,000,000, or whatever figure it was before the war began. When I make that contrast in figures, I am naturally assuming the same price levels, not inflated levels in order to make real things appear to be more than they are. On the basis of that greatly increased output, with a widely expanding national income, with the banishment of want and idleness and with a reducing burden of taxation, we can build up a community of free and healthy men and women in a prosperity hitherto unknown.

Mr. Brooke (Lewisham, West)

I was very glad indeed to hear the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) invite the House to-day to look forward to the problems of maintaining industrial life, employment and prosperity in this country after the war. The country wishes us to do that, and it is our duty to do it. With much of what he said I find myself, as I am sure many other of my hon. Friends on this side find themselves, in entire agreement, but I was sorry he went so far as to prophesy that with our powers of technical advance we shall, in a few years after the war, be able to double our pre-war output. That sounds to me over-optimistic, and I would like to ask him and the House to give attention particularly to the fact that we in this country are not insulated economically from the rest of the world. If I might criticise the right hon. Gentleman's speech, I thought the flaw in it was that he said hardly a word about our being the greatest commercial nation of the world, dependent more than any other nation on imports of essential foods and materials which we must find means of paying for.

To my mind, that fact—the necessity of somehow securing a satisfactory balance of payments on overseas account after the war—has got to be, whether we like it or not, one of the governing conditions of our present and post-war economic policy. The right hon. Gentleman inveighed against financial magnates who think their duty is to veto national projects on purely financial grounds. I, too, would inveigh against such men. The national interest and the national interest alone must be the sole ultimate criterion, but at the same time a man, whether he be a financial magnate or not, does this country a great service if he calls popular attention to the repercussions which our internal policies here may have on our trading position in the world and on the state of the exchanges. As I conceive it, the Chancellor, in all his handling of financial policy, must have his mind fixed constantly on the ability of this country to maintain the sterling exchange at a stable rate in the future, now that the gold standard is dead and buried.

May I turn to matters of more purely domestic interest? The whole House is agreed, I think, that we have now reached the limit of taxation on the richest classes of the country. We have reached the limit not only on the richest classes, but on the medium classes a long way down. I do not envy the Chancellor his task, in the Budget which he will have to present to us next April. Some extremely interesting figures have recently been published in a book, which I would commend to the attention of hon. Members, entitled "The Burden of British Taxation," showing the incidence of present rates of taxation on various income levels. One of the points which attracted my attention there was that at the present time total taxation is falling more heavily on the very poor than on the family with about £5 a week to live on. I have the feeling that we are still keeping on at high rates some of the old taxes, the old sugar and tea taxes, for instance, which fall directly on necessities of life and which have become obsolete in relation to our present needs. They bring in relatively little money, and they take pennies out of the pockets of the very poor which the State then proceeds to give back to those same people in the form of subsidies on some other articles of food. There may be purpose in it, but if there is, I confess I do not see it.

The general level of taxation is now so high that it is of exceptional importance to make certain that all anomalies are removed. I continue to get letters from constituents and others—and no doubt all hon. Members have the same experience—about anomalies that arise as between one class of persons and another out of the various Income Tax allowances; and I wish that the Chancellor of the Exchequer could assure us that he and his experts are examining and seeing whether these special allowancs which, as the House knows, have been created at different times, and added to or subtracted from at different times, do now amount to anything like a coherent whole, or whether they are just a scattering of jagged rocks over which a number of people may fall very unpleasantly and uncomfortably.

I also wish the Chancellor could assure the House that he is giving attention to a matter which has been mentioned on both sides of the House on many occasions, that is, the taxation of wasting assets. We may have different views, as to the level of taxation we ought to impose, on income or on capital, but one thing we should never do, if our financial system is sound, is to impose as taxes on income what are really taxes on capital. My hon. Friend the Member for Tam-worth (Sir J. Mellor) has constantly drawn attention to the taxation of annuities, and several hon. Members have spoken on many occasions about the unsoundness of the taxation in this country on various forms of mining activity. It would be infinitely better if the Chancellor himself would face and try to rectify the anomalies that exist at present in this matter of wasting assets, rather than wait until the Government have to bow before another storm, as they had to bow the other day before the storm on the question of equal compensation for women.

What the right hon. Member for East Edinburgh said about future industrial employment and prosperity led, I thought, straight to this corollary, that we must watch our taxation system and see whether it is enabling industry to retain as undistributed reserves sufficient sums for the capital re-equipment which we all know will be essential after the war. May I make one suggestion on this point? I wonder whether the Chancellor could in future years divide up the Income Tax figures which are presented to the country. Income Tax is in essence a personal tax; it falls on individuals; but Income Tax is also charged on the undistributed profits of companies, and in that case it is not a tax on individuals but a tax on corporations. It seems to me misleading that the whole of the Income Tax receipts should be lumped together, whereas if the figures of these two could be separated, we would be able to see clearly for the first time—because this has never been done before—how much of the Income Tax is paid by persons and how much is charged on corporations.

On this matter of companies and employment, I sometimes wonder whether my right hon. Friend the Chancellor is aware how widespread through this country is the fallacious idea that almost all Government contract work is being done on a cost-plus percentage profit basis. I was very glad to hear over the wireless the other day an admirable talk by the hon. Member for East Stirling (Mr. Woodburn) on this subject, which should have helped to remove misconceptions from people's minds. I do not know what is the experience of other hon. Members, but certainly it is my experience that all kinds of people working in factories, or hearing it from friends who are working there, sincerely believe that nine firms out of 10 are working for the Government on a system which automatically gives them larger profits if they spend more money. That is not true. Cases of that sort, under pressure from the Select Committee on National Expenditure, of which I have the honour to be a Member, and I know under strong pressure from the Chancellor, are being reduced to a minimum. In some instances they are unavoidable. It is a really serious matter that the Government have not hitherto succeeded in removing this false idea from the minds of the public. It is misleading on the financial side, and it is thoroughly bad for production and for the prosecution of the war.

In the House we have rightly paid high tribute to those public spirited men and women who have been working hard in the National Savings Campaign during the last three years. They have obtained wonderful results; but the results are not good enough, and we know in our hearts that they are not good enough. Much personal extravagance still continues: I am sorry to say that it can be seen in all classes of the community; and while many millions are doing all they can towards winning the war, tightening their belts increasingly, they see some of their next-door neighbours apparently having other ideas. The National Savings Campaign will need to be carried on with an increasing exercise of imagination. I would like the Chancellor to consider some system which might give to the holders of certain types of Savings Certificates some post-war advantages which would not be purely financial. For instance, when the war is at an end there will be a really acute shortage of all kinds of household necessities. Would it not be worth while examining whether there could be some type of savings bond issued which would give the holder a priority claim to some of these goods not now on the market but essential to anyone setting up house for the first time, or setting up house afresh, as millions of our fellow citizens will be doing after the war? Some plan of that kind might catch the imagination of many people, and be regarded as an act of justice to those who during war-time did their utmost in cutting down expenditure and saving for the country's needs.

Sir Herbert Williams (Croydon, South)

Would there not be some risk that everyone would be demanding to be paid in this sort of good money and would refuse ordinary money, which they would regard as bad money?

Mr. Brooke

I am sure there may be risks about the proposal, but I have never known my hon. Friend keep silence in this House because he thought there were risks attaching to his words.

Mr. A. Edwards (Middlesbrough, East)

Will the hon. Member say what extravagance he has in mind? There are not many things that people can be extravagant upon. We have this anomaly, that the Treasury allow people to spend immense sums in advertising goods that cannot be got, and the Government spend large sums of money on advertisements urging people to save. Where can people be extravagant?

Mr. Brooke

I hope the hon. Member will make his speech later in the Debate, when I shall have the pleasure of listening to it, but I think I am speaking the truth as other Members see it when I say there is still a good deal of unnecessary expenditure on pleasure of various kinds in almost all classes of the community.

Mr. Edwards

Tell us one.

Mr. Brooke

If anyone had been to certain holiday resorts last summer, he would have seen evidence that I could give in answer to that question. We are now almost unanimous in the House about war-time financial policy. The Chancellor of the Exchequer, having a heavier task than any previous Chancellor, has also, I think, had an easier passage for his Measures than any of his predecessors. But the mass of the people have no real idea how the war is being paid for, or what the financial outlook for the country will be when the war is over. I am not too much of a pessimist about our prospects. I believe that with hard work we can create real prosperity in the years to come. But with the increasing interest that is being taken among almost all classes in matters of national finance, there is a need for much more popular explanation of the facts than has hitherto been given. It is not at all easy if you have to explain, to someone to whom you could hardly give one of the Budget White Papers as a Christmas present, exactly how we are paying for the war. I should like my right hon. Friend to consider intently by what practical means additional knowledge of the basic facts of national finance can be made available to people of all kinds who are interested. When the Minister of Information publishes a first-rate illustrated booklet on the work of the Civil Defence Services, it sells tens of thousands of copies and is sold out in 24 hours, so that I cannot get a copy at all. I am not suggesting that anything of the same kind on the financial side would ever be a best seller, but that might be an advantage in these days of paper restriction, because those who really wanted a copy might be able to obtain one. I am not sure that this is a matter for the Treasury to do itself, but there is a great deal of interesting information which the Chancellor could make available to the public in popular form. There are skilled financial journalists who, given the opportunity, could make very valuable use, in the public interest, of material put at their disposal, and I look forward to the time when, by such means as these, every person throughout the country, high or low, who wishes to gain a clear understanding of our national finances will have not the slightest difficulty in getting and reading a short, well-written statement which will give him all the information he desires.

Mr. Woodburn (Stirling and Clackmannan, Eastern)

I welcome this Debate, and I welcome the contribution which has just been made, because it raises some very interesting points. The Debate is to deal mainly with the fundamental basis of credit, and a great deal of discussion is still taking place on this subject, although I am of opinion that the matter has been made fairly clear for at least 15 to 20 years. The hon. Member who spoke last raised one or two points, on which I might differ from him, in regard to taxation. He referred to the taxation of wasting assets. I am certain that, if anyone is going to buy something which is a wasting asset, the price he pays will be settled on the calculation that he makes as to whether it is a wasting asset or not. If someone buys a share on which a dividend is accruing, he pays more for it than for a share on which no dividend is accruing. The purchase price, therefore, takes into account the tax that is to be levied upon it. The hon. Member also raised the question of imports and exports, which is of tremendous importance, but I think this is often exaggerated, because the amount of work that we do for ourselves inside the country is a huge proportion compared with the balance of exports and imports. Our imports very largely depend on what we are willing to purchase abroad, and I think it is almost certain that after the war many countries will have to come to international arrangements as to how these exports and imports are to be exchanged. It will not be a question of carpet baggers going to any country they like. These things will be regulated in a fixed and settled way, and I think that difficulty will not arise, because, if we are willing to buy, the other people will be willing to be paid for what we purchase, and that has been the difficulty so far along the lines of economic nationalism.

I should like the Chancellor of the Exchequer to make clear to the workers, because there is still considerable misgiving about it, that the post-war credits for Income Tax will not be taken into account should people be subjected to a means test for unemployment or old age pensions. I have recently heard people, dealing with matters of production, raising that as an argument why they should not accumulate at the moment, and it is having a handicap on savings. I am sure the Financial Secretary will make that clear if he can.

My right hon. Friend who opened the Debate said the gold standard was dead. It all depends what is meant by the gold standard. If he means that the exchangeability of gold on a free exchange is dead and the tying of our currency to 20s. gold in the £, that may be true, but in international currency for imports and exports we still measure the respective currencies in terms of gold. Whether it is gold, coal, tin, timber or something of that kind, we must have an international measurement in order to compare currencies. It is a mistake to use terms loosely. There must be some basic standard on which to measure inter- national exchange and currencies, and until there is an international currency, the countries of the world will still use gold. It has been most convenient and has not been displaced in that respect. Therefore, we must be clear in our minds what we mean. Wars, of course, are not fought by money. Money is simply a measure of our effort, and if we are keeping to the promise that our money represents goods in terms of gold, if we double our money spending on the war it is presumed that we are doubling our effort. If we double our money and change our relative basis to gold, that is, if we make 40s. equal to a £, we are not doubling our effort. Therefore, the measure depends on whether it is kept very directly to the basic goods in the country.

The only alternative we have at the moment is a kind of index figure, which may or may not include gold; but no matter what goods we have, they will have an equation to gold, and we might as well use gold, because we save nothing and do not evade the subject by dodging on to some other standard. We are paying for the war by our efforts, and inasmuch as we produce all we use in the war in the country by our own efforts we are paying for the war as we go. To the extent that we use up assets of the past, wasting assets as they are in time of war, we are drawing on the accumulated wealth of the past and using up our assets. They will not be there after the war. If we waste our machinery, use up roads, railway tracks and railway wagons, there is considerable depreciation of existing wealth which we put into the pool on this war basis. Measured in terms of money, we are told that we are spending about £12,000,000 a day on the war. I would like the Chancellor to make it clear that this is not really £12,000,000 a day spent on the war, because we are recovering approximately £6,000,000 of that by taxation and savings. In other words, we pay out £12,000,000 with one hand and get back £6,000,000 with the other. I will put it in this way. If we can do away with any idea of taxation and get the workers to accept net wages instead of wages subject to taxation, and if all the firms accept net prices instead of prices subject to taxation, obviously our expenditure will automatically come down by about one-half. I should say, therefore, that we are spending about £6,000,000 a day on the war.

Another point then arises. We are not pouring all this money down the drain. Some of it is being blown to bits in shells, and some goes to the bottom of the sea in ships, but a great amount of the spending is going into the building of capital assets for the nation. I would like the. Government to go carefully into this matter and present a proper balance-sheet to the House. We want an expenditure account and an assets account. What are the assets which the Government have alongside the £1,200,000,000 supposed to have been spent on the war? What have we in machinery, buildings and great new aerodromes, which will, I believe, be air stations after the war? What have we in transport vehicles? Then there are food stocks in this and other countries. I understand that there has been great expenditure in buying enormous stocks of food in this country and Australia. We have been buying up tobacco and wheat crops. All those things must be assets and ought to be set aside against expenditure. Our total expenditure in 1941 was £5,107,000,000, and we recovered in taxes and savings £2,344,000,000, which was roughly about one half. When these things are taken into account we get down to the point where our real expenditure is much smaller than appears on the surface. It is useful to make that clear, because it is depressing to the people of the country to hear about these huge sums being spent on the war, and the question arises whether we can pay for the Beveridge scheme and for reconstruction after the war if we are wasting all these resources to-day.

I propose to deal with one or two points in connection with credit and reconstruction. Outside the part we pay for by recovering from the incomes of the people, the only expenditure we have is the consumption by the people of food, clothing and other goods. That is the real expenditure apart from what we are doing in the way of using up wasting assets. Personal consumption has been decreased to some extent compared with pre-war because we are obviously bringing less food and less luxury goods into the country and a great many people have simply transferred their services from doing non-productive work of a luxury character to doing non-productive work of a war character. That has been a transfer from production of luxuries to war material, so that there has been no less actual consumption of the country compared with pre-war consumption in the spheres which determines what we are spending on the war. The eventual cost of the war is increased probably when we take into account that we are paying the Army, Navy, Air Force, Civil Defence Service and a great many other members of the community for what are non-productive services, and that is obviously consumption without any increase in the wealth of the country. Part of that again is coming back to the Chancellor in post-war credits and savings. Therefore, in addition to paying for the war out of our current expenditure we are actually going to pay for the war in future by promising those who are doing extra work to-day—they cannot consume the luxuries for which they have the money because they are not there—that when production comes back into its own after the war they will be able to consume the goods they cannot get now. So in addition to consumption by using the assets of the past and using up what we have at present, we are going to use up the production of the future to recompense soldiers, sailors and other people who are giving services to-day without reaping benefit in actual consumption.

In order to do that, the Chancellor has to provide money, and part of that money comes from Government borrowing from the banks, part from what is reaped in savings from income. The money that comes from the banks comes from two main sources. There are the actual deposits from people and companies. Building societies are collecting money in the way of savings, as are insurance companies and banks. They are all acting as great feeders to collect money which the great banks may transfer to the Government in the form of Treasury deposit receipts on which the Chancellor pays 1⅛ per cent. I am not disputing that side of it, and, as far as I understand, 1 per cent. is about the cost to the banks of running the services which they provide in a communal way to the country as a whole. The people who put the money in the banks have a perfect right to transfer it to war bonds at 2½ per cent. or 3 per cent. as the occasion might arise. Again, I am not challenging that. As long as the community accepts the 3 per cent. basis on long-term loans then the money in the banks has the same right to that interest as the money of the private individual.

We come to the main point, which, I think, is the weak point of the Government's whole financial machine. I referred to it in my speech when I went into the matter in great detail on 15th April, 1942. I established the case there very carefully, and I would refer the Chancellor to it, because I do not propose to repeat it. The Bank creates additional money in order to do the additional work which is required by the financial machine. If that involves extra work for the banks, I think the banks must recover the expense from the nation, but if it does not require extra work, the banks ought to be asked whether they are being overpaid or underpaid. If they say they are underpaid, let them show cause why they should get more, but if they are being overpaid, it will be for us to show cause why they should get less.

The figures which I got from the Chancellor yesterday showed that the banks have taken money from the Treasury deposit receipts at 1.1/8th per cent. interest and transferred it into War Loans bearing 2½ to 3 per cent. interest. They have transferred £369,000,000 from 1.1/8th per cent. to 2½ per cent., and transferred £127,000,000 from 1.1/8th per cent. to 3 per cent. If my calculations are right, that involves a total interest payment of some £13,000,000. If the interest had remained at 1.1/8th per cent., it would have meant only approximately £5,500,000, which means that that transfer has involved the Treasury in paying £7,500,000 more per year. I agree that part of it may be privately lent, and the Chancellor must look carefully into the part that is privately lent, and also into the part of it that is bank-created credit, and deal with that bank-created credit with the object of preventing that extra interest being paid. According to the figures of the increase in bank deposits, the floating debt was increased by about £18,011,000, and I think we might safely take it that at least half of that is bank-created credit, so we are paying to the banks an additional £5,000,000 a year on that transfer of Treasury deposit receipts into War Loans of various kinds. I should like the Chancellor to consider whether he can tell us whether there is a distinction between the money which is simply created by the banks and the money which is actual savings. I think we are entitled to have them kept distinct. From his own point of view, the Chancellor ought to inquire into it.

Now we come to the point that if the banks are making more profit than they made prior to the war, they, like others, are liable to 100 per cent. Excess Profits Tax, and in due course any of their excess profits will, presumably, come back to the Exchequer. It might be said, therefore, that it does not matter whether the banks get extra profit, because the money will come back to the Exchequer, and if I accept that argument for the moment, it does not interfere with the main point. The point that concerns me is this: If it can be proved that all the money the banks are getting now is required to meet the services which the banks are performing, the banks would be entitled to get it, because they perform communal services for which they do not charge the public in general, and they must pay their clerks, pay for their buildings, and maintain all their services, and if we did not pay in this form the money would have to be found in some other form. Let us assume that these things balance. Also let us assume that the banks have lost a very considerable income, because normal capitalist enterprise has shrunk to a large extent in favour of public enterprise in the war effort, and therefore, obviously, much leeway will have to be made up before they can make their expenses.

When the war ends we are entitled to assume that ordinary enterprise will redevelop, that everybody will come back to start in business again, and immediately the banks will be utilised to supply again all the facilities for private enterprise and all the general enterprises of peace. That means that the banks will be drawing income at perhaps 5 per cent. from, say, doctors and from local private enterprises of all kinds, and be drawing 3 or 4 per cent. from corporations. General banking business will restart, and the income of banks will to a large extent be recovered; but, under our arrangements, after the war we shall go on paying the banks for services which will have disappeared when the war ended. As in the example which I quoted, instead of paying people for the hire of their wagons while using them we are going to pay them for the hire of the wagons and go on paying for ever for their hire, even if they are being relet to somebody else. I should like the Chancellor to take this matter seriously into consideration, because when we come to the financial arrangements of peace the plans will be severely handicapped if millions of pounds are being paid out to people for services which they no longer render. Some arrangement ought to be come to with the banks on a fair and square basis by which they will be paid for the services they render but not paid for ever for services which have come to an end.

The final point on reconstruction is this: We hear people discussing reconstruction on the basis of the redistribution of the existing income or the pre-war income The Beveridge Report is very largely based on the principle of redistributing the normal income of the country. I am satisfied that if that is the basis on which reconstruction is to take place, we might as well give up the ghost as regards ever building a new and better world. The fact of the matter is that prior to the war there was not enough wealth created in this country to give that better world to the population. The Chancellor himself has given figures, and I hope he will give us, perhaps, better figures to-day, to show that if everybody's income were reduced to a net £1,000 a year, he would be able to recover only a further £106,000,000. The Beveridge Report will involve an expenditure of about £800,000,000, and to think we can carry out the Beveridge Report and also finance the other things which we think ought to be done out of £106,000,000 is simply fantastic. I think the workers will have a considerable objection to the perpetuation of existing taxation when the war comes to an end. The question therefore arises, Are we thinking, in money terms, where the money is to come from for this reconstruction?

I want to reinforce what was said by the right hon. Gentleman who opened the Debate. Great unemployment in this country is not a sign of poverty but a sign of wealth. The very fact that we can feed ourselves and stand idle shows that we are either too wealthy or that we make bad use of our resources, and I take the second view. The purpose of money is to direct labour and energy into certain channels. The Chancellor after the war will be very much like a supervisor of allotments who has possession of the hose. If he turns the water on to certain allotments, he can make them fertile, and by withholding it he can make them deserts. The function of credit is really to see that enterprise is developed. Private enterprise has developed as far as it could, and as fast as it could. I am certain that if there were markets in the world that could provide profitable trade, they would have been found by private enterprise. I am not one of those who think that private enterprise has been manned by stupid people who did not know what they were doing. They have been able to buy the best brains of this world to search for markets and try to create them. If they could have created them, they would have done so, and if they have not created them, it was because it was not possible to create more under private enterprise. Our potential production, stimulated by private enterprise, was increasing at such a rate that we could not possibly find enough markets to absorb our potential output.

What is to be the solution? It is that we must expand public enterprise to take up the lead. If we leave men and women standing and wasting their lives, that is wasting something which can never be recovered. The purpose of the financial policy of this country after the war should be to direct the labour of those employable men and women into channels that will produce the things that this country and its people need. If that policy is adopted, I do not think anybody should raise any objection. The main objection would probably come from fear on the part of people who have something to lose that they might lose it. If we propose to redistribute their income, they will object very strongly, but perhaps they will realise that if the Chancellor of the Exchequer says after the war that we are going to build 1,000,000 or so houses and to direct labour there with the same energy as we are using for the war effort, it will not deprive any person in this country of his existing comfortable house. Why should anybody object to a new house being created that was never there before if it will give somebody else a house equal to his own?

If we build schools, we provide posts for teachers who might otherwise walk the streets unemployed, and we can put them into the, schools to give a better education to our children. That will not deprive other people of sending their children elsewhere, even to Eton, if they still persist in wanting to have their children educated at Eton. I have not the slightest objection. In fact, I would make our public schools so good that the people who now favour Eton would come to our public schools. If we are to do that with education and other amenities, of course, we ourselves are doing it, and it requires no importation from abroad. It is mainly our food that comes from abroad. We can always purchase that. Once we have the food, we have the energy to make our own country better.

I appeal to the Chancellor of the Exchequer to look very carefully into the question of the use of credit power. This country and the world have been expanded in economic power by the use of credit for private enterprise for nearly 100 years, in affording facilities for the development of railways, bridges, dams and other enterprises in every part of the world. There is no reason why, if credit can be used by private enterprise, it should not be used for public enterprises. If it is so used, the curious effect will be to restimulate private enterprise. The very people who might object to it will actually benefit from it to a great extent, in so far as it will create prosperity among their customers. I have never understood why the farmers of this country objected to workers having good wages; because it was not the people in the West End of London who ate the farmers' beef but people like the miners of South Wales, when they could get it. When you kill your customers you kill your market. We can stimulate a market not only for farmers but for every other purpose by the use of credit power to build the kind of world we should like to see.

Sir Peter Bennett (Birmingham, Edgbaston)

I listened with considerable interest to the speech which has just been made. I always listen to the hon. Member, because his speeches are thought-provoking. I cannot always follow him entirely in his argument, and I cannot fathom his opinions when he discusses the banks. There are other hon. Members who know more about banks than I do and who will no doubt deal with that part of the hon. Member's speech. I am just a manufacturer. When the Chancellor of the Exchequer deals with matters that interest us, I hope he will bear in mind the concern that has been created in the mind of the ordinary man in the street by the increase of the floating debt and also at the continued increase in the note issue. I do not think the Savings Campaign is making the progress that it might. I am in touch with many workers in the savings scheme, and they are concerned that it does not appear to make the headway that at one time it looked likely would be achieved.

It is very natural, when you have been on the wrong side of the shop window all your life, to desire to go inside when you have money to spend and see what it feels like to spend it. I am very sympathetic towards the people who are in that position and now find themselves with money. I am wondering whether we cannot do something more to educate the people. A vast amount has been done this time that was not done in the last war, and our savings effort is very much better, but might it not be possible to go further than eternal slogans to save and win the war? Could not people be persuaded that it is in their own interest to save for themselves as well, and that security will be very much enhanced if they save? Furthermore, they will get much greater value from the spending of their money later on when goods return to their proper value. In these times the tendency is to spend on things which are not really worth the money. I am wondering whether something more cannot be done along those lines by the Chancellor and his advisers.

The main matter on which I wish to speak is a particular aspect of the financial problem. We can congratulate the Treasury in many respects on the methods they have adopted for handling our finances this time, as compared with during the last war, but I am very concerned about one aspect of the methods of financing post-war industry. We have a saying in our parts that in time of prosperity you should prepare for adversity. If we had the present volume of business in normal times, we should regard it as great prosperity. There is an enormous demand, and it has created industrial activity of a very high order, but it is very artificial. As we know that it is temporary, we should, if we were prudent business men, be making preparations for what we know is to follow, but with the Income Tax at 10s. in the £, the Revenue authorities as insistent as ever upon disallowing the items which they do not regard as capital but which we do—which makes the 10s. considerably more than 10s. in the £—and on top of that, the E.P.T., it is impossible for conservative and prudent business men to make the provision which they would make if this were a time of ordinary business activity, which, of course, it is not. I am not grumbling but am just stating the facts.

Industry changed over slowly in the early period of the war. The adaptation of industry was a slow process. Then followed dispersal and redistribution of work. The redistribution which will be necessary when the war comes to an end will also take time. The demand for war products will drop rapidly. I know that some people say we should continue them for a time, but think what a vast amount of material would be used. It will be impossible to continue to do that, as we shall not be able to afford the material. The drop is bound to be very rapid. We shall have to get back to industry on a peace-time basis. The expense of doing so will be enormous, but no provision is being made either by the Treasury or by Government Departments to prepare for that cost. They are quite right from their point of view, in the attitude they take up, but the cost of restoring industry is part of the war cost and will have to be met. I know of industries that were ordered by the Government to move almost at a minute's notice out of certain areas, for reasons connected with security. The arrangement was a straightforward one. The new premises were found. The factory had to take down its plant. The Government paid for transplanting it, and the firm, as they were getting a certain security, had to pay for its re-erection, or vice versa, I forget which. But when the firm asked what was to happen at the end of the war period and they wanted to go back, that was a matter that must be left. No decision has ever been made, so far as I know, as to how these expenses are to be met. Many of these firms will have to go back. They are in other people's premises, and they are running under conditions which are uneconomical.

I wish to ask the Chancellor whether he really believes that the 20 per cent. post-war credit, halved by the incidence of Income Tax, will take care of such firms, or is he presuming that when the war comes to an end there will be a period in which Excess Profits Tax will continue from which losses will be paid out of previously paid taxes? That may be the idea at the back of some people's minds, but there are many instances, I know, where that will not meet the case. What about those who have no Excess Profit Tax? Those are the people I am worried about—the concentrates, the people who have been obliged to cut down their businesses, the smaller firms which have been closed down altogether, the so-called non-essential trades. Although they are not essential in war-time, they will be essential when peace prevails. The public will need their products. Domestic householders need their products for the bare necessities of life. There will be an enormous demand for domestic consumption. Above everything else the nation, will need these trades to be brought back into operation to find employment. We have to-day what would be a very great army of unemployed if one regards the Army as unemployed, as, speaking purely from the production and industrial point of view, they are. They are non-producers; therefore we have to face the fact that these non-producers have to be got back to work. We shall need every bit of the effort that is possible from these concerns which are now closed down or running at half-cock. We shall need the full effort they can make, because unemployment, it seems to me, is the No. 1 problem that faces us.

We have recently had in this House a Debate on reconstruction. We are all of us studying carefully that remarkable document, the Beveridge Report. I have heard Members of this House who make a special study of education appealing—and I agree with them—for increased and advanced education. There is the question to which the hon. Member for East Stirling (Mr. Woodburn) has referred. I think that of No. 1 importance also is the question of re-housing people. That is a very necessary objective. I do not intend to say which is a priority. Somebody else will study that, but these questions are of importance. But every one of them depends on continuous employment, and on that more than anything else rests the future that is so often painted in glowing colours. I agree largely with the remarks made by the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence), but I was a little concerned that he made it appear so much easier than I think it will be.

I would like to know whether the Chancellor can give us some indication of the Government's plans to help. I am one of those who have spent their lives in trying to create employment. There are lots of people who talk about industry and the control of industry as though it were one of the forces existing in the world, a sort of reservoir which the Almighty provides. It is not; it does not exist except when it is created every day by the personal effort of individuals. If they did not put in their personal effort, industry would die. Very few people, in my view, are trained to create industry. The majority of people say, "Please find me a job," and it is very few who have that ability and training and are able to say, "I will do it, and I will find a job." It does not matter whether one talks of private enterprise or State enterprise, somebody will have to make the decision and do the job and find work.

I have been working in Government Departments for the last three years, for my sins. One notices before one has been there very long the system of the file that goes round. People start discussing something that should be done, or some action that should be taken, and everybody gives his views, and the file gets bigger and bigger. Finally, it comes back to someone. On it is written, "Passed to you for necessary action." I have been through some very difficult periods in my business career, some very bad slumps. I remember the 1920 slump, the period of 1931. During that period we got a lot of advice from the pulpit, from the Press and the politicians, as to what we ought to do. It was very much like that file. I noticed that it always came back to us for action. I feel that that is what will happen when this war is over. We shall be called upon to strip for action when that time comes, and please God may it come sooner than later; we are waiting for it.

There are many who will have the ability and many who will have the desire to help, but due to the taxation policy of the Government, and due to the restriction and the concentration policy of the Government, they will be without the means to carry their desires into effect. I am quite sure that the Chancellor knows this problem. He has considered it, because even if he did not wish to, there have been people who have pushed it in front of him in the form of memoranda and statements. I ask him whether, when he replies, he will give us as full information as he has of any plans the Government have, so that this problem of getting people back to work, and to begin this new world we hear about, will be put into operation.

Mr. Graham White (Birkenhead, East)

The hon. Member who has just spoken has raised one of the major difficulties of industry when the war comes to an end, the difficulty we shall have of finding sufficient finance to replace the machinery which is being used at the present time at a very much greater rate than it was ever intended to be used, and also to replace machinery which will become obsolescent by the end of the war. This question, the relation and the effect of Excess Profits Tax and Income Tax on industry, is one which, I think, has been too much neglected. So far as I can ascertain, it is nobody's business at the present time to make an inquiry into what the effect of the Excess Profits Tax and Income Tax at their, present level would be after the war. There will be a great demand for capital at the end of the war. The question should be examined now.

There is another aspect of the same question which also merits examination—what will be the effect on unemployment in this country if at the end of the war our Excess Profits Tax and our general range of taxation are substantially higher than in other countries? Many businesses with headquarters here are conducted entirely overseas. Examples are the copper mining and diamond mining industries in South Africa, which have their headquarters in London, because they are registered in London. If taxation here is to be higher than in other countries there will be no inducement for them to remain here, or for other concerns to come here.' The importance of their being here, of course, is not that we want to have the honour of entertaining them here, but that their plant is bought here and the mining engineering profession is maintained here. Continual inquiry should be made into these matters, in order that we may know what the problems will be when the war comes to an end. The hon. and gallant Member for Oxford University (Petty Officer Herbert) says that one of the things an Englishman refuses to do is adequately to survey the foreground before he executes a leap or a bound. I am not suggesting that the Excess Profits Tax should be reduced. That would be contrary to the wishes of the country. I would endorse what the hon. Member for Edgbaston (Sir P. Bennett) said, that the rebate of 20 per cent. on Excess Profits Tax will be of little importance in connection with the vast demand for capital which industry will have to make if it is to remain in production after the war.

This is one of the ways in which our finance has been infinitely better in this war than it was in the last war. The Excess. Profits Tax has been quite effective in controlling profits. There is no sign of profit inflation that I know of; in fact, the evidence is the other way. The net amount of distributable profits distributed in this country has been more than halved since 1938. In 1939, out of a gross dividend payment of £47,750,000 or thereabouts, the amount distributed, with Income Tax at 5s. 6d. in the pound, was £36,500,000. In 1940 the reduced amount of profit available for distribution was £43,000,000, and the amount actually distributed was £21,500,000. That shows conclusively that there is no profit inflation in this country. I should add, as a warning, that the Excess Profits Tax is not a substitute for a sound costing system or wages policy or for a sound contract policy. On the contrary, if the question of contracts were not carefully watched, Excess Profits Tax might be an inducement to conceal the profits made in the structure and development of industry.

I would like to associate myself with what was said by my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence), when he asked that something should be said about the increase in the note circulation. That matter is giving some of us concern. Last time the Chancellor addressed the House on finance he told us that the dam against inflation stood firm. I hope he will be in a position to speak equally confidently to-day. Since he spoke there has been an addition of £60,000,000 to the note circulation. When we had not reached the stage of full employment an increase in the note circulation from time to time was to be expected; but there has been an addition of £60,000,000 in the last three months or less. It is not a complete answer to say that that is the same increase as in the corresponding period last year. Now that we have reached full employment, or as near to it as we can get, it is difficult to resist the conclusion that this addition is an inflationary measure to fill the gap between taxation and savings and expenditure. If that is the case, it is a serious feature, which should be taken into account. The Government are entitled to say that they have controlled inflationary tendencies up to the present. They have kept inflation away at all events from the main central features of our economy, the main necessaries of life, by one means or another. But when you get into the fringes of commercial transactions there are unmistakeable inflationary tendencies. I have instances, but I will not lay them before the House now. One asks whether there is not a grave danger of post-war inflation. The situation then would be very different. Presumably the controls would be there. The people are prepared to stand a good deal of controls in war-time, but when the war is over these things will be much less favourably regarded. Will the dam then stand as firmly as it does to-day?

I would like also to associate myself with the observation made by my right hon. Friend the Member for East Edinburgh when he asked for more enlightenment on the subject of credit creation and the charges arising therefrom. He said that there had been many fallacious statements in speaking of this subject, and that undoubtedly is the case. Preaching upon texts which have been furnished by some of our eminent ecclesiastical authorities, a very considerable number of people, who have not hitherto displayed any very great interest in these matters, are taking it upon themselves to make pronouncements and speeches which seem to bear very little relation to the actual facts and to suggest that they are, in fact, imperfectly acquainted with some of the matters they seek to discuss. It has been especially true of the position which the banks play in the life of the community at the present time.

The banks have been abused, maliciously chiefly, because they have created credit. Undoubtedly they create credit. I have some difficulty in trying to understand why it should be more wrong for a bank to create credit than it is for a large number of their opponents and competitors to create credit. If a man's tailor gives him credit for three months in respect of the suit that he has bought, I have never heard it denounced or described as an action that is not wholly creditable. It seems to be quite a popular custom, and the same applies to a large number of other people who compete with the banks in giving credit, such as the building societies, the savings banks and hire-purchase systems. They all do it. I am not intersted in them, but I like the truth, if we can get it, to be given in these matters. It is very important. If there is wrong-doing, it should be attributed to the right place, and if there is responsibility, it should lie in the right quarter. I would point out to some of my friends who have been discussing the ethics of banking with so much volubility that their remarks seem to be very much in excess of the information and facts upon which they are founded. The fact is that at this time—and I ask the Chancellor of the Exchequer to correct me if I am wrong-when credit is created the transactions are carried out by the instructions of, or in collaboration with, the central bank, who act in the closest co-operation with the Treasury themselves. Therefore, if there is criticism to be directed about our credit arrangements in this country at this time, it should not be directed to the banks but to the right hon. Gentleman the Chancellor of the Exchequer and to the Government whose policy he carries out. The right hon. Gentleman would render some considerable service if he could clear up the miasma of confusion which seems to prevail about these matters in so many quarters.

The point from which I have somewhat wandered was that I wanted to say that, if there is any method of borrowing money more cheaply than it is being done to-day, I am sure that the Chancellor of the Exchequer would be very glad to know it. In most of our war transactions there is nothing more futile than to com- pare what we did in this war with what we did in the last. This is not the same war, and the circumstances are irrelevant. A comparison of our war finances to-day with what we did in the last war does show that we have learnt from our own mistakes, even if we have not learnt from the mistakes of our opponents. The right hon. Gentleman the Member for East Edinburgh said that the last war was a 6 per cent. war and that this is a 3 per cent. war. I am not sure whether he is not exaggerating it even now. I should have thought that the net borrowing charge of the Chancellor of the Exchequer in this war was 1½ per cent. or something of that kind. I looked up the position the other day to try and check up upon how our national credit was standing. I found that the net return on Government securities in this country is extraordinarily high. It rose from a net return of 15s. 9d. per cent. on the first issue of National War Bonds on short-dated security to £1 11s. per cent. net on the 3 per cent. Redemption Loan, which is a long-dated security, and which, I believe, is not to be repayed until 1996. It is a very remarkable achievement. I have difficulty in seeing how we could borrow at less than those rates. I hope that the right hon. Gentleman will give some enlightenment on this matter.

I am not, one of those who take a pessimistic view with regard to post-war problems, but it depends entirely on seeing our problem as a whole and upon our abandoning the idea that everything that can be done is done without very hard work. Members have made reference to the Beveridge Report and to various other aspects of reconstruction. I beseech my fellow Members not to regard the Beveridge Report in vacuo, as a thing by itself. It is a very great piece of social policy and is very important. It is also a great financial proposition, because it proposes two things—first of all, a very great permanent redistribution of income, which is a matter of importance, and also it provides a very great steadying power to industry and business in this country in times when perhaps trade is not as good as we would like it to be, and it is something which, no doubt, the Chancellor of the Exchequer and his successors will find of very great value to them in the future. It is not sufficiently realised what value the social services have been in times of stress and in war in keeping a steady amount of employment available. Whether the Beveridge proposals stand or fall, with measures of' international co-operation and a policy of full employment, provided the means of production are not broken in our hands before war comes to an end, if we behave ourselves with prudence and abandon, both in domestic and internations affairs, the restrictions of 10 or 20 years ago, there is no reason why we should not have a satisfactory, and indeed, an increasingly satisfactory, standard of living in this country.

The hon. Member for East Stirling (Mr. Woodburn) said that objection might well be taken to the proposal of reconstruction on the ground that it would effect a more permanent distribution of income. I would remind him that the proposals of the right hon. Gentleman, which have brought about the most extraordinary distribution of income the worlds has ever seen, have been borne without complaint. The burden of taxation in this country has increased prodigiously. It has been multiplied since 1914 by 10 or 12 times. As I have already pointed out, the amount of distributable income has been more than halved. It has been borne by all sections of the community almost without complaint, because, in the main, it has been felt to be equitable and just. Provided that our financial arrangements are conducted on these lines in the future, I have no doubt that there will not be any insuperable difficulty to the carrying-out of any proposal which we may have in hand for post-war reconstruction. But policy must remain subservient to the general principles of the Atlantic Charter.

Before I sit down I would again like to make reference to the great assistance we and our Allies and Dominions have received through the extension of the policy of Lend-Lease. It has been of the greatest importance, and in some shape or form its principles must guide us after the war. The Allied Nations at this time have devised the means of putting all their resources—money, goods, arms and the like—at the disposal of the common cause. Through Lend-Lease they have achieved that freely, honourably and efficiently. Contrast that with the arrangement Hitler is making to bring the countries he has subjugated to the assistance of his cause. There could be no greater vindication of the working of democracy than to contrast the way Lend-Lease is working behind the common cause with the slavery, theft and misery, enforced ultimately by the firing squads in the execution yard, as practised by Hitler in trying to feed his army and his industry. I am well satisfied that if we can keep hold of these things and carry forward these principles, our economic future need not be one which will disappoint us. There must be no sitting back when the war comes to an end; we must go forward to the remoulding of civilisation.

Mr. Craven-Ellis (Southampton)

I am very pleased that there has been so much appreciation of the work which the Chancellor of the Exchequer has done in financing the war as far as it has gone. But I do not want to say that we ought to be satisfied that there can be no improvement. The war has cost us this year about £5,000,000,000. Next year I suggest it will cost us considerably more. How are we financing it? We are relying, in the first instance, upon taxation which is very heavy upon all classes; and we are relying upon investments, but when we have finished drawing from all sources there is a gap which, obviously, is being filled by assistance from the banking system. I want it to be made perfectly clear that I dissociate myself from the frequent attacks upon the banks, which are accused of causing so many hardships because they have certain privileges and rights. I think the attacks really come from a reaction following on the last war. We had a lot of unemployment, a great deal of malnutrition and bad housing, and while that was going on working people saw, on the other hand, huge factories, in which they perhaps might have been employed, not fully employed. It may be that this has caused the reaction and the criticism against the banks.

I think the central Bank and the clearing banks are doing everything that can be done within the powers given to them by this House. One must be satisfied with the part they have played, and if there is to be any criticism, I suggest it should be against the Members of this House and not by the Members of this House against the banking system. It is we in this House who are responsible. The clearing banks are very largely responsible for the assistance which has been given to the conduct of this war and to the financing of industry generally upon a policy which is decided by the central Bank—the Bank of England. Recently I put certain Questions in this House to the Chancellor of the Exchequer, whose replies have not always been as satisfactory as I should have liked them to have been. A Question I put in different forms several times during the last few months refers to the creation of credit. At present, if further credit is required, the central Bank carries through a financial operation by purchasing, as a rule, Government securities in the market, and as the Bank passes its banker's draft to the vendors of those securities, the vendors, in turn, pass that draft to their joint stock banks. That creates cash in the bank for the joint stock banks, and upon that cash there is pyramided 10 times the volume of credit. It is a system which has grown up out of the powers which this House has given to the banks, and I submit that the time has come when there should be some change. As our first consideration we must see that the banking system is maintained in a solvent position. That is the first essential.

How are we to maintain that system in a solvent position? We know from experience that the banks generally have paid satisfactory dividends, have satisfactory reserves, in so far as the public have knowledge of this, and have carried on their business in a satisfactory way. The highest volume of credits existing between the period of the depression in 1931 and the apex of prosperity in the spring of 1937 was approximately £2,300,000,000. Therefore, we have experience that the banking system could work efficiently and satisfactorily, and was solvent with that volume of credit at its disposal. When the Bank Charter Act was passed in 1844, it was passed with the sole object of putting a stop to the banks issuing their own currency. Obviously, that put a great restriction upon the activities of the banks. In those times, as in these times, the leaders of the banking system were men who had great brilliancy and ingenuity, and their ingenuity at that time enabled them, in effect, to by-pass the limitations which the Bank Charter Act, 1844, put upon them. Not being able to create currency as they had done hitherto, they devised the means of the cheque—cheque money, bank money; and by this means they developed the transfer of credit. To that I take no exception. It is quite the right thing. I merely want the House to know what the position is, because I intend to suggest an alteration.

I hope I have made the point that the banks can be maintained in a solvent position with a certain agreed amount of credit available to them. In future, I would like to see credit beyond that agreed figure created with the authority of this House, which should also be responsible for the credit and should pay the banks some agreed sum—it might be one-eighth of one per cent.—for man aging that credit. I see no justification for a system by which the banks, out of immaterial money, purchase securities upon which they receive 2½ per cent. or 3 per cent. for the purposes of creating credit and upon the credit receive, it may be, from 3½ per cent. to 5 per cent. for financing industry. This is bringing in colossal incomes to the banks. I think it is about time the House made up its mind that, having satisfied itself that the banks are left in a solvent position, the House will in future be responsible for any additional credit which may be necessary.

I come to the next point. Under the Currency and Bank Notes Act, 1928, the Chancellor, through the Treasury, quite recently increased the fiduciary issue by £70,000,000, and at the present time that note issue stands at £950,000,000. How does that currency come into existence? It comes into existence when the Chancellor, under the 1928 Act, passes a minute at the request of the Bank of England to increase the fiduciary note issue. That minute having been passed, it then involves a transaction whereby, as in the recent case of the increase, £70,000,000 of Government securities were transferred from the banking department of the central Bank to the Issue Department, and upon that security they proceeded to issue the additional £70,000,000 of currency notes. I feel that it should not be necessary, for the purposes of creating currency which is necessary, to go through a transaction of that kind. If it is necessary for the note issue to be increased, the Chancellor should come to the House and state the position, explaining what is in circulation and what the general position is, and ask for a certain amount, and the House should give its authority to the Chancel- lor to instruct his agent, the central Bank, to increase the currency by that amount. The House would give the guarantee that that currency would be good currency from start to finish.

We are told by the Chancellor that he has made a profit of just over £8,000,000 on the currency note issues. When that information was given to the House, I suggested to my right hon. Friend that the Bank of England had made a profit of approximately £6,000,000 for managing the then £880,000,000 of currency note issues. That figure of £6,000,000 which I suggested was disputed. I am really not so much concerned whether it is £6,000,000 or £4,000,000; I am concerned with the principle; and working the figures out as best I can, with the volume of securities held by the Bank of England as backing for the £880,000,000 fiduciary issue outstanding at that time, I cannot make an income reaching the central Bank of less than £15,000,000 or £16,000,000 per annum. Therefore, that must mean that the Bank of England is making round about £6,000,000 per annum. Is that justified?

Mr. Woodburn

Is it not the case that all the profits made by the issue department of the Bank of England always come back to the Chancellor and that nothing goes to the Bank of England?

Mr. Craven-Ellis

That is the assumption, but I do not agree with it. It is up to the Chancellor to explain to the House whether I am right or whether the hon. Member's assumption is right. Let us have the truth. There is far too much secrecy and mystery hanging round the banks and the banking system, and the secrecy and mystery have to be removed if people are to maintain their confidence in the banks and the banking system. I suggest that the hon. Member cannot be right when he says that the whole of the proceeds go to the Chancellor, because the method by which that profit is arrived at is set out in Section 3, Sub-section (2), of the Currency and Bank Notes Act, 1928, where it states that the method of arriving at the profit shall be agreed between the Chancellor of the Exchequer and the Bank of England. Let us know what the arrangement is, so that the House may be satisfied. While on this matter, I would like to impress upon hon. and right hon. Members that, personally, I am satisfied with the way things are done by the banks, because they are wholly operating within the powers we have given them, but I want to see some reform.

If other Members feel as I do, it is up to the House, and it is no use wasting time charging the central Bank. It is nonsense. One must acknowledge that the banks have made a very big contribution towards financing the war, but I should prefer the Chancellor of the Exchequer to think out some different method from that which he has hitherto adopted. I really do not see why it should be necessary, for financing the war, to pile up debt, debt, debt. There is no end to it. We, have been told that the cost of maintaining the service of the National Debt is something approaching £400,000,000 a year. We should do something on the lines suggested by the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) and increase the national income from the £5,000,000,000 quoted by the Chancellor of the Exchequer to £10,000,000,000 a year, so that we can spread the responsibility and make it easier for each member of the community, but we are a long way from doing that.

I really feel that we have to endeavour to devise some fresh means. I feel that the financing of the war can well be done through commercial bills. Those bills, instead of being at a rate of interest upon a debt which is never liquidated—it continues for all time; we pay a thirtieth or fortieth part of the capital or bill—should be liquidated by an annual charge instead of piling up debt subject to interest, which will be such a terrific burden upon the taxpayers. An hon. Member warned us about the position when the war is over. One cannot remove that from one's mind, and, if we are to be persistently under a heavy load of taxation, as we are to-day, the Chancellor's plans for reconstruction will be just wasting his time in preparation. We must be in a position where the people have a reasonable standard of living and are not merely machines to support a debt created through some unfortunate experience which has come over the country, such as the war.

The right hon. Gentleman the Member for East Edinburgh has referred to the post-war position, but no one has men- tioned what I think is the most important matter of all, and that is the introduction of machine power. We have made very great progress in the war with improvements in machinery, and, when it comes to be used for peace-time purposes, the cost per unit of production brought about by this improved machinery will be less per unit of production, but more units will be produced and there will be insufficient purchasing power to consume the increased production.

Mr. Austin Hopkinson (Mossley)

Will the hon. Member go into rather more detail? What machinery has he in mind?

Mr. Craven-Ellis

I speak as a machine tool maker, and in that branch of engineering there has been incredible progress; we have machinery which reduces the operations in particular processes by 50 or 60 per cent.

Mr. Hopkinson

Special processes?

Mr. Craven-Ellis

Yes. You have your mass producing machinery as well as your small units, and this is going on in many directions. I can conceive this position creating many problems. There has never been a sufficient volume of purchasing power in circulation to consume the goods which are available. I can see this gap between purchasing power, which is brought into existence through wages and salaries, widening instead of becoming narrower. I do not envy the Chancellor of the Exchequer, whoever he may be, when the war is over unless we are prepared to modify our outlook, because I believe the solution to avoid more unemployment in the future does not lie with the banks. I think we have to devise some other means which will utilise this vast amount of production, which is wanted but which cannot be consumed because there is insufficient purchasing power, and therefore I believe consumption can only be effected by introducing some means of forcing that production into the consuming market. It is not purchasing power in the ordinary sense. I will give it a name. I may not be quite right in the name, but for the purposes of my explanation I will call it self-liquidating money. That money will be entirely outside the ordinary banking system. It might well be circulated by the President of the Board of Trade or the suggested new Minister of National Security.

Nevertheless, we cannot get away from one fact, that, unless we can find ways and means of bringing about mass consumption to balance mass production, we are going to let down the men who are winning the war, and that is what I am concerned about. I am not concerned about the class to which I belong but about the great mass of the working people. Get them into a prosperous position, and the rest of the country will enjoy that prosperity. This self-liquidating money, which I suggest should be introduced for the purpose of consuming the great mass of goods which will be available in increasing quantities, due to improvements in machinery and general technique, might be distributed to the sick, the unemployed, old age pensioners and so on, the money to be self-liquidating over a period of 26 weeks with the imposition of a Stamp Duty of 4 per cent. on each transaction.

I have given the House a very cursory outline of a suggestion which I think might be considered. I should be very pleased to have an opportunty of going into the details of my proposition if my right hon. Friend would kindly grant me the opportunity. I feel strongly that the future prosperity of the country and the basis of full employment of the people is dependent upon some reform of our monetary and financial systems. The Macmillan Report was out of date before it was published. The Committee sat during the period of the gold standard regime, and, when it came to be published, we were off the gold standard, and therefore it is out of date. Let me suggest to the Chancellor that he might consider a Royal Commission to ascertain what reforms, if any, are necessary in monetary and financial policy with a view to achieving what I believe the House desires to achieve, and that is full employment for the people and a respectable standard of living.

Mr. Hely-Hutchinson (Hastings)

I do not envy my right hon. Friend the Chancellor of the Exchequer when he comes to wind up the Debate. The suggestions with which he will have to deal will take a good deal of analysis and dissection, and it may be a little difficult to deal with them to-day. We have heard a number of interesting and constructive speeches. I was particularly interested in the suggestions made by my hon. Friend the Member for West Lewisham (Mr. Brooke), and I hope that my right hon. Friend will find himself able to consider them. The hon. Member for East Stirling (Mr. Woodburn), in a speech which struck me as not only an understanding speech but that of a man who is anxious to understand, made certain references to the part played by the banks in the financing of the war which, I think, illustrated some misconceptions on the subject. The hon. Member very fairly said that if it could be shown that the banks were not making an undue profit out of the expansion in balances arising out of the expansion of the national credit, no one would blame them or say they were not entitled to what they were getting.

It is simple to calculate just how much the banks are making out of the expansion of credit. These are not in any way secret figures. They are figures which can be checked up by anyone. The deposits of the clearing banks have expanded by about £1,000,000,000. If any one looks on the other side of the balance-sheet, he will find—in rough figures—cash up by £100,000,000, Treasury bills and Treasury deposit receipts and others shorts up by £700,000,000 and investments up by about £500,000,000. On the other hand, advances to customers are down by something over £200,000,000. Therefore, the expansion of £1,000,000,000 has been invested as to £100,000,000 in cash, which produces nothing; as to £700,000,000 in shorts and Treasury deposit receipts, which produce 1¼ per cent.; and as to £200,000,000 in long and medium term Government securities, which on the average produce slightly over 2½ per cent. It is easy to see, therefore, that the whole £1,000,000,000 has been invested at an average interest rate of 1½ per cent. and produces about £15,000,000 a year. On the other side there is interest paid on deposits. About one-third of bank deposits are on term and the remaining two-thirds on demand. The average rate of interest paid on all deposits is about one-half of 1 per cent. There is £5,000,000 out of the £15,000,000 gone. Another £5,000,000 has gone owing to the reduction of between £200,000,000 and £300,000,000 in advances to customers, which money the banks have lent to the Government. There is a reduction of 2 per cent. per annum on this amount, which comes to something like £5,000,000.

So that the gain to the banks owing to the expansion of deposits is about £5,000,000 a year, less the cost of handling the business. The latter is a difficult thing to estimate. The hon. Member for East Stirling suggested that the cost was about 1 per cent. It is difficult to say what figure should be allocated against the increased deposits. Several years ago the ratio of all bank expenses to deposits was about 2 per cent. At present it is 1⅜ per cent. There is no doubt that with expansion of deposits the banks have been able to handle things more economically; and also there has been a reduction in the services of the banks to depositors. But it requires a cost of only one-half of 1 per cent. per annum, which is less than one half the present average expenditure, to mop up the other £5,000,000. In other words, the banks are not making increased money out of the increased deposits. That is clearly brought out by the published reports of the banks. They are interesting figures and can be obtained by anybody who will take the trouble to look at the reports of the banks. In 1920, when the total assets of the five large clearing banks were £1,800,000,000 their total profits before taxation were £17,000,000. That is 18s. 9d. per £100 of assets. In 1939, when the total assets of the banks were £2,309,000,000, the profits were £11,211,000, or 9s. 8d. per £100 of assets. In 1940, When the assets had grown to £3,060,000,000, the total disclosed profits were £11,499,000, which is 7s. 6d. per £100 of assets. The margin of profits that the banks were able to make, therefore, has been coming down and the profits themselves have not expanded in the first three years of the war. These figures do not confirm the general picture in the public mind, which is painted by people who have not taken the trouble to get the figures, that the banks are making an enormous amount of money.

Mr. Loftus (Lowestoft)

I worked out the figures and made the gross increase of income about £7,000,000. My hon. Friend makes it £5,000,000—

Mr. Hely-Hutchison

Five million pounds before expenses.

Mr. Loftus

My hon. Friend appears to argue that the servicing of the deposits costs roughly 2 per cent. If that is the case, surely the customers of the bank are paying for the services, thereby enabling the banks to lend to the Exchequer at a cheaper rate than 1½ per cent.

Mr. Hely-Hutchinson

The expense ratio is not as high as 2 per cent.; it is about 1⅜ per cent. now. The banks make their money by a spread of interest. The average rate at which they invest is about 2¼ per cent. On the other side they pay out on deposits at the average rate of one-half of 1 per cent., so that the net spread would be about 1¾ per cent.—actually it is nearer 1⅝ per cent. It is true that that spread, if it is to be a spread of 1⅝, could be a spread between 3⅝ and 2 or between 1⅝ and nothing, but provided there is a spread of interest the banks can manage. What would happen if all the banks were to make a substantial charge' for deposits would be that there would be a considerable withdrawal of deposits, and that is already taking place in the case of the smaller accounts, the money going either into war loans or currency. The hon. Member for East Stirling gave the impression that the Government would be permanently in debt to the banks even after the war, when the financing of the war was no longer in question. I think my hon. Friend's picture there was due to a misconception. The banks do not perform a service towards the Government; they perform it towards their depositors. It is the depositors whom they are serving If I may give a picture to the House, I would say that out of a total increase of £7,500,000,000 in the National Debt only £1,300,000,000 or £1,400,000,000 has found lodgment in the banks, and only finds lodgment there because and so long as the depositors leave their money in the banks.

Mr. Woodburn

The hon. Member says the banks are not performing any service to the Government. If for the sake of argument the Government are bringing into existence £1,000,000,000 of extra money which is flowing to their suppliers, and from the suppliers to the workers, and from the workers to the shopkeepers, and so back into the banks, the working of that extra £1,000,000,000 is a service which is being performed for the State during the war emergency.

Mr. Hely-Hutchinson

No, I would say the service of the banks is towards the depositors. It can only be performed because people bring their money to the banks and deposit it there. That is the real fallacy in the hon. Member's argument.

Mr. Woodburn

I do not agree that it is a fallacy. If the Government pay for all their contracts by cheques, those cheques are cashed in every part of the country. Those are not services to the depositors but services to the Government and to the people who are using the banking services.

Mr. Hely-Hutchinson

I cannot put the point more clearly than I have done. It is entirely within the volition of those who receive the money whether they bring it to the banks at all. The right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) gave us an interesting account, with which I do not quarrel to any great extent, of the complete change in the basis of modem finance during the past 20 or 30 years. He spoke about the gold standard being "dead and damned," but the hon. Member for East Stirling pointed out that while it was possibly not officially recognised, it nevertheless is used, and it is interesting to observe that as each successive country or Government says of the gold standard "Off with its head" up goes the price of gold another notch. The right non. Gentleman also stated—a statement with which I agrees—that the State's supremacy over currency is absolute and complete. I think the more widely it is recognised, the fewer misconceptions there are likely to be about the part played by the banks in the general picture.

The right hon. Gentleman also said that the price of credit was not really negotiated but was dictated by the Government. That statement ought to be looked at very carefully. It may be so on a short view of the case, but on a long view I think that the price of credit is in fact negotiated. It is possible to bring a horse to the water but it is not possible to make him drink, and I feel that while it may be possible for a short time to finance the war by low-rate borrowing ultimately it is the relation between the supply of and demand for capital which will determine the interest rates. I say "ultimately," for there are limits in money management, and those limits are hinted at in the very able pamphlet published recently by Mr. McKenna under the title "What is Banking?" There are two particular questions which he asks in that pamphlet with regard to money management to which I think we should give some attention. One asks, "What indices are there besides the price level to guide the monetary authorities?" and next is the far more important question, "What are the limits of national autonomy in these matters?" The real difficulty about the money management of any particular country is that it only goes so far as the King's Writ runs; and I should like the House to ask itself whether my right hon. Friend the Chancellor of the Exchequer would have been able to borrow as cheaply as he has borrowed if it had not been for Lend-Lease, which was action taken by another Government.

I think, therefore, that when we consider this, may I say, "mighty subject," we ought to review the policy of the Government as a whole and not solely as related to the question of the interest rate on long-term loans. To cheapen Government borrowing when the Government are borrowing as heavily as they are is a very natural and proper desire. It is a perfectly reasonable proposition to be examined and discussed on its merits, but what we have to consider is what are the factors which enable a Government to borrow as cheaply as they do and, if they were to reduce still further the borrowing rate for money, what would be the effects thereof. In the first place, I should say it is possible at the present time, though it may or may not be desirable, to reduce the Bank Rate and possibly reduce the rate on Treasury certificate deposits, and as a result, coupled with various other things, it may be possible to reduce the interest on long-term loans. That, broadly speaking, will only affect the rate on new borrowings from now on, except that there will be a certain amount of refunding. If we are going to borrow for two or three more years at the rate of £2,500,000,000 a year, and if we could reduce the rate of interest on that borrowing by 1 per cent. per annum we should save £25,000,000 a year for three years, £75,000,000 in all. That is a sum well worth saving if we can do it without too much disturbance in other directions.

Mr. Pethick-Lawrence

As regards the reduction of the rate on short-term borrowing the hon. Member is quite right, but so far as long-term borrowing is concerned any reduction there will apply for a longer period than the duration of the war.

Mr. Hely-Hutchinson

Yes, that is so. I should have made that qualification clear. As a matter of fact it becomes more apparent that my figure is about right, for if the interest rate were reduced the Government would have greater difficulty in borrowing on long-term loan and a much higher proportion of its borrowing would be short-term, and therefore the gain would only be temporary. That this is what might happen is borne out by what is now happening in America where the Treasury Bill rate is, I think, ⅜ths of 1 per cent., and where they have the greatest difficulty in getting their long-term money at all. A very high proportion of the United States Government's war-time expansion in debt has been in the cheap but dangerous form of short-term borrowing.

I feel that the danger in this matter is to regard the rate of interest on money too much as an end in itself. After all, it is only an index, and only one of a number of indices, included among the whole series of pointers which must guide our monetary authorities. There are also the price level; and the exchange rate, responsibility for which, fortunately, has been taken largely off our shoulders by the action of the United States in Lend-Lease These are all indices. I suggest that it is an entirely wrong point of view for us to take to seek to readjust the temperature of the room, if we find it too hot or too cold, by going to the thermometer and fiddling with that. We have to look deeper at the things that make the index act in the way it does.

I feel that our Government are to be congratulated on their financial policy in this respect, that they have sought first to attend to the underpinning of financial policy before they began to do things about the money itself. The physical controls which we have initiated here, on rationing and licensing of supplies, form a very important element in our ability ultimately to borrow at a given rate. Such control as we can get over private spending and whatever we can do to prevent people from being extravagant, affect the money rate. Licensing, particularly of plant building and house building, also affects the money rate.

To exaggerate a little bit, I would say—although it is equally in the same category—that our success in sinking submarines before they sink our merchant ships has an effect upon our rate of interest. It is the physical things that matter and which are the real determinants. When the question under discussion is whether or not our Government's financial policy has been sound or not, we have to consider how they could have done better. The only comparison that we have is with the United States of America and, comparing our policy with that of the United States of America, I would say that the outstanding difference is that we have attended first to the physical controls before taking purely financial measures, and for that reason the American situation is not really as good as our own, so far as we have gone.

There is one more thing I would like to say in conclusion and it relates to the picture that we must always be trying to keep in our minds on the subject of post-war problems and post-war finance. Several speakers to-day—and I have heard it suggested outside several times—have urged the Government to draw up some sort of post-war balance sheet. The real difficulty about that is that any such balance-sheet as one might try to draw up would, of necessity, be a qualitative rather than a quantitative balance-sheet. You can put down the heads of the items that are to appear in it, but you cannot put opposite those items any figures, because the amounts will ultimately be determined by factors which, at present, cannot possibly be evaluated. The degree of victory is one of those factors. We all hope and assume that it will be a complete victory. The duration of the war is another. A third and very important factor, about which many of us have not yet thought much, is whether or not the war in Europe will end before the war in the Pacific. If, as the Prime Minister suggested might possibly happen, the European war came to an end first, it is perfectly conceivable that the whole economy of Europe could be set right.

We might then find Lend-Lease in reverse. We might find a gigantic Lend-Lease with food and raw materials coming this way from the Western hemisphere and the munitions of war going Eastward, to back up the Anglo-American effort in the Pacific. If, in those circumstances, there were any Europeans left who had not had enough fighting, they could always join the American Air Force. The effect on our post-war problems of the European war ending before the Pacific war would be simply gigantic. It would give us an entirely different set of problems to deal with and possibly a set of problems with which we could deal with far greater facility. Therefore, I do not think it is possible at this time to go into the problems of post-war finance in the slightest degree of detail, when there are still factors undecided so great as those which I have suggested and which, in themselves, raise questions so wide as the future relative positions of the pound and the dollar. I heard a man the other day say to another, "Which do you bet on, the pound or the dollar?" and his friend cautiously replied "I do not think I would be prepared at the present minute to back either one against the other, but I would back them both for a place, and would expect to win both bets." I think that is as far as one is able to go at the present time. Broadly speaking, the Government deserve the greatest credit for their financial policy up to the present time. Their measures should be judged as a whole, and upon the success of the physical controls, rather than solely upon immediate financial results.

Mr. Benson (Chesterfield)

The House always listens with very great interest and respect to the hon. Member for Hastings (Mr. Hely-Hutchinson), as he speaks with considerable authority upon banking matters. He has given us a lot of very useful and valuable material to-day, and has clarified a number of matters, not merely relating to banking. I heartily agree with him that the Chancellor of the Exchequer is entitled to congratulation on the way in which the finances of this country have been handled. I would like to remind the Chancellor that, like many profligates before him, he may find that borrowing is by far the easiest part of his financial problem. His real difficulty, and the real problem of the Treasury, will be in the post-war period, and, in particular, the problem of our floating debt. Our floating debt was something like £1,100,000,000 before the war; it is now probably £4,000,000,000. It is mounting rapidly, and at the end of the war, unless the war ends far more rapidly than any one expects, it will be at least £5,000,000,000, and the hon. Member for Hastings referred to the floating debt as dangerous money.

Without in any way detracting from the feeling of satisfaction at the way the Chancellor has handled our war-time finance, I think it is essential to point out that he has been batting on a comparatively easy wicket. The Government at the present time are the sole borrowers. The Government can, if not dictate terms of interest, at any rate negotiate terms without any disturbing factors of competition. But once peace comes the whole of that situation' will be altered, and it is then that formidable difficulties will arise which the Treasury will have to face and which I think the House should be facing now. Let us just visualise what will be almost the immediate post-war conditions. The Government expenditure will still be enormous. It will remain enormous for at least two years after the war, and Government borrowing, although it may not be as high as it is at the present time, will still remain at a stupendous figure. But as soon as the change-over to peace comes, a very large amount of money which the Government now receive will be lost to the Government, There will be a large demand for commercial money, because we shall have to face an industrial change-over from a war economy to a peace economy. That means that industrial funds such as reserve funds, renewal funds, depreciation funds, all of which now flow into the Government generally in the form of medium-term loans, will be lost to the Government. Not only that, but for even money which is not industrial money the Government will be faced with competition by industry, and we shall certainly have to realise the possibility of very large flotations on the Stock Exchange in order to enable private companies to finance the war-peace change-over. Industry will be a very strong competitor in the first two post-war years of the Government for all available capital. And let us realise that both the demands of the Government and the demands of industry will be imperative. Obviously, the demands of the Government will have to be met; we have to pay our way. But that applies equally to industry in the change-over. Money for the Government, money for industry, will have to be found.

What will happen as a result of that? The normal result will inevitably be soaring rates of interest. That is what happened after the last war. We are so accustomed to borrowing at a ½ or 1 per cent. on Treasury bills and issuing long-term loans at 3 per cent. that we are apt to overlook what happened in 1919–20. Then day-to-day money stood at 4 per cent. Then a first-class commercial bill was averaging 6 per cent. First-class preference shares were issued and snapped up at 8 per cent. In view of that state of affairs, it is not very surprising that our conversions, whatever might be their face value, cost us not less than 5½ per cent. If we have a repetition of that, it means two things. First of all, we shall rivet once again upon our whole industrial economy a high interest rate, from which we escaped in 1932, and at the same time we shall double the actual burden of the National Debt. The burden of the National Debt is not the capital figure. That is so astronomical as to mean little or nothing. The real burden is the annual servicing of it, and if we have to convert in post-war years in an atmosphere such as we had in 1919–20, then inevitably the annual and real burden of the National Debt will be doubled.

It seems to me there are post-war financial problems which we shall have to solve, and solve rapidly. The first is the provision of an adequate amount of capital or credit both for the Government and for the industrial change-over. The second problem is to find that money at low rates of interest. The third problem, which is a corollary of the other two, I think, is that we shall have immediately after the war to fund the floating debt. If we are to face these three problems, which certainly defeated the Government in 1919, we shall have to have a very carefully co-ordinated, properly integrated and well thought-out financial policy, and the sooner we start thinking about it the better. I make no apology in bringing this triple problem before the House at the present time, for it may not be one which we shall have to face actually for a couple of years.

It seems to me that the first essential in dealing with this very difficult situation must of necessity be the control of industrial money, and by control I do not mean more than that word actually means. There must be no limitation of industrial money if it is necessary to the changeover, but the change-over and the demand must be controlled. After the last war the change-over was completely chaotic. There was fierce competition in every industry for plant and material. The potential profits were high, and every firm, every industry, grabbed at the common pool of material and plant in order that it might take advantage of the high potential profits. There was fierce competition for plant, and there was very fierce competition for the finance with which to buy and operate it. That forced up the prices of the plant, forced up the commercial prices, and that again increased the demand for the finance that was necessary. High prices increased the demand for finance and increased the difficulties of the Government. In addition to that an enormous number of wild-cat schemes were started which absorbed money, which in a short time had smashed and for which there was nothing to show.

That was the position, and unless something is done it will be the position again. There is unquestionably one limit to the speed of change-over from war to peace, and that is the availability of plant and material. It may be for some time a very stringent limitation. The competition will arise again for the material needs of the change-over, and if we are to prevent post-war inflation, a post-war boom, if we are to prevent this skyrocketing of interest rates, we shall have to control the material for the changeover first. A great deal of material control will be necessary if finance control is to be satisfactory. Our change-over must be based on a carefully thought-out system of priorities. We must have a system of rationing of capital goods and furthermore of a rigid price control over capital goods. That is the only possible way of escaping the chaos of 1919 and 1920. The basis of our post-war financial policy must essentially be a sane industrial policy.

But even if that is done, it is not going fundamentally to alter the position of the Treasury. It may ease the Treasury's difficulties; it may reduce industrial and commercial competition for the available finance; but it will not abolish it. The Treasury will be faced with a very high and slowly-falling expenditure on the one hand, and with a very rapid decline, on the other hand, of the medium-term commercial money which now is the backbone of our medium-term war borrowing. Medium and long-term borrowing will be extremely difficult, because industry will be using its money for its own needs, and just when the Government's medium and long-term borrowing policy will present great difficulties, there will inevitably be a deflection of money from the bill market into industry again. If industry can use money at 4 per cent., 5 per cent., or 6 per cent., money is not going to remain in the bill market at 1 per cent. The Government will find medium and long-term difficulties, and they will find that the money in the bill market has dried up. I think the bill market is going to be the focus of the Government's immediate post-war difficulties. Can we possibly visualise the Government going into the market to finance its floating debt and offering rates competitive with those which industry can afford to pay? Can we visualise that vast block of money which the Government have on loan going up from 1 per cent. to 4, 5 or 6 per cent., as happened in the last war? To me that seems impossible. We shall have to deal first with the question of floating debt, because the short-term money rate is really the key to our structure of financial rates.

There are only two alternatives. The Government will either have to offer competitive rates for that vast block of short-term money or it will have to pay that money off as it becomes due. It seems to me inconceivable that the Government should base its policy on the offering of competitive rates. Therefore, the only course is to repay. The fundamental basis of our financial policy after the war must be the stabilisation of the three months' Treasury bill rate, at, say, 1 per cent.—that is approximately the figure it is at now. We must face the fact that we shall have to repay Treasury bills as rapidly as is necessary to maintain that 1 per cent. rate. If we succeed in doing that, it will have a double effect. It will pin industry throughout the country and throughout the whole financial structure, and it will add to the supply of money which will flow in and tend to meet the industrial demand which must arise after the war.

But what about the source of that repayment? If medium-term loans dry up, if long-term money is not coming in, if the Government are faced with the drying-up of the short-term market, where are they to get the money? There is only one possible source. It is the source the Government have been using. It is the same source to which we shall have to go, whether our system is chaotic or ordered, whether we are prepared to pay high rates or to pay low rates. There is only one source of credit, and that is the banks. The only possible policy in front of this House and the Government is to pay off as much of the floating debt, as much of Treasury bills as is necessary to stabilise the rate at 1 per cent., to pay off the whole of the Treasury deposit receipts, and to give for that money an irredeemable bond to the banks.

Sir Herbert Williams

Does the hon. Member propose to borrow from the banks in order to repay to the banks the loans they have already made?

Mr. Benson

Certainly. I do not see anything curious about that. In the process I should change the Treasury deposits receipt, which is now a six months' security, into a permanent irredeemable security. In regard to the rate of interest, I would put it roughly at the cost of the creation of credit. The hon. Member for Hastings gave us the idea that it could be done roughly at 1 per cent.—possibly less. I am prepared to accept that figure. It should be roughly the cost of production. At present an engineer who produces shells for the Government is subject to a costings system. I see no reason why the banks, when they produce credit for the Government, should not also be subject to a costings system. If a rate of 1 per cent. is possible—and I see no reason why it should not be—we solve our three problems. We provide the money for the Government and for industry, we provide it at a low rate, and we fund the floating debt. Two questions immediately strike one. What is to be the effect on the banks, and how far is it really inflationary?

With regard to the position of the banks, to load them with £1,000,000,000, £2,000,000,000, or £3,000,000 of 1 per cent. irredeemable loans would have a very material effect on the distribution of their assets, and it would fundamentally alter their present conception of liquidity. The present practice of the banks is' to maintain a ratio of something like 25 per cent. between highly liquid assets and deposits. The object is that they may be able to meet all demands for legal tender. Obviously, the position of banks to meet demands upon them must be maintained, but their present method of 25 per cent. ratio between liquid securities and deposits is not necessarily the only method. They merely maintain that in order to be able to meet all possible demands for legal tender. If the Government are going to load up the banks, as I suggest they will have to do, with long-term or irredeemable low-rated stock, the Government, who themselves are the foundation and source of legal tender, can put themselves behind them, and, subject to safeguards for prudent banking, guarantee them in emergency all the legal tender they require. That is one method. Another method would be to arrange that the Bank of England should be able to discount the long-term bonds practically at par for a temporary period during emergency. There are half-a-dozen methods of maintaining liquidity of the banks other than that of their normal 25 per cent. ratio. I have suggested two. We can finance our post-war problem in this way without really interfering with bank management. Nothing that I can say will either impair the functions or the freedom of the banks, and it is possible to provide safeguards for ultimate possibilities.

In regard to the question of inflation, the proposal to pay off Treasury bills at such a rate as to maintain a 1 per cent. level may be regarded as inflation, but I think any inflationary effects are more apparent than real. It is sine qua non that the money which will have to be found both for the Government and industry, over and above normal savings, will have to be found by the banks. My proposal is that it must be found at a low rate of interest instead of at a high rate. I propose that in the post-war period we should abandon those two old checks to inflation—financial stringency and high interest rates. Those two checks have been regarded as essential hitherto and they were used in 1920. To use these checks is merely to cure an evil by pro-during a further evil; it is really using Satan to cast out Satan. There are other and far more rational methods than inflation and stringency and high rates.

I have listened practically to every inflation Debate in this House since the war started, and I notice that hon. Members generally think of the inflation danger as a quantitive one, but if mere quantity of money is inflationary, then we are in a very highly inflationary position at the moment. Before the war our bank deposits were £2,000,000,000; they are now £3,500,000,000, and probably by the end of next year they will be something like £4,000,000,000. As far as the quantity of money is concerned, there is already, enough to blow prices sky high, but there is another equally important factor as well as the quantity factor, and that is velocity. If we can control its velocity, then the quantity is not really very important. As a matter of fact, this is what we have been doing so far during the war. We have increased the quantity of money both in the banks and in the pockets of the people, and for every increase in the quantity we have had an automatic decrease of velocity, because we have pinned prices, rationed goods and prevented spending. A decrease in velocity is the way to deal with any possible inflation after the war. As I have already said, after the war there must unquestionably be a change-over based on priorities, quotas and controlled prices. Given that, we have an automatic check to velocity for every increase in the quantity of money. That is the check which I feel sure will be adopted. If we do adopt it—and we shall be compelled to do so, not merely because of the danger of inflation, but because of the need for a rationalised change—we shall get rid of high interest rates and financial stringency, and, as I have tried to show, we shall be able to provide for the needs of the Government and industry on the basis of our present rates of interest.

Major Sir Edward Cadogan (Bolton)

We have seen the financiers disagreeing intensely and, interesting as the controversy has been, I think it would be an act of presumption on my part if I were to attempt to act as their mediator or assessor. I want to monopolise the time of the House for only a short while. My only purpose in doing so is to ask a question which I think needs an answer before any hon. Members can come to a definite conclusion on any of the matters which are comprehended in this Debate. Recently we had a Debate on post-war expenditure and planning in which I ventured to address an almost empty House and a completely inattentive Front Bench. The right hon. and learned Gentleman the Paymaster-General was in charge of that Debate and I asked him whether the Government were engaged on any planning of their future economic policy. In a few words I would like to elaborate that subject.

I would like to know, if the Chancellor of the Exchequer can tell us, whether the Government have already approached any of the Allied Governments with a view to arriving at some agreement regulating the competition for primary products? I would like to know, also, what safeguards it is proposed to establish to obviate the violent fluctuations in the prices of basic commodities which have been at the root of so much unemployment all over the world? Thirdly, since the whole of our planning depends on whether the nations of the world can, in concert, devise some scheme by which the standard of living may be raised everywhere, and by which there will be reciprocal trade advantages rather than cut-throat competition, what preparation is being made with this end in view? It is no good talking about national security until this question has been answered. The Paymaster-General while I was making my appeal to him wore an air of gloom and dejection due, perhaps, to the effect my speeches have on hon. Members but, at any rate, he failed to answer my question. It is hardly possible to' believe that he did not think the question worth answering.

I do not envy the Chancellor of the Exchequer's task of planning ahead unless he knows what the Government's economic policy will be. It is inconceivable that he should take on his duties without knowing what is the Government's economic policy. To do so would not be putting the cart before the horse—there would be no conveyance at all. I would like to remind the House of an extremely interesting leading article which appeared in "The Times" on Monday of this week on the matter we are now discussing. That article embodied the question I have just put to the Chancellor, and it ended: It would be very interesting to learn from Sir Kingsley Wood what progress has been made towards an agreed policy to meet the difficulties we all foresee"— that is to say, a policy agreed between the Allied nations. It would be very interesting, and I hope an answer will now be forthcoming. If it is not, I can assure my right hon. Friend that I will make his life a burden to him until he does give an answer.

There is another matter to which I wish to refer. Perhaps I should address; this question to the usual channels. I think it is absolutely essential that we should have not merely a short academic discussion, which was attenuated by an hon. Member who told us he was making a personal explanation—it sounded to me like a history of the whole of war production up to date—but that, before any post-war plans are discussed, we should be able to have a full-dress debate on the economic policy of the Government. Until the Government's economic policy is made a great deal more obvious to us than it is at present, I hope that no hon. Member will be called upon or asked to give any decision on a resolution on any other plans. I make bold to say that certainly I will not give the Government my support on any other post-war plan until I know what steps they have taken to prepare the first and foremost plan upon which all else depends. It must be obvious—at least I hope it is—to the very meanest intelligence that the Beveridge scheme, the education scheme, and all the other suggested constituents of a brighter and better world, must be articulated with the Government's economic policy. Otherwise, they do not make any sense. What is the use of asking ourselves whether we can afford the Beveridge scheme until we get a satisfactory answer to the question I have addressed to the Chancellor? If he has any misgivings, I think I can assure him that he will have plenty of support from many hon. Members on both sides of the House who may be entirely favourable to the Beveridge plan, and any other features of post-war planning, but who cannot honestly commit themselves to any resolution on the subject until they are made more familiar with the Government's economic policy. That seems to be the necessary prelude to discussing any other of the main features of the Atlantic Charter or examining any other kind of post-war planning.

Mr. Stokes (Ipswich)

I do not propose to indulge in comments on some of the speeches that I have heard to-day, though I should particularly like to exchange greetings with the hon. Member for Hastings (Mr. Hely-Hutchison), who gave a most gloomy account of the state of penury to which the banks have apparently been reduced. I almost got my handkerchief out to shed a tear for Mr. Montagu Norman! The object of this Debate was to be unorthodox and to stimulate new thought in the Chancellor of the Exchequer. In war-time we discover that money does not matter. There is plenty of it, and nothing is to be allowed to hinder the progress of the war. I want him to realise that never again in peace-time are we going to be told that constructive things cannot be done because there is no money available. The country will not stand it. For that reason I was most disappointed when I heard the Paymaster-General the other day give voice to this: Let me say a word as to my understanding of this complicated question of finance. Most of us will agree that finance must no longer be our master. It has to be our servant, but let us not forget that a servant may be ill-treated or over-worked. All our plans must be subject to the limitation of our financial resources."—[OFFICIAL REPORT, 1st December, 1942; col. 1080, Vol. 385] I interjected, "Nonsense." I repeat that never again are plans of a constructive nature to be obstructed because of this absurd thing, money, which is only created for the purpose of allowing people to exchange goods and services. I should like also to draw attention to another series of fallacies given vent to by the Bishop of Rochester. He said that we should not interfere with a financial system which had carried us safely through the 1914–18 war, helped us over the 1931 slump, and now was successfully getting us through this war. It seems to me that he proved conclusively that it is quite time we upset a system which led us into the first war, pitched us into the slump of 1931 and landed us in this war with the added knowledge that German rearmament was to a large extent financed by the City of London. [Interruption.] I will not quote Mr. Montagu Norman again, but German rearmament was very largely financed in the City of London.

The first object of this Debate was to try to persuade the Chancellor to go in for rather cheaper finance in war time. One point on which I have quarrelled with him is that he will not encourage people to lend money free of interest to the Government. I had some controversy with him and finally, at his request, wrote him a letter. Judge of my surprise when he wrote back that he really could not ask people to do something they could not afford. What an astonishing remark from a Chancellor of the Exchequer! I wonder whether he will have that forbearance with me if I find that I cannot afford to pay my Income Tax. He will go to any lengths to advertise for War Loan but not for free money. I was visiting the other day some wretched people detained under regulation, and written across the prison wall even, were the words, "Lend to defend your right to be free." Secondly, I can see a case for paying interest on genuine savings, but there is none whatever for paying interest on bank-created credit. While I do not want to deal with the question of the £1,000,000,000 gap, it seems to me absurd that the banks should be allowed to convert their own made money into a permanent loan of 2½ per cent. and why the Chancellor cannot instruct the banks to reduce the Bank Rate to one-half per cent. I do not understand. His counterpart in New York has found it possible to do so, but we get no satisfactory answer from him except that he will ponder over it. I know him well enough to know that that means that he is not going to do anything about it.

The object also of this Debate was to enable some of us to put to the Chancellor the desirability of ensuring that people by the end of this war are not deceived and robbed of the efforts they have made to bring it to a satisfactory conclusion. I want to dwell on the humbug of talking about paying for the war financially. Wars are never paid for financially. As an hon. Member said the other day, the Battle of Waterloo has not yet been paid for financially. When my right hon. Friend was asked to give a figure of what is standing in the books as a debt on the Battle of Waterloo, he said he did not know as they did not keep their books that way at the Treasury. Actually wars are paid for in one way only, and that is by the sweat and the blood of the people who fight, whether they fight in the workshops or on the battlefield. You pay them money for fighting the war and then in effect this is what the Chancellor does when he collects taxes from them. He says "I have just paid you money to pay for the war but in order that I may go on paying you for paying for it, you must pay me back what I have just paid you." Why not ease up on taxation and leave the people with more of the reward of their efforts in their pockets which they can spend when peace breaks out? For wars never are paid for financially.

What happened last time? We started the last war with a National Debt of £700,000,000. We had four years of nice war, and at the end of it the Debt was £7,000,000,000. We then started to pay it off, and at the end of 20 years' straining and struggling we found we had added another £1,000,000,000, making the total £8,000,000,000, but meanwhile had paid out £5,600,000,000 in interest on loans. If this war goes on to the end of next year, the National Debt will be anything up to £20,000,000,000, with a service charge of £600,000,000 a year, which is equal to the whole of the National Debt prior to the 1914 war. That is why I suggest that we ought to finance the war by interest-free money as far as we can and not fall, as the Chancellor falls far too frequently, under the influence of the City of London and the moneylenders. There is one class of people we shall have to dispose of if we are to have a just and lasting peace, and that is the moneylenders. The Chancellor goes about and encourages others to go about persuading people to put money in War Loan. I have never put a penny in War Loan and do not propose to. I tell everybody that it is a most unpatriotic thing to do and that the most patriotic thing is to lend money free of interest, or to put it on deposit at the banks, which can then lend money to the Government more cheaply. That is the line I myself follow.

What my right hon. Friend does not explain to the people when he gets their money is that their 2½ per cent. War Loan may stand at 100 now, but in fact they have no guarantee that when the war comes to an end the manipulators in the City will not put the Bank Rate up to 4 per cent. or higher and that the value of the War Loan will then go down to 50 or lower. This is the easiest way of getting money away from the people, and that is what the ruling class of any country always try to do. They realise that it is most dangerous to let the people be rich and that the less purchasing power left in their hands the better. If they were left rich, they would begin to be free and would not be so easy to manage as under an impoverished economy.

One of the problems we shall have at the end of the war is changing over from war-time to peace-time economy. One of the difficulties will be the distribution of purchasing power. Everybody is planning everybody else. We have all seen absurd schemes which we would be much better without. I would like to see the people free, and I suggest that the way to ensure that they will be free is to leave more purchasing power in their hands, so that at the end of the war they will be able to demand the goods which they are restricted from having now. There will then be automatically a huge demand from the 45,000,000 members of the population which will set industry going again automatically.

Sir H. Williams

If the people are going to be free, will they be free to borrow?

Mr. Stokes

I am against all this petty usury. One of the great difficulties we have got into in our Western civilisation is that we are all looking for something for nothing and that everybody is a petty usurer to a greater or lesser extent, and nobody encourages them more than my right hon. and very friendly Friend the Chancellor of the Exchequer. What I want to say is that never, never again are we going to be the slaves of the money barons. The Chancellor would be the most popular Chancellor on the face of the earth if he would take steps to restore to the people their sovereign right to create money and credit.

Let me say one word about the export trade. I am one of those who think that the method which existed prior to the war of aiming to create a favourable balance of trade was nonsense and led to a great deal of trouble. Somebody has described it as "exporting our unemployment." I believe that one of the worst difficulties could be overcome in the way suggested by my hon. Friend the Member for Lowestoft (Mr. Loftus) the other day in one of his usual able speeches. Prior to the war if I bought £1,000 worth of goods from America, I had to pay in the equivalent dollars, say, 5,000 dollars. But I had not got any dollars, and America said in effect by their tariffs, "You shall not have any dollars." In effect, they said, "Here are the goods, and we must have payment in dollars. We will do everything we possibly can to prevent you from getting the dollars, but, by heck, if you do not succeed in getting them, we will run you into the police court for not paying." Would it not be a better arrangement if the exporting merchant were paid in the currency of the importing country, and the exporter could then take the importer's cheque to his own State bank and get his own currency in exchange; if then the central Bank never chooses to exercise its lien on the goods of the exporting country, nobody is the worse off, and it becomes a continued form of Lend-Lease. I cannot stop longer to develop that point, but I am sure that my right hon. Friend will grant me one of those famous interviews which two or three other Members have asked for to-day, and then some of his officials may have an opportunity of considering the matter.

I have four points to put. The first is that I hope that when next the Chancellor presents us with a Budget he will give us a national balance-sheet and not an expenses account. It is an astonishing statement that we get every year. Apparently we have no assets; they do not exist. All we get is an expenses account. My second point is that whereas in the last war people saw that money did not matter, that in war-time there was no difficulty about making any quantity of munitions to carry on the war, when the war came to an end everything was changed round. We were told we had to go in for restrictions and the people were thrown on the scrap heap. We are told now that that is not to happen again. I would quote no less an authority than my right hon. Friend—if I may call him so—the Prime Minister on this subject. In his book "World Crisis" he says, talking about the change that occurred at 11 a.m. on 11th November, 1918: A requisition for half a million houses would not have seemed more difficult to comply with than those we were in process of executing for 100,000 aeroplanes or 20,000 guns…but a new set of conditions began to rule from 11 o'clock onwards…The money cost, which had never been considered by us to be a factor capable of limiting the supply of the armies, asserted a claim in priority from the moment the fighting stopped. I want to make it clear to whoever is Chancellor when the war ends that we shall never again allow a shortage of money to stand in our way. This point was put very aptly in a little verse that came to my notice the other day and which, with the permission of the House, I will read. It is: Sing a song of plenty, a planet full of fools. Everybody starving, by sound financial rules. The banker in his counting house was counting out his money. The land was overflowing with bread and milk and honey. The shops were full of good things, the factories likewise, The banker shut his books and said 'We must economise'". That is typical of this revolting and stupid monetary system which we follow in modern times. While it is true that the money system has to be changed, because it is one of the great obstructions to our peace-time welfare, we must not forget that until we do that very fundamental thing, restore to the people their right—their birthright—of free access to land and raw materials, we will not permanently have put anything right at all.

Sir John Wardlaw-Milne (Kidderminster)

There is no question but that the House had been much enlivened by the speech that we have just heard. I congratulate the hon. Member, and also the hon. Member for Bolton (Sir E. Cadogan). Both their speeches enlarged the scope of the Debate. We listened to some very able speeches but in some parts of them we were getting into what I thought were very detailed matters—I hope hon. Members will not mind my saying so—that were not of the same interest to the House generally. The hon. Member for Chesterfield (Mr. Benson), however, although he dealt with some very narrow matters, dealt with some very wide ones indeed at the end of his speech.

The main point which has interested the House is whether the Government have, since the war started, financed our war operations as cheaply as possible. Has our war finance been successfully conducted? It is fair to say that, on the whole, it has been well done. Money rates have been kept low and, particularly, the Government have enforced a fairly extended rationing system and paid subsidies to keep down food prices, subsidies which are, of course, only another form of taxation. Inflation has been limited. Before I leave this point I would like to say that inflation has not been entirely avoided. It has taken place, but the Government are to be congratulated that they have been able to control it. Inflation is bound to take place in conditions in which the cost of living has gone up by roughly 30 per cent. and wages and earnings generally have gone up by something like 50 per cent. That makes it plain how important it is for the Government to enforce the existing rationing system and extend it in every way possible. That is the only safety we have in present circumstances.

There is a difficulty with demands which are still being made to the Government for further increases in wage rates and earnings generally. It will be difficult, one of the most difficult problems that the Government have to face, to know how to meet those demands. I have often said in this House that it is not the figure of wages but their inequality which is causing the greatest difficulty. Those inequalities are constantly brought to the attention of the Government by one industry or another. One demand leads to another, and that leads to inflation. I hope that in any measures the Government think necessary to take or any instructions they may desire to give to the country, they will do something better than the platitudinous and almost "pat-a-cake" matter which was set out in the form of a White Paper some months ago. That White Paper certainly did not help people, so far as I can see, to realise the importance, from their own point of view, of avoiding inflation.

The danger, of course, is that some may get the idea that the war does not necessarily mean sacrifice, but almost that war is not a bad thing after all. I am certain that the Government, as well as every Member of this House, are anxious to avoid the possibility of that impression becoming any more widespread than it is at the present time. The difficulty arises really from the fact that we have never carried out—I know the difficulties—the policy laid down by the Deputy Prime Minister in the very early days of the war on behalf of the Government when it was said we were going to demand complete sacrifice from every member of the community. I suggest to the Government that a grave danger of inflation is still facing us. Some inflation has already taken place, and unless the Government are very careful, there may easily be a further movement dangerous to all of us, and more particularly to the wage-earning classes.

A good deal has been said to-day about the rates the Government have paid for their money. I do not want to go over ground which has been already covered by many speakers. Of the £7,000,000,000 which the Government have borrowed, about half has been secured by direct borrowing from the taxpayer. I think that is excellent, and that the Savings Association deserves all the support we can give it. I estimate that the Government pay something like 2¾ per cent. on this money which they have borrowed directly from the public. From the banks and other institutions plus some inter-departmental transactions they have raised nearly a similar amount, on which they pay roughly 1¾ per cent. These results are good compared with the days of 1914 to 1918. There is no doubt whatever that we have learned a good deal in the intervening years as to how to finance a war. If then; is to be another war 25 years hence, we should know how to finance it even better, but let us hope that will not happen again.

I cannot quite understand one thing. This money, even raised under these better conditions, is money borrowed directly from the taxpayer or from the taxpayer through the banks, which in an emergency would look for support to the Government. I echo what has been said by others. I hope it will be realised that neither the joint stock banks nor the Bank of England have anything to do really with deciding our financial policy. It is entirely in the hands of the Treasury. The Bank of England is the servant of the Treasury, and the joint stock banks carry out the instructions of the Bank of England. As a result of these borrowings to which I have referred, the Government issue notes to their contractors in payment of debts they incur. But would the position be really very different if the Government issued their own notes? In the 1914–18 war, I think it was in 1914, the Currency and Bank Note Act was passed, and the Treasury issued their own £1 and 10s. notes—"Bradburys," as they were called. No less a person than the late Dr. Leaf, chairman of the Westminster Bank and one of the most learned bankers of his time, referred to that Act as a highly profitable expedient for the Government, a war loan free of interest.

Sir H. Williams

The position to-day is identically the same, because the Issue Department of the Bank of England is virtually controlled by the Treasury.

Sir J. Wardlaw-Milne

I agree regarding the control and have just referred to it. I was surprised there was a doubt expressed about it earlier to-day. But I often wonder why the Act of 1914 was departed from or not put into force again. The Government in their war-time finance should, I suggest, have three aims in view: First, to keep the floating debt as low as possible—there is real danger to the Government; secondly, to maintain cheap money; and, thirdly, to extend rationing still more, in order to avoid inflation. There is one other responsibility upon the Government: to avoid waste and extravagance in their own expenditure, as well as enjoining it upon us. That should be a primary consideration. We have, I think, three distinct periods in front of us. We have the remaining period, however long it may be, of the war. We must raise such money as is required during that time as cheaply as possible. We shall then have the immediate period after the war, and the long-term period after that. In the period immediately after the war there will be a definite danger of what is generally called a boom. There will be a demand for everything, for the refilling of the shelves.

There will also be a situation which did not so fully arise after the last war, involving the question of how we are to deal with the devastation caused by this widespread struggle. Are we to assist devastated areas by gift or by loan? It is plain that we cannot assist them much at first by loan. On the other hand, if we go too far by gift, the position would be that we should very early put them in a position to undercut our own standard of living by forcing goods upon us. It is going to be a difficult problem to, decide how much you are going to assist these devastated countries by gift, and how much by loan.

We must assist them in some way. In recent years we have surely learned that we cannot be prosperous by ourselves, that our prosperity depends upon a satisfactory standard of living in these other countries. Therefore, we have to assist them, by gift or by loan. That is why I was glad to hear my hon. and gallant Friend the Member for Bolton say that what was wanted was a statement of the Government's financial policy after the war. I would not go quite so far as that to-day; I would not hope to hear that; but I do ask, what steps are the Government, in closest consultation, no doubt, with the United States and any other Governments concerned, taking to consider these matters now, to draw up plans even for the consideration of international financial policy after the war? I suggest that that is a matter that the House has a right to know something about.

We have heard reference to-day to the Beveridge Report, which we are to discuss at a later date. I have no intention, of course, of discussing that Report to-day, but there is one thing clear about the Beveridge Report, or about any other scheme—and here I agree with what my hon. and gallant Friend the Member for Bolton said. None of these schemes is of any value until the fundamental question of what is to be our financial policy is settled. The distinguished author of that Report quite realised—and I am not in any way suggesting that he is at fault because he did not deal with it; it was outside his terms of reference—as anybody who studies the matter must do, that before you can begin considering any change in the scheme of Social services you must first decide what the value of your money is going to be and how you are going to decide and maintain that value. There are two policies there quite clearly; two policies that the Government have to face—the position regarding the internal value of money and the position regarding the external value of money. The internal value of our money is not a matter about which we need consult others but it is a matter which will need a great deal of care on the part of those who study the question here. There is a suggestion in the Beveridge Report that people would be paid 40s. a week or some figure of that sort. It is immaterial whether you say 40s., 80s., or 800s. The question is what the value of 40s. is going to be. If the purchasing value of the 40s. falls to 4s. no one is going to be very grateful, but if it rises to 80s., you get something you did not expect.

The fundamental question, before you come to any question of further social security or changes of any kind, is, What is to be your financial policy after the war? I suggest that as internal and external policies are to some extent joined, it is time that the Government told the House, not what that value is to be, but what plans they are making for consultation with others and deciding upon a definite policy. On international policy a very interesting scheme—it has been referred to by some previous speakers—was put forward in the interesting little book the "Twentieth Century Economic System." Here it should be said—what is true of all systems—that exports must pay for imports, or imports for exports, it does not matter which way you put it, and that the ideal system is that countries should exchange their surplus products with each other. Of course, that is an ideal system, but ideal systems are often very difficult to work. The difficulty is the fact that these two were never exactly balanced between any two countries. The position is covered in that particular book by what I might describe as the Monte Carlo system—the imposition of a limit. Almost everybody knows that, if it were not for a limit imposed against the Monte Carlo gambler, practically any millionaire could break the bank.

In that same way the author of this ingenious scheme suggests that, if one country buys more from another country than it sells to it, the adverse balance grows and continues and after a number of years should be wiped out without payment or debt of any kind. That is very ingenious, but it can equally be done if you do not have a fixed rate of exchange. If you allowed the exchange to fall when the balance was adverse, the result, to take a simple illustration, say, of Argentina and ourselves, would be as follows: If the Argentine exports more goods to us than it imports from us, there will come a time, if you have a fluctuating rate, when the Argentine exporter would not get payment at the usual rate in his own currency. In other words, sterling will fall in value against the Argentine currency. Great Britain would become a good place from which to buy but a bad place in which to sell. What we are anxious to know is, not what is the Government's final policy on these matters now, but what arrangements they are making in consultation with the United States and other Governments to consider them without delay so that we shall not be without a policy when the war comes to an end.

I do not want to keep the House much longer, but there are one or two things I want to say before I sit down. A long-term programme is the fundamental point in our future policy. What we must do is to create and support consumption. For far too long we have paid attention to production, whereas it is consumption, both here and abroad, that really matters. Everything we can do to raise the standard of life in other countries as well, as here is of the greatest importance. We shall be met after the war, not with a period of shortage, but with a period of abundance, and it will be just as difficult to handle satisfactorily the abundance of the world in the future as it has been for our predecessors to deal with surplus production. There is an excellent Chinese proverb which some hon. Members may know. It runs: If you are planning for one year, sow grain; If you are planning for 10 years, plant trees; If you are planning for 100 years, grow men. It is men and women, with their power to consume as well as to produce, who can give us real prosperity. That is why I am all in favour of these social schemes provided that there is a proper financial policy capable of dealing with them. But it is no use giving the people in this country an idea that these proposals can be put into operation until we have decided, in consultation with others, what our policy is to be. One thing we ought to be grateful for is that President Roosevelt has made, more than once, declarations on this subject so far-reaching as to give one real hope that the countries of the world will look at it from a new standpoint in the future. I would like to know in what manner the Government propose to try to translate those heartening declarations into practical schemes for the future. This nation, and other nations as well, are awake and anxious to attack the social problems of the future. Prosperity will depend upon full consuming power here and abroad and also upon a realisation by the people of the country that it is upon them that the responsibility will rest, I believe it will need a spiritual revival if we are to go forward to the future which we all have in mind—a revival which creates character and increases our appreciation of our responsibility for others as well as for ourselves.

The Chancellor of the Exchequer (Sir Kingsley Wood)

I have to thank my hon. and right hon. Friends for what I think can be fairly described as a useful and timely Debate. I would also like to thank those who have thought themselves justified in commending the policy of the Government in the last three years, and I am more than fortified in my belief that these congratulations are right when I know that the whole of my policy has been roundly condemned by my hon. Friend the Member for Ipswich (Mr. Stokes). That gives me great encouragement, and I hope and I feel that I must indeed be on the right lines. My hon. Friend the Member for West Lewisham (Mr. Brooke), who made a very helpful speech, pointed to the fact, which I have constantly had in mind, that there has been a great deal of difficulty, and we have not perhaps done all that we could have done, in putting before the country the main lines and principles of our present financial programme and methods. Before replying to some of the questions that have been addressed to me, I would like to sum up briefly the methods and principles upon which our policy has been based. I suggest to the House that it has been, in fact, a well defined and carefully conceived policy.

What have been the main methods that we have adopted? We have of necessity gone in for the very heaviest possible taxation. When we have borrowed, we have done so, in my belief, as cheaply as possible. As a very important third aim, we have also encouraged, and to a large extent obtained, a very considerable amount of savings from the people of this country. Above all—and I attach the greatest importance to this—we have at all times endeavoured to see that our strictly financial operations have conformed to our wider economic policy. I and my right hon. Friends in the Government who have been particularly concerned have endeavoured to look upon financial and economic matters not as things apart but as things that should be closely co-ordinated. By that means we have endeavoured—failing as we may have done on occasion—to see that British finance made the greatest possible contribution to the war effort and at the same time provided us with the strongest possible safeguards against the economic and financial difficulties of the time, to which reference has been made by my hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne).

We have had an unprecedented financial situation to face. The sums of money that have been involved and the figures I have so often given the House have reached such proportions that it is very difficult for ordinary men and women to appreciate their real meaning. The heavy commitments which I and my predecessors have had to meet have made it necessary for us to resort to the most heavy and painful taxation. That taxation has not had a single object, but a double one. It has been, first, to meet as much as possible of the cost of the war as we go along, in order to keep our necessarily large borrowings to the minimum. A most important object that we have had in mind is to reduce the large increase in purchasing power which the war inevitably entails and which, if allowed free play in the form of an increased demand for goods and services, would undoubtedly produce inflation. In the first three years of the war we met 42 per cent. of our total expenditure out of revenue, and I am glad to say that for the current financial year the figure will be practically 50 per cent. As to our second object, there can be no doubt that high taxation, coupled with the policy of rationing, price control and price stabilisation have held inflationary tendencies in check and certainly have saved the country from an evil which has been very much in the minds of all of us.

The second fundamental aim of our taxation policy is that, given the necessity for this very heavy burden which we have imposed, it should be spread equitably over the whole community. The stern necessities of war are no excuse for us to trade upon the people's patriotism in order to press unequal sacrifices upon them. The very size of the sacrifice is in fact an additional reason why it should be fairly distributed, and one of the most striking facts in the financial history of the war has been the universal acceptance, both in the House and outside it, of the burden of war taxation as it is now spread. At one end of the scale the number of individuals enjoying very high incomes has been reduced to a very small fraction indeed of the pre-war number. At the other end of the scale you have millions of people with small incomes who have been called upon to pay tax for the first time and others who have had their taxes increased to an unprecedented extent, and to-day, greatly to their credit, and greatly to the benefit of the nation, we find some 9,500,000 wage-earners, black-coated workers and others with small incomes making a contribution of some £270,000,000 per annum towards ultimate victory. That would not have been possible unless the country had accepted the view that we have endeavoured to spread the heavy burden of taxation evenly and fairly over all classes of the community. The whole nation has recognised that money is as nothing compared with the many sacrifices which so many are making in life, limb, hardship and suffering.

I would like at this point to turn to the Government's borrowing policy, a subject on which many valuable contributions have been made in the Debate. Our policy has had three objects: firstly, by the imposition of as heavy taxation as possible to keep the amount of our borrowings within reasonable bounds; secondly, an object which I think in a large measure has been achieved, to borrow as cheaply and as reasonably as possible; and, thirdly, to keep our short-term borrowings from non-Government sources as low as possible.

Mr. Tinker (Leigh)

Will the right hon. Gentleman say what he means by non-Government sources?

Sir K. Wood

Borrowings from the banks and institutions of that description. The very fact that we have had to borrow over £7,000,000,000 during the first three years of the war shows the need to meet as much of our expenditure as we can out of taxation as we go along, and there has been no relaxation of the country's efforts to that end. Let us review our borrowing policy. In this the third year of the war we have done even better than we did at the beginning. In each of the first two years we borrowed over 60 per cent. of our expenditure, but in the third year we have had to borrow only 52 per cent.—a considerable achievement.

Many of my hon. Friends have spoken about the question of interest. It has been the aim of the Government to establish what I would call a cheap money policy. That is of the utmost importance, not only during the actual period of the war, but, in view of the hopes we have and the things we desire to do, it is important that we should not burden the period after the war with high interest charges. My right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) gave us particulars of our borrowings. Excluding the floating debt, which of course carries the low interest rate of 1 per cent. our loans cost us only 2½ per cent., as compared with 5 per cent. in the first three years of the last war. Moreover—and I emphasise this to my hon. Friends—there has been no repetition of the experience of the last war, when loans were raised at successively higher rates. On the contrary, this time we have improved the terms on which we have borrowed upon each occasion. The first issue of 2½ per cent. National War Bonds ran for seven years; the next for 7½ years; the next for just under 10 years; and now the latest has a maximum life of 10¼ years. The first issue of our 3 per cent. Savings Bonds ran for 24 years, while the maximum life, of the current issue is over 28 years. I would not claim on behalf of the Government all the credit for this; the Government initiated the policy, but it would have been impossible to bring it to fruition but for its general acceptance by the country, and I would say that this progressive improvement is really a tribute to the patriotic spirit of the investors in all sections of the community and a manifestation of their confidence in the determination and ability of the Government to triumph over the many economic difficulties with which we are confronted. I would sum up this particular aspect of the matter by saying that the gross cost to the taxpayer of borrowing a given sum in this war has been one-third of the cost in the last great war.

I would emphasise this further point: the reason why we must keep the amount of the floating debt held by private institutions to a minimum is that we cannot always be certain how far it will be renewed. That danger of non-renewal is not present in war-time, but we must bear in mind post-war possibilities. The floating debt is certainly very cheap, but it is a potential source of embarrassment. We can, I think, regard our achievements so far during the war as satisfactory. The increase in the floating debt held by the banks and the money market amounts only to one-fifth of our total borrowings during the first three years of the war, which shows that we have, in fact, been able to keep within, I will not say minor, but to not unreasonable proportions.

In regard to short-money rates, in the Government's case this means the rates paid on Treasury bills for three months, which is about 1 per cent., and on Treasury deposit receipts for six months, which is 1⅓ per cent. I think those who have, quite properly, drawn attention to matters in connection with both the bills and the deposit receipts have not paid sufficient attention to the big reduction which such rates show on the comparable rates paid between 1914 and 1919, when at times they actually reached 5½ per cent. Naturally, that comparison does not end the matter, and the possibility of achieving further savings has often been considered; but I would remind hon. Members that, in these matters, the bare saving to the Treasury is by no means the only factor, and wider factors have to be taken into account. The rates on our short-term borrowings are closely allied on the one hand with the rates for day-to-day loans in the markets, now at about 1 percent. and, on the other hand, with the rates of the longer Government securities—

It being the hour appointed for the interruption of Business, the Motion for the Adjournment of the House lapsed, without Question put:

Motion made, and Question proposed, "That this House do now adjourn."—[Major Sir James Edmondson.]

Sir K. Wood

Thus, the Treasury is paying 1 per cent. for three months' money, 1⅛ per cent. for six months', 2½ per cent. for comparatively short money, and 3 per cent. for longer money. I suggest to my hon. Friends who, I know, are giving a good deal of consideration to these matters, that all these rates have to be considered as one complex and that to alter one of them may prejudice the whole structure. The whole complex results in the Government financing the war on a reasonably cheap basis, and, apart from securing such gradual improvements as we have done in the periods of our loans, I do not think that our best interests could be served by any attempt at radical revision of the general structure.

Various questions were put to me by hon. and right hon. Members in relation to the Treasury deposit receipts. Loans on Treasury deposit receipts are direct loans from the banks to the Exchequer with a currency of six months. So far, they-have always carried interest at the rate of 1⅛ per cent. per annum. The rate undoubtedly depends upon the prevailing conditions from time to time and particularly on the rate for three months' Treasury bills, which, for a long time, have been within a penny or two of 1 per cent. per annum. The extra ⅛ per cent. payable on Treasury deposit receipts is due to the fact that the banks lend on them for six months instead of for three. I would also remind the House that these receipts were introduced on, I think,. 1st July, 1940, and it was obviously desirable that there should be some new method of financing the fluctuating deficiency between expenditure on the one hand and revenue and existing forms of borrowing on the other. My right hon. Friend the Member for East Edinburgh asked me whether I was generally satisfied with the position. I think it has been generally found of considerable convenience, and of national advantage as well.

Three important questions were put to me by the right hon. Member for East Edinburgh. As I understood the effect of his speech—and contributions from him are always welcome in this House and by myself in particular—he said that while the Government had not done so badly with regard to borrowing on low rates of interest, he wondered, nevertheless, whether there was anything sacrosanct about 3 per cent. Could the figure not be brought down, say, to 2½ per cent., and, if so, what were the reasons why that should not be done? I will give, I hope, a good' reply to that. I would assure him that there is nothing sacrosanct about 3 per cent. We are, and I hold myself on behalf of the Government, free to pursue whatever policy we think is best, having regard to the national interests as a whole. But I suggest to the House that, in a highly complicated economic structure like that of this country, our policy must necessarily take the form of a reasonable balance of all factors. The complex of interest rates, for long, medium and short- term loans, has to be considered as a whole, and any movements in one set of rates almost inevitably have repercussions on the others.

My right hon. Friend also said that short-term borrowing by Treasury bills and by Treasury deposit receipts was 1 per cent., and asked whether in so far as this money is derived from the banks, who are employing in this way their customers' current and deposit accounts, I was satisfied, first, that the extra work imposed on the bank justifies their margin of profit, and secondly, that the rate of interest on deposit accounts should be retained? My answer is that these short-term rates are closely allied on the one hand with the rates for day-to-day loans in the market and, on the other hand, with the rates of the longer Government securities, and as I have already emphasized all these rates have to be considered as one complex, and to alter one may in fact prejudice the whole structure. Therefore, after the careful consideration which I and my advisers are constantly giving, and shall continue to give to this matter, I am of the opinion that our best interests will not be served by a radical revision of that structure.

As regards my hon. Friend's question about banking profits, such inquiry as I have made does not lead me to think that any case has yet been proved for saying that the banks are making excessive profits. Their costs are governed mainly by the number of transactions on customers' accounts, and such transactions have obviously greatly increased, and, like other undertakings, they have been faced with greater expenses for special war-time reasons. As regards the payment of interest on deposits now generally at ½ per cent., again I would remind the House that steps were taken earlier in the war to reduce the rather high rates which were being paid in some cases, so I can fairly claim that our efforts in this direction have not been unavailing. I should like to add that the deposit rate cannot be regarded solely from the point of view of the expenses it involves for the banks. We have to consider, for example, the likelihood, if no interest at all were paid, of the withdrawal and spending of the deposits. On the whole, and after careful consideration, I do not think it necessary to intervene in the matter.

Finally, my hon. Friend asked whether I anticipated that after the war the greatly-increased bank deposits would be used to earn much higher rates of interest, and, if so, whether I had in mind any steps to secure for the community a substantial part of these accruing profits. I hope the House will rely on the same vigilance and a continuance of the policy which has governed not only the Government's attitude in this matter, but that of the banks. Speaking from the point of view of the Chancellor of the Exchequer, I can say that they have loyally co-operated with the Treasury and myself and have made a considerable contribution to the war effort.

I would like, before dealing with questions of post-war policy, to say a word on a matter about which doubts and anxieties—not of a serious character—have been expressed. I refer to the Savings Campaign and its present position. You must first have regard to the wide scope of this Campaign. It covers both the larger market issues and the small savings securities. I am speaking of something in which I am not personally concerned, except in a directing capacity, and I do not think I am exaggerating when I say that the Campaign during the last three years has been ore of the most remarkable financial efforts in history. It has yielded £4,600,000,000, an average of £30,000,000 a week since the beginning of the war. The total is made up of £2,900,000,000 from the larger market securities and £1,700,000,000 from small savings. It is well known that an appreciable fraction of the subscriptions to market issues comes from banks and insurance societies, but such subscriptions represent savings to a very large degree. Those subscriptions may seem to be very easily secured, but there is clearly a very large savings effort behind them. Undoubtedly, however, the most striking achievement is the £1,700,000,000 which has been lent in small savings. This total, as I am sure the House will agree, is a monumental corporate effort, with many millions of people, each striving to play his or her part, however small, in the knowledge that the sum total of their efforts will be a vital contribution to the right financing of the war. It is a striking fact, which will have tremendous social consequences in the future, particularly when we face that difficult period after the war, that one-third of the whole population of this country now hold Savings Certificates.

I agree with what has been said about the necessity of maintaining and improving this effort, not only during the war but after the war. We must encourage in every way possible these thousands of voluntary helpers—for the great burden of this Campaign has been carried on not by people earning incomes out of the affair but by thousands of voluntary workers. You hear the names of politicians and others, but the thousands of people who have made this scheme such a tremendous success are unknown; yet they deserve extremely well of the country.

Another matter on which I would like to say a word is the anxiety expressed in some quarters during the Debate on the increase in the note circulation from about £500,000,000 in the middle of 1939 to £870,000,000 at the present time. At the beginning and in the early stages of the war there were a number of special reasons or causes which contributed to this increase, such as the desire to keep a supply of notes at hand for possible emergencies. There were the separation of families, the use of notes instead of cheques for shopping and so on. But as time has passed, it seems that the two main causes have been first, the greatly increased volume of wages that had to be paid' out week by week, and, secondly, the fact that large sums saved out of those wages are being kept in cash. The volume of wages is still being considerably increased. In the course of this Debate my right, hon. Friend the Minister of Labour was present, and he said, "I hope you will remind the House that there is, of course, still a constant increase of wage-earners as a result of recruitment from the unoccupied classes." He added that it is not possible to give a precise estimate of this increase, but it amounts to a very considerable number still each month. It is a fact that a larger weekly wage bill necessarily means that more notes will be outstanding at any one time even though a large part of the whole is spent on necessaries and a corresponding amount of notes returns through the shops from circulation. The whole policy of the Government is to secure that the high wages are not allowed to increase the demand for the, restricted volume of goods and services which are available. The second reason for the recent increase in the note circu- lation, namely, the retention of savings in the form of notes, is perhaps more difficult to deal with, and the only remedy is the slow and patient education of all concerned.

I have only a few minutes left, and I want to occupy that time in saying a few words about trade and industry and the post-war position, but I should like first of all to assure my hon. Friends to whose questions I have not been able to give a precise reply, although in general terms I have answered them, that, as always, I will give, careful consideration to all suggestions that have been made, and I will also reply to them individually where I think they would like to hear from me on particular points they have raised, and particularly on some of the larger questions which have been raised and the suggestions made for a more radical alteration in our financial system.

Mr. Woodburn

I mentioned that some workers are still under the impression that the post-war credits will count against them should they ever have to face a means test for unemployment benefit or old age pension, and will the right hon. Gentleman make that matter clear?

Sir K. Wood

I would like to give the hon. gentleman a precise answer, and if he will put down a Question to me, I will do so. As regards trade and industry, a question which was especially raised by my hon. Friend the Member for Edgbaston (Sir P. Bennett), in a valuable contribution to the Debate, I would like to assure him that the Government have for some time given, and will continue to give, constant and anxious attention to the position of trade and industry, not only as it is to-day, but as it will be in the future. I agree with him that few things are more important, and I particularly agree with my hon. Friend the Member for Kidderminster that our future greatly depends on our being able to get the wheels of trade and industry going round again successfully. I want to tell my hon. Friend that the Government are carefully examining now what the financial needs of industry are likely to be and what financial resources they are likely to have available when the war is over. I want to make this suggestion. The Government are always prepared to receive and discuss suggestions from representative associations and others in relation to their post-war problems, with a view to making advance preparations for the difficult post-war period. I would only say now that these problems are not solely financial and that they cannot be solved by a single approach to them.

My hon. Friend spoke, quite rightly, of the difficulty of the 100 per cent. Excess Profits Tax. He knows that it was dictated by wider issues of policy than purely fiscal considerations, but I agree that it has raised a number of hard and difficult cases, such as he mentioned the other day. Following on my statement on the Third Reading of the Finance Bill, when I suggested that people and representative bodies who had proposals to make with reference to the Excess Profits Tax and how it has generally operated should confer with the Board of Inland Revenue, I am glad to say that I recently heard from the Board that it was in touch with certain bodies concerned with the incidence of taxation. Conferences with these bodies about the various taxation points they desire to raise are already taking place, and I hope something may eventuate which may prove helpful. My Noble Friend the Member for Horsham and Worthing (Earl Winterton) suggested that we should have a longer discussion on post-war policy than we have been able to have to-day. That is a matter for the Leader of the House, but I would like to say that I would welcome a discussion on that subject. I will only say now that I want the House to appreciate that, in approaching the post-war policy and prospects, I am not pessimistic or despondent about our position after the war. Undoubtedly, there will be many demands made upon us, and we shall have very many difficulties, but I believe that with care and foresight we ought to be able to avoid many of the mistakes and disasters which overtook us in the last Great War.

Therefore, I do not approach our post-war problems in a negative state of mind. I want to see a policy which is socially just, economically sound and financially prudent. We have been going through a very serious time in which we have had to take steps which we shall not be able to take when the war is over. It has been calculated—I do not wish to tie myself to the exact figures, but they give a reasonably graphic picture of what I have just tried to indicate—that one-quarter of our war expenditure has been provided by increased output, one-quarter by reduced consumption, and one-half by drafts on capital at home and abroad. Therefore, it is obvious that, to a very large extent, our future must depend upon the restoration of our export trade to a high level. We must also make our own contribution to the greatest possible expansion of international trade. That is a vital interest to us, and we are deeply concerned in the prosperity of other nations, because it is upon this that the flow of international trade must depend. We have been devoting much time for a considerable period now to the necessary preparatory work, in which I may say considerable progress has been made, in order that we shall be ready to take our part in preparing the ground for achieving a common programme of post-war economic co-operation with the United States, Russia and the other Governments of the United Nations.

I feel that our objects are all the same, and that when the discussions take place, as of course they must do, we shall all of us be animated with the same purpose and aim. Therefore, I close my observations on this note, because I think there lies the greatest hope for the future, and in the interval, as I claim that, due very largely to the efforts of all sections of our people, the financial policy and methods we have pursued during the three years of war have been an important contribution to victory.

Earl Winterton

May I say how grateful I am to my right hon. Friend for, I think, acceding to the request which a number of hon. Members on both sides of the House have made for a Debate? In view of the eloquence of his closing remarks, I hope it will be a full two days' Debate, so that my right hon. Friend and the rest of us may do justice to the subject.

Sir K. Wood

I will convey the noble Lord's observations to my right hon. Friend the Leader of the House.

Question, "That this House do now adjourn," put, and agreed to.