FINANCE BILL

HC Deb 19 November 1945 vol 416 cc40-154

Order for Second Reading read.>

3.30 p.m.

The Financial Secretary to the Treasury (Mr. Glenvil Hall)

I beg to move, "That the Bill be now read a Second time."

The purpose of this Measure is to implement the Budget proposals outlined by my right hon. Friend the Chancellor of the Exchequer a month ago. It is, I confess, a formidable document. It runs to 60 Clauses and ten Schedules. It adds to our taxation law a further layer of complex provisions. Many of its clauses are highly technical in phrasing, though few, I believe, are controversial in character. More than half of the Bill covers proposals included in the Finance Bill introduced last April, but never implemented because of the dissolution of Parliament.

So far as the legacy from my right hon. Friend's predecessor is concerned, the principal bequest is in Part V of the present Bill. That relates to the double taxation proposals which were outlined in a White Paper introduced earlier in the year, and with which, I hope, the House is familiar. These proposals enable agreements to be made with any country, including the Dominions. It is by virtue of these provisions, for example, that the Conventions entered into with the United States—between the United States and this country—last April, for the purpose of relief from double taxation and double Estate Duty, will be ratified. The Income Tax Convention —there are two Conventions, one dealing with Income Tax and the other with Estate Duty—entered into with the United States provide that British concerns trading in the United States will obtain a credit against British tax for the United States tax paid on profits made in the United States, so that, in effect, these profits will bear only the higher of the two taxes.

In the case of shipping, air transport concerns, and agencies, the agreement is that the profits will be chargeable only in the country to which the trading concern belongs. Double taxation of interest and royalties, both industrial and literary, is similarly removed. They will be liable to tax only in the country in which the recipient resides. As to dividends, both countries have agreed to give credit against their tax in respect of the tax borne by the dividend in the country of origin. The agreement also includes methods for the computation of profits which, I may mention in particular, ensure that the taxation in the United States of income derived from British films is brought into line with the taxation of income of foreign films in this country. This is a point which was raised in the discussion last Friday, and the House will be glad to know that we intend, by mutual agreement to rectify the present unsatisfactory situation. This will remove a long standing grievance which our own film industry has suffered under for some time.

Mr. David Eccles (Chippenham)

May I ask a question before the hon. Member leaves that point? Has the Congress of the United States ratified the double taxation agreement?

Mr. Hall

It cannot be ratified until this House has agreed to the Convention on behalf of this country. It is hoped that the ratification will go through as soon as we have indicated agreement with the proposal.

Mr. Godfrey Nicholson (Farnham)

Have we to ratify it again after that?

Mr. Hall

No. There is some difference between the procedure in this country and in the United States. The Estate Duty Convention with the United States also provides for relief from double taxation. The country in which the deceased was domiciled will allow a credit against its duty for the duty paid in the country in which the property is situated. So much for the United States Conventions. We have also a taxation treaty of limited scope with France which was on the point of signature in 1940 and upon which a White Paper was recently issued, and that will fall to be ratified by virtue of this legislation. Its principal provision is to regulate the liability of British companies trading in France to the French tax on dividends. As I have already indicated, the provisions of Part V extend not only to the making of agreements with foreign countries, but to revising existing arrangements for relief from double taxation with the Commonwealth and Empire.

Mr. Walter Fletcher (Bury)

Before leaving the matter of the agreement with France, I think I am right in saying that the year 1940 was mentioned. Are we to take it that the results of conversations which have taken place recently are not to be taken into account in this matter?

Mr. Hall

Of course, all relevant conversations have been taken into account. I am only reminding the House that the matter has been outstanding for four or five years and that this is indicated in the White Paper. For the terms, I would ask hon. Members to go to the Bill itself, and if they have points to raise, they can raise them in Committee when this matter will be dealt with in detail.

The House will see that Clause 21 exempts from Income Tax, war service gratuities paid to members of the Forces and others employed under analagous conditions. This Clause corresponds to a Clause included in the first Bill of this year. The only variation to which I should draw attention is the new paragraph (b), which provides for the extension of relief to members of the Forces raised outside the United Kingdom. That will enable Forces raised in India and the Colonies to take advantage of these pro-visions, and I think that, generally, meets with the wishes of the House and the country.

Clause 19 removes a long standing Income-Tax grievance of local authorities. It allows them to set off any interest they pay against their taxed income, and gives to all local authorities the benefit of the decision of the House of Lords in the South Shields case without the necessity of promoting a private Act similar to the one obtained by the South Shields Corporation. One other Inland Revenue provision deserves mention, namely Clause 55, in Part VI of the Bill. This Clause provides that when land is compulsorily acquired, either by the Government or a local authority, at a price less than the value placed on it for Estate Duty purposes—as at a date after the 31st March, 1939, and before the date of acquisition—relief will be given, provided there has been a continuity in beneficial ownership and no change to the land in the meantime, which would have caused a lower price to be paid.

Clauses 22, 23, 24, and 32 amend the law relating to the taxation treatment of levies and receipts under redundancy schemes certified by the Board of Trade under Section 25 of the Finance Act, 1935. or otherwise sponsored by a special Act. The House will remember that these schemes provide for the scrapping of industrial plant, compensation being provided by a fund built up by levies on all members in the industry concerned. Under the law as it stands, allowances are made for Income Tax in respect of the levy, but the compensation receipt is not liable. When the Act of 1935 was passed, it was expected that the compensation would accrue to persons ceasing business as a result of the redundancy scheme. A case has since arisen where all the concerns in an industry are scrapping portions of their plant with the result that the compensation payment accrues to a continuing business. To meet this situation, a tax allowance will in future only be made for the levy in so far as it exceeds the receipt.

The Bill further provides that in the case of schemes certified after 1st January, 1945, the allowance for levies will not rank for purposes of E.P.T., but only for Income Tax. The reason for this is that the costs of new redundancy schemes are costs incurred for post war reconstruction and are not, therefore, properly attributable to the excess profits arising from wartime production. Clause 24 applies the same taxation treatment to statutory redundancy schemes. Clearly, all redundancy schemes must be treated alike, whether they derive their authority directly from a statute or indirectly by way of a Board of Trade certificate. One statute, in point, is the Cotton Industry (Reorganisation) Act, 1939.

I turn now to the provisions of the Bill which are new, and which spring from the Budget proposals of my right hon. Friend. Clause 1, together with the First Schedule, exempts refrigerators and certain cooking and heating appliances from Purchase Tax, with effect from the 24th October last. Naturally, some people are disappointed that the range of relief could not be wider, but my right hon. Friend must go slow in making remissions of this tax which so directly affects the spending power of consumers. I, however, renew his pledge to survey, before his next Budget, the whole field of incidence of this tax, particularly the numerous cases for relief that have been put to him, both by Members of this House and by organisations and interests outside.

The Bill includes two Clauses about the hydrocarbon oil duties. The first is a very simple matter. It extends the life of a provision—Section 8 of the Finance Act, 1942—which allowed certain farm tractors, while the war was on, to use as fuel oil which has paid duty at Id. a gallon in: stead of 9d. which is the rate normally appropriate to oil used as road fuel. When conditions return to normal, the question will have to be reconsidered, but, for the time being my right hon. Friend has decided that this privilege should remain. It will be subject to termination by Order in Council at any time. The other provision is more complicated and technical. It gives effect to the recommendations of the Committee which reported in April that imported hydrocarbon oils should - be free of duty when used as raw materials for industrial purposes, and that indigenous oils so used should receive an equivalent allowance. Those provisions will open the door wide, we hope, to new and important industries.

Attention has also been given to another matter, namely, the inclusion of a provision to amend the law authorising exemption from Entertainments Duty of partly educational performances. In April this year the House decided that in future exemption from this Duty should depend upon the main objects and activities of the body which provided the entertainment and not on the classification of a particular performance.

Lieut.-Commander Gurney Braith-waite (Holderness)

Which Clause?

Mr. Hall

This provision about Entertainments Duty is not in the Bill. This is an explanation of why it has been dropped. It was in the original proposals but, owing to the General Election, it was dropped. It was thought only fair to the House that some explanation should be given as to why the matter has not been revived in this Bill. What I am saying is that my right hon. Friend the Chancellor of the Exchequer, although he has not included it in this Finance Bill—the Bill is, in all conscience, long enough as it is—proposes to follow the Recommendations and the decision of the House last April, and to insert it next April, when the next Budget is introduced.

I have a very wide area to cover and I am very anxious not to encroach unduly on the time of the House. I will, therefore, not refer in detail to the proposed reliefs in the rates and allowances in Income Tax, and to the increases made in Surtax, nor to the proposed alteration in the method of levying taxation on mechanically propelled vehicles. So far as the latter is concerned, the Chancellor of the Exchequer is sitting behind me with his mind still wide open as to the steps he should take, long or short, and it would perhaps be better if I left the Debate to run its course. When the Chancellor of the Exchequer comes to reply, no doubt by that time he will have made up his mind on which step he will take. It would be unfair to him and to the House if, at this juncture, I attempted to indicate what he intended to do in that direction.

Clause 16 is of considerable importance to industry. It fixes the appointed day for giving effect to the provisions both of the finance Act, 1944, which cover allowances for capital expenditure on research, and of the Income Tax Act, 1945, which cover allowances for capital expenditure on industrial buildings, plant or machinery used in trade. The appointed day for both Acts will be 6th April next, the beginning of the next Income Tax year. I should explain that any capital expenditure now being incurred—and this point arose during the Committee stage of the Budget Resolutions—is not deprived of the new allowances. It will rank for allowance, but the allowance will not become effective until 6th April next. I should also make it clear that the provisions for allowance on capital expenditure on research extend to buildings and plant provided after January, 1937—that is going back some way—and to capital subscriptions to central research stations, made by a trader in respect of his own trade, subsequent to 5th April, 1944, and the provisions of the Income Tax Act, 1945, cover capital expenditure incurred after 5th April, 1944. All such expenditure undertaken before the appointed day, that is to say 6th April next, will rank for relief as if it had been incurred on that day, account being taken, of course, of any allowance already made under the existing law.

I might here refer to the provision in Clause 34, which prevents the Income Tax allowance on research expenditure given by the 1944 Act from attracting also Excess Profits Tax allowances. It is right that those allowances should not operate for E.P.T., inasmuch as the expenditure in respect of which they were made is related, not to the making of the excess profits during the war period, but to the making of profits in the future. In so far as any capital expenditure on buildings, plant and machinery has been used in making excess profits, that expenditure will be covered by the existing E.P.T. provisions which provide not only for research but for all buildings, plant and machinery installed since January, 1937. This is an exceptional depreciation allowance, which sets off against the profits the fall in value of the assets on which the expenditure was incurred.

I come now to the Excess Profits Tax. Clause 27 reduces the rate of E.P.T. to 60 per cent, as from 1st January next. Clause 28 limits the relief for deficiencies, that is to say, the repayment of past E.P.T., where the profits fall below the standard, to deficiencies incurred by the end of the calendar year 1946. Clause 27 provides that any deficiency occurring in 1946, when the rate will be 60 per cent., will primarily rank for relief against any E.P.T. paid at 60 per cent, in 1939—the first year of E.P.T. when the rate was 60 per cent. —and only against the E.P.T. for the 100 per cent, period when the E.P.T. paid at the 60 per cent, rate is exhausted. The limitation of deficiency relief to deficiencies occurring before the end of 1946 was, the House will remember, a subject of criticism in the Budget Debate. The views then expressed have been, as was promised in the closing speech on the relevant Resolution, carefully considered by my right hon. Friend. I think the House would like to know this, although it will be open to hon. Members in the Committee stage to indicate to the Chancellor of the Exchequer what changes they would like him to make. I have not the slightest doubt that the consideration he has already given to this matter will enable him to give a considered reply. Whether it will be followed up by changes it is not for me, at this juncture, to say.

So much for the deficiency reliefs. I come now to what are described as terminal losses. By the way, some of the points urged in the Debate on the Budget Resolutions related to what are known as terminal losses rather than to deficiencies, and it seemed to me there was some confusion in the minds of hon. Members. It is important, for that reason, that the difference between these two reliefs should be made clear. First, as to terminal losses. Following the general principle that all costs and expenses incurred in earning the excess profits should be allowed in computing the profits, the law already provides that any loss incurred in expenditure on providing buildings, plant and machinery as part of the war effort, will be allowed against the profits. Though the law provides a provisional allowance annually in advance, the amount of the loss cannot, of course, be ascertained until the end of the Tax, when it constitutes a terminal loss.

Another terminal loss is expenditure on deferred repairs and renewals which were due to be made, but could not be carried out owing to wartime conditions and owing to the need for concentrating all production on war output. It is the present practice of the Inland Revenue to allow part of the E.P.T. corresponding to the estimated amount of deferred repairs and renewals to remain outstanding. If the repairs and renewals are overtaken, during the lifetime of E.P.T., allowance will be made automatically for them. If they are not overtaken until after the end of E.P.T., then, provided they occur within a reasonable period after the end of the Tax, they will be translated back to the lifetime of E.P.T. The fixing of a time limit for this purpose is one of the matters to be dealt with when E.P.T. comes to an end. The cost incurred in the rehabilitation of industry to peace-time conditions is another terminal loss. These losses arise on such items of expenditure as the alteration of factory lay-outs, the removal of A.R.P. installations, the return of industries to their old locations and so on. In so far as this expenditure was incurred in the lifetime of E.P.T. it will automatically be allowed. In the last Parliament, an assurance was given that, in the event of this expenditure being incurred after the end of E.P.T., it would be carried back and allowed. That assurance still holds good. It will, of course, be necessary to fix a reasonable time limit after the end of E.P.T. beyond which the relating back will not operate.

Yet another terminal loss is that which might arise in the event of any appreciable fall in stock values, following on the termination of the E.P.T. This happened after the last war, and legislation was introduced to meet it. The issue will arise this time only if there is a fall in values, and the necessity of making any provision will depend upon the circumstances obtaining when E.P.T. comes to an end. Here again, an assurance was given by the late Government that the matter would be considered and be the subject of legislation, if circumstances warranted. That assurance still holds good, and, when the time comes, my right hon. Friend will be prepared to consider, in the light of the conditions then obtaining, whether provisions are necessary for allowances in respect of any fall in stock values occurring in the immediate post-E.P.T. period. As I have explained, expenditure of the terminal loss type, even if incurred after the end of 1946, will, if necessary, be related back to the E.P.T. period, and this should prevent any real hardship from the termination of the deficiency relief at the end of 1946, to which so much criticism was directed last time we debated these matters. If necessary, however, there will be a further opportunity of considering this question when the normal Budget is brought forward next April, and we shall have the additional advantage of another six months or more in which to judge what the situation is.

In his Budget speech the Chancellor proposed to reduce the rate of E.P.T. to 60 per cent, as from 1st January next, and further proposed that these refunds should thereupon begin to be paid. He promised to speed up those repayments as much as he could, and Part IV of the Bill provides the necessary authority and machinery for giving effect to these proposals. The refunds are to be paid as soon as may be after the final settlement and satisfaction of E.P.T. for all 100 per cent, periods. That is in Clause 36. Pending a final Settlement, however, the Inland Revenue is to be empowered to make interim payments, and it is hoped that they will begin to be made, in respect of E.P.T. paid before the end of December next, in the early part of next year. We think that meets the wishes of the House and the criticisms that have been levelled in this direction.

But I must make it clear that before payments can be made undertakings must be obtained that the refunds will be used in the manner contemplated when first authorised, and arrangements must also be made to see that those undertakings are observed. The House will see that provisions to this end have been included in Clause 40 of this Bill. In order to check the use of the refunds the Treasury are empowered by Clause 40 to establish an advisory panel, which will consist of persons experienced in business methods, including commercial accounting, whose duty it will be to inquire how the refunds have been dealt with and to report to the Treasury if they consider that there has been any breach of the undertaking given. If such a report is made the refund will be recoverable from the person concerned, but he will have the right to appeal against the report to a referee. That also is included in the provisions of the Bill. My right hon. Friend has already indicated that in this connection a generous view will be taken of what constitutes the "development and reequipping" of a business. The fundamental objective is to prevent the distribution of the refunds as income, or in any form which can be turned to the personal use of shareholders, partners or proprietors, and to ensure that they are, on the contrary, used in ways which will increase production whether for export or home consumption. I would commend these proposals to the House as a necessary but practicable plan for carrying out the intentions of Parliament when it first authorised these refunds. I draw now to a close—

Lieut.-Commander Gurney Braithwaite

Before the hon. Gentleman ends may I ask whether it is his intention in this Second Reading introduction to give the House any observations upon the very important Clauses 7 to 10?

Mr. Hall

I did refer in passing to those Clauses. One deals with the hydro-carbon Oils—

Lieut.-Commander Braithwaite

Spirits.

Mr. Hall

There is not a great deal to say on that. The matter was fully covered when we adopted the Resolutions. The Clauses are very technical in character, but if the House desires I would say, generally, that they refer to an old Act which was put on to the Statute Book in 1880 under which, in order to protect the revenue, it was made impossible under the law for brewing and distilling to take place at one and the same time. And certain other provisions were also introduced which set up a store some distance away from where the spirits were distilled. It has been found during the war that although these might have been useful in the past they have ceased to be of any great use now, and as a result of the experience of the war years a change is now to be made. That means that the allowances which were made to distillers for what were regarded as the difficulties put in their way at that time, are now to be withdrawn. In a full year it will save the country about £1,000,000. There is also another allowance of 3d. dealing with the export of whisky, which is included in the Bill. Perhaps there is no need for me at this moment to go more fully into these Clauses, because they are very technical and another opportunity will be available to my hon. and gallant Friend to raise the subject on the Committee stage, which is a much more convenient stage at which to discuss this in detail.

Mr. Godfrey Nicholson

May we take it that my hon. Friend will be willing then to give a full explanation? I agree that these Clauses are exceedingly technical, but there are certain points which do require explanation, and it is rather difficult sometimes, on the question of the Clause standing part of the Bill, to get what is equivalent to a Second Reading Debate.

Mr. Alfred Edwards (Middlesbrough, East)

Is it the intention of the hon. Gentleman to make any observations on the new method of taxing motor-cars?

Mr. Hall

Earlier in my speech I said I did not intend to deal at all with those particular Clauses for the reason that the arguments for and against them were fairly familiar to the House and that it would perhaps be better if we let the Debate run, and should any reply be necessary I feel that my right hon. Friend who is to wind up the Debate, will be much more competent to deal with them. That being so I hope my hon. Friends will allow me to finish and not make any further reference to these Clauses.

The Bill, as I said when I began, is a formidable document. In the necessarily incomplete outline which I have given in the short time at my disposal, it has been impossible to cover the whole of the ground. After some thought I decided that it would be better if I concentrated what I had to say on those parts of it which are not, perhaps, entirely clear owing to the necessarily technical phrasing of the Clauses. I hope, however, I have said enough by way of explanation to meet the wishes of the House.

The provisions of the Bill have, I think I can claim, met with a fairly good reception both in this House and in the country. As was indicated in his Budget statement, my right hon. Friend has, within the limits set by the commitments facing him, tried to accomplish two main objects. First, to stimulate the change over from war conditions to peacetime, so that the production of goods might be accelerated as rapidly as possible for the needs of the community; and, secondly, to do what 'he can to prevent inflation by holding back purchasing-power until it is safe to release it, until, in fact, the goods are there in the shops to buy. It is my belief that in the proposals embodied in this Finance Bill we shall, during the coming months, see that the foundation which my right hon. Friend has laid has been a good one, and that we shall in the months and years ahead build upon it so that this country can get back at the earliest possible moment to a flourishing export and home trade and its people obtain what they deserve after the sacrifices of the last five or six years, a really high standard of living and of comfort. I therefore commend the Bill to the House.

4.11 p.m.

Colonel Oliver Stanley (Bristol, West)

The hon. Gentleman has made a careful speech about some, at least, of the Clauses of the Finance Bill, and has certainly shown a detailed knowledge of its extremely complicated provisions, but he will forgive me for saying that he has not made the first Socialist Finance Bill sound very exciting. I hope that he will not expect me to follow him into those details, but will allow me to range a little wider than, perhaps, he was permitted. The right hon. Gentleman the Chancellor of the Exchequer has received a good many bouquets for his Budget, including one from Dr. Dalton, and I do not want to embarrass him, as I am sure it would do, by adding to those tributes. I confess that this Budget is, on the whole, a popular one, but I cannot join myself to those who, at the same time, affirm that it is necessarily a good one, because, frankly, I do not think that anyone in this House or in the country has sufficient material upon which to judge whether the Chancellor's proposals are, in fact, good or bad.

All hon. Members who have been in the House before realise in what very different circumstances this Budget was introduced, as compared with the normal introduction of a Budget in April. On those occasions it is possible for the Chancellor to give the House and the country exact, usually extraordinarily exact, estimates of the revenue and expenditure of the coming year. It is possible for him then to strike a balance, and the House is able, not only to consider the details of revenue and expenditure, but also to decide whether the way in which the Chancellor proposes to disperse the balance which has been arrived at is in their opinion the best way. On this occasion we have had none of these usual preliminaries. The Chancellor was unable, and all of us can see why, to give even the widest estimate of expenditure and revenue for the year 1946, and that, of course, is the year to which the vast majority of the tax relief to which, in passing this Finance Bill, we shall be pledging ourselves, will take effect. In fact, the only estimate he has given at all was an estimate to the end of this year, and that certainly was not an encouraging basis upon which to build rosy pictures for the year after, in view of the fact that despite the sudden and unexpected ending of the war with Japan no improvement was estimated in the financial situation this year.

Therefore, by any of the old standards to which we have been accustomed, this is not really a Budget at all. It is more like a horoscope. The Chancellor of the Exchequer, as astrologers of old, has looked at the stars. He has seen that Venus is in the ascendant and Mars in a decline. He has looked at the sky, and seen that it is red—in the morning. And then he has given us the number he first thought of. He must hope, and we all join with him in hoping, that that particular number will prove to be the correct one. If we cannot do ourselves what the Chancellor, with all the machinery behind him, was quite understandably unable to do, which is to consider any precise estimates for the next year, we can at least consider some of the main factors which will govern the outcome of the nation's finance in the years 1946–47. We can look at some, at any rate, of the tasks which must be fulfilled if, when we come to that period affected by the tax remissions which are greeted to-day with applause and satisfaction, those remissions are indeed to prove economically sound and not merely to be inflationary gestures.

In that connection, I will deal first with the expenditure side of the national accounts. When he was speaking on the Resolutions, the Chancellor of the Exchequer referred to the dilemma into which the speeches of some hon. Members put him. Whereas, he said, some were urging him to remove the "dead hand" of the Treasury from national policy, others were urging him to re-establish Treasury control. I do not think—and I am sure he does not, either—that there is in fact any such dilemma. One must draw a distinction between two things, the objects of national expenditure and the methods by which that expenditure is made. Over the first, the main objects of national expenditure, no one can exercise control except the Government of the day. And in that Government the Chancellor of the Exchequer is only one of the Ministers—although, naturally, on a question of this kind, he is also the most important. But when it comes to the methods by which the expenditure directed towards those objects is to be carried out, it does seem to me that the Chancellor and the Treasury must be supreme—it must be their primary responsibility to see that the objects are achieved with the minimum expenditure. We must all realise that during the war, under circumstances which were inevitable and for which no blame can be attached to anyone, Treasury control of the kind we knew before the war has broken down. Faced with the immense urgency of the various types of expenditure, with the enormous expansion of Departmental activity in every field, control of all kinds during these six years has, for all practical purposes, ceased to be effective, whether by the Government, the Chancellor, the Treasury, individual Ministers or this House. One of the Chancellor's first tasks, if he hopes next year to find a solid basis for this year's prognostications, must be to re-establish that control.

I came across a case in my constituency this week. It is a small case and I give it as an example out of my own experience; I could produce many others, and there is not an hon. Member in this House who could not, in his turn, produce a number of instances from his own direct knowledge. I heard of an industrial establishment which was taken over in the early days of the war by a Service Department for its own use. The employment to which this undertaking was put involved the use of a mixed staff of men and women. Two or three months ago, after the factory had been occupied for some two years, one section of the Department decided that the accommodation—recreational, messing and washing—for the women was not good enough, and proposed to provide wholly separate new accommodation for them. They drew up excellent plans, which were put in hand. Almost simultaneously with this decision on the part of one section of the Ministry, another section decided that the premises were no longer required, and that the time had come to hand them back for civilian use. A date was fixed for their return to the original user at the end of the year. This particular industry happens to be one that employs only men, and therefore when the factory is returned to its civilian use there will be no possible use whatsoever for the dual set of accommodation. However, the first section—the first "working party," I think we call them now—quite undeterred by the decision of the second, is going ahead with its job with courage and persistence. It is, of course, a race against time, but I am glad to tell the House that the latest news is most encouraging, and there is every hope that the ceremony of turning the first tap will precede, if only by a few days, the final hauling down of the flag. That is a small thing, but every hon. Member could duplicate it. Such cases are multiplied all over the country, and these things have got to stop. Unless they are stopped, unless control over the manner of expenditure is re-established, there is no doubt that next year there will not be that reduction in the national expenditure for which the Chancellor if he is not budgeting must at least be hoping, to substantiate the reduction which he is making.

On the other side, that of revenue, I will only say this. The Chancellor's revenue expectations for next year must depend almost entirely on the speed of reconversion of British industry. The national income from war expenditure will inevitably drop off next year, and we are thankful for that. But how far will the ability of British industry to substitute peace time production for it set off that fall? We have heard little which satisfies us that reconversion is in fact taking place swiftly, and that, as war production falls off, peace production will soon take its place. The figures of demobilisation, published only this morning, merely underline what we have all heard in our constituencies—complaints of lack of labour, above all lack of key men; lack of materials, and inability to change swiftly in order to meet new demands. I very much hope that the whole question of industrial reconversion, so vital to our future, will form the subject of a separate Debate in the near future. Meanwhile, no doubt, many of my hon. Friends will want to touch upon it, and I hope that the Chancellor will be able to give us some reassurance when he winds up the Debate.

I want to deal now with two points which are ancillary to next year's Budget, because they will affect to a large extent the amount of available surplus which the Chancellor may have to distribute. First, I should like to know whether the Chancellor feels that he could give us any estimate—I do not mean an estimate in actual figures, but a forecast—of what genuine saving is to be expected next year. I was, for a very short time, chairman of the National Savings Committee, and I was very glad to hear the tribute which the Chancellor paid to that body. Frankly, I have no patience with the critics, because I believe that the un-honoured, unromantic and unremitting work of hundreds of thousands of people in that movement has done a great deal to sustain our financial position during the war, and in so doing, has saved the population of this country from much greater hardships than they have in fact had to undergo.

I feel, however, that their work will be even more difficult in the future than it was in the past. In the first place, there is the natural difficulty arising from the fact that the branch secretaries, group secretaries, and others upon whom the work of the Committee so largely depends, want a rest, after six years' efforts. They were able during the war to put in this effort, they do not feel able to continue it now. There is another point, that inevitably, and rightly in view of the circumstances of the time, the whole propaganda of the savings movement during the war was concentrated upon war. They were called war savings, the pictorial advertisements were all on war subjects, the whole propaganda was devoted to appealing for savings to enable us to win the war. That was right; it was the most effective appeal at the time, and it was what happened at the time that mattered. But it leaves the inevitable reaction; savings were associated in the minds of many people with war, and the necessity for saving will seem to many to have passed with the war. I am sure everybody will do his best to counteract those two difficulties, but I cannot help feeling that some falling off is to be anticipated, a falling off which, unless we are to have further inflationary tendencies, can only be made up by an increase in taxation, or failure to remit it.

The second point which bears upon the surplus available for distribution is the idea, to which the Chancellor referred in his Budget speech with some pride, of balancing the Budget over a period, and not annually. Of course we all agree now that our grandfathers knew nothing about economics; we have only to look at the way they used to run things at a profit. But if they knew nothing about economics —and they never had the advantage of attending the right hon. Gentleman's lectures—they did know something about human nature. They realised that, from time to time, it was to be expected that some Chancellors might be human, and that, being human, they might be swayed in their decisions, not purely by economic considerations but by popular approval, by the applause of their supporters, or even, so base is human nature, by electoral considerations. In their ignorance they devised, in order to counteract this tendency, a constitutional convention which was regarded as more binding than the laws of the Medes and Persians, that year by year, whatever the temptation, the annual Budget should be balanced. That criterion now has gone, and the Budget is only to be balanced over a period. There will undoubtedly be a great temptation for every Chancellor to make it "jam today," and leave the powder to another day and possibly to another Chancellor.

The Chancellor of the Exchequer (Mr.Dalton)

I would remind the right hon. and gallant Gentleman that the doctrine of which he is speaking was set forth in the White Paper on employment, for which he, and myself and our other colleagues, were jointly responsible.

Colonel Stanley

I am entirely in favour of it as an economic theory. What I am pointing out is that it will be a temptation to some of the weaker natures, and I am endeavouring to strengthen the right hon. Gentleman against the possibilities of that temptation. He is going to be in a particularly difficult position with large numbers of supporters around him watching with anxious eyes in case he should ever stray into the paths of financial rectitude. This surplus will be of particular importance for next year, the theory being that in that year of great industrial activity one should not distribute up to the hilt in order that in years of industrial depression we should have tax remissions to act as an incentive. But next year in all probability would be one of those years in which the Chancellor will not be distributing up to the hilt, but will be maintaining and keeping something in reserve in order that he may be able to take exhilarating measures. If that is so, then I think if he does reckon upon having a surplus to distribute, that makes it even more essential that if these remissions are to be soundly based, he should both increase the revenue by pressing on with industrial reconversion, and decrease the expenditure by maintaining meticulous control over it and using the most rigorous repression against wasteful methods.

So much for the general lines on which this Finance Bill was introduced. Now I want, if I may, to turn to more detailed criticisms and, in particular, criticisms of two points in the Bill. First is the case to which attention has already been called in the Debate on the Budget Resolution by my right hon. and gallant Friend the Member for Gainsborough (Captain Crookshank), who himself has been Financial Secretary to the Treasury, and that is the case of earned income. The Chancellor made a reply, but it was a reply which I must say I and many of my hon. Friends found profoundly unsatisfactory. My right hon. and gallant Friend made a case, backed by figures, that in fact the man with an earned income of £500 to £1,000 a year, far from benefiting in the manner described by the right hon. Gentleman, was actually going to be worse off under the Budget of this year, than he was under the Budget of last year. The right hon. Gentleman turned this off with what I should describe as a metaphysical rather than a mathematical answer. He proceeded to argue that a bird in the hand was worth two in the bush, or rather, in this particular instance, that 28½ birds in the hand were worth 31¼ in the bush. I do not intend to follow him in that metaphor, for it is one on which it is difficult to generalise. It depends on the age of the hand, the size of bird and the density of the bush.

I want to put the problem in another way. Alone of the Income Tax payers, leaving aside of course the higher range of Supertax, these are the people from whom in the Chancellor's proposals something is taken away, and though something is taken away, they have nothing given to them upon the credit side. One has only to look at the Supplementary Financial Statement, of which I must say that if such a statement had been issued as a prospectus in the City it would have earned if not the conviction of the courts, at any rate the condemnation of the Stock Exchange. Any man looking at this particular column would have felt that he, the possessor of an earned income, was being treated in exactly the same way as the person with an unearned income, no better and no worse. The alleviations given him were exactly the same. The result would be to leave him in exactly the same relative position as the taxpayer with an unearned income was in last year.

Of course the right hon. Gentleman cannot deny that that is not the fact. It would only be the fact if he had not done something which is not referred to in this paper; for he took from the taxpayer with an earned income something which he had enjoyed last year and that is the benefit of the postwar credit. And why? The right hon. Gentleman is not going to suggest that the postwar credits are valueless. They depend upon a pledge given by the Government of which he is a Member and which I am sure he and his Government intend to redeem. I am quite certain that these postwar credits were regarded by people in this income range, not as something which was valueless but as something of very great value indeed. They regarded them as a form of compulsory saving, and because they regarded them in that way they felt they were absolved from setting aside the usual amount which they saved. The result for many of these people obviously is that they will not only have been deprived of this bird in the bush but also of the bird in the hand, because they will have to make up by saving out of their income this year, what last year was provided for in the postwar credit scheme. Certainly I do think it paradoxical that in this, their first Budget, the Socialist Party should appear as the champions of the rentier against the producer. I have listened for reasons. I have not heard them. I have searched for reasons. I have not found them, unless it is that the Chancellor has already begun to feel the influence of those noble capitalists whose accession, from time to time, his party is hailing with such evident joy.

I now turn to the other point, which is the Chancellor's proposal to increase the Supertax on the higher range of income, in order to negative the benefit which otherwise would have been conferred by the reduction of a shilling in the Income Tax. On this question I think that I and my hon. Friends do not object so much to the matter as to the manner, not so much, to put it in the vernacular, to what the Chancellor said as to the nasty way he said it. If the Chancellor had come to this House and said "I want to do the most urgent things first, and I can only do the things set out in this Finance Bill if I can save this £7,000,000 by denying these benefits to those in the higher range of incomes "; if he had said that, we on these benches would have no complaint. But that he did not and could not do because he does not know whether he requires £7,000,000 for next year, or £70,000,000, or even perhaps £700,000,000. What in fact he was saying was that, whatever the finances of this country, whatever their improvement, whatever the Budget surplus available, in no circumstances was any of that to be devoted to the reduction of taxation for the higher scale of income. Of course he got applause for it and he had counted upon that decision being approved by his supporters. He could even count on its being applauded by more critical audiences outside. But is applause always going to be the deciding factor for the Chancellor of the Exchequer? Is it going to be the case that where there is a choice between what is popular and what is proper, the rule will be that the cheers have it?

The right hon. Gentleman certainly gave no economic arguments for this step that he has taken, and so far as I can see, there are at least two strong economic reasons against it. The first is that where the income is earned, the Chancellor's action discourages the maximum enterprise and efficiency. The second is that where it is unearned, the Chancellor's action discourages the wisest use of the capital for long term development. When dealing with the effect of taxation on earned income, the Chancellor himself in his Budget statement, told us of the depressing effect Income Tax was having upon production, and how people who had to work for a certain period, had then to work half the remainder of the time for the Government and that that was damping their enthusiasm.

If this is the effect on the people who have to work half the time for the Government, what is the effect on those who have to work for the Government 58½ minutes out of every hour? The Chancellor is in fact attributing to the individual in the higher range, a nobility which is insulting to the rest and which they themselves do not claim. Of course it must have this discouraging effect, and is that discouragement really so immaterial, not for the Chancellor's electoral prospects but to the economical prospects of the country. After all, in this class are industrialists whose success does not inure only to themselves, but equally brings benefit to thousands, and indeed millions. You have professional men, doctors and writers whose working life is short and who ought to be encouraged to make the fullest use of it, while they have the opportunity.

So much for the earners. I believe there is a great case to be made against the Chancellor even as regards the unearned income class. A result of what, in fact, is confiscatory taxation of this kind, is that the investor has nothing to gain from an investment which for some reason inherent in it promises only a steadily increasing return on long-term development. The result is that he is driven to one or other of two extremes. Because he cannot see any reason to take a risk, he will invest all his money in those gilt edged securities, which are already in demand, or he will go to the other extreme, and say that if he is to have a chance of a loss, he must also have a chance of a gain, and the only way in which he can get a gain is in some quick capital return which is not subject to taxation. Therefore, he is forced either into investing in gilt-edged securities or in dog racing.

It is precisely in this category, where the Chancellor wants to encourage people who are prepared to invest money in businesses which have some risk and which promise no immediate spectacular return, but promise long-term development and an increase in profit, it is in this category that a man, under these provisions, is discouraged from investing. The truth is that the arguments in favour of the Chancellor's course were not economic; they were electoral. I have no doubt that, as a result of the publicity given to the Prime Minister's bedtime habit of reading Jane Austen, which was published in all the Press at the time the Prime Minister was in San Francisco, the right hon. Gentleman the Chancellor of the Exchequer has dutifully followed his leader in that custom. If so, might 1 advise him that he should make his favourite reading, not "Pride and Prejudice," but a more suitable volume by the same authoress," Sense and Sensibility"?

My hon. Friends have other important points which they will want to make upon the Budget either in the Debate today or in the Committee stage. They will wish to refer to the Purchase Tax, not only the unjustified omission of certain articles from the alterations which have been made, but in general the losses incurred by traders when the Purchase Tax is removed. They will want to refer to terminal losses under the Excess Profits Tax, a matter which was raised on the Budget Resolutions. The Chancellor promised to look into the matter, but no results of his consideration are apparent on the face of this Bill.

I have now been in the House for 21 years almost to a day, not quite half as long as my Noble Friend the Member for Horsham (Earl Winterton), but still quite a long time. When I first came to the House, if a Conservative Chancellor had introduced such a Budget as this, where all the benefits go to the direct taxpayer and not to the indirect taxpayer, a Budget the main features of which are a reduction of is. in the Income Tax and a cut in the Excess Profits Tax by 40 per cent., he would have been greeted by the Socialist Opposition with derision and abuse. The fact that today a Socialist Chancellor can introduce a Budget such as this which will be received by his supporters with cheers and not jeers, which will be designated by them as the Budget of the common man, is the very best testimony that could be given to the economic changes which have taken place in those 21 years, years which hon. Members opposite are pleased to call years of Tory misrule.

4.50 p.m.

Mr. Cove (Aberavon)

After reading in the weekend newspapers that an attack was to be made by the Opposition upon the level of expenditure, I confess that the speech of the right hon. and gallant Member for West Bristol (Col. Stanley) has left me somewhat disappointed. The right hon. Gentleman has dealt not with the main lines of expenditure, but with mere trivialities. The amounts of saving which he has suggested are mere trivialities. The main line of attack was not delivered by the right hon. Gentleman. The reason is that the party opposite dare not announce what they would require as a policy for securing drastic reductions in national expenditure. They are at one with the main lines of policy that cause this expenditure to be incurred. They want the British Empire maintained, they want expenditure on the Forces. They are not prepared to concede anything to the modern world. Therefore, on the main lines they have no quarrel with my right hon. Friend the Chancellor of the Exchequer. They want to save pennies; but pennies will not affect a policy. When it comes to saving pounds, which will affect Imperial policy, the right hon. and gallant Member for West Bristol shirks the enunciation of their policy. Therefore, it seems to be quite futile to talk about great savings if the right hon.

Gentleman and his party are not prepared to help to bring about radical changes in policy.

In my amateur way, I accept the proposals included in the Finance Bill and the Budget, and I would like, in passing, to congratulate my right hon. Friend the Chancellor on the authority and clarity with which he presented his proposals. There is no doubt that the policy of a reduction of taxation in the lower ranges is a sound economic policy under modern conditions. Anyone who has studied the causes of depression and of unemployment knows very well that the ultimate cause of depression and unemployment is lack of purchasing power among the masses of the people. Owing to war conditions, taxation has been such as to depress the purchasing power of our people, and under peacetime conditions would depress that purchasing power even more. Therefore, on that side of the Budget the right hon. Gentleman has made a contribution to the economic health and well being of the country. By relieving taxation in the lower ranges he has increased the purchasing power of the masses of the people, and has thus made a contribution to the country's economic well being and, I hope, eventually to the prevention of unemployment.

But when I come to the stark fact that the level of expenditure is to remain almost the same, 1 must confess I am profoundly disturbed. That nullifies in one sense what the Chancellor has provided by the relief of taxation. What does this continued expenditure mean? It means continued expenditure on a war basis. We have been told over and over again—by Sir William Beveridge, among others—that you can transfer a war economy into a peacetime economy. Never was there a greater heresy than that, It is absolutely impossible to transfer a wartime economy into a peacetime economy. If this level of expenditure is continued, the Chancellor will take out of current income wealth and production for the purposes of waste. The national debt will mount up and will be an increasing burden. I have noticed that it is fashionable today to say that the national debt has relatively no economic consequences simply because it is borne within the nation itself; but surely it ought to be clear to everybody concerned that as the national debt and its costs mount up, those costs will form a barrier and a block to expenditure on the social services. We cannot maintain the level of this war expenditure, whether it is collected currently or mounts up in national debt, and at the same time give increasing social services to our people. The increase in war debt and national loans nullifies the tendency towards a reduction of taxation and to equality of income. War debt increases inequalities and upsets the whole economic arrangement. What shall we be faced with when we come to expenditure on health, housing and education? There will be the financial, political, and social objections that are entrenched behind this huge pile of debt that is now mounting up.

Mr. Spearman (Scarborough and Whitby)

Does the hon. Gentleman realise that the burden of the National Debt is a smaller proportion of the national income now, than it was 20 years ago?

Mr. Cove

I cannot answer that offhand. What I do remember is that after the last war the Geddes Committee desired to cut down all social services, and I am terrified that will happen now, even under a Labour Government. I do not want a Geddes Committee under a Labour Government, but if the level of expenditure is to be maintained, that is what I fear will come about. Taxation will have to be levied to pay the interest on the national debt, and behind that there will be all the social and political forces that say, "Let us reduce taxation in order that we may fight the battle of exports." I say quite sincerely that the policy of the Government has got to be radically altered.

Colonel Stanley

Hear, hear.

Mr. Cove

The right hon. Gentleman will not agree that it needs altering along the lines I want. He is merely pea-shooting at the Government in this matter. There is no sincerity behind the right hon. Gentleman and his hon. Friends. I want a reduction in national expenditure because I believe that a large amount of it is economic waste. I want policies that will reduce that expenditure in a way with which the right hon. Gentleman opposite would profoundly disagree.

I say this; sincerely and definitely. I have been a long time in this House and in political life in this country. I have been through two wars and the period between those war. In 1914–18 there was war and gigantic expenditure; from 1918 to 1939 there was peace and gigantic unemployment; and from 1939 to 1944 gigantic expenditure for war, with everybody at work. Now we have peace, and yet expenditure remains at the war level. I say definitely to my right hon. Friend that this country has to see to it that this expenditure is cut down in order that social services of the country may have a chance to expand in the years that lie ahead.

5.1 p.m.

Lieut.-Commander Gerald Williams (Tonbridge)

Mr. Deputy-Speaker, I thank you for giving me this opportunity of making my maiden speech, and I ask hon. Members to give me the same indulgence which they have so willingly given to those who have been in this situation during the past few weeks. I want to raise only two points, both of which were mentioned by my right hon. and gallant Friend the Member for West Bristol (Colonel Stanley), but both of which can well be looked at from another angle.

First I wish to express my dissatisfaction and disappointment that the rate for earned Income Tax allowance has not been restored to its former level. Never before has it been so important to this country, to get going again. We have to build up our industries at home. The small man has to produce the goods that the public want; he has to produce the goods quickly, because the public want them quickly. He has to build up our exports overseas to the mighty figure at which they used to be before the war, and if each of us, big and small alike, is to be encouraged to do that, we want as much reward as is possible. Even hon. Gentlemen opposite will agree that to reduce the reward is, possibly, to reduce the results also, and especially at a time when we want to see those results brought before the country for the general benefit of all.

The Chancellor has told us how the low rates of allowances for Income Tax have proved a failure in that they have reduced overtime almost to a farce. The employer in these days has great difficulty in get- ting his workmen to do their overtime, the extra one or two hours which are so valuable, because they know that nearly half of the money they are getting for that overtime is being taken away in Income Tax. In exactly the same way that is affecting the small business man. When he realises that half of the earned income—income which he has so rightly earned—is to be taken away, that is not going to encourage him to roll up his sleeves, stay an extra two hours at the office or a little later at the shop and produce the goods which we want so badly now. The Chancellor also said, when referring to the low allowances: There is plenty of evidence to show that it has depressed morale, reduced incentive, and has, in the aggregate, diminished production. To this extent it has been a bad tax, which must be judged, in the field I am now speaking of, as on balance, undesirable in relation to its effect upon productive activity." —[OFFICIAL REPORT, 23rd October, 1945, Vol. 414, c. 1892.] And yet it is those actively producing people who are being the least helped by this Budget.

The Chancellor's reason for not helping the man who is earning his own income is that he does not at this moment wish to release an unnecessarily large spending power which, of course, will increase inflation, and possibly encourage the black market. But the little man, who is running his own business and earning his own money, is the very man who is most likely to plough that back into his business again. He knows full well that the success of the future lies upon his increasing the efficiency of his business, and bringing it up to date, and, generally, being able to produce what the public want. Unless he ploughs that back into his business, he is going to have little success. So I suggest that any relief to the man who is earning his own income will be well and wisely spent in his own business.

I would go a great deal further. I would like to see the, rate on earned income reduced by half that on other incomes though perhaps that is stepping rather high. It is certain that this would encourage all of us to put our best foot forward, and not only help us to get on with the job, but help the country as well. When an hon. Member makes a suggestion he should consider the cost; he should tell the House what is the estimate of the cost or ask the Minister concerned. I do not know the cost of restoring the earned income allowances to the former rate, but I suggest that the very stimulus which it would give to everybody earning their own income would bring in a great deal more Income Tax and, therefore, the cost would be nil. I may not be right, but that is a suggestion which it seems to me carries a good deal of common sense with it.

I represent a part of the country which has been almost a by-word for its savings effort. My constituents have saved, have given, and they have lent to the State in a magnificent war effort, and all these constituents, of whatever shade of opinion, will be disappointed that now, having given so much to the State during the war, they are not to be given the gratitude of the Government, and the encouragement to earn a little more for themselves and for their country. I am speaking for the small man who runs his own business, who thrives on free competition, and on the reward for enterprise. If this were not a maiden speech, I would go so far as to suggest that the reason why these allowances have not been put back to their former rate, is that this has been an If the Chancellor, as it appears, is quite adamant and will not give us the restoration for which we feel justified in asking, I will make one plea, and that is, that he shall consider it for the future. oversight, but I will not do so on this occasion. I know that he has given us some encouragement by saying that there are possibilities that relief may be given in the future. May the man who earns his own income be the first to receive that relief.

The other point with which I want to deal is that of postwar credits. No decision has been made on this subject. The Chancellor of the Exchequer got rid of this question in a mere six lines of HANSARD. I am not like the Financial Secretary who said that many people in this country were in doubt as to whether they will ever get their postwar credits. I think that most people have a shrewd suspicion that they will, but they do want a definite decision. It would help a great deal if we could be given some guidance on when they are to be paid. I have constituents who, on one sheet of paper, work out their own expectation of life and, on another sheet of paper, make then-own estimates of what their expectation is of when the Government will pay their postwar credits. To those elderly ones among my constituents the picture is rather a gloomy one. Therefore, I suggest to the Chancellor that he might, at least, give something on account, to those who are over a certain age; to those people who have given so much during the war and have made sacrifices in every way. If he can do something for them now, he will save those same people from going about the country grousing about their postwar credits in this new era of peace.

5.12 p.m.

Mr. Alpass (Thornbury)

It falls to me to have the pleasure of congratulating and complimenting the hon. and gallant Member for Tonbridge (Lieut.-Commander G. Williams) on his excellent maiden speech. I am' sure the House will agree with me, that it shows that he has applied himself to the study of finance and taxation, and has contributed something of real value to the discussion on this question this afternoon. We shall all look forward with pleasure to hearing him make speeches on this and other questions in the future.

I welcome this Budget, especially that portion of it which raises the exemption limit of taxation. I regard that as a practical application of the Socialist principle of finance, that relief should be afforded first to the needy. By raising the exemption limit, a very welcome relief has been afforded to those in the lower income scale and those least able to purchase not the comforts, but the actual necessities of life. A sound way of approaching this question of taxation is to regard it from the standpoint, that it is not so much the question of what the taxpayer has to pay in taxation that matters: what really concerns the taxpayer is what is left after he has paid his tax. The shoe pinches most severely those who have not enough income to make both ends meet, not sufficient to enable them to buy the barest minimum of necessities. Therefore, I regard this part of the Budget with a great deal of satisfaction and pleasure.

But I rose chiefly to endeavour to make the point to which the hon. and gallant Member for Tonbridge has referred. I make an earnest appeal to the Chancellor on behalf of those who I consider to have been most hardly hit by taxation during the years of the war. I refer to those people who have reached the age of 70 years. They are a section of the community who have had no opportunity whatever to augment their incomes. I want him sympathetically and favourably to consider whether it will not be possible to pay, at least, this small and deserving section of the community their postwar credits. By doing so, we should enable them to acquire a few of the comforts which they have, for many years, been unable to purchase, and, as the demand would not be very large, this concession would have no inflationary effect. If I were asked where the money was to come from, I might have the temerity to suggest that measures with regard to avoidance of taxation should be considerably strengthened. I am informed by accountants that this practice is still fairly extensive, but I am not sufficient of an expert to go into that question. I think, however, it is a direction in which the Chancellor might look for the amounts necessary to give this relief to the old people, for whom I have spoken.

5.17 p.m.

Mr. I. J. Pitman (Bath)

Those of us who travel by Underground may possibly have seen two posters. One is of a pair of hands with the figure "£10,000." The other is the picture of a man with the legend "Beware! This man will deceive you." Since reading and studying carefully this Finance Bill, I have been thinking, not of Mr. Lyle, the great magician, who does at any rate, produce a rabbit, but of the Chancellor of the Exchequer, that mountain of labour, who can produce only a small and crooked mouse, and that prematurely, because it is six months before anything is really going to happen under this Budget. The hands arc a little different; the figure of £10,000 is also a little different; and the £10,000 is an insurance, instead of the £5,000 a year, which, I understand, is the salary' which Chancellors of the Exchequer receive in this country. The differences are small, but the main theme is the same—" Beware! This man will deceive you." He has temporarily deceived us, and it is our duty to point it out to the nation so that he does not continue to deceive them.

What has the right hon. Gentleman done? He has reversed a policy of fiscal behaviour of Chancellors which has been carried out consistently by Conservative Chancellors for many years. Instead of "soaking" the rich, to relieve the poor, he has actually reversed this process I have a graph here. I do not see why hon. Members on the opposite side should not occasionally have a chance of enjoying the pleasure we are given of having pieces of paper waved in our faces. I will hand the graph to the Chancellor afterwards and let him look at it. It shows three things. It shows the extent to which the working man in this country is penalised by the Chancellor's Budget. At £3s. 17s. a week, every married working man will begin to be penalised. Secondly, the more children that man has, as the graph will show, the greater the percentage of his income through his postwar credits which is taken away from him. Finally, if he is one of those working men who believe that their duty to the State lies in bringing up a substantial family, he will find that, at the critical stage of bringing up six children, that penalisation begins at the low figure of £1 5s. 8d. per week per head coming into the family budget nett, and he does not reach the stage at which he will cease to suffer and will begin to benefit from the reliefs, to which the Chancellor has so often drawn our attention, until he is getting no less than £1,583 a year.

These proposals of this Budget, if postwar credits mean anything, are taking away from the working man a relief which he had before, and are imposing, on the occasion on which there has been victory to our arms, a greater rate and a heavier burden of taxation on the working man with a family for the benefit of the rich, the men who have no families and the investor, who does not do any work for his money. Mr. Gladstone said—I do not remember the year—that a Budget was not mere arithmetic, but that it was a policy determining the welfare of the individual, the relationship of the classes and the fate of the nation. The great principles of Liberalism did not die with Mr. Gladstone; they lie scattered on both sides of the House, which contains the seeds of Liberalism, and they lie chiefly on this side and on this side of this Gangway. At any rate, I would claim, and I think the Chancellor would not wish otherwise, that his Budget should be judged in terms of that liberal definition.

In terms of that liberal definition, there has been a reversal of the policy which has been carried on by Conservative Chancellors and Conservative Administrations for a number of years. That graph was sent to me by a Conservative who was appalled and shocked at this change of a policy which was soaking the poor working man and the man with a large family in order to benefit the £10,000 a year man and the £5,000 a year man, many of whom are on that Front Bench.

Mr. Dalton

The arithmetic is wrong.

Mr. Pitman

We hear a lot of this Government having got a mandate. It has not got a mandate. It has got an opportunity—a wonderful, fine opportunity. Never before has man's productive capacity been half as great. It is an opportunity, not in a decade, or even in a century, but an opportunity in a millenium. The Government could raise the standard of the man at the bottom—and without in any way reducing the standards of the men higher up. But the opportunity needs three things. It needs fundamental British decency, it n[...] brain and it needs administrative technique:

I am one of those who allow the decency factor. I respect and admire the good intentions of hon. Members opposite, but do they really wish me to admire the brain and administrative technique which have produced this astonishing reversal of policy? Do they really feel that this is just? Are they happy to approach the inevitable division which will be forced on this issue? Will they like to vote for soaking the poor working man and the family man in the interests of the £10,000 a year and £5,000 a year man on their own Treasury Front Bench? In five years' time, there will be another "Your M.P.," and hon. Members will have to face up to any damning voting record. There will be some nice juicy pieces if they go on in the way they are beginning.

Have we got to judge whether this is good brains and good administration? Luckily, we do not have to give the answer ourselves, and I hope hon. Members opposite will restrain their usual merriment when I remind them that, at St. Pancras on Wednesday, the Chairman of the Labour Party, Professor Laski, pub- licly rebuked his own party and his own Government for compromising the interests of the working man in just this sort of way. Is this the reason why he will not leave the London School of Economics? I wonder whether he really wants to be associated with his old colleagues of the London School of Economics in responsibility for this Budget. I wonder why it is that seats in another House are being filled from the safe seats opposite without his coming and taking what would be a very fit and proper place on the opposite Benches. May we not welcome back my right hon. Friend the Member for the City of London (Mr. Assheton) the Chairman of our Party—

Mr. Deputy-Speaker (Major Milner)

May I point out to the hon. Gentleman that this is not at all relevant?

Mr. Pitman

I apologise. I was only saying that this is a bad Budget, and I imagine that a competent and qualified opinion on it would be welcome from someone outside who takes an interest in these matters.

I feel that there are other points which show this lack of brain and this lack of executive capacity. There is the whole question of the Purchase Tax on efficiency. I refer to office machinery. I mentioned it in the discussion on the Financial Resolution, but did not get even one answer. There is also the question of Purchase Tax on school equipment and school stationery. The Chancellor ought to realise that the occasion of the change from peace to war ought to be one to stop him doing this double-entry bookkeeping of charging one local authority, and probably himself, in order to produce taxation on registers which nobody will possibly want to use for any other purpose. If Mr. Gladstone were here now, he would walk out of that door because this Budget violates the principles which he laid down in that definition. He would vote against the Budget in confidence of British decency but with only faint hope of the brains of the Government in power and, it seems to me, with scorn for the deplorable deficiency which has produced such a Budget—and I would propose to follow him.

5.30 p.m.

Mr. Austin (Stretford)

May I say, having listened to a very thinly veiled and guarded rain of abuse against my party, for the reassurance of the hon. Member for Bath (Mr. Pitman), that I shall have no qualms, as a humble back-bencher, in facing my constituents in five years' time on the record of this party and neither, I am sure, will any Member on this side of the House.

Lieut.-Commander Gurney Braithwaite

The hon. Member is young yet.

Mr. Austin

As for the point that we have now reversed our policy, and are "soaking" the poor, instead of "soaking" the rich, curiously enough, by some peculiar logic, the poor of to-day prefer to be "soaked" in this fashion rather than they were under a Conservative Government, as has been evidenced in every by-election since the General Election and particularly at Bournemouth recently.

I regret that I was not here when the Budget was debated—I was out of the country—but I read the Budget speech very carefully and I deprecate the fact that whilst pressure has been put on the Chancellor with regard to the removal or the remission of certain taxation such as double taxation, Purchase Tax on motor cars, the remission of taxes on sports gear and on office equipment, very little has been said on two points with which I shall concern myself. One is the burden of Purchase Tax on consumer goods, and the other is. the Purchase Tax on certain medical requirements. I will deal with the latter first, and I would appeal to the Chancellor that it is most unjust that those who are, unfortunately, ill should be compelled to pay a tax on their requirements when they go to the chemist. We who arc rich in health and physique ought to appreciate the difficulties that face those who are sick and suffering when they are compelled to pay a tax for their pills or their cough mixtures or their medicines. There ought to be a greater remission of that sort of tax. People who have recourse to certain instruments or medical equipment such as syringes, pumps and so on, do not do so for pleasure; they suffer from an ailment, and I feel it is unfair that they should be penalised in having to pay Purchase Tax for these requirements.

Lieut.-Commander Braithwaite

Shall we have the honour of the support of the hon. Gentleman in the lobby when we move an Amendment in the Committee stage?

Mr. Austin

I have not seen the Amendment in question; after reference to the Amendment perhaps I will let the hon. and gallant Gentleman know. Now I wish to deal, in the main, with the incidence of Purchase Tax on consumer goods. This is relevant to a passage in the Budget speech in which the Chancellor said: We are now in a transition period, marked by many special, though I hope transitory, dangers. In particular we must all be resolute against inflation; we must increase the production of peacetime goods as rapidly as possible, and we must be prepared to hold back purchansing power until it is safe to release it, until there are enough goods to buy." —[OFFICIAL REPORT, 23rd October, 1945; V. 414, c. 1876.] I cannot, in essence, quarrel with that quotation, but I would appeal to the Chancellor for a more humane and warmer interpretation of it. Is it essential in the transition for such a rigid interpretation as will not allow consumer goods to the majority of the people of this country? I am grateful for the remissions that have been announced in the Budget, but if one examines the remissions or the exemptions in Schedule I, these affect building and, whilst building is important, and the benefit will be passed on to the consumer in the person of the tenant, they affect the future. What about the consumer and his requirements now? It is realised that Purchase Tax is, and has been, an instrument for preventing spending on the part of the public, but which section of the public does it affect in the main? It affects the poorer section of the public; it affects 75 per cent, to 80 per cent, of the public who simply cannot afford these articles. Hon Members opposite, their friends, and the interests they represent, can very well afford to pay the Purchase Tax, and also pay for the dearer substitutes for those articles to which I am now referring.

There are two aspects of this question. One is how it affects the civilian, and the other how it affects the Serviceman. We have to-day the picture of this great community, having experienced six years of war, six years of sacrifice and suffering, six years of austerity, naturally wishing to re-equip themselves with creature comforts in the shape of consumer goods. If we talk about reconstruction, what is national reconstruction if not domestic reconstruction a millionfold. It is natural that each housewife is most anxious now to reconstruct her own domestic sphere, and she has to replace many essentials that have been worn out during the war. There are so many articles that a housewife needs, and their purchase is crippled by this burden of taxation. The housewife will require a range of articles, from cooking utensils to curtains, but, apart from the remission or exemption of certain features in Schedule I, her burden has not been alleviated at all and she has still to pay tax on almost every conceivable article that she requires in her home. I hope, therefore, that the Financial Secretary will give this matter consideration, with a view to some farther alleviation of tax, or exemptions being provided for the consumer classes.

I would direct the attention of hon. Members to the plight in which men in the Services, or those just leaving the Services, find themselves. I wish to record my protest here against the small gratuities that are being paid to "other ranks" and men on the lower deck. I think it unjust, unfair, and possibly a legacy from the Coalition Government. May I quote a case of a demobilised man which comes within my personal knowledge. A brother of mine was released a fortnight ago from the Army, after serving for six years. For some unknown reason, he alternated—at a dizzy rate of promotion—between a gunner and a lance-bombardier during the whole of that six years. On demobilisation he found himself entitled to emoluments amounting to £85 after six years' service. That included not only his war gratuity. but every other form of emolument—his extra gratuity after three years' service, and his 56 days' pay. If, as I estimate, one in every five men in the Services has been married in wartime, what position do these men find themselves? They come out with a small gratuity and are unable to build up a home. They are faced with a most difficult problem in these very difficult times of purchasing requirements for a home, and, on top of that, whatever they get is subject to this crippling burden of Purchase Tax.

Mr. Collins (Taunton)

I think that my hon. Friend, in referring to the position of the demobilised ex-Serviceman, is forgetting that, if such a man wishes to set up a home, he can get dockets for utility furniture and other goods, which are not liable to Purchase Tax.

Mr. Austin

I thank my hon. Friend for his interruption; I am just coming to the point he has mentioned. There is a peculiar anomaly in utility furniture being tax free. I am sure the people of this country appreciate that concession; it is a valuable one which 1 think was instituted in the time of the Coalition Government. But what is there so sacred about furniture that makes it free of Purchase Tax? If you have a wardrobe, you must have a duster to wipe it down; if you have a bed, you need a broom and a mop to sweep round it. Yet we find that all these other essentials, apart from the major items in the home, of the bedroom suite and the diningroom suite and certain other incidentals, are not free of Purchase Tax. I married whilst in the Service and was released through the peculiar procedure in force at the Election. I set up home with great difficulty some few months ago, and I found that I had to pay Purchase Tax on all sorts of incidentals, such as brooms, towel racks, mops, even coal scuttles, stair carpet, lino, and other essential articles. I would like to give the House one example. I felt I had secured a capture after three days' search in being able to buy a coconut mat and I said to my wife, "Now we shall not have people making the floor dirty, for they will be able to use this mat." My wife asked, "How much have you paid for it?" I said, "Nineteen shillings and elevenpence." She said, "You had no right to pay 19s. 11d.; it was 2s. 11d. before the war." All these items mount up to the burden which the Tommy coming out of the Forces has to face. Accordingly, I maintain that there is a case for the further remission, or complete exemption, of those items from Purchase Tax.

In the Debate on the Budget speech an hon. Lady made the comment that the Chancellor looked like an uncle. I agree. He has a very pleasant twinkle and beam in his eye, but I do not know the degree of his avuncular propensity, and would like to see it intensified. If he cannot meet me fully by the removal of the Purchase Tax, I would ask him at least to make some sort of dispensation for the Serviceman who wishes to set up a home. I am sure he will earn the gratitude of the whole country if he could make conditions easier for those civilians who have lived in austerity for six years and, above all, for those men who are coming back to make a home in this country after fighting all over the world, and trying to create for themselves a better, a fuller, a nobler future.

5.44 p.m.

Lieut.-Colonel Nigel Birch (Flint)

The hon. Member for Stretford (Mr. Austin) made a number of very popular suggestions and we shall look forward, when "Your M.P." is produced from this side of the House, to comparing his record in the Division lobby, with the sentiments to which he has just given eloquent expression.

The Chancellor of the Exchequer in his Budget statement said that there was a very natural desire for a decrease in taxation, and an equally natural desire for increased expenditure on the social services. He added that to these ends His Majesty's Government would shape their policy and make their five-year plan. I have done a small amount of planning myself and have always found it essential to be absolutely clear about the main difficulties with which you have to contend, if you are to do any good. Now, there is no intrinsic difficulty about reducing taxation or increasing expenditure. It is really a matter of cutting the melon, and I think hon. Gentlemen opposite will find it very easy indeed to cut the melon, because they have promised the slices several times over already. There is no difficulty about cutting it up; the real difficulty is getting a melon of sufficient size.

The hon. Member for Bath (Mr. Pitman) complained just now that the Government were bearing heavily on the poor. I should like to be ungracious enough to complain that they are not planning sufficiently. We have a lot of minor plans, but they do not really touch the essentials. The other day there was an article in "The Economist" which was quoted on both sides of the House during the Budget Debate, and it was calculated in that article, after making a number of assumptions which I think were very generous, that the increase in the real resources available to the British people in 1948 would have increased by between £250,000,000 and £1,000,000,000 over 1938. That is really the melon which we have to cut up, and it is not very large when one thinks what the claims are. There is, first, the State—expenditure in 1948 on education, health, and arms will be much higher; secondly, the long suffering British people who have got their savings burning in their pockets, whose incomes are higher, and whose deferred purchases cry out for satisfaction; and, lastly, and most important of the lot in many ways, there is the enormous need of new capital construction.

I suggest to the Chancellor of the Exchequer that his real object is not lowering taxation, and increasing the expenditure on social services, but increasing production in the largest possible sense of that term. I complain, that although we have a number of minor plans, there is no master plan from the Government which really touches the essentials. We have had an ingenious plan, for replacing Lord Catto by Lord Catto and promises of legislation, extending the well known Post Office slogan, "Telegraph less" to our overseas customers. We are promised lower gas pressure—we have been promised that today—and we are also promised a five year plan for dealing with the Budget—the excellent idea that you have an inflationary Budget when you have a deflationary situation in the country, and vice versa. And we now have an inflationary Budget with an inflationary situation in the country. These plans are all very gratifying to hon. Members opposite, but they do not touch the essentials.

I think that it will be generally agreed, on both sides of the House, that the function of the State has now been enlarged to include the task of co-ordinating the propensity to consume with the inducement to invest, and to looking after the shape of the national income in general. This position was taken up by the late Sir Kingsley Wood in 1940, and it is implicit in every line of the Coalition White Paper on Full Employment. So it is in fact generally admitted that the Government must have a master plan to look after the great question of national production. On this side of the House, we realise the great difficulties with which the Chancellor of the Exchequer has to contend. It may be that we realise them even better than some hon. Gentlemen opposite. I would like to offer a very few suggestions, in a helpful spirit, for dealing with the main problem which faces the Government today.

1 believe that one of the most important events events that has happened in this century was the publication in 1936 of Lord Keynes' work entitled "The General Theory of Employment, Interest and Money," because, in that book, he finally disposed of the curious idea which has bedevilled economics since Ricardo that supply creates its own demand. That book penetrated remarkably quickly into people's minds, and into the mind of the Treasury, and the result was the Coalition White Paper on Full Employment. I believe that full employment, in the broad sense, will be normal in this country under a capitalistic economy, a Socialist economy, or the economy we shall actually have—that is a mixed economy. There will be periods when there will be fractional unemployment, as there is now, but I do not believe that we shall ever see again the prolonged mass unemployment which existed between the wars. As a result of experience in the past, capital and labour in this country have a profoundly restrictionist outlook. Sometimes, they work against each other; but I believe that, more often than is generally realised, they work in collusion, towards restriction and security, rather than towards expansion and abundance. If only the Chancellor of the Exchequer—and I do not think anyone is better fitted to do it than he is—could put across to capital and labour, and the people of this country generally, that the one thing that matters is production, I believe that 50 per cent. of the difficulties with which he is faced would be solved. There are big ways, and small ways, of doing that. Many small ways have been suggested in the Budget Debates and I do not want to weary the House by going into them again. The only point which I would like to make is that production is everything; and I hope that the Chancellor of the Exchequer will take every possible opportunity of getting that idea burned into people's minds, because it is not there at the moment.

The next point I wish to make is about our old friend—the profit motive. The Chancellor of the Exchequer pointed out, in his Budget speech, that a very wide field was still left for free enterprise; and having heard the statement on nationalisation today, if appears to me that the field is rather wider than we had previously thought, because there appears to a back- ing away from the nationalisation of heavy industry. Therefore, whatever hon. Members do, and however hard they work, five years, and even 10 years, hence the main part of the economy of this country will still be in private hands. Free enterprise works on the profit motive, and can only work on that motive; you cannot substitute for it the loss motive. You can hardly expect people to show enterprise as they are so often urged to do by hon. Members opposite, if, at the same time, anyone who tries to make a bit of money for himself and his family is decried as a villain. The two things do not go together. The effect of this continual abuse must be to dry up the energy and enthusiasm of people actually engaged in trade. There is not only this practical objection, but I think that the whole idea of decrying the profit motive is not only wrong, but foolish.

If I may quote what Lord Keynes said in the work to which I have already referred, that may have some effect on hon. Gentlemen opposite. He said, "The advantages to efficiency of the decentralisation of decisions and of individual responsibility is even greater perhaps than the 19th century supposed, and the reaction against the appeal to self-interest may have gone too far." There is not only the possibility that enterprise will dry up if you decry it and the disadvantages to efficiency of destroying free enterprise, but there is also the question of the health of the State. Dr. Johnson once said, "There are few ways in which a man can be more innocently employed than in getting money," and I think that the history of recent years does confirm, that those who tyrannise over their bank balances are not the same people who tyrannise over their fellow men. I never heard that Hitler, Mussolini, Tito or Franco were ever the least interested in the profit motive, and perhaps if they had been we should not have seen so many miseries as we have. The effect of cutting out profit for men and their families as an honourable motive for ambition can only be to sharpen the struggle for power. I do not wish to be alarmist, but it might even lead to a challenge to the power of the Venetian Oligarchy at Transport House.

I appeal to the Chancellor of the Exchequer in this matter of free enterprise to try to jerk the minds of his supporters forward from the 19th century into the 20th century. He has himself given some encouragement to private enterprise, but he has done it in a remarkably chilly manner—rather like what a supporter said about dealing with the great Sir Robert Peel, that it was "like being in the neighbourhood of an iceberg with a slight thaw on the surface." If only the right hon. Gentleman the Chancellor of the Exchequer can bring himself to radiate a little genuine warmth, I feel sure that the greatest benefits would accrue to this country.

The whole history of this country has shown that if you explain your object to the people, and explain to them your plan, there is nothing you cannot ask them to do. I beg the Chancellor of the Exchequer to produce a plan which does, in fact, bear on the essentials, and is not only calculated to please his supporters. We want a plan which is going to be to the benefit of all His Majesty's subjects and not only of certain sections, and if he will produce that plan, I think that his difficulties will be met, and we shall get this country on a prosperous basis.

5.59 p.m.

Mr. Norman Smith (Nottingham, South)

While I agree with much of the speech of the hon. and gallant Member for Flint (Lieut.-Colonel Birch), I could wish that speeches of that kind had been made by hon. Members on the benches, opposite in the nineteen-thirties. I agree particularly with the hon. and gallant Gentleman when he says that you can get the people of this country to do anything, if you take them into your confidence. I have no doubt that the Chancellor of the Exchequer is going to do that and put out, I hope, something in the nature of a five-year economic plan. But I am certain that the hon. and gallant Gentleman is no longer on firm ground when he talks about incentive and the profit motive. There is a great deal of misleading talk about this matter, particularly as it applies to the more highly remunerated section of the community. The implication of the hon. and gallant Gentleman was largely that taxation is a deterrent because it takes so much of current revenue. But is current revenue the only or main inducement to those who participate in industry?

I have learned to practise in a very small way what hon. and right hon. Gentlemen opposite practise in a large way, to avoid the payment of Income Tax in a perfectly legitimate and recognised manner. I am amazed at the ease with which it can be done. Instead of confining my morning reading to the "Daily Herald" I decided years ago to invest in the "Financial News." The effect on my own fortunes has been by no means inconsiderable. I find that there is a way of deriving income without paying a halfpenny of tax on it. So far the thing has not gone wrong. I do this in a small way, and I have no doubt that hon. Members opposite do it in a very big way. The profit motive has more than one facet. Look at any ordinary index of equity prices, the prices of ordinary shares as dealt with on the Stock Exchange. The "Financial Times," which has lately bought the "Financial News," publishes an index of ordinary share prices. I think it stands at about 140, the index having been 100 back in the nineteen-thirties. What was worth 100 in the nineteen-thirties is now worth something more than 140. There is naturally a lot to be made through capital appreciation in that way, which I should have thought was the principal motive so far as people who are interested in business are concerned. There are other ways of getting money—

Lieut.-Colonel Birch

While congratulating the hon. Member on his great financial profits and successful tax evasion, may I point out that this rise in prices to which he refers is largely occasioned by the fear that the Chancellor will fail to arrest inflation?

Mr. Smith

It goes back before the war, it goes back for a whole decade. That is something hon. Members cannot get away from. The hon. Member for Bath (Mr. Pitman) produced a graph. I should have liked to produce one of ordinary share prices over the last ten or 15 years. The tendency has been steadily upwards. I think it is a wonderful thing for those who have profited from it.

I wish to deal with another matter which has emerged in this Debate. The spectre of the late Mr. Gladstone has hovered over this Chamber, and we have been told all sorts of things of which he would not have approved. There is the assumption behind these conclusions that the Budget ought to be balanced. Who said that it ought to be? I rejoice that the Chancellor is departing, so far as the London School of Economics principles he espouses will allow him to depart, from supporting this monstrous principle that the Budget should be balanced. To balance the Budget is a crime against civilisation. If I had my way, the Budget would not be balanced at any time, let alone over a period of years. [Laughter.] Hon. Members opposite laugh, but is it as funny as that? We all know that there is an annual increment of productivity in this country or in any country which is similarly advanced technologically. The outcome of improvement in technology which goes on uninterruptedly increases the capacity to produce year by year, and the effect of war is immensely to accelerate and accentuate that process. That necessitates an increase in the total amount of the circulating currency needed to sustain business, currency which inevitably takes the form, not of Banknotes or of coins, but of cheques circulating from one banking account to another. That is why one finds a constant increment in bank deposits. I have noticed that it is customary to quote Latin tags in Debates when appropriate. There is one which is very appropriate here:

Ex nihil, nihil fit.

which 40 years ago—I do not know if the meaning has changed since then, because we live in a changing world—meant roughly "You do not get anything out of nothing." But you do when it comes to finance. This annual increment in bank deposits is created out of nothing by the joint stock banks by the method admirably, clearly and precisely defined in paragraph 74 of the Macmillan Committee's report. Surely the Budget ought not to be balanced, when private institutions can bring into being every year the necessary increment in the circulating currency to support currency increases such as those necessitated by increased technology? That ought to be added to the credit side of the Budget, and would have provided something of the order of £30,000,000 or £40,000,000 in pre-war years—it would be more than that now—a handsome gift to the credit side of the Budget, without a penny of taxation and without any inflationary effects whatever.

The right hon. and gallant Gentleman the Member for West Bristol (Colonel Stanley) found it necessary to pay lip ser- vice to this business of national savings. I very much regret that everybody finds it necessary to pay such lip service. I hope that, notwithstanding that what the right hon. Gentleman says, we have come to the end of that business. It means piling up debt for posterity to be vexed and burdened with. Why approach this matter so lightheartedly? It might have been necessary during the war, but it is not necessary now. If people are to be encouraged to save, let them save money and take risks. From the statement made by His Majesty's Government we are still to have private enterprise. Then why not have enterprise? We have the right Government to bring prosperity in the next few years. Let people put their savings into something productive, which will enable the output of goods to be increased, and not merely pile up dead weight debt. The only ultimate insurance against inflation is an increased amount of goods in the shops I hope we shall not have any more of this business of increasing the National Debt when there are so many other things people can do with the money.

6.8 p.m.

Sir Hugh Lucas-Tooth (Hendon, South)

At an earlier stage of the discussions on this Budget, some of my hon. Friends and I raised the question of Excess Profits Tax, and the Financial Secretary has, this afternoon, replied to some of those points. I will not follow that argument now. I would like to consider what he said, and I think it will be more appropriate if the discussion on those matters takes place in the Committee stage as they are mostly of a highly technical character. I wish to say something about the proposed Income Tax changes, in particular with regard to the personal allowances. It is the changes in these which make the most direct impact on the great majority of individual taxpayers.

When the Chancellor's proposals were first announced, they were, no doubt, very well received. It would have been astounding if it had been otherwise. There has probably never been an occupant of the Chancellor's office in so favourable a position in this respect as the right hon. Gentleman. I would like to call your attention, Mr. Speaker, to the fact that there is no representative of the Treasury on the front Bench opposite.

[HON. MEMBERS: "He is coming back."] I was saying there has probably never been a Chancellor so favourably placed as the right hon. Gentleman for securing popularity on his Budget. The Chancellor is supported by the great majority of Members in this House, who are all pledged to distribute the national wealth on as wide a basis as possible. The war in Europe and the war in the Far East have recently come to an end, so that the Chancellor has every reason to look forward to an immense and continuing fall over large ranges of unproductive expenditure—unproductive in the social sense. Also, most significant of all advantages from the Chancellor's point of view, is that he starts with taxation screwed up to the very limits of human endurance in every direction. Of course he produced a Budget that was popular. Even a visit from a pirate is welcome to a party of people on a desert island who are dying of hunger and thirst, especially if the pirate has such a genial manner as the right hon. Gentleman. But after the first joy of the Budget statement had worn off, and as soon as the individual taxpayer had adjusted his eyes to the dazzling and almost forgotten spectacle of taxation moving in a downward direction, as soon as these proposals began to be examined critically, a very different note began to creep into the applause.

Personally, I regard the Chancellor's proposals contained in this Finance Bill as being most unlikely to fulfil the optimism they first engendered. In the first place, I should like to refer to the White- Paper which accompanied the Budget statement. It is true that this White Paper states quite clearly in the preliminary part that it is proposed that no further postwar credits shall be created after those for the year 1945–46. But the bulk of this White Paper is taken up with a series of tables, and it is to those tables that most people will turn to form some idea as to how this Budget affects them personally. These tables make no express reference whatever to postwar credits. Each table shows a comparison between the amount of the tax payable under existing conditions and the amount which will be payable under the proposed new conditions, but not a word is said about whether the existing charge shown is inclusive or exclusive of postwar credits. Presumably the present Government do seriously intend that these credits shall be paid within some measurable time. If that is so the proper way to show the amount which is being charged to a taxpayer would be, for purposes of this comparison, to show net figures, that is to say, the gross charge against an individual, less his appropriate postwar credit. I am quite certain that the figures would have been shown in this way if it had suited the Government's purpose, so to show them. If these tables had been designed to prove, for instance, that an adequate amount was being paid to the Fighting Services, we should have seen those credits included in black capitals on every page.

Mr. Glenvil Hall

I am sorry to interrupt, but I think the hon. Member must be under a misapprehension, or else I am. These Income Tax changes come into force in the next financial year, and from that date, the postwar credit will cease, so there is no point in putting something which does not exist in a column of black type alongside the other figures.

Sir H. Lucas-Tooth

I am sorry that I have not made my point clear. These tables, if I understand them aright, are by way of comparison. On the left hand side is shown the existing charge, and on the right hand side the new charge. I am complaining that this is not a fair comparison, because one element is left out of the comparison. Under the existing charge, there is an element of postwar credit which is not mentioned at all. I suggest that at least these tables should have a note at the bottom to call the attention of any one reading them to the fact that that element of postwar credit has to be taken into account.

May I give an example? A young man who has no private income is earning £500 a year in a secretarial capacity. He is married, but so far he has no children. He is, however, methodically saving £50 a year. His purpose is to accumulate a nest-egg against contingencies, and, accordingly, interest is not a primary consideration. He wants a reserve, a lump sum. The balance of his income is needed to maintain himself and his family. The postwar credit system suited him admirably. He received a postwar credit certificate for£31 £13s. 4d. annually, and he put £18 6s. 8d. into savings certificates. But what will be the position after April next? It is true that he will get £30 17s. 6d. more of his income in cash, but owing to the loss of his postwar credits he will be obliged to use the whole of this sum and a further 15s. 10d. out of his balance of expendable income to make good his savings. He will be 15s. 10d. a year less well off than before this Budget. When he saw the Government's White Paper he described it in no uncertain terms as a fraud. That is an example which is typical of at least thousands throughout the country, and, of course, the same principle applies more or less over the great range of taxpayers about this level.

There is another aspect of these proposals which seems to me to be even more objectionable. The reason I think it is more objectionable is that it is bad in principle and not immediately apparent on the face of the proposals. Anyone examining these tables superficially is struck by their evenness, their balance, their steady rate of growth, and, what I think the Chancellor referred to in his. Budget statement almost caressingly, as their smoothness. Tables such as these are the administrator's delight, the official's glory. One's eye slips easily down each column, and notes the steady increase; it travels across the page and notes the nicely drawn comparisons, but I want the House to look at the reality behind those figures. What do they mean for the actual human being whom they affect? Take the case of the man earning just under £6 per week. He is the average industrial male wage earner in this country. In Table (1a) he is the £300 a year bachelor, and it will be seen that henceforth he is to pay £45 15s. a year Income Tax. When this man marries he will have to turn to the table at (2, a). Incidentally, if his wife is earning about £3 a week—those are the average female wage earnings—the result of their marriage is that their total of Income Tax goes up from about £50 a year to about £75 a year, although the cost of their joint home will, as likely as not, be more than it cost them to live singly. It is generally so in the normal case where each of them has been living at home with his and her parents before marriage. I do not want to digress on this aspect of the matter this evening, however. Any earnings of the wife do not affect my argument, and I propose to treat her for my purpose as if she had no income.

When the £300 a year man marries, his personal allowance is increased and he will pay only £19 10s. a year in taxes. That is the figure given in the tables at (2, a). In other words, he gets let off paying £26 5s. a year. The next important event in this man's Income Tax history will occur when he transfers to table (3, a) —that is, upon the birth of his first child. He will thereafter have to pay £6 instead of £19 10s. a year, or, in other words, he gets an increase in net income of £12 10s. a year, or about 5s. a week. When he reaches table (4, a), upon the birth of his second child, the last £6 is taken off so that he will get a further 2S. 6d. a week plus, of course, the new 5s. child's allowance, this man will never get any further remissions of tax at all. However many more children he may have, he will never get any further benefit whatever. The nominal allowance of £50 a child does him no good. The practical application of these tables, then, comes to this, that the average industrial wage-earner actually gets by remission about 10s. a week in respect of his wife, 5s. in respect of his first child, 2s. 6d. in respect of his second child, and nothing at all in respect of his third and subsequent children.

Mr. Callaghan (Cardiff, South)

Because he is paying no tax.

Sir H. Lucas-Tooth

That is true, but the practical impact upon the individual seems to me to be illogical. To give a man an allowance in respect of his first child, which is probably the least burdensome on the family, and to deny him any benefit in respect of his third or fourth child when the burden is getting heavy, seems to me to be entirely wrong.

Mr. Callaghan

I can follow the hon. Gentleman's argument; if he wants radically to alter the system of taxation, to have a flat rate of Income Tax and then pay people allowances according to their domestic circumstances, that is fair enough, but I suggest that if he expects the Chancellor to undo a century's legislation after 12 weeks' office, that is too optimistic even for a Labour Government.

Sir H. Lucas-Tooth

Let me finish my argument. How can one justify a system which, in a great number of cases, directly penalises marriage, and which, although giving some substantial addition for the first child, allows no relief at all when the family has grown even to the minimum size required to maintain a steady level of population in this country? When one looks at the higher income ranges the position is equally unsatisfactory, though in rather a different way. The £500 a year man gets £31 10s., or about 12s. a week relief for his wife, and £22 10s., or about 8s. a week for each of his children. So does the man with £1,000 a year, and so, in fact, do all those with higher incomes, including all right hon. Gentlemen who sit on the front bench opposite. Can it really be suggested that the same rate of relief for expenditure on his family is appropriate for the man with £500 a year as for the man with £1,000 a year? I can think of arguments for maintaining a flat rate of relief for all those living on so-called unearned income. I would not agree with those arguments, but I can think of some.

I invite the attention of the House to the case of the professional man. He cannot escape an increased standard of living expenses for both himself and his family. If his children are to follow in his footsteps they will have to be maintained probably until the age of 25, and perhaps even up to the age of 30. In the case of the professional man, the present incidence of taxation tends to restrict his family to one or two children. So far as the lowest income groups are concerned, the new children's allowances will certainly go some way to remedy the trouble, but even if those allowances are increased they will do nothing to remedy the basic problem. No system of cash payments can be fair to both the manual worker and the professional man. Not even in communist Russia, from all accounts, do the two sets of people have the same economic standard. The only real remedy, as I think was suggested by an hon. Member opposite, involves making proper adjustments to personal incomes in accordance with both family. needs and economic standards. That is the only remedy, and this can only be done by an amendment of our Income Tax system.

I have troubled the House with my views on this subject because I have had some special opportunity for studying its impact on those affected during the course of my service in the Army. For the last few years it has been my duty to help to administer and improve, as far as possible, the very special system of wages and salaries comprising pay and family allowances which is used to remunerate the Fighting Services. I am quite certain that in the case of civilian wages and salaries this dual aspect of remuneration—that is, the reward element and the maintenance element—would be of considerable assistance. Most of the really horrible cases of poverty which are sometimes expatiated upon by hon. Members opposite are, I believe, due as much as anything else to the failure of our system to make an adequate distinction between those with heavy personal liabilities and those without. If the wages of a man are adequate to enable him suitably to maintain a thriving family, the bachelor of the same standing gets too much, and vice versa. The absence of a proper differentiation means waste on the one hand, and a great hardship for the man with the large family on the other hand. Until we have an adequate differentiation made according to personal liabilities—and it must be adequate right up the economic scale—such problems as equal pay for equal work will, I believe, continue to be insoluble.

I do not think this is a party question. I certainly cannot blame the present Government for the existing position, but I do blame the present Chancellor for not seizing the marvellous opportunity, which was presented to him by the present inordinately high level of taxation, to make a start on a fresh system of reliefs. The moment to inaugurate a new method is when taxation is high so that the necessary changes can be made in a downward direction. Then they are likely to be very much more acceptable, and very much more feasible, politically speaking. It seems to me that in this Bill the Chancellor has shown some tendency to draw a clumsy discrimination between the rich and the poor. I do not mean the word "clumsy" in an offensive sense, but I think that any such discrimination must be clumsy because I do not believe that that discrimination is any longer real. The proper discrimination, and the one which in my submission should rightly be drawn, is between those with heavy personal liabilities and those without. This discrimination extends vertically through all the classes. For those reasons, I believe that the policy of this Finance Bill is proceeding in a wrong direction. I think the benefits this Bill gives will prove largely illusory, and that the giving of them will prejudice the true policy which should be pursued regarding Income Tax.

6.30 p.m.

Mr. Collins (Taunton)

I do not propose to follow the hon. Gentleman the Member for South Hendon (Sir H. Lucas-Tooth) in his line of argument, but would refer to certain points raised by previous speakers in the Debate, and, in particular, to one or two points put by the hon. and gallant Gentleman the Member for Flint (Lieut.-Colonel Birch) in a speech which I greatly enjoyed. I enjoyed it, not because I agreed. with what he said, but because of the extremely pleasant manner with which he fired his darts, so that we were, very largely, disarmed. He made reference to the fact that the Chancellor must have a master plan, and he appeared to think that no such plan existed in the Government's programme. We did go to the country with a plan, and it was one which the electors apparently regarded as a master plan to the extent that they returned us here with a very large majority. The financial part with which the Chancellor is concerned is only one part of that entire plan. The important part is concerned with the provision of employment, bringing our industries to the maximum pitch of production, creating, in effect, the maximum wealth, which can only be achieved when our industries are fully efficient.

It is in the firm belief that the programme of the Government will provide that maximum efficiency, by taking over industries which, from the national point of view, have been very inefficiently run for a number of years, and, in other industries, getting together a joint partnership between both sides of the industry, assisted by the Government, and thereby bringing them to an increased pitch of efficiency, that we shall increase our national wealth and bring about a very different position for the Chancellor and succeeding Chancellors when they produce other Budgets. Another and very important point raised by the hon. and gallant Gentleman the Member for Flint was the question of the profit motive. It is a matter which has been raised by many hon. Members opposite and, if I noted him correctly, he suggested that industry can only work on the profit motive, and that, without it, peoples interest in trade would be removed, and enterprise would, in fact, dry up.

Let us examine that proposition and see if we can judge whether it is true from what has happened in the past. Some of us remember that, in the 20 years between the wars, a large proportion of houses were built for profit by private enterprise, and, also, that soon after the last war, private enterprise did not build any houses because of the high building costs and because they thought they could not dispose of them at a profit. When costs went down, they came into the market because there was a profit in it. But was it efficient from the national point of view? Did we get the houses? I do not care which constituency he represents, I am certain there is not one hon. Member who does not agree that, in the matter of houses, the whole profit system should be truly and completely condemned.

Hon. Members opposite have frequently insisted on the value of profit and the profit motive, on the inducement it gives to manufacturers, and others. They say it increases their enthusiasm, and makes them willing to take further risks to expand, in their desire for profit. If it is such a splendid thing in their view, I wonder they do not realise that their workers might be stimulated in the same way. What an extraordinary thing it is that those who are so extraordinarily keen on this profit motive are so frequently —not in all cases—the ones who deny the stimulus of that same motive to their workers. I have made almost a lifetime study of this particular question, and I have never believed that the profit motive should be the prime motive in industry. When I was starting in business, 20 years ago, I decided that that was not the prime motive, and that the prime motive should be the creation of an efficient industry. Efficiency, in my view, and in the view of the Government, means providing the best possible goods at the least possible cost of production, and, at the same time, paying the maximum possible return to the producers of those goods. That was the system which I applied when I went into industry. I started with three employees. I do not suppose that I should be considered successful, by the standards by which I would be judged by many hon. Members opposite, but, today, I have 300 employees, and it is the largest business—although a small one—of its kind. I have never taken a penny profit out of that business; everything it has produced has been shared among the employees.

Lieut.-Colonel Birch

I would like to ask the hon. Member a question. Would he tell the House what salary he has taken out of the business?

Mr. Collins

I hardly think that is necessary, but it is a very moderate salary.

Lieut.-Colonel Birch

The point I was trying to make was that private enterprise cannot work unless it makes a profit. If the hon. Member's business has run at a loss, perhaps he would tell us.

Mr. Collins

There have been years when the business has not made a profit. That is consistent with the nature of things, if you take the years from 1922, starting in a slump period, and going through another bad time in 1939. [An HON. MEMBER: "YOU had Socialist Governments then."] I am answering the hon. and gallant Gentleman's point by saying that a profit was not consistently made in every year, but, over the whole period, the business has been efficiently run. Here is an example of an efficiently run business from the national point of view, which satisfies the essential provisions of national efficiency, namely, maximum possible production, maximum return for the producers of that production, and maximum contribution to the full employment of the nation.

Mr. Assheton (City of London)

Would my hon. Friend tell us whether, on balance, over those 20 years, his business has made a profit or a loss?

Mr. Collins

It is impossible to give an answer to that question because the business has not been run with a profit motive. It has been run to provide the maximum production, and any difference between the return and the cost of production has been divided among the staff by way of bonuses and increased wages.

Mr. Assheton

No doubt the Board of Inland Revenue will take some notice of the hon. Gentleman's business.

Mr. Collins

The firm has kept proper books, and the Board of Inland Revenue have had every opportunity of satisfying themselves about any points.

Major Gates (Middleton and Prestwich)

Would the hon. Member forgive another interruption? I agree with him as to his definition of what industry should do, but I would like to ask whether he, personally, has been able to decide on a fair relationship, in respect of the return of prosperity to the community, as between management and employees, to which he refers? Has he, presumably as the management, paid himself a greater salary than those paid to the employees?

Mr. Collins

No. As a matter of fact I run two businesses on the same lines. In one of them, to which I devote most of my time, I have drawn a salary approximately equal to the highest salary of the management staff. In the other business I drew a salary of £2 per week for a space of nine years. When I entered this House, the staff decided that I should need more money, and I had a small increase. I am very gratified that my remarks have occasioned interest among hon. Members opposite, and that is why I was willing to yield so frequently I did not want to leave any doubts in their minds as to the points I was raising.

The hon. Member for Bath (Mr. Pitman)—I am sorry to see he is not in his place at the moment—in a speech with which I did not agree, and which I thought, in some respects, unfortunate, referred to what would happen if Mr. Gladstone were here. He said Mr. Gladstone would walk out of the Chamber. What would happen I believe, if Mr. Gladstone did walk in, would be that the hon. Gentleman the Member for Bath would run out at the other end. [An HON. MEMBER: "He is a very good runner."] My hon. Friend the Member for South Nottingham (Mr. N. Smith) said—and I think we must agree with him —that the vital thing was to promote the maximum production of goods and to get a maximum of goods into the shop windows, which would represent the real wealth of the country. I think we can all agree with that point of view, and that is what our master plan will create over the next five years. These things cannot be achieved in a few weeks.

I confirm, also, what the hon. Member said about the trend of share prices over the last 14 years. In my view, anybody with the minimum of intelligence could have considerably increased his capital merely by sitting still and, occasionally, buying and selling shares during that period, thereby, as the hon. Member pointed out, evading tax on a considerable income. It is just as well to quote from one's own experience when one can. A few years ago—not for myself, but for my wife—I tried something of the kind. By dealing only in the most reputable shares, such as bank shares and the like, and making a few wise purchases and sales over a period of about five years, the capital was doubled. But I found the whole business so absolutely disgusting and degrading, that I would have no more to do with it. I do urge the Government to realise that in this field lies a most fruitful source of revenue and that the Chancellor of the Exchequer should devote at least some of his attention to devising ways and means of harnessing part of that income to the service of the State.

I am very grateful to the House for having been so patient with these remarks of mine. The hon. Member for Bath referred to the fact that we had an opportunity which was a challenge. He said it was not the opportunity of a hundred years but of a millenium. I agree with him. We are faced with the most dreadful difficulties. In many respects we are at the lowest ebb of our fortunes. I feel, with the utmost sincerity, that the British people have, in their resources and in their own hands, a way to bring prosperity to this country and also to show the world the way to a similar prosperity.

6.47 p.m.

Lieut.-Commander Gurney Braith-waite (Holderness)

Confession is always good for the soul. The House has just been regaled with the shocking revelations of the capitalist activities of the hon. Member who has just spoken. I was somewhat comforted to hear, following his rather lengthy explanation of his financial transactions, that after cashing in on his profits, he decided to eschew further activity in the future. It was a very wise decision. I understand that the profits were those of his wife, in which case it might be a matter for the Chancellor of the Exchequer to consider, in respect to joint income. Too often these decisions are come to in quite different circumstances, and when people who are operating in that manner decide to forgo future activities because of losses. Obviously the hon. Member, like his colleague the hon. Member for South Nottingham (Mr. N. Smith), is of altogether different financial calibre. I would like to congratulate him upon the capital appreciation which has come his way. The period during which that capital appreciation took place is the past 14 years. I would therefore suggest that both hon. Members have more than financial acumen. They are obviously the possessors of political acumen as well. They took up their bull position in the City in 1931 when, the late Socialist Government having crashed, they saw before them a long, steady and fruitful period of industrial recovery. The hon. Members stepped upon the escalator at the right moment. If they are still holding a bull position I suggest to them that now is the moment to get out.

It might have been said that during the Debate not much reference has been made to the Measure which we have before us, the Finance Bill, but this has been by no means a useless discussion. In fact, it has been a valuable discussion upon national finance as a whole. One or two points are worthy of note because they fit into the general framework of our national financial position. I would like to refer once again to the hon. Member for South Nottingham, whose speech we all greatly enjoyed. I should like to make passing reference to what he said on the National Savings Movement. It is as well that the Chancellor of the Exchequer was absent from the Chamber when that speech was made, because I could not help, when the hon. Member was speaking, associating two arguments, which are, however, somewhat dissimilar. One was the rebuke which was administered to my hon. Friend the Member for South Dorset (Viscount Hinchingbrooke) who sits beside me, when he pointed out what he thought was the unwisdom of people lending their money to the present Government. His remarks have now been underlined and emphasised by the hon. Member opposite. To do him justice, he was really decrying the Savings Movement without respect to any particular Administration.

I approach this matter from a rather different angle. In this country, all men and all Governments are innocent until they are proved to be guilty. It is essential, not only in the interests of the Socialist Government but in the interests of all of us today, to do what we can, to support and stimulate the National Savings Campaign during this difficult transitional period. The people have voted in a Socialist Government, and a Socialist Government are now engaged in putting their programme into operation. That is a national democratic event. His Majesty's Government, as representing the people, are certainly entitled to such financial stimulus as we can give them; but, having said that, may I add something else? I would remind hon. Members that it will not require speeches, either by the hon. Member for South Nottingham or by my Noble Friend, to dry up the National Savings Campaign.

That will come automatically when people begin to distrust the Administration that they have got; in other words, when it becomes apparent—and it will become apparent before we are very much older —that the posters asking people to save for reconstruction and to lend their money are not quite accurate. If people discover that they are lending their money not for purposes of reconstruction at all, that their savings are not going into the building of houses and the extensions of great public works and all the things which are connected in our minds with reconstruction, but are to be used, in fact, to plug the hole between revenue and a totally unjustified and huge expenditure, speeches will be unnecessary, because the Government will be no longer a creditworthy borrower. That will dawn upon the public more and more. The time will come when they find that to discover the real economic position of the country they have to read the speeches of the Opposition and not listen so closely to what His Majesty's Ministers put up Then we shall read the first chapter of the "Decline and Fall of the First and Last Majority Socialist Government."

Mr. Norman Smith

I am sure that the hon. and gallant Member does not wish to be unfair to me. Was it not my whole case that, however necessary the Savings Movement might have been during the war, the need for it has come to an end, now that private enterprise is simply clamouring for invested funds? And is not his assumption rather a gratuitous one, that my right hon. Friend the Chancellor of the Exchequer proposes in future to go on using loans to plug the hole?

Lieut.-Commander Braithwaite

I did not wish to be unjust to the hon. Gentleman. I listened with the greatest care to his speech and it seemed to me that he had arrived, after a somewhat lengthy discourse, at the starting point where he began in this question of finance. As regards plugging the hole I have no doubt that the Chancellor of the Exchequer is fully capable of attending to that matter. Let me continue my argument. The people will realise that their savings are not being used for the purposes of reconstruction. We have heard this evening what they are going to be used for, to pay out millions of pounds of compensation to various capitalists. I see the figure of £300,000,000 for the coalowners but I do not know whether that figure has been decided upon. Let us say £200,000,000. There will be other forms of compensation, when the Government are engaged in buying various industries and nationalising them.

Mr. Alpass

Does the hon. and gallant Member suggest that when the Government pay out compensation, they will not receive substantial assets in return?

Lieut.-Commander Braithwaite

That has not been made clear at all. So far as the coal industry is concerned, the Government will be very far from buying an asset which will give a return. Perhaps the hon. Member will read the speech of the hon. Member for Rugby (Mr. W. J. Brown) on that subject, as it was extremely illuminating.

Mr. Follick (Loughborough)

It will be an asset.

Lieut. - Commander Braithwaite

It is very nice to see so many hon. Gentlemen who know all the answers. I have been rather mystified during the last two minutes to know why those hon. Gentlemen are not on the Front Bench, giving vent to sentiments which are quite different from many of those we hear from Ministers. I have not, however, finished my reference to the hon. Member for South Nottingham. He made his maiden speech during the Debate on the Address—in which I hoped to take part but I was not fortunate enough to catch Mr. Speaker's eye. The hon. Member made a very eloquent and interesting reference to the Bretton Woods Agreement. Whether that comes within the purview of our present discussion I am not sure. I shall no doubt be pulled up if I am out of Order, but it seems to me that our financial arguments have ranged very widely today over the structure of our national finance. First, Revenue depends upon the revival of the export trade, and our standard of living depends upon the same factor, and they are very much bound up with what His Majesty's Government intend to do. About the Bretton Woods proposals, are we to be linked to a gold standard, flexible or otherwise? The other day at Question time this matter was mentioned, and I asked the Chancellor of the Exchequer whether he did not think it would be wise to obtain the opinion of this new House of Commons before His Majesty's Government were definitely committed in this matter. I do not think this is a party question. I think it is a matter on which all my interrupters might agree with me. Surely our whole national structure of finance, the Budget estimates, the revenue estimates, the expenditure estimates and even the National Insurance scheme itself, which after all is an agreed matter in this House, must depend upon the future of export trade in this country.

I pass from these broad matters to others of more detail. The Second Reading of this Bill disposed of, I presume that we shall set out in a few days' time upon the Committee stage. I want to give preliminary notice to the Financial Secretary to the Treasury that we hope to obtain certain concessions from him during the Committee stage, and that I hope hon. Gentlemen opposite will support us not only in Debate but in the Lobby. The first point will relate to Entertainments Duty upon athletic events. We are going to ask for certain further Purchase Tax concessions. To recall a point I mentioned during the Report stage of the Budget Resolutions, the First Schedule to the Bill, which makes impressive reading, does, in fact, consist in the immediate removal of Purchase Tax upon a number of articles which are utterly unobtainable. There may be one or two which we can get, but, broadly speaking, this concession is window-dressing of the most blatant kind. We shall propose to add to the Schedule certain articles which can be obtained and which are necessary for housing. We hope the Government will take more notice of our suggestions when we come to them. We shall also ask for concessions for blind persons in respect of wireless sets.

This is not the time to argue these points in detail, but when we do it on the Committee stage we shall hope for support from hon. Gentlemen opposite. A most eloquent speech was made earlier today by the hon. Member for Stretford (Mr. Austin), whom I do not see in his place. I now see him in another place. I am sorry to see him sitting right up at the back.

Mr. Austin

I wanted to get a better view of the hon. and gallant Member.

Lieut.- Commander Braithwaite

I agreed with much that the hon. Member said about the returning Serviceman. I went through his matrimonial experiences at the end of the last war, and I know how difficult things are. When the hon. Member was asking for certain Purchase Tax concessions I immediately said to my hon. Friends around me, "Here is an ally worthy of us. On the Committee stage we shall expect to walk arm in arm with the hon. Gentleman."

Mr. Austin

In my speech I referred to the removal of Purchase Tax on what I considered to be essential consumer goods, and I thought I made it clear that I was not so much concerned with the removal of Purchase Tax from non-essential goods —office equipment, motor cars and such like.

Lieut.-Commander Braithwaite

Then the hon. Member is prepared to march faster and farther, and we shall have the opportunity of supporting his Amendment. I hope he will put one down, and let the people of Stretford see that they now have a representative who thinks nothing of Government Whips and really has the courage of his convictions, who is not a delegate in a totalitarian Government or one of those described by my hon. Friend the Member for Oxford (Mr. Hogg) as "Lobby fodder." He has great opportunities in front of him in Committee and he need not look to us in vain. Reference was made by an hon. Member on the benches opposite—I think it was the hon. Member for Thornbury (Mr. Alpass) —to postwar credits due to aged persons, who are in an entirely different situation from some of us whose expectation of life is longer. Those who are in the fifties, a decade in which I find myself, may, if we reach the allotted span, have some chance of seeing Socialist postwar credits paid out, but for those who are already at the old age pension stage of life something should be done earlier. I would make a suggestion to the Financial Secretary.

I am certain that his heart is in the right place. I have known him for a good many years, and I am going to make a heavy draft on his compassion. The postwar credits were collected not all at once, but by instalments. The money was paid at regular intervals over a period of years, and I suggest to my hon. friend that the postwar credits should be released in instalments. It would not put such a strain on the Exchequer, or the Bank of England printing press, which will then be in his hands producing these £800,000,000, if the money is released not so much by the instalments in which it was collected but starting with payments to those over 70 years of age and scaling payments down according to age. People would then obtain some benefit during their lifetime in return for the heavy drafts which were made upon them during the war.

In his Budget speech the Chancellor set forth the new policy, which has been commented on today, of the unbalanced Budget so far as the. annual period is concerned. He was supported by my right hon. Friend the Member for Woodford (Mr. Churchill), who said there was no particular virtue in balancing the Budget over 365 days, because it might very well have been a different figure, and that we could reasonably alter our financial structure to that extent and, as has been pointed out, that was an agreed policy in the late Coalition. Their White Paper on Full Employment did put forward this theory of the unbalanced Budget over a period of years. What I want to ask is, over what period of years? We are all agreed, I think, that it is not essential to have a neatly-ruled balance-sheet at the end of 12 months or even at the end of 24 months, but would it be unreasonable to suggest a balanced Budget during the lifetime of one Parliament? Having allowed the taps to run as full out as they are running now, and next year we may go a little farther along that road, we shall in the end arrive at the period when the balance-sheet is, in fact, made.

I should be interested if the Financial Secretary would tell me when we are to return to the path of rectitude. Is it to be in the final year before the General Election? Is that going to be the time when the balance has to be achieved, as it can only be, by a heavy increase of taxation? Somebody said earlier that politicians arc human and we are apt to take notice of electoral possibilities, but we should be told tonight, when the Chancellor replies, what he has in mind. Are we going to balance over two, three, four or five years, or even a longer period? Are this Government to go out in a blaze of expenditure in the fifth year, leaving their predecessors —and successors; they are the same—to confront the unhappy and disillusioned electorate with the real financial position? In other words, are we to have the guilty secrets of 1945, 1946, 1947, 1948 and 1949 disclosed to the people in this House, or will the crash again come in the Cabinet room, as in 1931? I think those are relevant points with which the Chancellor might like to deal.

So much for the Second Reading. We have had a long, interesting and relevant Debate on the broad structure of national finance. Hon. Members opposite have not said, any of them, that it is a good Finance Bill. I do not blame them, because most of it is couched in language which can only be grasped by experts. I had hoped that the dawn of the era of the common man might have meant the drafting of Bills in language which the common man can understand, but evidently that is not to be. The main structure has been debated tonight; further battle lies ahead of the Government when we get to the Committee stage. I have tried to give an indication of some of the points- which will then be put to the Chancellor of the Exchequer, and I trust that in Committee we shall have not only the same courageous examination of our proposals as we have had already, but that we shall get a large number of recruits from hon. Members opposite sitting behind the Treasury Bench, who will then be able to carry to the acid test of a Division the various benevolent proposals which they have laid before us today.

7.9. p.m.

Mr. Coldrick (Bristol, North)

In common with others who have made their maiden speeches, I must ask for the kind indulgence of hon. Members now that I am addressing this House for the first time. Perhaps it is appropriate at this stage, when the profit motive has been so prominently before us that I should indicate that I am representing a movement that has substituted for the profit motive, the motive of service. That business is carried on successfully without distributing anything in the nature of private profits.

So far as this Debate is concerned, however, I recognise that we are primarily concerned with the vexed question of taxation. It has been suggested by an eminent Finance Minister that taxation is the art of plucking the goose in such a way as to get the greatest number of feathers with the minimum of squealing. A most illustrious person has been brought into this Debate during the course of the evening—I refer to the late Mr. Gladstone —and it has been said that he reduced the process of plucking the feathers to a very fine art in the methods he has adopted in regard to taxation generally. The present Chancellor of the Exchequer is accused sometimes of adopting methods that belong to the Victorian age, and I would remind hon. Members generally that the principles of taxation that have been adopted in this country by Chancellors of the Exchequer in the past have been principles that were laid down by their own famous economists, Adam Smith and Ricardo. The assumption has been that expenditure by the State should be utilised first for the purpose of defending the country against external violence, secondly for the purpose of maintaining law and order within the State, and thirdly in promoting institutions and undertakings which it would not be profitable for others to undertake. I think it is well for us on this side to remember sometimes, when we are accused by the people on the opposite benches, that they themselves laid it down that the State should not embark upon expenditure which would bring profitable returns; they cannot, therefore, because the State has been obliged to embark upon certain works that have not been profitable, point to those unprofitable works as a reason why we should not embark upon nationalisation.

I want hon. Members to appreciate that we are prepared to accept this Budget and give a hearty welcome to the concessions that have already been made, especially to the lower-income members of the community. Notwithstanding that mathematically it may be possible to demonstrate that, allowing for postwar credits, the concession that has actually been granted is not as great as it would immediately appear, I submit that the majority of the people of this country are better disciples of Omar Khayyam than they are of '' The Economist,'' and judging by the letters I have received they are quite prepared to takes the cash instead of leaving it to build up postwar credits. We all recognise that taxation will be determined ultimately by the degree of productivity that can be maintained in the country, and by his immediate concession—at least, a concession that will come into operation before long—in exempting earned income below a certain level, the Chancellor has, I submit, done far more to increase production in this country than would have been done by most of the other Measures which have been adopted up to now. Furthermore, we welcome the effort he has made to stabilise prices, because nothing can be more destructive of confidence than instability of prices. When people enter into a wage agreement, or a matter of that kind, they like to feel that during the course of that agreement money will continue to purchase the same quantity of goods as when the agreement was entered into.

I would modestly submit that we sometimes pay far too much attention to the taxes actually imposed by the Chancellor of the Exchequer and forget various other forms of taxation. A great deal of play has been made during the course of this Debate with the fact that previous Chancellors had already garnered the harvest of wealth, and that henceforth it would be increasingly difficult for any future Chancellor to raise the taxation necessary to carry out the social service schemes. If they will look up the statistics, they will find that despite the fact that taxation has already been fairly heavy, it has done nothing to equalise the ownership of wealth. The most obnoxious form of taxation so far as the great majority are concerned is not the taxation imposed by the Chancellor of the Exchequer, but the taxation, imposed by the owners of economic power, on other people's right to work. In other words, the great majority of people have to pay a tax in order to have the privilege to work. I suggest to the Chancellor that instead of adhering to the old traditional Liberal principles of taxation, he should embark upon sound Socialist principles, and not be merely concerned with a greater measure of equality in incomes. He should so design his legislation as to make it possible for us to exercise a far greater degree of economic power to prevent accumulating in the hands of a few wealth that must afterwards be heavily taxed. In other words, if we stop people from becoming wealthy, they will not complain so bitterly afterwards at the taxation imposed upon them.

I welcome the concessions that have been granted in regard to Purchase Tax, because I have always believed that the Purchase Tax was one of the most iniquitous forms of taxation ever imposed upon the consumer. As one who had some part in its administration I know perfectly well that long before the tax was imposed upon the people who could afford it, it was imposed upon the people with weekly incomes, who found it impossible to purchase those articles on which the tax fell most heavily. I sincerely hope that the Chancellor will draw up a list of priorities in regard to Purchase Tax on the sound principle of removing it as fast as he can from all things, but removing it first from those articles which can be regarded as necessities before removing it from those which can be regarded as luxuries.

I conclude with one reference to a subject which has brought forth a certain amount of criticism, sometimes from those Benches and sometimes from these, namely, the savings movement. When people in this House do anything to deprecate the savings movement, they are casting a reflection upon millions of ordinary people who have made a great sacrifice during the period of the war by withholding their purchasing power in the interests of the nation. So long as shortage still prevails, I believe a great service is still being performed by those who withhold expenditure. I readily concede that once there is an abundance of goods, and the supply exceeds demand, there will be no further need for saving, but I do think that this House should at least appreciate what has been done during the war and during this transitional period by those who have voluntarily abstained from the consumption of articles and have made it possible for wealth and labour to be diverted to more important purposes.

7.19 p.m.

Sir Wavell Wakefield (St. Marylebone)

It falls to my lot to congratulate the hon. Member for North Bristol (Mr. Coldrick) on his maiden speech. I am sure I am speaking for the whole House when I say that we were interested in what he had to say; it was obvious that he had studied what he was going to say, he was fluent, he did not hesitate for one moment, as so many of us used to do in our maiden speeches, and I know that we all look forward to hearing him again on many occasions. I think there is no one in this House who would not agree with him that it is desirable to increase production. After all, this country can only make ends meet and raise the standard of living if maximum production is achieved, and we are all with the Chancellor of the Exchequer in any effort he may make, whether it is in removing taxes from the lower groups or, as has been suggested in any other way—we are all agreed that any help in that respect is vital to this country.

I was rather concerned at the concluding remarks of the hon. Member in connection with savings. After all, if the rich and wealthy are to be taxed—and we must remember that what is, in effect, a capital levy is taking place in high Death Duties and high rates of Supertax—capital cannot be expected to come from those sources, and if this country is to have the necessary capital available, then savings must come from the great mass of the people. There must be available a large substantial reserve of savings to build up our industries and to replace, much more than in the past, old machinery with new machinery, if we are to maintain our place in the world and to increase our export trade by 50 per cent, or more—which we must do, if we are to import the food and raw materials we need.

I was also disturbed at his other statement that he wanted to prevent the accumulation of wealth. Surely that is going quite contrary to what he said earlier in his speech, to the effect that it was desirable to have an incentive. An incentive for those with higher incomes is just as desirable as it is for those with lower incomes. It is even more desirable, because the people with ability, and with scientific or inventive genius or administrative competence, not only give employment to those who are paid high salaries, but that, in turn, provides employment for large numbers of people. A comparatively small number of people, by their inventive ability, supply the mainspring for earning higher wages, obtaining employment and providing a great deal of the revenue which must be obtained if our needs are to be met in the Finance Bill.

Let us not then just think only of the lower groups; let us think of the top group as well when we are giving incentive to earn more. We on this side of the House are very disappointed that more is not being done for the group of £500 to £1,000 a year. They really gain nothing by this Budget. They are not going to be in receipt of the earned income allowance, and, after all, it is among that class of people you need to give an incentive, to enable them to meet their commitments and to work harder in order that we may get that target of maximum production. The hon. Member for North Bristol also said he thought only too many were ready to take the cash and waive the rest. That surely shows a lack of confidence in the future policies of Socialist Governments. After all, if there is such lack of confidence in future Budgets, that does not augur well for them. We do not want the credit of this country to stand in that light. We want to see that it is worth its face value, and not worth just a quarter.

It seems to me that this Finance Bill does not do as much as it ought to do, to ensure maximum production. When I think of the way in which hon. Members opposite are thinking in terms of pensions, and expenditure connected with pensions, and people being compulsorily retired on pensions, and a 40-hour week and that sort of thing, it seems to me that they are devoting attention to restricting production rather than to increasing the efficiency of maximum production. The only way the necessary revenue for social advance is to be obtained, and the only way to get revenue to pay for food and raw materials for exporting, is to get maximum production and we ought to devote the whole of our attention to that end. I do not like the way the Government are tending towards producing utility this, and utility that. If we are to get the greatest revenue—and revenue will come from the export trade—there must be opportunity for the greatest variety, speciality of design and speciality of workmanship. In that way we are going to sell abroad and only in that way are we going to get the revenue to balance the Budget and make ends meet. I do hope that the Chancellor of the Exchequer, as a means to making his revenue buoyant, will bring pressure to bear on his colleagues in the Cabinet to stop this idea of utility mass production, because we cannot possibly hope to compete with America in that direction and it must never be forgotten that if we are to have a flourishing export trade we must have a good home trade on which to base it.

It is not of much use asking people to save and to produce the maximum amount if they see that as a result of their work and their savings, money is squandered by inefficient administration. Too often one hears in the whole range of Government Departments of money, which has been hardly earned and saved, being wasted. Only a day or two ago, I had a letter which I handed to the Secretary of State for War about 100 men who had been waiting two months in transit camps, doing absolutely nothing before going away. If you calculate that, you find several thousand man-hours completely wasted. That is one little item and you can find it happening all over the country. I would like to know from the Chancellor of the Exchequer what steps he is taking to chase up Ministers, and Secretaries of Departments, and to make them control expenditure. Tanks are being made; aircraft which are obsolete are being made, and all kinds of munitions are being made. Why has there not been a quicker turn-over and a stopping of production of wartime goods? We are terribly- short of peacetime goods. One knows that war contracts are going on, and people do not mind because it is on a cost basis. But there is a far too slow turnover from war to peace production and this high expenditure, which is quite unnecessary, is taking place on the one hand, while goods, domestic and otherwise, are urgently needed and not being produced. The export trade as well as the home trade is suffering.

The Finance Bill is tied up with the general policy of the Government not only in relation to income but in relation to the expenditure now being incurred throughout the country. I suggest that the Chancellor ought to take much more vigorous action with his colleagues in the Cabinet and the heads of the various Departments to see that there is the strictest observation of all expenditure and that it is ruthlessly cut down, so that the expenditure that does take place will be to the best national advantage. There are many matters of detail in the Bill which I want to raise, but I do not intend to detain the House now by talking about the principles involved. My hon. Friends and I hope to raise the questions of motor taxation, the Purchase Tax, and other matters, in the Committee stage.

7.32 p.m.

Captain Richard Adams (Balham and Tooting)

I had no intention of intervening in this Debate when I came to the House today. I am encouraged to intervene because, having spoken during the two days Debate on the Budget, I see so many familiar faces of hon. Members who spoke with me on that occasion and who are speaking again this evening That brings me to the first point I wish to make. This Finance Bill indicates one way in which the Government may be able to save the time of the House. Having spent two days in debating the Budget, we are now discussing on this Finance Bill the same matters in the same general kind of way, knowing that later on the Bill will be discussed in detail in Committee. The only difference between today's proceedings and those in the Budget Debates, as far as I can see, is that the general terms used by the Chancellor on that occasion, the ordinary straightforward language that he used, has today been translated into legal jargon which serves only to make the Financial Secretary's task of explanation somewhat more difficult. One other result is that it has provoked hon. Members opposite into throwing rather more brickbats than bouquets on this occasion. I can only conclude that hon. Members opposite have been guilty of speaking before they thought instead of thinking before they spoke, because they have been a good deal more critical today than they were when the same matters were discussed in the Budget Debates.

The right hon. and gallant Member for West Bristol (Col. Stanley) referred to the "red sky in the morning." I wish he had gone on to complete that usual quotation by referring to the "red sky at night which is the Chancellor's delight." That red sky at night is not the dim flicker of a candle burning down at Bournemouth, but is the red sky at night produced by the glow of the furnaces and factories working overtime to get back to peacetime production. I was very amazed to hear the right hon. Member for West Bristol and some of his colleagues refer to the dreadful subject of controls. Back in the heat of the summer I gathered they were against controls of any sort, but today they have insisted that financial controls should be imposed right away. As was made perfectly clear during the Election, we on this side of the House are in favour of controls, but not of financial controls. We do not intend to have financial controls clamping down on the work of reconstruction. We are going to see that the houses are built, that the clothes and other necessary articles arc produced—[HON. MEMBERS: "When?"] In due time, if hon. Members will have a little more patience. They cannot expect this Government to achieve in three months what they failed to achieve in 20 years. I think I have the sympathy of the House in asking for a little more time. I am sure hon. Members opposite would not expect the Government to produce overnight what they failed to produce in past years. We on this side will not submit to financial controls, but we have already indicated other controls which we shall employ to ensure that the country is put on its feet and that the ordinary people get a square deal for the first time.

I was rather surprised to hear the right hon. Member for West Bristol make a plea for financial rectitude. I refer the House to other occasions in the past when there was financial rectitude and when a set of accounts which balanced nicely on paper was obtained only by raiding the larder elsewhere. I remember that one right hon. Gentleman on a famous occasion raided the Road Fund in order to produce a correct set of accounts. The question of savings has been referred to in a derogatory way by some hon. Members opposite. I am very sorry that the question of national savings was ever brought into the political field. I feel that saving is a national movement which should have gone on throughout the country without reference to political parties.

Colonel Oliver Stanley

The hon. and gallant Gentleman made a serious charge when he said that hon. Members on this side had referred to savings in a derogatory way. Can he substantiate that charge?

Captain Adams

I make no apology for making the statement, because the hon. and gallant Member for Holderness (Lieut.-Commander Gurney Braithwaite) suggested most strongly that since the Socialist Government had come into power it was inevitable that savings would disappear and be dissipated, and the people of the country would no longer be encouraged to save. I regret very much that a political attitude was ever brought to bear on the question of savings, and I would like to assure the House that the ordinary men and women of this country will continue to save to their utmost. During the war, when the enemy was right on our doorstep, and when incidentally some very "wicked" Socialist Members had joined the Coalition Cabinet, the people of the country were encouraged to save harder than ever before. That fact cuts across any suggestion that when Socialists take over the Government of the country the ordinary people will refuse to save.

I suggest that people will continue to save strongly in order to provide the homes that we need, and the capital that we need to take over those industries which are to be nationalised, perhaps too quickly for the satisfaction of hon. Members opposite. They complain about the Government's lack of speed, but I imagine that in the next few months, when we have these strong Socialist measures—nationalisation of the mines, transport and so on—they may wish to call a halt to our speed. I am satisfied that rather than lend money to a Government which is based only on the credit note issued at the Carlton Club, the people of the country will be much more willing to lend against the solid assets held by the Government in the form of the mines, the railways and the Bank of England. I think we need have ho fear on that score, and I think that as the weeks and months go by hon. Members opposite will be able to watch with some dissatisfaction the continuance of that wonderful savings movement which did such sterling work throughout the war and which, I am equally certain, will do sterling work in the tremendous task of reconstruction.

7.40 p.m.

Captain Marples (Wallasey)

I think I ought to say a word about the Savings Weeks myself because I do not for one moment believe what was said by the hon. and gallant Gentleman the Member for Balham and Tooting (Captain Adams). We, on this side of the House, almost unanimously supported this Savings Campaign. I myself was asked by a very charming lady to come along; I thought it was only intended that I should drink sherry and I came away less £300, which I had put into the Savings Movement. That sort of thing was far better than a lot of speeches. We on this side wholeheartedly support the Savings Movement. The hon. and gallant Gentleman said that Members on this side of the House did not discuss the Chancellor's proposals and that we accepted the straightforward language of the Chancellor when he introduced the Budget proposals. It is that ordinary straight forward language which the right hon. Gentleman used in his Budget speech on 25th October about which I wish to speak tonight. He said that if he had reconstituted the 1940– 41 position as regards allowances he would only have released 1,600,000 persons from Income Tax, that is the lower group, but by taking his present scheme of allowances, he said he had cleared a further 400,000, making 2,000,000 in all. On reflection, I cannot myself understand where he gets his figures from. Working the allowances out on the basis of the personal allowance and the one-sixth earned income allowance in 1940–41, a married person without any children would have to earn £204 before he paid Income Tax. On the new scale of personal allowances at the present rate, plus one tenth earned income, the same man has now to earn £200. The exemption limit is now lowered. Therefore, more people are thrown into the net. To assist the hon. Member the Financial Secretary, I would remind him that the statement of the Chancellor's was as follows: By my deviations from the 1941 position, however, leaving the earned income allowance for the moment as it is, and giving these other additions, I have been able to clear a further 400,000 or so taxpayers from Income Tax liability. It was a deliberate decision and I believe it was right."—[OFFICIAL REPORT, 25th October, 1945; Vol. 414, c. 2305.] There may a catch in it somewhere, but at the time I accepted that rather simple, plain and straightforward statement from the right hon. Gentleman the Chancellor of the Exchequer. But working out the total allowance, I find that a single person, in 1941, paid tax when he earned £120, and now he has to earn £122 before he pays tax, and that is the only case where a person who paid tax in 1940 –41 will not pay it now. I hope I have made myself clear. The exemption limit in 1940 –41 was £204 if a person was married, with no children, and now, if he earns £200, he will have to pay tax. [An HON. MEMBER: "But not so much."] The amount paid was not in question. The point was that the Chancellor said that by adopting this scheme he would release a further 400,000 people from paying Income Tax, whereas in point of fact he does not. If there is an explanation I would like to have it.

Mr. Glenvil Hall

I am not sure whether the hon. and gallant Member in what he said took into account the change in the personal allowance. In the year 1940 it was only £170, and now it is going to be £180.

Captain Marples

Yes, taking into account the personal allowance and one-sixth earned income in 1940–41, the exemption limit in the case of a married man and four children was £444. He had to earn that figure before he paid tax and now, if he earns £422, he will have to pay tax. Where are the 400,000 who are missing? Where have they gone? I accepted that plain, straightforward statement of the Chancellor at its face value. He gave a very lucid explanation in his Budget Speech which convinced an ordinary, simple soul like myself, but several rather astute gentlemen have compiled a schedule, which I have here, and have found that in every case the new allowances bring about a lower exemption limit. It is the exemption limit which is the point at issue and not whether they pay less tax or not, maybe they do. The Chancellor, in his statement said that 400,000 extra people would be released and I want to know where they have gone. On those exemption limits the figure is not 400,000 or anything like it. I am a very simple soul, and, unlike the last hon. and gallant Gentleman, I accepted what was said from the Front Bench because I am so innocent. I would like the Minister to reply and to give the exact total.

Mr. Robens (Wansbeck)

What is the hon. and gallant Member's figure?

Captain Marples

If the actual exemption limit is lower, the people in the lower categories would pay Income Tax and there would be more of them paying it. The Chancellor of the Exchequer in his statement said: The community as a whole and the lower income groups in particular do better under the scheme which I am putting forward now, as from next April, than they would under an exact reconstitution of the 1941 situation." —[OFFICIAL REPORT, 25th October, 1915; Vol.414, c. 2304.] He goes on to say that he has released over 400,000. How can he, when the exemption limits are lower? That is in the case of earned income. He may have released 400,000 more in the case of investment income. There is no logical argument to support his statement that 400,000 extra people are being released from Income Tax. If there is, I would like to have it. I put this forward humbly; it is not in order to catch out the Chancellor of the Exchequer. I cannot understand the figures given when the exemption limits under which tax is payable are lower under the new scheme than the old.

7.48 p.m.

Captain Baird (Wolverhampton, East)

I would like to take up one or two points raised by hon. Members opposite and to say a word or two about the Savings Movement. Whatever hon. Gentlemen opposite may say about their being almost wholehearted in their support of savings, I can only say what was my experience after a speech by an hon. Member opposite. I was approached by one of the owners of one of the largest factories in my constituency and I was asked to come and speak to the workmen during Savings Week because of the bad impression that had been created by an hon. Member opposite. I was only asked to come along because, as a trade unionist, he felt that I could influence the workers in the factory to stimulate savings which had fallen off as a result of the speech.

I would like to mention a point raised by a recent speaker with regard to the incentive which will be taken away if we do not stimulate profits. I believe that the only way, or the main way, in which we can stimulate production in this country is not by increasing the profits of industry but by increasing the health and wellbeing of the workers in industry. Another point raised by an hon. Member opposite was that hon. Members on the other side are very worried because the Government were not considering the income group between £500 and £1,000 per year, and that it was important that it should be. I feel that the hon. Member was thinking, not just of that group, but of the income group between £500 and £5,000. I believe we must have first things first, and our first consideration is the well-being of the working class people of this country, who are the majority.

I welcome this Bill; not altogether for what it contains, but because I believe it is a foretaste of things to come. It introduces, for the first time in the history of this nation, an effort to level up incomes within society. A leader of the party to which hon. Members opposite belong once told us that there were two nations in this country, and those two nations have existed for a very long while. I believe, however, that the war has helped to break down the barriers between the wealthy classes of this country and the working classes, because it has helped to level up incomes. I remember, in 1939, being given a copy of "The Tatler," in which there was a full page picture of a gentleman sitting in his very spacious drawing room, with a glass of whisky and a syphon of soda beside him, and the family portraits on the walls, and, underneath, the wording "It is to preserve scenes, like this that we in England are fighting." But, in 1940–41, when we had faced defeat and overcome defeat, the statesmen of this country—not one but many—preached that we were fighting to remove want and were fighting for freedom from want. That was a complete change in outlook. We were no longer fighting to retain the two nations, but to build up a nation in which there was freedom from want. It is only now that we have an opportunity of implementing that promise, and I believe that it is the intention of the Government by means of Bills such as this, to remove the fear of want from society here in this country.

There are one or two criticisms which I should like to make of this Bill. I believe that it must be our main objective to remove as many indirect taxes in as short a time as possible, because indirect taxes bear much more heavily on the working classes than on any other class in society, and I want to criticise the Chancellor because, in this Bill, in my opinion, there has not been enough effort to remove indirect taxes. A penny or halfpenny off the half-pound of tea is a very big item in the budget of ordinary people in this country, and I hope that the Government, in the very near future, will consider introducing considerable reductions in indirect taxation. But the main point which I intended to make was this. The Chancellor may have heard rumours that some hon. Members on this side are worried about the condition of the old age pensioners. I believe there is one way in which we can alleviate the condition of the old age pensioners very soon. I tried to put a Question down on the Order Paper some weeks ago, asking the Chancellor of the Exchequer if he would consider paying to old age pensioners new any postwar credits to which they were due. I was told that that matter could not be put down as a Question, and therefore I raise it now in the Debate. These old age pensioners, who rallied to our cause during the years of the war and did their part in industry, have only a very short time to live. As a result of five years of war, many of them are under-nourished, and I believe that, during this interim period while we are waiting for the introduction of the Social Security Bill, if these pensioners could be paid even, as an hon. Member opposite suggested, on an installment basis, their postwar credits, it would be a great help to them during that period.

I conclude by saying that we have now, for the first time, commenced the level-ling-up process in this country, and I hope that, before long, we will be able to build a society, in the principles of this Bill before us tonight, in which there will be equality of opportunity for every one within the community.

7.57 p.m.

Mr. Spearman (Scarborough and Whitby)

I want, in the course of my remarks, to venture on some criticisms of the financial policy of the Chancellor of the Exchequer, but I realise that it would be presumptuous for me to think that the Chancellor would be in the least disturbed by any words of mine. Perhaps, I might start off with some remarks, to which I think he will take no objection—in fact, the right hon. Gentleman might even approve. I hope that he will take in a more kindly spirit, the pinpricks which I will inflict upon him later on.

The Chancellor announced in his Budget speech that he was making the utmost effort to reduce the burden of interest rates, and he took, I think, justifiable credit to himself for the success he had already achieved. But I am sure he would not wish to deny the great success which his predecessors had in initiating that process. It is, I think, rather remarkable, when one looks at the cost of interest and management of the National Debt, to find that, in 1932, it amounted to over £300,000,000, and, before this war, largely due to the efforts of Mr. Chamberlain, it was brought down to just over £200,000,000. Even now, after all the enormous load of borrowing that has taken place, it has only reached the figure, this year, of about £460,000,000. I should also expect the Chancellor to agree with me that he did not wish to imply any complacency in these figures, but hopes to go further still. During the next five years, during the period of this Parliament, a large number of issues mature, which will give him the opportunity of saving the country a great deal more. The big saving, however, will take place when War Loan matures, but, as that does not come within the life of this Parliament, I have no reason to suppose that the right hon. Gentleman will have any responsibility in that matter.

Mr. Dalton

It remains to be seen.

Mr. Spearman-

If I may make a personal allusion, just 100 years ago, my great-grandfather, then Permanent Secretary to the Treasury, had the unusual-sounding office of Controller-General for the Reduction of the National Debt. Since that date the National Debt has shown it-self to be quite uncontrollable and has bounded up to thirty times its then size, so I am afraid I must admit that he was singularly unsuccessful at his task—I hope through no fault of his own.

I take rather a different view from that of the hon. Member for Aberavon (Mr. Cove), who showed great distress at the size of the National Debt. I may shock hon. Members when I say that I do not mind very much increases in the National Debt. I do not even mind—and this may shock them still more—increases in external debt, if we can use the money to good purpose. If in wartime it can help us to secure victory, if in peacetime it can help us to re-equip our factories and modernise the machinery of this country, then I say the more we can borrow the better. It seems to me that it is exactly comparable to the position of a businessman: it is good business for him to borrow all he can if he uses it productively. The test is not how much he borrows, but how well he can use the money. But if money borrowed on capital account is spent in income, then disaster must ensue.

What I am interested in, is not in keeping down the size of the National Debt nearly so much as keeping down the burden of interest upon it. I believe that that can be further decreased. Of course, it depends upon what interest rates are in the future. There are many complicated theories on the reasons for fluctuations in interest rates. Personally, I think the explanation is a very simple one: that when there is a lot of uncertainty as to the future price of long-dated Government bonds, then there is a tendency to sell bonds to secure others of a short date which can be repaid at a fixed price for a certainty. When there is an increase in trade activity, then there is a greater demand for cash, and holders of long-dated stocks try to sell them in order to be what is technically called, in the financial sense, liquid.

Before 1932, this desire for liquidity was ignored, and consequently investors had to be -induced to take up long-dated stocks by being offered a sufficiently attractive rate of interest. In technical language, equilibrium was obtained by a change in interest rates. Since 1932 the Treasury has been guided in the offers it has made by its estimate of what investors want, and consequently equilibrium has been maintained by a change in the sort of loans offered—not a change in the rate of interest—and that is very much cheaper for the Treasury. I think there can be no doubt that the Treasury can, and indeed does, contract the funded debt, support the gilt-edged market by open market operations, and can expand the floating debt by an increase in the supply of bills and money, and it is by that process that we have had such a prolonged period of cheap money in the face of these huge and unprecedented borrowings. It is because of that policy, initiated origin-ally by Mr. Chamberlain, that during the war the Chancellor of the Exchequer has been able to borrow the last portion of a total of about £15,000,000,000, on cheaper terms than his predecessor was able to borrow at the beginning—the exact opposite of what happened in the last war. There can be no doubt that the. Treasury can carry out that policy, but objections will be raised, and I would like to take up those objections.

The first, I think, would be that it is unwise to have an undue proportion of short debt, of unfunded floating debt to funded debt. In the past, when the Treasury had very little control over future rates, it has obviously been wise that, at a time when money is cheap, they should take advantage of that to fund all they can, and in the past the proportion of floating debt has been a very small one; but if, as I contend is the case, the Treasury can very largely control the future rates of money, then there is no need for them to have rigid ideas on the proportions of shorts to longs; in fact, to do so would be to deprive themselves of a vital instrument for controlling future rates. I hope therefore that the Chancellor will resist pressure to fund a very large part of the debt.

The second objection that could be taken is the one that would lead to inflation. The inflation risk is one of which I am very conscious indeed, and I am bound to say that I think the Chancellor's Budget has made that danger appreciably greater. He has encouraged spending to some extent and, as I see it, has done very little to encourage the production of goods to meet that increased expenditure. We all know that it is a happy, pleasant thing to give children sugar plums, but it is not a wise thing to do at the end of a week of Christmas activities. We have not enjoyed such, but we have been through a very hard time, and I am not sure that the Chancellor has been wise to hand out these-sugar plums in order to gain popularity of the pleasure he has given at this time. I know that it is sometimes contended—I have heard it said by some of the hon. Gentlemen opposite—that a small, dose of inflation does not do much harm and, in fact, is much better than a small dose of deflation. That may be, but I would like to stress the point that once you start inflation you may lose control, and un-controlled inflation is catastrophic to everyone.

May I illustrate that by the sad story of a German businessman in the last German inflation? This man bought a wagon-load of nails for which he paid 10,000 Reich marks. Then inflation occurred and he was able to sell that wagon for 200,000 Reich marks, and he thought to himself, "This inflation is not bad, I have done pretty well." However, he found he had to spend the whole of the proceeds in buying a fresh supply of nails, and he only succeeded in obtaining half a wagon-load. That went for 4,000,000 Reich marks, and that was all right until he bought again, when the proceeds only bought a sack-load. Finally, he found that the whole proceeds of all his sales would only buy him one nail—and as he had a rope, he used it to hang himself I think that illustrates that everybody in the country would be ruined by catastrophic inflation, and therefore, I cannot sufficiently urge upon the Chancellor what care is needed.

Personally, I am bound to say that we are surely in danger of some measure of inflation, unless the Government are able to carry out the conversion from war to peace on a far more vigorous scale than they have yet succeeded in doing. We have to increase the supply of goods, and that means the release of men from the Services. Here I would like to remind the House of the excellent maiden speech of the hon. Lady the Member for Blackburn (Mrs. Castle) on the Adjournment last Friday, pressing her own Front Bench to get on with the job of releasing men from the Forces, as without that, we cannot get conversion from war to peace. All the time, labour rather than material is the bottleneck.

Another thing the Government have to do if they are to save us from the danger of inflation in this temporary period of scarcity is to restrict their own expenditure far more than they have ever shown a sign of doing. I think that the President of the Board of Trade has been very right in preaching austerity. I only hope that his views on austerity may infect his own colleagues on the Front Bench. I do not think that the public will take kindly to austerity by the Board of Trade, unless they find that the Government are also being careful not to undertake schemes, at the present time, which, however pleasant and admirable, will take up a greater supply of goods than are available.

To return to the subject of cheap money, I would contend that increase in the supply of bank money is not inflationary. Because the Central Bank has bought securities in the market, there is no reason to suppose that the sellers of those securities would spend the money put at their disposal. Their income would be exactly as it was before. There is simply a change in the form in which they hold their assets. Greater expenditure on consumer goods is due to greater income. An increase in the supply of money, as during the war, does not mean higher incomes. If the Chancellor of the Exchequer were today, to instruct the Bank of England—and I would remind him that he need not wait until the Bill for the nationalisation of the Bank of England goes through, because the Bank always takes the instructions of the Chancellor of the Exchequer—to carry out a market operation which would increase the bank money by, say, £1,000,000, not one hon. Member's income would be any different tomorrow, and even the Chancellor of the Exchequer himself would not be able to afford a second cup of tea more easily. [Interruption.] I said a second cup of tea, but perhaps I am not familiar with the Chancellor's habits.

It is important to stress the fact that to increase bank money does not create inflation, because it does hot create any greater spending. That only comes when people's incomes are higher. What it does is to make money cheap to borrow. It may be argued that that would discourage saving. I disagree. I think that all statistical evidence shows that variation in savings depends on variation of income, and not at all upon variation of the rate of interest. Of course, cheap money will certainly encourage industrialists to spend money on capital development, but that is exactly what we want them to do. We want to encourage the production of the maximum goods available by improvement of the capital structure in the factories of the country. If we should have a dangerous inflationary situation, it may be necessary to have a period of very dear money, to discourage capital development, but I am sure the Chancellor of the Exchequer would agree that that would be a clumsy weapon, and most unfortunate at this time.

There is another objection, and it is a very real one. I should like the Chancellor's attention to this point, because I particularly want him to say something about it. This cheap money policy, that is enabling the Government to borrow very cheaply indeed, will certainly cause inflation, if it causes the Government to carry out expenditure which would otherwise not take place. If because they can borrow very cheaply, or raise money in this way, rather than by taxation, they are going to spend more than they otherwise would, then we are in for disaster.

To my mind it is rather like a loaded revolver. It is all right to give it to an experienced man, but if you give it to a boy of seven, you may have trouble. I am aware, from the speeches to which I have listened, that there are hon. Members opposite who do not appear to have very much time to do hard thinking, and it may be they will press the Government to spend because the Government can borrow so cheaply. I, therefore, ask that we should have some definite assurance, that the Chancellor of the Exchequer agrees that the limitation of what can be spent, is not the money we can borrow, but the men and materials available The Government may raise a housing loan for £1,000,000,000 tomorrow, but not a single extra house could be built, unless more men and materials are available. I am aware that there are reactionary influences around the Chancellor, and I know that no-one is more restrictionist and hidebound than the orthodox Socialist, and, therefore, I ask the Chancellor of the Exchequer to stand up to pressure from benches behind him to look for support, if necessary, from these benches for an expansionist and constructionist policy.

I think that an important criticism of the Budget arises on the manner in which the Chancellor of the Exchequer has dealt with the earned income allowance. That has been dealt with so clearly by so many hon. Members, including the hon. and gallant Member for Ton bridge (Lieut.-Commander G. Williams), in his attractive maiden speech, that I will not say more than to express regret that the Chancellor did not see his way to maintain postwar credits, until such time as he could restore the earned Income Tax allowance. The point of criticism I want to make is on the more delicate subject of Super tax. At the present time, if a man has an income of £20,000 a year he retains only £4,181. I know that hon. Members opposite, with great plausibility, will say that he is a very lucky chap to have it and that we need not waste any pity on him. I am not doing so, however. That is not the point I want to argue. My point is: What happens to the next £10,000 which he tries to make? I am taking extreme cases, because they Show the position more clearly. If a man, making by the sweat of his brow—and I do not know how many hon. Members opposite have experienced it, but to make £10,000 a year does require, in a good many cases, a good deal of sweat—if someone with an income of £20,000 a year succeeds in making another £10,000, he retains out of that only £250. I know a former Member of this House who has an income of that sort. He is a very distinguished and respected business man, who is continually being asked to take over or help other factories besides his own. He says, with some reason, "I am only going to make another £100 if I do it; what is the point of my working any harder than I do already? I am doing a good job of work." Take a doctor, or a barrister. Why should he risk his life by working 12 or 15 hours a day, and risk his capital, in order to make another £10,ooo, if he only gets £250 of it?

Mr. Walker (Rossendale)

Why should a miner do it, then?

Mr. Spearman

I do not see the relevance of the hon. Gentleman's remark. I am not thinking at all about the welfare of the Super-tax payer—there are only about 100,000 of them—I am thinking of the welfare of the country at large. There are hon. Members opposite who appear to think that if one man can increase his income from the huge sum of, say, £20,000 a year 10 the even greater sum of £30,000 a year, there is less for everyone else.

Mr. Alfred Edwards (Middlesbrough, East)

Would not such a man as the one to whom the hon. Member is referring, make his own capital investment safer by earning that £10,000?

Mr. Spearman

I took the instance of a barrister or a doctor, or a business man risking his money. I do not think that it is, on commercial grounds, a good risk to work another four or five hours a day, or risk one's capital or one's health for a return of £250. After all, in this country we pay people in a monetary form. In authoritarian countries it is done by privilege; here we have the more democratic plan of doing it by money. If we are to do that, let us make a business-like job of it. The point I wish to stress, is that for the sake of the community we want to encourage that man to make his£20,000 or £30,000. It may be a very poor bargain for him; he would probably be wiser to take a bit of time off, but the more he works the more the Chancellor gets, and the more the whole community gets.

I sometimes think that what the Chancellor is going to give us is not a policy of progress, but a policy of stagnation. If we are to close the ranks so that new people are not encouraged to come in and make more, we shall not get increasing wealth, but the very reverse. If the Chancellor is occupied in making the poor rich, I am entirely with him, but if he is to keep the poor poor, in order to avoid there being any rich, I say that he is cutting off his nose to spite his face, and that it is impoverishing to the country as a whole. If we are to have this very heavy taxation there should be a complete revision of the whole Income Tax system. It was established for the purpose of raising about one shilling in the pound. It has now the very different task put upon it of raising up to about 195. in the pound, to act as a method of redistributing the wealth of the country. It is also used as an instrument for curtailing or stimulating consumption to maintain effective demand and full employment. I do not think that the original machinery is up to this task.

I hope that before the next Budget the Chancellor may produce an entirely fresh plan of taxation. If he is unable to do that, I ask him, inside the present system, to have a different scale up to the very highest levels for earned income as compared with unearned income. The question of whether we want to safeguard the wealth of the rich is another matter altogether. I am not arguing that; I am looking at the question from the point of view of incentive—how to get the most effort out of everybody in the country. The facts are not available to me, but to take a hypothetical figure, if the Chancellor limited the maximum amount of taxation to 17s. 6d. in the pound, and adjusted the scales accordingly, it would be possible for a man—I am not thinking of the man himself, but of the value to the whole country—to obtain about £1,500, instead of £250 as at present, for every £10,000 extra that he made.

My third point, which is final and brief, is to ask the Chancellor if, in view of the effect on the revenue of the doubts about compensation to those industries which are nationalised, he will make a quite clear statement on the method which the Government intend to employ. Nothing is so upsetting to business as uncertainty. Business men received a considerable shock on 5th July, but they have now accepted the verdict of the country, and are shaping themselves to that end. I would like to say how absolutely confident I am that the business community do not, in any kind of way, want to sabotage the Labour Government, although it may not be the Government of their choice. They want to give it every possible chance, and in return the Government, for its own and their sake, should eliminate uncertainty when it can. I can tell the Chancellor of industries Which not only need re-equipping, which not only can borrow to carry out that re-equipment, but have facilities for spending it. They are deterred because the directors say, "We are trustees for the shareholders, and we have no idea whether they will receive any compensation for the risks taken and the enterprise undertaken in further development." I feel that a clear statement should be made by the Government that all developments undertaken will be taken into account, that the assets of an industry will be considered. I should like him to say that independent tribunals, composed perhaps of distinguished engineers, surveyors and chartered accountants, will be set up in any case of dispute.

I am not making any extravagant demands for compensation. I am one of those who think that the compensation to the Bank of England shareholders was exactly right. I do not know why the Chancellor was unwilling to disclose the assets of the Bank of England. But I do not think the assets have anything to do with the shareholders in that case. Had I thought that the Bank of England was being run for the shareholders, I should have wanted it nationalised long ago. It is because I think it was not run for the shareholders that I wanted to leave well alone. In that case, I am sure that the compensation is fair. But I can think of no other industry in that position, where the shareholders have no interest in the assets. It would encourage reconstruction and development, if the Chancellor made clear the Government's intentions in that respect.

I have not made myself at all clear, if I have not shown that my admiration for all the Chancellor's financial measures, and the measures of his colleagues, is rather tepid. From a purely party point of view, I might rejoice in the thought that the Government are not getting on very well with the conversion from war to peace. But I do not take that line at all. In a less serious position perhaps I might, for as the hon. Member for Bath (Mr. Pitman) said, the improvement in technique and economic knowledge has given the Government today a wonderful chance such as Governments have never had before, for increasing the whole standard of living. Also perhaps through no fault of their own, they are faced with a very difficult position. I feel that the position is so serious that it is not a time in which any of us can do anything but wish the Government well. I am quite sure that business men do not want to sabotage the Government. For myself, I say quite clearly that I do not want to offer the Government any factious opposition. What I want to do, to the extent of my extremely limited capacity, is to try to expose those policies of the Government which seem to me bad, and to offer constructive and expansionist views whenever I can.

8.30 p.m.

Mr. Crossman (Coventry, East)

In the few minutes at my disposal I would like to make some observations on motor taxation, for a special reason. Since the Budget statement of the Chancellor of the Exchequer, there have been growing signs of a serious divergence of opinion between the industry and the Government, and I feel that that divergence of opinion has been due largely to misunderstandings on both sides. I know that a statement by the Chancellor this evening might do a tremendous amount to encourage the industry which is the chief industry in the city which I represent.

I think there is complete agreement between the Government and the industry on the overwhelming importance of exports today. I do not think anybody denies that everything. possible should be done to ensure that every possible British car which can be sold abroad should be sold abroad. Equally, there is complete agreement that we have at the moment a sellers market, in which anybody can sell anything anywhere during the next year or two and make a profit on it, and not even private enterprise could fail on that particular line.

Here I speak for employers and employees in the industry in Coventry. We would like the Chancellor to realise that a fiscal policy which is minimising home sales in order to maximise short term foreign sales, is an extremely dangerous policy. Perhaps I may briefly give two reasons for that. We shall be selling 1939 models. It is clear that because the motor car industry has kept its word and produced no prototypes during the war, and has done no designing and research, we start where we left off in 1939, whereas the Americans will start with a 1946 model in 1946. If we take credit from the first rapid success in the sellers market and think we have built up an expanding export trade in cars, we shall be sadly disappointed by 1948. For that reason I think we would all like the Chancellor to consider seriously the suggestion that we should base our fiscal policy with regard to the motor trade on one principle, namely, that in the long run an expanding export of motor cars depends on an expanding home sale. No one can really run the motor industry by making his profits out of export. The Americans export six per cent. of the cars they produce. We export between 15 and 20 per cent. of the cars we produce —I believe that 16 or 17 per cent. is the latest figure —and I know that profits made from exports were minute compared with profits made in the home market. We ought to have a common agreement. What we need in selling motor cars is to create a situation by which the British public will buy a medium horse-power car, which we can export. Thus the price of the car can be forced down by the mass production of it for the home public first; and then we can sell it abroad. In fact, to compete with the Americans we must compete roughly with American methods.

The points on which I would like some assurance from the Chancellor of the Exchequer are these. I would like him to dissipate the notion that auto-austerity—if I may coin that word—is something which the Government like for its own sake. All of us, I think, in this House would accept austerity in motor cars if it were solely and simply because the cars were going to be exported abroad. I should like to feel confident that the moment the export market fails to absorb production the whole fiscal policy will be reconsidered. Secondly, if we permit production to continue beyond the absorptive power of the export market with a continuance of the Purchase Tax, we will get widespread unemployment in the motor industry. I ask that at that point the Chancellor should urgently consider removing the Purchase Tax in respect of the home market to enable the home market to increase as rapidly as possible.

The third point is of great importance. Can we have this £90,000,000 which is taken for industry, used for its original purpose of building British roads? There is a sound truism that motor car design is largely dependent on the home roads on which you drive motor cars, and as long as our motor cars are designed for smooth British roads which are so narrow that you cannot go fast on them, they will not have modem methods of suspension and they will not be designed for speed. In fact, they cannot compete with the American models. It is, therefore, of importance to the whole industry that taxation derived from motor cars should go back to where it should have gone—to the creation of decent roads where decent cars can run, then the same sort of cars can go abroad in competition with American cars.

8.35 P.m.

Mr. Assheton (City of London)

Owing to my enforced short absence from this House. I was not present when the Chancellor of the Exchequer opened his Budget. It appeared to me at the time that the right hon. Gentleman got a considerable amount of congratulation and applause which perhaps might not have been forthcoming if the full significance of all his proposals had been made clear to the public in the first instance. It has always been a tradition of the Treasury that the Budget speech should make clear the main effects of the Chancellor's proposals, and 1 am sorry to say that on this occasion, at any rate, the right hon. Gentleman departed somewhat from that tradition. I have noticed more than once in this House since I returned to it, that the acclamation and applause from the Opposition side of the House has been a source of some embarrassment to Ministers on the Front Bench, and I therefore do not propose to say anything this evening which would embarrass the right hon. Gentleman in that way. We have had this evening a series of most interesting speeches. I would like to refer to the maiden speech made by my hon. and gallant Friend the Member for Tonbridge (Lieut.-Commander G. Williams) which was both competent and confident in its manner. We had an excellent speech from an hon. Member on this side of the House who has spoken before, I think, but whom I have not had the pleasure of hearing—the hon. and gallant Member for Flint (Lieut.-Colonel Birch) —and we also had an interesting speech from my hon. Friend the Member for Bath (Mr. Pitman), who was good enough to produce a graph which, I have no doubt, the Chancellor is studying already.

It was only natural that the first Budget for ten years which made any reduction in the standard rate of Income Tax should be greeted with some sense of relief by the country as a whole, and particularly by the poorest section of the Income Tax payers, whom any Chancellor would, of course, have felt obliged and been glad to relieve at the earliest possible moment. That would have been common ground for any Chancellor standing at the Box on such an occasion. But it came as a great shock to a wide section of Income Tax payers of the middle range to find that many hundreds of thousands of them were, in fact, worse off by the new pro- posals than they were before. I will revert to this point later because, although it is important, it is not, in my view, the most important matter on which I wish to comment.

By far the most serious feature of this Budget—if, indeed, it can be called a Budget at all, because it makes no attempt accurately to assess income and expenditure—I know the Chancellor's difficulties on that score—is that which was touched upon by my right hon. Friend the Leader of the Opposition in the remarks which he made immediately after the Chancellor sat down on the night of the Budget. He struck a note of deep anxiety at the continuance of war expenditure at such a tremendous level, although for the greater part of the financial year there was no war going on at all. The Chancellor forecast an expenditure for the year which, at the best, would reduce by less than 5 per cent. —I take his figure of £200,000,000 —the vast outpourings of the Service and Supply Departments, and he indicated that next year civil expenditure would be increased by carrying out the various schemes which the present Government have in mind for spending the taxpayers money.

I suggest that that is a very serious state of affairs, and one which fully justifies the Opposition in condemning this Budget as extravagant. What is the cause of it? Why is it that this vast Supply and Service expenditure of £4,500,000,000 can be reduced, at the very best, by only 5 per cent, in a year in which the war with Germany will have been going on for only two months and the war with Japan for less than half the financial year? Certain reasons for it were adduced by my right hon. Friend in his speech. He talked of the payment of gratuities, and payment for terminating wartime contracts. As far as gratuities are concerned, I cannot believe that figure is so overwhelming, in view of the small number of people so far released from the Forces. As to the war contracts, a great many appear to be still going on, and if they are terminated I hope it will be cheaper than if they were continued. It does not seem to me that either of these two arguments gets to the root of the trouble.

The real reason is, of course, the appalling slowness being shown by the Government, in all Departments, in demobilisation and in the closing down. and switching over from munition contracts. Every hon. Member must be aware from personal experience how this is happening. We on this side of the House all support the broad principles of demobilisation on the basis of age and length of service, but, in its application, this principle is really being carried to ridiculous lengths, particularly, I suggest, in the case of women. There are two ways in which slowness costs the country money. In the first place, there is the cost of maintaining the Service men and women in the Forces in far greater numbers than are required for any military reason, and, second, there is the loss through the lack of their productive power in civilian life. Industry everywhere is crying out for workers, particularly for key men and women, but these very workers are eating out their hearts, many of them, doing nothing but performing tasks invented for them with great difficulty by their unfortunate officers. I know full well the difficulties which my right hon. Friend the Chancellor has at the Treasury, and I beg the House to give its full support to the Chancellor to enable him to do his duty in forcing the hands of his colleagues in the Service and Supply Departments. That is one of the great tasks he has to do, and for which he is entitled to call upon the whole House for support. It is no good, for instance, the President of the Board of Trade stumping the country telling industry that it must get cracking unless the Minister of Labour is able to force the Service Departments and the Supply Departments to disgorge their staffs at a very much quicker rate than at present.

Talking of disgorging, cannot the Government disgorge some of their vast stocks of blankets, sheets, towels and furniture, all of which are hidden away doing nobody any good, with the moth and rust getting at them? People badly need these goods, and the Chancellor badly needs the money. Cannot those two needs be married, and some substantial advance made in that direction? The whole country, nay, the whole world, is crying out for goods and services. But what do we find? We find that the queues are longer than ever, that the shelves in the shops are emptier than ever, that nothing is more plentiful, other than, perhaps, razor blades, and that many things are much scarcer than they were. All this is due to the slowness of the changeover and the lack of manpower available in industry. I am told that after the last war more than 2,000,000 men were demobilised within the first six months. On this occasion we have so tied ourselves up with red tape, in an attempt to do everything as fairly as we possibly can, that progress is lamentably slow. By the end of this year, if the Minister of Labour's figures are correct—and I hope his estimate will be at least achieved—less than 1000,000 men and women will have been released since the end of the Japanese war.

Let us look, for a moment, at the munition factories. Is it true, for example, that there are still factories turning out 20 mm. guns which have been working on night shift ever since VJ-Day? We want to know. Think of the overtime that must involve, and of the terrible waste of material, too. Is it true that we are still turning out one-third of the number of armoured fighting vehicles which were produced last May? I do not know it if is true, but we want to know. Why cannot these workers be making something more useful, and other workers released to go back to their jobs in the cotton mills, the brickworks and the motorcar factories? It is not only that employers and workers alike are gripped with a sense of frustration and a feeling of disgust, but the effect of the situation on the expenditure and revenue side of the Chancellor's accounts is really devastating.

I suppose that expenditure is still running at something like £14,000,000 a day. It was up to £15,000,000 at its height. The Chancellor will indicate dissent if that is not the case. Of this sum, £7,000,000, approximately, come from taxation, and we want to ask the Chancellor where the other £7,000,000 are coming from. He has given us no information as to our expenditure abroad. Will he tell the House how much he is adding by it to our external liabilities, and how he proposes to meet them? Since the last White Paper was presented to the House in April, I think it was, Lend-Lease has come to an end, and great additional burdens have thereby been placed upon us. How are these burdens being met? At what pace are our sterling balances rising? I have always felt the phrase "sterling balances" was a misleading one and very apt to confuse people. In fact, these sterling balances, so called, are not balances in the ordinary sense; they are debts. It is sterling which other people have in the banks here, owed to them by us, and which does not belong to the people of this country. We want to know how these sterling balances are increasing. That is vital information which, I suggest, ought to be at the disposal of the House.

I would like to put in a word on the very important question of savings. We on this side of the House have always done everything we can to support the Savings Movement. [Laughter.] If hon. Members laugh, all I can tell them is that they should have been here when the hon. Member for South Nottingham (Mr. N. Smith) was speaking, because he condemned savings root and branch. The hon. Member for South Dorset (Viscount Hinchingbrooke) merely pointed out some of the difficulties that might arise under current conditions. I want to say seriously to the Chancellor of the Exchequer that very soon we shall have people asking: '' Why should we go on saving to meet a gap which is quite unnecessary and which is there because of the failure of the Government to reduce expenditure to a reasonable level? "That will be a question which it will be difficult to answer. It is a question which all the propaganda at the disposal of the Savings Movement will find it very difficult to deal with, unless there is a genuine and drastic attempt to cut out waste. Waste at any time is a terrible thing, but at a time when things are scarce it is criminal.

I should like to ask the Chancellor of the Exchequer to reply to this question, Where does he expect his normal Budget to settle down? We are now involved in an expenditure going on for £6,000,000,000 in a year, as against an expenditure of less than £1,000,000,000 before the war. We all know that we cannot afford this rate of expenditure. I want to get some idea when we shall be brought back to expenditure within reasonable distance of our revenue. I hope that the Chancellor will be able to tell us something about this matter. As long as taxation remains at its present penal rates there is very little chance of real activity in this country.

I know that the public are getting used to having all their money spent for them by the Government. They have almost become numb to it, but might I remind hon. Members of some things, in case they have forgotten them? It is that taxation accounts now for Is. 9d. out of the price of every packet of 20 cigarettes, at least 7½d. out of the price of the pint of beer and 19s. on a bottle of whisky, if anybody can get one. May I remind hon. Members also that Income Tax and Surtax in certain cases go up as high as 19s. 6d. in the £? All those rates of taxation are penal, which our people are not going to stand for ever. The Prime Minister, when he was speaking in America the other day, talked of the great devotion of his party to freedom. I am bound to say that it was an extraordinary speech. I say in all sincerity that there can be no real freedom in a community where the Government spend so high a proportion of the national expenditure, and where the individual is left so little to spend for himself out of his earnings. In a State where the Government exercise extreme control, which I gather that this Government intend to exercise over the next five years, there will be very little consumer choice, and consumer choice is one of the measures and tests of freedom.

While I am on the subject of taxation I must refer to earned income allowances and postwar credits. The matter has already been dealt with by my right hon. and gallant Friend the Member for West Bristol (Colonel Stanley) when he opened the Debate. It has been touched upon by other speakers. I have taken several examples from the group between £400 and £700 a year, just by chance.—[Laughter.] Believe me, I did not take the groups by chance. I took the groups because I saw there was some reason to look at them but I have taken the illustrations by chance—and of 12 examples, nine reveal that the taxpayer is worse off from this peacetime Budget than he was before. Take the married man with £600 a year, a figure in which hon. Members are always deeply interested. If he has one child, he is worse off as a result of this Budget, taking into account the postwar credits, although not by a very great amount, by £2 2s. 6d. a year. The married man with £600 a year and two or three children is also worse off. He is progressively worse off the more children he has. Some of these facts are illustrated by the graph which I understand has been given to the Chancellor of the Exchequer by the hon. Member for Bath.

It is no good saying that family allowances will put this matter right. The Chancellor of the Exchequer knows that family allowances will not be available for the married man with one child. It really is a blot on the Budget and it is made worse by the fact that the position was not made clear by the Chancellor of the Exchequer when he broadcast to the people on the night of the Budget. Does he admit that there will be more than 1,000,000 people who will be worse off as the result of his Budget? I know well what the Chancellor will say when he comes to reply. I can imagine what I should have to try to say if I were in his position. He will say that it would be much too expensive: if you make a calculation for giving earned income allowances you will always find it works out extremely dear. I complain that the Chancellor of the Exchequer should have been a little more frank about it and should not have pretended to the public that he was giving benefits all round.

I cannot pass from the subject of taxation without referring to the increase in the Surtax. A number of speeches on this subject have been made, including the interesting speech from my hon. Friend the Member for Scarborough (Mr. Spearman). My right hon. Friend the Member for the Scottish Universities (Sir J. Anderson), the last Chancellor of the Exchequer, has spoken on the importance of incentives, which should be of the maximum benefit to the community. I do not think that any fair-minded man, looking at this problem objectively, can say that the increase in the Surtax can benefit the community. The trivial amount raised by it amounts, over the whole year, to half of one day's expenditure, and has the effect of discouraging enterprise out of all proportion to the money raised. The great wealth producers are continually held up to scorn and opprobrium by hon. Members opposite who fail to recognise their services to the community in their passion for a dead level of equality. They overlook the fact that equality is the enemy of quality, and that it is quality on which civilisation depends. It is no good arguing, as my hon. Friend the Financial Secretary to the Treasury did in a speech the other day, that many a great man has died in a garret. It is an interesting observation, and I am sure it is true, but it is not really relevant. It is also true that the incentive of getting more money to spend on himself and on his family and to benefit the community in such ways as he thinks fit rather than the Chancellor of the Exchequer thinks fit is a powerful factor in producing work and wealth.

Mr. A. Edwards

Will the right hon. Gentleman not agree that those people who are penalised by paying this high rate of Super-tax have during the war made by (Capital appreciation many times more than they have paid in taxation in this way?

Mr. Assheton

I think that argument is very incomplete. Look at the case of professional men, like doctors and barristers, who are not getting any capital appreciation.

Mr. Edwards

I was thinking of those paying 19s. 6d. in the £.

Mr. Assheton

It does not meet the case at all. It is no good arguing that because certain great men have not received rewards other great men do not wish to receive them. Does anybody think, does my hon. Friend the Financial Secretary —who, I am sorry, is not now in his place —think that Shakespeare would have written as many plays as he did if he had not been paid for them? If hon. Members opposite have read about Shakespeare's life and many of them have, they will remember that he had his reasons, as have hon. Members in this House, for wishing to get money, and it is idiotic to say that it is not an important motive. Of course it is not the most important motive or the only motive, but it is a motive of which we must take account. It is just as powerful a motive in the case of the rich man as in the case of the coal-miner or bricklayer. Hon. Members opposite recognise that their output is related to their earnings, and if that is the case with the coalminer or the bricklayer, it is also the case with the rich man. The sooner we recognise that the better. You can condemn the profit motive as much as you like, but I hope that any hon. Member who has never been actuated by it in the whole of his life will get up and tell the House how he achieved this state of perfection.

Mr. Ivor Owen Thomas (The Wrekin)

Would the right hon. Gentleman say how many tons of coal the Duke of Northumberland turned out for the royalties he received?

Mr. Assheton

I was asking —[HON. MEMBERS: "Answer."] My hon. Friend asked me how many tons of coal the Duke of Northumberland turned out. I have not the slightest idea. That really does not affect my point. What I asked was that any hon. Member who could get up and tell me he had never been actuated by the profit motive might tell the House how he has achieved such a state of perfection. However much hon. Members may want to encourage people to reach out for higher things surely they will recognise that we have to legislate for the world as it is today, and I suggest that this increase in Surtax is a stupid, mean and niggardly piece of popularity seeking which the Chancellor of the Exchequer will live to regret.

If I may pass to a much less controversial subject and follow the interesting speech made by the hon. Member for East Coventry (Mr. Grossman) on the subject of motor cars, I should like to say a few words about motor taxation. I have listened I think to all the arguments which have been put forward, and I am convinced of one thing—that however we juggle with the taxation of motors, whether we tax vehicles by reference to cylinder capacity instead of horsepower, or whether we tax petrol and remove very largely the tax upon motor cars themselves, we shall never make real strides forward in this industry until the weight of taxation on the whole industry is substantially reduced.

If the whole tax were laid on petrol, motor car manufacturers would still be producing that small type of car to which my right hon. Friend the Foreign Secretary so objects and which is not popular with the export market, because it is only the small car which has a low rate of petrol consumption. If you want to do something to help the motor-car industry to compete in the world, you will have to reduce substantially the taxation which the industry is paying. It will always be hard to persuade the Chancellor of the Exchequer to take such a risk, because for the first year or two he will, very-likely, lose revenue, and he never knows who will be there in a year or two's time to benefit from his wisdom. I am, however, convinced—and this opinion is shared by many of all parties, it is not a party matter—that a substantial reduction in the level of taxation on the industry is the only thing to put it in a really strong position to capture the world's trade. I think if this were done, in two or three years time the revenue would recover from the increased volume of motoring whatever it had lost through the reduced taxation.

I want to make one small plea on the subject of Entertainments Duty, which I know the Chancellor has it in mind to review. He will have great pressure brought to bear upon him to make reduction in the tax on all forms of sport, on cinema-going, football matches, dog-racing,, horse-racing and so on, but there are two cases to which I ask him to give special attention, and which I suggest need great consideration. They are cricket and the living stage. The cost in either case of a total abolition of Entertainments Duty would be very small, and the circumstaces in both cases are exceptional. It would need some courage on the part of the Chancellor to deal with those two hard cases if he felt unable to deal with the more clamant demands of bigger entertainment interests, but if I may be allowed to say to the Chancellor, in a speech which has not been entirely free from criticism, courage is one of the qualities in which he is not lacking. It is a quality most needed by any Chancellor, and I hope we can count on him to use it, not only in these minor matters, but in the whole field of national expenditure which he has to cover.

9.8 p.m.

The Chancellor of the Exchequer (Mr. Dalton)

Until the last speech, during which there were some signs of growing emotion in various parts of the House, I have been rather disappointed with the run of this Debate as compared with some of the forecasts which I have been reading. The tape machine, I understand, is now one of the roads of information along which we can travel to ascertain the proceedings of the shadow cabinet of the Conservative Party, and on Saturday night I read: Second thoughts on the Budget. Conservative M.P.s have had second thoughts on the Budget. Some are regretting that they were so profuse with their compliments to the Chancellor during the Debate on the Budget Resolutions, and they intend to use the Second Reading of the Finance Bill on Monday as an opportunity to let him know that, having thought the matter over, they perceive that the taxpayer is not better off, but is in fact in many cases worse off, than he was before. I was therefore expecting some rather more powerful demonstration, both in terms of arithmetic and in terms of dialectical and emotional energy, than we have had from the other side of the House. None the less, a number of interesting matters have been raised and I will endeavour to make answer to a number of questions which have been put. It would perhaps be convenient to begin by speaking of motor vehicles. My hon. Friend the Member for East Coventry (Mr. Cross-man) spoke on this matter with considerable first-hand knowledge of conditions in the constituency which he now represents, and both he and my hon. Friend who shares with him the representation of Coventry, the Member for Coventry, West (Mr. Edelman), having been in touch with the motor industry, both employers and trade unions, have been in touch with me on the matter before tonight's Debate. I have very little to add, so far as the immediate situation is concerned regarding motor vehicles, to what I said when I introduced the Budget, but I may say perhaps one or two words in reply to particular questions about the future.

With regard to the immediate future, after much debate and many representations from all quarters to my predecessor as well as to myself, the Government have reached the view that we really must settle this question of motor taxation now, not necessarily unchangeably for all time, so that the industry may know where it is and should have no further dubiety about it. Therefore the Government stands, as I explained in my Budget statement, for the cubic capacity tax as indicated in the Finance Bill, though subject to argument as to whether we should have a larger number of smaller or smaller number of wider steps in the gradation. On that we are prepared to listen to debate in Committee and perhaps, if the run of the debate should so point to it, to make certain changes to widen the steps, though I ought to be perfectly frank with the House by saying that I am not prepared to accept any Amendment except one which might justify the knocking down of a certain number of steps in the narrow staircase. Of course nothing is final, even in motor taxation, and as we move forward into better conditions it may be possible to meet the views which have been put by the hon. Gentleman, but it may not be desirable, not only in the narrow interest of the motor industry but in the wider national interest, to reduce the aggregate taxation payable by the motor industry. Theirs is not the only industry or the only group who are looking forward to happier times when there may be less tax, though they are entitled to look forward like the others.

With regard to the other points raised by my hon. Friend, of course we are looking forward to happier times in the future when our export trade can get back into its former place, and of course we will be very glad indeed to see more cars on the road here as well as those which will be going abroad. The cry now is for export, and let not the motor industry make the mistake that an export of 16 per cent is sufficient. That was the figure before the war and it was certainly not enough, and they must now, as part of their contribution to better export conditions, see to it that they participate according to their capacity. [An HON. MEMBER: "What is the percentage?"] It should be more than 50 per cent. of the production. Certainly it should be that, and we will give all the assistance we can to help them to achieve it and I hope they on their part will show the enterprise for which they are well known in Lobbying Members of Parliament and conducting their publicity activities. I am sure they will recognise that production also has its great importance. I am hopeful that if we can get a temporary settlement of the taxation question, less time will be spent in debating how cars can be taxed and more time will be given to producing the cars.

The second point raised by my hon. Friend concerned the Purchase Tax. What I said in my Budget speech about the Purchase Tax was that we must go very slow in remitting the Purchase Tax on anything just now, because all tax remissions, including particularly the Purchase Tax, release purchasing power, it may be prematurely, to run about after goods that are not there and put up the prices of scarce supplies. Therefore, I make no apology, and indeed, I have not been seriously criticised in any part of the House, for going very slowly in Purchase Tax remissions now; but again, as we go forward into a period of greater production and abundance, this argument for maintaining the Purchase Tax will lose much of its force.

Mr. Austin

Will my right hon. Friend say a word about the point I made with regard to the Serviceman who leaves the Service with a gratuity of, perhaps, £80 or £100, who wants to set up for himself, and who has to pay Purchase Tax on the things he has to buy?

Mr. Dalton

What I have undertaken to do is, between now and next April—and April is not very far away—carefully to examine all the particular cases that have been put regarding the Purchase Tax and to see whether it would be justifiable either to remit the tax completely or to reduce it. But I do not wish to raise extravagant hopes and I say at once that next year I shall need the Purchase Tax as a revenue raiser on a great scale. I cannot agree to extend the range of remissions now, but I do undertake that between now and next April I will go carefully over all the cases that have been put and see how far I can go. If revenue and expenditure conditions permit, I would like to go a moderate distance on the way next April in further remissions of Purchase Tax in certain directions.

Mr. Butcher (Holland with Boston)

The right hon. Gentleman means that every man who is demobilised between now and next April will, in fact, be penalised by having to continue to pay Purchase Tax?

Mr. Dalton

They will have the opportunity of contributing, like everybody else, to the necessary expenses of the country, and unless the thing is wrongfully put to them, they will not resent it. Meanwhile, the Purchase Tax on cars must stay. If I am asked to choose between different articles in respect of which the claim for remission of the Purchase Tax is strong, I do not put motor cars for use in this country high on the list of articles from which Purchase Tax should be removed. I hope people will buy cars here, but I hope that, by paying Purchase Tax, they will both assist the revenue and enable me to avoid some of the dangers of inflation which might be greater if the money which they spent on motor cars, including Purchase Tax, were spent instead on other things. I cannot hold out any immediate prospect of re- moving the Purchase Tax from motor cars, but this, again, is not a pronouncement for all time. It is only a question of the near future. The motor industry asked for a definite statement; they said they wanted to know; and the honest and definite statement I make to them is that they had better go forward on the assumption that the Purchase Tax on cars sold at home will remain for the time being. On the other hand, cars sold overseas are not, of course, subject to Purchase Tax.

Mr. Crossman

The precise question I put to my right hon. Friend was whether he would consider removing Purchase Tax when the export trade was no longer succeeding in absorbing the total production of the motor trade.

Mr. Dalton

That would be a new situation, and I would certainly look at it very sympathetically, because behind any plans for taxation remains the great aim of full employment in all industries, including the motor industry, and if in any industry it could be shown that some particular tax arrangement was impeding full employment in that industry, evidently it would be my duty, and I should most readily accept, to look at the position and see whether any tax change would produce a condition of full employment, which otherwise would be endangered. But we are not there yet. For the moment I hope they will concentrate upon export to the utmost of which they are capable.

The third question that my hon. Friend asked related to a possible re-linking of the motor revenue with expenditure upon the roads. That was an innovation by Mr. Lloyd George a generation or more ago, and for a while the Road Fund was fed from the motor taxes. But: generally speaking, it is thought to be rather inconvenient to link the proceeds of one particular tax with some particular form of public expenditure. I think that that is common sense. We want a certain freedom; we want to get the Revenue in, from whatever source from which we derive it so that we can extend the plan in whatever direction it is desirable. Therefore, I would not commit myself to re-establishing the exact linking, but, on the other hand, I would commit myself to the prospect of this country having good and better roads. In due course, I have no doubt that my right hon.

Friends who are concerned with this will be coming to ask me to assist them financially to bring about this desirable state of affairs, and I will endeavour to be reasonable when they do so.

Now I will turn to some of the other matters which have been raised. The right hon. and gallant Gentleman who sits for West Bristol (Colonel Stanley) was on the whole not unkind to me or even the Budget in spite of all the tape-machine prognostications. He recognised—and I am sure that the House as a whole recognises—that this is not a moment when we can enter with very great exactitude into aspects of revenue and expenditure in the course of the next financial year. We are working upon the subject now and it will be my duty when April comes to present to the House, I hope, accurate figures, based upon the estimates to which we are attending. When, we return to the system of Estimates, those Estimates will be the subject of discussion between the Treasury and various Departments concerned in the months immediately in front of us. I said in presenting the Budget that it is my view and [...]tention—and I shall welcome the support of the House, which was so kindly suggested by the right hon. Gentleman the Member for the City of London (Mr. Assheton) and no doubt supported in all parts of the House—to carry out the discouraging, reducing and pressing down of all public expenditure which has no national or social justification. There should be no such expenditure as that, but, on the other hand, I was asked to name some figure by the right hon. Gentleman the Member for the City of London at which perhaps a normal Budget might settle down. I do not think that it is practicable to do that yet.

I had suspected that the question would be put and I have looked up precedents, and no one who held the office as Chancellor at the end of the last war, when things were in a somewhat similar state, attempted to make such estimate. I do not think that that can be made yet with any real plausibility at all. Expenditure is of many sorts. It is not just a homogeneous total. It depends on Defence. I am sure that the Party opposite are not going to press that we should reduce Defence expenditure below what in peace time is necessary to play our part in whatever organisation may be set up. I would be a most foolish person if I attempted to name a figure within hundreds of millions of pounds a year. Similarly there is the Debt charge. I hope that it will not settle down to any particular figure, but what figure it will reach in the next two years will depend upon things such as the rate of interest, and I hope we shall secure a change from higher to lower rates of interest. We have the field of Social expenditure and again, I would be a very rash man—and so would anybody else—to name an exact figure until we have worked out the various schemes which will be presented to Parliament and perhaps amended and altered by Parliament in the next year or two. Therefore, it is not practicable to name such a figure yet. But I am most anxious that we should press on with the course of reducing, as quickly as we can, all expenditure, which is not nationally or socially necessary, but, on the other hand, there will be a very great deal of expenditure which is both nationally and socially necessary, and that we must meet, and, therefore, we shall need large revenue.

Many points have been raised about the earned income allowance and the surtax payers. These are topics which have recurred in a number of speeches, and it would perhaps, be convenient, if I said a few words about them. With regard to the earned income allowance, it will appear that hon. Gentlemen opposite apprehend that this is an Achilles heel, as it were, in the popular appeal of the Bill to the wide masses of the population of this country. They revert to it continually, and I must apologise if, in what I have to say now, I have to repeat myself. I did say, when we were discussing, this matter on the Budget Resolutions, that I thought a good deal of the criticism that was raised on this point of earned income allowance was based upon a misunderstanding of the arithmetic of the sum to be performed. Many people have spoken as if the whole of the postwar credit was spendable income in the year in which —[HON. MEMBERS: "NO, no."] If hon. Gentlemen will let me proceed, I will give the answer, which I think is correct, and will give them the figures. Many people have spoken as though—[Interruption.] Let me give an illustration of what was said. The right hon. and gallant Gentleman the Member for West Bristol (Colonel Stanley) said we had taken from the earned Income Tax payer a benefit which he enjoyed last year. That was the phrase; I took down his words exactly. What benefit did he enjoy last year?

Colonel Stanley

He enjoyed this benefit—that a certain part of the tax he paid was to be put aside in the form of postwar credit to be returned to him at some future date.

Mr. Dalton

It is not a benefit which he enjoyed last year. [HON. MEMBERS: "Yes, yes."] This is not a play on words; it is just fact. What actually happened was that he received, on a certain date, a piece of paper saying that His Majesty's Government undertook to pay him, at a date to be fixed hereafter, a sum of money. That is a very good thing to have, but, of course, not a tiling that he enjoyed last year. I will explain it in this way. I do not know whether there is anything between us or not, and I am trying to get the matter clear, and, so far as I can, to carry the whole House with me. To be given a piece of paper, backed by His Majesty's Government, to be payable on a date not yet determined, is undoubtedly a benefit, but it is not a benefit that anybody enjoyed last year.

Colonel Stanley

I can only speak from my own experience. I got a piece of paper last year, and I did enjoy getting it.

Mr. Dalton

But my right hon. and gallant Friend could not turn that intimation into any form of expenditure—[Interruption]. But this is the whole point. The right hon. and gallant Gentleman could not transform the benefit contained in that Government guarantee of payment, at a date not yet fixed, into a glass of beer or into any other form of harmless enjoyment, and, therefore, he did not enjoy it last year. [Interruption.]

Mr. J. Pitman rose—

Mr. Dalton

May I proceed? I will give the hon. Member an opportunity later. He has given me a graph; and I do want to get this point clear. It is really awfully simple. You may delight in believing that you own something, a piece of paper; but you only turn it into delight when you are able to spend it on something like entertainment—the living stage, cricket, and so on. When you will enjoy it will depend on when the Government pay out the postwar credit to you.

These delights are all in the future, and at a date in the future not yet determined. They are sure, but the date at which they will be enjoyed is uncertain. Therefore I say it is a complete delusion of hon. Members to argue—

Mr. Pitman rose —

Mr. Dalton

Just allow me to complete this phase of my argument and I shall be delighted to give way to the hon. Gentleman, who speaks with great knowledge of the Court of the Bank of England. I shall not have the opportunity of recommending His Majesty to appoint him under the new régime, because he has chosen to come into this House and so is disqualified. What I was trying to indicate was that these postwar credits will give rise to those enjoyments —by those entitled to receive them—when negotiable, and if that is not so, why am I asked by hon. Members on this side of the House to hand them out now to people over 70 years of age? I am afraid I cannot accede to that, but we will think about it again next April. The reason why I cannot accede to that at the moment is because the releasing of the postwar credits now would be inflationary. They were not enjoyed last year, they are not being enjoyed this year, and they may not be enjoyed next year. Therefore it is quite a delusion to count them into these calculations as though they were part of the incomes of those entitled to them. They are not part of the incomes of the persons entitled to them.

Mr. Pitman

.: May I say first of all that I am no longer a Director of the Court? I ceased away back in August. On the second point, I would ask the right hon. Gentleman to compare like with like. There is no suggestion on our side that those postwar credits should be cashable now throughout; what we are saying is that a postwar credit has been taken away and we are comparing postwar credit in the current year, with postwar credit in this year, and that those people, starting from the very small income level of the working man with £3 18s. a week, are having a reduction in the postwar credit which they will no longer have.

Mr. Dalton

Yes, but they are not having a reduction in their income. The essential point is this—and I will come back to the point of the hon. Gentleman in a moment—that under this Finance Bill, and under the terms of my Budget speech, everybody who has been subject to Income Tax at all up to now, including Surtax payers, is to have a larger income next year than this year. That is the plain truth, and that is set out in the White Paper. In my view it is incontrovertible arithmetic. Everybody will be better off, in varying degrees, next year than this, in terms of their incomes; and that is what most people really think about. Some people may think only about capital investment and arrangements for the future, but the common view is that it is your income which you can spend that matters. That is the common-sense of the proposal that I am now defending.

Let me proceed from this point and give the reason why I do not think the postwar credit can properly be introduced into a comparison of whether people are worse off this year or next year. Worse off in terms of income, no one will be as a result of my Budget; better off in terms of income, everybody will be; better off in so far as they do not pay at all, two million people will be—

Mr. Lipson rose —

Mr. Dalton

These facts cannot be refuted. I will give way to the hon. Gentleman.

Mr. Lipson

May I ask if the Chancellor of the Exchequer is aware that there would be no difference on either side of the House if he would only give a post-war credit this year as well?

Mr. Dalton

My right hon. predecessor at the Treasury said in a speech here that he had always intended to bring the post-war credit to an end at the end of the war; and nobody proposes to continue this, I think, rather clumsy and unduly laboured arrangement after the end of the war. I reject, with respect, but I hope with logic, the suggestion that the postwar credit should be treated as though it were part of the income of the persons concerned. It is not. It is a promise of His Majesty's Government to pay in the future.

Let me now pass to the question why the earned income allowance has not been increased by this Finance Bill. It is connected with the postwar credit argument. As I explained, when I spoke before on this subject, I could have increased it.

Someone said that he thought perhaps I had not considered it, but little did he know the efficient team of Treasury officials. Even if I had not thought of it myself, I should have been told about it. Of course, I considered it, and various alternatives. The simplest arrangement would have been to reconstitute, at the time the postwar credit was discontinued, in slavish imitation of the 1941 arrangements, the income tax allowances and rates which the late Sir Kingsley Wood then modified. That would have been the line of least resistance. I would then have put up the single man's allowance from £80 to £100—in fact I put it up to £110—and the married couple's allowance from £140 to £170—in fact I put it up to £180; I would not have reduced the standard rate, and I would not have graduated the standard rate, so that only one-third of the weight of it fell on the first £50 of taxable income. I say that I have done better, for the great majority of Income Tax payers in this Budget, than if I had merely restored the 1941 arrangements, including the earned income allowance. I have done better for the majority of the people.

Finally, even if—[Interruption.]—they are tired of cheering these truths—finally, even if it were all true—[Laughter]—I pointed to the hon. Gentleman the Member for Bath (Mr. Pitman) when I said that—even if it were all true as alleged by the other side of the House, and even if it were right, which I maintain it is not, to count in the postwar credit as spendable income, it would still be the case that out of 13,000,000 Income Tax payers 11,750,000—even on the arguments put forward from the Opposition Benches, which I do not admit to be logically valid but even if they were—it would remain the case that out of 13,000,000, 11,750,000 are better off with me than they would be with them, and only 1,250,000 are better off with them than they would be with me. It is true that there are 1,250,000 out of 13,000,000, a very small proportion, less than one-tenth, who, as a matter of fact, if you count in the postwar credit, as hon. Members opposite would count it in, are worse off with me than they would be with an exact reconstitution of the 1941 arrangement.

Mr. Quintin Hogg (Oxford)

I said not better off than they would be with my right hon. Friend, but than they were last year.

Mr. Dalton

No, better off than they would be, if the arrangement which I have not adopted were adopted now, namely, to substitute the 1941 scheme of allowances for the allowances as they stood immediately before my Budget, on a straight-back to Kingsley Wood programme if I may call it that—1,250,000 out of 13,000,000 people better off, as against 11,750,000 better off on the programme I have put forward. The hon. and gallant Member for Wallasey (Captain Marples) commented in his speech on the figure I quoted in the Debate on the Budget Resolutions to the effect that what I had done has freed 2,000,000 people from Income Tax altogether, whereas if I had merely reconstituted the allowances of 1941, 1,600,000 instead of 2,000,000 would have been freed. He asked how it was that I could claim the extra 400,000. The answer is that he has cited figures related to income wholly earned, and these figures show, of course, that the single man is unquestionably much better off under my arrangement, since I have added another £10 to his allowance. All single people score under my arrangements.

With regard to the rest, the 400,000 is made up partly of single men who have earned income, partly of people who have unearned income on the lower levels, and of people whose income is mixed, part earned and part unearned. The figure I gave covered all those three classes—all earned, all investment and partly earned, partly unearned. The figure has been worked out with some care. I have succeeded in my proposals in freeing 400,000 people more from Income Tax altogether than if I had simply reverted to the Kingsley Wood plan.

Captain Marples

Has the Chancellor any idea how many of these 400,000 whom he has released from Income Tax are wage earners?

Mr. Dalton

I have a pretty shrewd idea that the great majority of the 2,000,000 are wage earners. I will see whether we can get the answer to the hon. and gallant Member's question. It will need an elaborate calculation. The Inland Revenue are very good at them, but sometimes it is not possible to give, with a reasonable amount of labour, a very exact answer. But I will look into it and see if we can give a reply. I maintain in regard to the earned income allowance that we have done better under the arrangements I have made in this Budget even though we have left it where it;'s for now. It might well be—I make no commitments; I am only guessing—that long before all the postwar credits have been enjoyed in the full and literal sense of the word some-thing can be done about the earned income allowance. I do not know. We must see how we go. "I cannot anticipate future Budgets" is the usual formula.

I would like, among other things, in the course of the next year or two, if I can see my way—if the general situation warrants it—to increase the earned income allowance. It would not have been reasonable this time to give away the amount of additional revenue involved; it would have cost £105,000,000 in addition to the other relief's I am giving this year. The hon. Gentleman thought I had given a bit too much. I do not know whether he will argue that I should not have reduced the standard rate, or whether I should not have regarded the rate on the taxable income or that I should not have put up the Income Tax allowances. You cannot have an earned income allowance concession within the margin which I thought was about the maximum to which I could go. One can-not give £05,000,000 extra without cut-ting out some rather important elements from relief's I have been able to give. I think that the relief's I have given are the best combination to meet the greatest needs of the greatest number at this time. I hope I may be excused from saying any more on this well-worn topic tonight.

Some hon. Members spoke up for the Surtax payer. Even Surtax payers get some advantage under my proposals, and nobody has said that the Surtax payers come within the category of people who are suffering because the postwar credit has been discontinued. Surtax payers quite definitely score at all levels of in-come. I will not weary the House by quoting the White Paper, but it will be observed from that Paper that the Surtax payers get moderate increases in their net incomes in the same way as other people. The grievance appears to be that they do not get more than moderate increases.

Mr. Pitman

On a point of fact, I think if the Surtax payer has II children he does suffer.

Mr. Dalton

If the hon. Gentleman will produce for my inspection a Surtax payer with 11 children of school age, he and I will start to make a public subscription for him. There is an offer.

Mr. David Eccles (Chippenham)

What about the late Member for Macclesfield?

Mr. Dalton

If he is late we cannot do anything for him. Apart from one or two astronomical cases of this kind it cannot be denied that the Surtax payer is deriving a moderate benefit from my proposals. The grievance is that he is not deriving an immoderate benefit; it is not enough for him to get a few hundreds of pounds more—he ought to have thousands of pounds more by way of tax relief! I do not think so. That is all I can say. Without going deeply into the question of services rendered and their relation to income, which is a long and somewhat controversial story, I myself think it is only fair that when tax remissions are being given in such a form as a reduction of the standard rate of Income Tax, it means that, if you reduce the standard rate of Income Tax by is., as I propose to do from 1os. to 9s., everybody gets off one-tenth of the tax they would pay if I did not reduce the standard rate. That is what it means. [An HON. MEMBER: "No."] It is no good saying "No," because I have worked out the sum, and all sorts of able officials have helped me to do it. If I allowed that to operate right up through the Surtax classes, it would mean that the person who was lucky enough to be paying 20,000 a year in Income Tax would get off £2,000 under my proposal, and I do not think that would be fair.

Therefore, what I do propose is to readjust the Surtax rate, not in such a brutal and extreme fashion as to take away from the Surtax payer all relief, but so as to limit the benefits which the Surtax payer gets to a fixed amount, roughly in hundreds rather than in thousands of pounds. That, I think, is a very moderate and reasonable proposal, When they say it is only £7,000,000 a year, it cannot be doing a lot of aggregate harm to enterprise in this particular class of society.

A question was put to me by my hon. Friend the Member for The Wrekin (Mr. Ivor Owen Thomas) which seems to have some point. He asked whether a certain gentleman had hewn much coal for the reliefs he got. My hon. Friend's question was very naturally induced by the right hon. Gentleman's argument which seemed to suggest that all taxpayers—not only an occasional one, not only a brilliant writer or a clever lawyer, but every one of them—were showing immense enterprise, straining at the leash to produce wealth on a great scale, and full of new ideas, provided they were not heavily taxed. The truth, of course, is not that. The truth, in fact, is—and I am driven to make these descriptive observations by the right hon. Gentleman's remarks—that a large number of the Surtax payers do nothing at all. They subsist on very large investment interests. Many of these have been inherited through many generations in the past, sometimes along with noble names and sometimes not.

As a consequence of this there is, in the total Surtax income, a great quantity of completely unearned income, conglomerated in huge lumps around people who have inherited it, or obtained it by luck, or other means. It is really a pretence to. tell this House that it is a discouragement that the income of such people is to be-increased by a few hundreds a year. [An HON. MEMBER: "Such as Lord Rothschild?"] There are many different people—some good, some better. I do not think very much fuss ought to be made by, or on behalf of, Surtax payers, because they have not a much larger tax reduction than the rest of the community. By and large, my proposals for the Surtax payers, taken into conjunction with the rest of my proposals are fair and equitable.

Many other questions were raised. If the House will excuse me, I will not, at this stage, go into great detail on a number of them, but I might, perhaps, very briefly, touch on one or two. With regard to entertainments, the right hon. Gentleman made a special appeal for reconsideration of the Entertainments Duty in connection with cricket and the living stage. Other hon. Members have put in claims for other forms of entertainment. There, again, I will promise to have a look at this question between now and next April, with a view to doing the best I can within what may be rather limited bounds. I am very anxious that people should have good entertainment of all sorts, and reasonably cheaply, but, at the same time, it must be admitted that most people in the industry are doing very well now and are not candidates for relief at present. Of course, in some forms of entertainment, there are no industries. In cricket, for instance, it does not apply, and to the living stage it does equally not apply; but we must not be too quick to reduce the Entertainment Duty. However, as I have said, I will look at it again and see what can be done.

Mr. Sunderland (Preston)

I wonder if my right hon. Friend is suggesting that there are any cricket clubs in the country and many, if any, football clubs in the provinces making money.

Mr. Dalton

I definitely mentioned cricket as an exception. I do not think much money is made out of cricket, and people do not bet much on it. I am sympathetic towards it, and will see what can be done to meet the case. Various other claims have been put forward for tax remission, but I must stand firm this time on the proposals in this Finance Bill. I am sure the House would not wish to press me, even in the interests of wall paper to which I think the right hon. Gentleman gave his support, or to press me to go much further at this moment along a line which may have a very definite inflationary danger. Until we have more stuff produced, I think it would be a great mistake to begin relaxing taxation and thereby loosening purchasing power.

I am anxious, on the one hand, to hold out inducements in the form of tax relief from next April and E.P.T. relief from January, to give an incentive following the long, difficult and hard years of wars. But, on the other hand, I am anxious not to begin to give away too much too soon from the point of view of price levels. It is in that spirit I have sought to construct this Finance Bill. There is a mass of detail which we can leave to the Committee Stage. These are the main ideas about this Bill, and I hope the House will give it a Second Reading.

Mr. A. Edwards

There is one point 1 would like to put to my right hon. Friend. He said that he wanted to leave no dubiety about the future of taxation on motor cars. It had been generally understood that he and the previous Chancellor of the Exchequer committed themselves to accepting a scheme that gave the same result arrived at in a different way. Is my right hon. Friend saying now that even if I were to put down an Amendment which had the support of all the manufacturers, he still could not consider it?

Mr. Dalton

I will not commit myself on the matter to-night. I would only say that it will be a miracle if my hon. Friend has got all the manufacturers to say the same thing. I never could get them to do that. All I can say is that if my hon. Friend puts down an Amendment, I will give it careful consideration.

Question put, and agreed to.

Bill accordingly read a Second time.

Bill committed to a Committee of the Whole House, for Thursday. —[Mr. Mathers.]