WAYS AND MEANS

HC Deb 10 April 1946 vol 421 cc1936-2054

Considered in Committee.

[Progress, 9th April]

[Major MILNER in the Chair]

AMENDMENT OF LAW

Question again proposed, That it is expedient to amend the law with respect to the National Debt and the public revenue, and to make further provision in connection with finance."—[Mr. Dalton.]

3.24 p.m.

Sir John Anderson (Scottish Universities)

I should like to begin by congratulating the right hon. Gentleman the Chancellor of the Exchequer on the very clear presentation which he gave to the Committee yesterday of his Budget proposals. That, indeed, is only what we should have expected of him. He certainly left the Committee in no doubt either as to the facts he wished to put before them, or as to the arguments that he desired to deploy. He must have been gratified by the general reception accorded to his proposals in the Press and in the country. If I have, as indeed I have, to offer some criticisms, I am sure he will not attribute that to any lack of good will on my part. I can assure the Committee that I should be very much happier in praising rather than blaming any occupant of his high office. I know too well the burdens and the responsibilities of a Chancellor of the Exchequer in these days to feel otherwise.

I think it is generally agreed that nowadays, with taxation running at the present high levels, with the activities of Government extending over an ever widening area, the matters comprised in a Budget not merely represent, as they used to in the good old days, a scheme of financial provisions for a particular period of 12 calendar months, but con- stitute a main instrument of financial and economic policy. I think I shall find it convenient to keep those two aspects of the Budget as far as possible separate in the observations, I have to submit to the Committee. The right hon. Gentleman was fortunate in being able to show that, after certain adjustments and with certain not unreasonable qualifications, we are already much nearer to a balanced Budget than many of us had supposed. That position, eminently satisfactory in itself, should go a long way to impress people at home and abroad with the strength and the resilience of the economic structure of this country. But such strength is, in my view, to be regarded riot merely as a cause of pride, but also as something to be conserved. Let us beware of trying our people too high. They have shown themselves over a long period of years very patient and very willing, but the level of expenditure by which we are confronted is indeed staggering.

The Chancellor rightly commented on the success—which has come rather to be taken for granted—of the authorities of the Treasury in the framing of estimates, even in times of great, uncertainty. But in opening my Budget almost a year ago —on 24th April last, to be precise—I was budgeting amid the uncertainties of war, with a certain assurance that the war in Europe was bound to come to an end within a matter possibly of weeks, but in a state of great uncertainty as to the duration of the Japanese war. I made it abundantly clear on that occasion that I would take no pride in the fact, if it proved to be a fact, that the estimates I then put forward were closely adhered to in the result. Considering that the Japanese war came to an end rather less than four months after I opened my Budget, and that we have now been at peace for nine months, I am bound to say that the total expenditure for which the right hon. Gentleman has to budget is, as I have already said, staggering. I am most disappointed at this position. I regret very much that the right hon. Gentleman had so little to say to us, in his speech yesterday, about the paramount importance of economy.

I have no doubt at all that in the months that have intervened since VJ-Day the Treasury have been doing their best to enjoin economy upon the spend- ing Departments. I have little doubt that they have, in fact, succeeded, in many directions, in. pruning extravagant Estimates. But I would have expected the Chancellor to take this occasion to drive home the lesson of economy. After all, the control of the spending Departments is, still, as I said last October, one of the main functions, if not indeed the main function, of the Treasury. But the Chancellor had practically nothing to say to us, no assurances to offer, on that subject. His attitude rather seemed to me to be one of complacency. It seemed that he would he content if the fall in defence and supply expenditure for the year, and for some period ahead, should be found to balance the automatic inevitable increase in expenditure on what he called the central group of social services. I must warn him that we expected much better than that. The country had the right to expect something much better than that, There was not, in the right hon. Gentleman's speech, even a passing reference to the functions of the Select Committee on Expenditure, the re-establishment of which was featured in the statements made on behalf of the Government in October, when the previous Budget was introduced. I shall return to that topic later in my speech.

Before presenting certain observations of a more general character to the Committee, I propose to deal with the Chancellor's taxation proposals. In regard to these, I say at once that I am able to express, on the whole, a more favourable view, though I shall have some sharp criticisms to offer even there. In regard to the Purchase Tax, the Chancellor surprised a good many people by his forthright declaration that he, personally, regarded the Purchase Tax as an appropriate form of taxation for normal times. I do not think we are in a position in which we can safely dogmatise on such a topic. One ought, rather, to wait and see how such a tax tits into the general taxation picture. The Purchase Tax has, undoubtedly certain advantages. It has proved to be a fairly easy tax to collect; it has proved to be productive, and an effective machine has been built up in the Customs and Excise Department. But though it may have advantages as a tax, it has certain very obvious disadvantages, apart from the general disadvantages of any form of indirect and, therefore, regressive taxation.

It obtrudes itself as a tax, unlike most indirect taxes, on every individual transaction. It is a constant irritant, and it lends itself rather too easily to misrepresentation. I, of course, welcome, as I am sure the public at large welcome, adjustments of the sort which the Chancellor was able to indicate yesterday. While they were obviously very necessary—both the extension of the field of exemption and the lowering of the rate of taxation on certain categories of goods— I think the Chancellor might have gone a little further. After all, the exemption of epidiascopes and that sort of thing does not make very much impression. What about clothing, what about household linen? As Chancellor, I had always supposed that the tax would inevitably be continued for a time, and I had at the back of my mind an idea that it might he adjusted, as soon as peace came, so as to give a yield, during the period of transition, of something in the neighbourhood of £100 million a year. I thought that that would be a reasonable sum to take in that form, while conditions were settling down, and while there was still a scarcity of goods, and one did not wish to encourage any inflationary tendencies.

The Chancellor has not limited his ambition to that extent. He is looking forward to getting, for the time being, a revenue of the order of £150 million to £160 million. It depends on the volume of goods coming forward, the state of business, and so forth—a number of uncertain factors—but as compared with my conception of £100 million, the Chancellor has gone 50 per cent. Better, and his figure is in the neighbourhood of £150 million. As I say, I think it would be better to wait and see how the general scheme of taxation develops in the immediate postwar period before attaching the label of permanence to that particular impost, which, I emphasise, presents certain disadvantages from the standpoint of sound taxation.

The reductions in the Entertainments Duty I cordially welcome. I think they will be welcomed everywhere. That is the sort of alleviation which the public look for and are entitled to expect. I am particularly glad that the Chancellor has now given us a definite assurance that he is to proceed with the plan I adumbrated a year ago for altering the basis upon which entertainments that have an educational aspect are dealt with. I am sure that when he carries into effect that proposal, which was originally put forward by me, a substantial improvement will result. Grounds of criticism which are very difficult to deal with under the present arrangements will be swept away.

Now I come to a much more important matter, the question of relief in respect of earned income. So far as it goes, the concession that the Chancellor has made is welcome, but it did seem to me that in announcing that concession—I do not want to use harsh terms—he displayed the same rather cynical indifference to the position of taxpayers above the lowest levels, as he displayed last October, when he was dealing with the compensatory additions to the Surtax that he made in relation to the reduction in the standard rate of Income Tax. Let us look for a moment at the history of the earned income relief. I make no apology for detaining the Committee on this topic, because I think it is of very great importance not merely in regard to the particular tax and its effects, but in regard to the point of view from which these questions are approached.

Earned income relief was an invention of the Royal Commission on Income Tax in 1920 Before that date, there were separate rates of Income Tax, on earned and unearned income respectively. The Royal Commission recommended a uniform rate, with a special relief in respect of earned income. Up to 1940 the relief was one-fifth, with a limit of £250—the allowance was not to exceed £250. In 1940 the one-fifth was reduced to one-sixth, but the limit of £250 stood. In 1941–42 my predecessor in the office of Chancellor of the Exchequer, Sir Kingsley Wood, reduced the one-sixth to one-tenth and reduced the limit from £250 to £150, the object obviously being to draw the line still at the same point in an income of £1,500. One-tenth of £1,500 represents £150, but one-sixth represents £250. The reduction in the relief, made in 1941–42 by my predecessor, was part of a general scheme under which various allowances in respect of Income Tax were reduced or abolished. The consequent additions to the liability of the individual taxpayer were brought to account to the credit of the taxpayer in what we call now postwar credits, which, it was understood, would be repaid eventually. Last October the Chancellor abolished the system of postwar credits. I, personally, was entirely in agreement with him so far; but what he did not do was to restore fully the reductions in allowances which were the counterpart of the postwar credits. He made a partial, only a partial, restoration. Some of us criticised him, as he will remember, on that score. We urged very strongly that if he could not immediately see his way to redress what we then regarded, and and what I still regard, as an injustice, he might at least consider whether he could not do it on this occasion.

What has the Chancellor done? He has made a partial—only a partial— restoration of the earned income allowance. He has remedied the injustice, in part, by proposing to increase the allowance from one-tenth to one-eighth, not to one-sixth, but he draws the line at an income of £1,200. The full benefit of the partial redress of that injustice—as I regard it—is given only to persons with an income not exceeding £1,200. Between £1,200 and £1,500 the advantage of the right hon. Gentleman's proposals is on a diminishing scale, until at £1,500 it disappears altogether. Persons receiving an income of £1,500 or more have no postwar credits and they will not have restored to them any part of the earned income allowance which was taken away by Sir Kingsley Wood, as a purely temporary measure, on grounds connected with the war, and on the understanding that it would be wholly balanced by Income Tax credits which would be repaid in due course. I do not know whether the Chancellor has fully appreciated the effect of what he is doing. I venture to say that it does seem to me that his action in this matter is on a par with what he did last October when he could not bring himself to allow the reduction in standard rates from 10s. to 9s. to operate, as it naturally would have operated, over the whole field, but had to add on a compensating addition to Surtax on the higher levels.

Who are the people against whom the right hon. Gentleman is thus deliberately discriminating? They are a limited section of the community comprising people of special skill, special experience, who contribute, in a wholly disproportionate measure, to the efficiency of production, for the benefit not of themselves but of all concerned in production and of the community at large. That is what the Chancellor is doing—deliberately discriminating. When, last October, I ventured to deprecate the action the Chancellor had taken in regard to Surtax, I got no very convincing answer from the Front Bench opposite. What I was told was to the effect that I was confusing the very able with those who were only rich. That is what the Financial Secretary, in effect, said. There can be no question of that sort here, because we are dealing with earned income, and the very rich, whose income is, presumably, unearned, do not come into the picture at all. That argument has no application in this case. I say with all seriousness that this is a very important matter. If we really want to increase productive efficiency everywhere, we should give the maximum encouragement to these very people. I think the Chancellor ought to extend the benefits of the earned income allowance all along the line. He certainly ought not to discriminate deliberately against the persons to whom I have referred, discouraging them, and letting it he thought that, in some way, they are regarded as pariahs, and not as exceptional contributors to the country's economic strength and stability. That is all I have to say on that topic, but I repeat that I do regard this matter as of the very greatest importance, not merely on account of the sums that may be involved, but on account of the principle involved.

I pass, while still on the question of Income Tax adjustments, to the subject of payments under covenant. I am bound to recognise that the very liberal arrangement made for many years in respect of payment under covenant, had been for a long time abused in certain cases, and I do not know that I can really quarrel with what the Chancellor is now proposing. I would like to say this, however— and I think it only fair to say it—that the sudden bringing into operation of the change that he proposes may well have a very serious effect on certain most deserving charitable objects. I hope that, in making his proposal, the Chancellor was not influenced merely by some doctrinaire conception of equality or some antagonism towards charitable activities on the ground —I am glad to see the right hon. Gentleman shake his head—that they involve dividing the community into two parts, those who give for the benefit of others, and those who can only receive. I am glad to note that the right hon. Gentleman repudiates any suggestion of that kind. I am glad, because it has always seemed to me that the tradition of voluntary public service, of which charitable activities are only one example, has, with experience of local government, provided a foundation on which our whole democratic system has been built. It is something which, broadly, differentiates this country from some other countries in which the same degree of success has not been attained in developing representative democratic institutions.

In regard to the decision to exempt contributions, notably workers' contributions, to national insurance schemes, and to allow these to rank as deductions for Income Tax purposes, I am wholeheartedly with the Chancellor. I applaud his courage in taking this step at this moment, because, although what he is doing will confer a real benefit, measured, as he told us, by the sum of £40 million which he will be sacrificing every year in tax revenue from contributors, the necessary corollary follows that benefits, when they are paid, should rank as taxable income. I assume that, among the payments that will so rank, will be the family allowances which are to come into operation next autumn. I think that is absolutely right. I think it is contrary to all sound principles of Income Tax administration that payments which are at the disposal of recipients to spend as they choose, should not be included in income when the tax payment is computed. No hardship is in fact, involved, because if the allowances and reliefs are properly adjusted, the people who ought not to be paying tax, on any rational conception of the tax system, will be unaffected. But the principle is important, and, for the same sort of reason which led me to criticise the Chancellor's case in regard to earned income, I am led to applaud his case in this respect.

I am very glad that the Chancellor has seen his way to make a beginning in the repayment of Income Tax credits. Strange as it may seem, in view of the ample assurances that were given, I believe there was, here and there in the country, a sort of impression that these credits were only paper, and were never going to material- ise. Apart from the advantage which old people will derive from early repayment of these sums, the Chancellor has, by that payment, given an indication that pledges are going to be honoured in that respect, and that payment will be made in due course.

I come now to Excess Profits Tax, National Defence Contribution and matters connected therewith. Everyone, I think, will welcome the forthright decision to get rid of the Excess Profits Tax. I listened with some little amusement to what the Chancellor had to say about his efforts to find something to take the place of the tax that he is abolishing. I was Chairman of the Board of Inland Revenue in the years immediately following the last war, and I know of the efforts that were made then to find some satisfactory alternative to Excess Profits Tax. I know that my colleagues and I, with the best will in the world, were entirely unsuccessful. When the Chancellor says that his mind is still not made up, and that he is going to consider, for some time to come, whether he might not have to devise some alternative. I counsel him not to cherish any undue optimism.

More seriously, the Chancellor told us that, with the bringing to an end the Excess Profits Tax, all the appropriate terminal reliefs, as they are called, will be provided. Of course, we know nothing at this moment about the form which these reliefs are going to take. They do not involve a Resolution, as there is no question of charges. So we must wait until we have the Finance Bill to see exactly what the Chancellor will have to propose. I only want to say, now, that the form of those terminal reliefs is a matter of the gravest importance, and the country will scrutinise, and we shall all have to scrutinise, very closely the plan, whatever it may be, that the Chancellor will eventually submit to us. I know, from having been at the Inland Revenue, and from having studied these matters to some extent while Chancellor of the Exchequer, how complicated and difficult is the whole subject. I know, also, that some very ingenious formulae have been devised, and I hope the Chancellor will study them. He will find it an intellectual pleasure to go into these matters, and I hope he will study them carefully before his proposals assume their final form In regard to Estate Duty—the field of legacy and succession duties is left untouched—which is the main part of the Death Duties, the Chancellor has made proposals which will be warmly welcomed in many homes, although there will not be quite the same enthusiasm everywhere. I speak without any particular feeling, one way or the other. There is one thing on which I would like to remark in that connection, and that is the effect that the increased scale of Estate Duty will, inevitably, have on private firms of a kind that have been a distinctive and important feature of our economic structure. The increase in the duty must have the effect of altering the character of these firms in many cases and, nationally, I think we stand to lose by that process. It is unfortunate that that should be a consequence of what the Chancellor has proposed, but that is a matter which can be debated at a later stage and, as time is pressing now, I will leave the matter there.

Subject to what I have said, I think it will be clear to the Committee that my attitude is one of general welcome to the taxation proposals of the Chancellor. But I say frankly that that welcome would have been warmer, if the Chancellor could, on this occasion, have held out a more definite hope than he has, apparently, found it possible to do, of substantial reductions in our expenditure in the future, looking beyond the limits of this Budget, and if he could have given us an assurance of a progressive mitigation of what is, unquestionably, in my opinion, a quite intolerable tax burden. These are matters on which we have had from the Chancellor practically no enlightenment, and I think the general trend of his argument was disquieting. I, at any rate, found it so. He made a few rather cursory remarks about inflation; he referred to the importance, in his view— and I am not disposed to disagree—of a stable price level, and he talked about the balancing of the Budget. But he gave us no indication of what he regards as the ultimate goal. He has a five year plan, or whatever it may be, but what is the ultimate goal in that plan?

Mr. Kirkwood (Dumbarton Burghs)

Socialism.

Sir J. Anderson

I am not at the moment quarrelling with Socialism; I want to find where we are getting to in the realm of finance. That omission, I feel, has left an important gap in the argument which the Chancellor submitted to us yesterday. If I may do so, without undue assurance, I would step into the breach for a moment and offer a few general observations.

In my opinion, the first essential, in all circumstances, is that we should achieve a balanced economy. That, I need hardly say, is something quite different from a balanced Budget. A balanced economy is something which is absolutely necessary in order to avoid inflation, but, even if we have a balanced economy, it is not quite certain that we shall avoid inflation. Inflation can arise in so many ways. One can have a balanced Budget on paper, without a balanced economy, but inflation immediately creeps in, and the Budget is at once thrown out of balance. We had illustrations of that in certain parts of Central Europe after the previous war. On the other hand, with a balanced economy, one can have an unbalanced Budget, and that situation was illustrated in this country throughout the war years. Our economy was balanced, but it was balanced only by constant vigilance. I can remember that when I was Lord President of the Council, and Sir Kingsley Wood was Chancellor of the Exchequer, few weeks passed without our being called upon to receive deputations of anxious Members of Parliament who thought they saw ahead—and it is always ahead—what is called an "inflationary gap," a gap between prospective expenditure and prospective tax revenue and borrowing. The insidious thing about an inflationary gap is that it is as I say always in the future. It always closes automatically; it closes by inflation automatically, if it cannot be closed by taxation or by genuine saving.

Throughout the war we managed to avoid having to close that gap by inflation. There, of course, is the importance of voluntary savings. I cordially echo what the Chancellor said yesterday in his tribute to those who, up and down the country, have succeeded in maintaining at so high a level the volume of voluntary savings and, particularly, small savings. I think £520 million is the target of small savings set for this year. It is ambitious, but I hope it may be attained. I think the Chancellor's policy of stabilised prices may get him into some trouble. Last October I ventured to question the wisdom of the unqualified assurances he then gave that, no matter what might happen, he guaranteed to maintain prices at a stable level. I am glad that he has now, to some extent, qualified those assurances.

Two years ago I said that it would be impossible to maintain the policy of stable prices, vitally important though it is, in certain circumstances. One could not undertake to maintain them and I understand the Chancellor now accepts that position. I wished to allow a certain latitude, to let things move and let economic forces play. Too much rigidity may be a profound blunder. People may be lulled into a sense of false security, and may suddenly wake up to find that they have been in a fool's paradise. That is a thing to avoid, and I hope the Chancellor shares my view.

Mr. Scollan (Renfrew, Western)

Before the right hon. Gentleman leaves that point, I would like him to explain at what period inflation takes place. The value of paper money was formerly based on gold and, presumably, now is based on the value of goods. At what period does inflation take place, when we have in operation the control of the necessary goods?

Sir J. Anderson

It would require a whole speech to deal with that point. I could explain it perfectly well, but not at this stage of my present speech. The Chancellor knows as well as I do how the matter operates. I can only tell the hon. Gentleman that its operation is very insidious.

My insistence on a balanced economy does not mean that I regard a balanced Budget as unimportant. A balanced Budget serves many useful purposes. It operates as an automatic check on expenditure. It avoids the increase of non-effective charges which might very easily mop up a substantial proportion of the natural increment, which must be expected year by year in a healthy economy and, as the Chancellor indicated yesterday it also avoids the encroachment by the State on savings which ought to be available for productive development. But a balanced economy and a balanced Budget are not sufficient, in themselves, if the level of taxation is too high. A few minutes ago I said that inflation could arise in many ways. There are many people who believe that inflation will become inevitable it too high a proportion of the national income is taken over a long period in taxation. The scale of taxation—the proportion of the national income which is now being taken in taxation —is far too high, and I hope the Chancellor agrees with me. As my right hon Friend the Member for Warwick and Leamington (Mr. Eden) said yesterday, the taxpayer has proved a very willing horse. He has been "right up to the collar" for many years; he has taken all the gradients without flinching. Flog him unduly now when he feels he is entitled to some relief and he may lose heart. Automatic relief through inflation might be the only way to keep him alive. That is an ever present danger, and if that were to result the consequences on many poor people would be terrible.

It is essential that taxation should come down. The sort of reliefs given in this Budget and last October are good in their way, but they do not go to the root of the matter, nor is it any use trying to keep up the illusion that the rich can be made to pay more than they are paying. They represent a disappearing quantity. There is a very interesting White Paper. I am sorry that the Chancellor did not make further reference to it; in fact, I am not sure that he referred to it at all. There is a very illuminating table on page 16 of that Paper, and if hon. Members study that page, they will see how wealth is being redistributed or dissipated. The number of taxpayers has gone up from 7,000,000 to 13,000,000, but if one draws the line at £1,000 net, after payment of tax, which represents a gross figure of £2,000 at the rates prevailing up to now, one will see that one is in the presence of an actual reduction in the numbers. All that is very significant and gives point—

Mr. James Callaghan (Cardiff, South)

How much is the reduction?

Sir J. Anderson

The hon. Member can add them up I: is not a very large reduction, but it represents a trend and, compared with the increase from 7,000,000 to 13,000,000, it is very significant indeed. No Chancellor nowadays can hope to obscure the fact that taxation at the necessary levels must extend over the great mass of the people if the services of this country are to be maintained. Incidentally, the Chancellor's own policy to which he referred yesterday—the policy embodied in the Unemployment White Paper, in the framing of which he played a significant part—could only be possible on a standard of lower taxation. It would be quite impossible to budget deliberately for a surplus, on a basis of taxation anything like that which we have at the present time. It would be regarded as intolerable. Two things are essential to national recovery. Reduced expenditure is the first and increased productive efficiency is the other. We must eliminate waste. The central group of social services, as the Chancellor described them, apart from the human aspect of these matters, which I fully recognise, should he in the long run productive. But I warn the Committee that increased production is not the whole story. Increased productive efficiency is what is required, and that is rather a different matter.

The increase of exports to which the Chancellor referred is very gratifying. I agree that it has gone better than one would have expected, but those exports must be competitive Under present conditions one can sell anything. What will be the position when prices settle down? If we cannot export on a sufficient scale on competitive terms, we shall have no alternative but to restrict our imports, and our standard of life will then be in jeopardy, because our whole economy is built up on importing far in excess of what we can produce in this small island. The population has grown up under a system of imports. Here one can get no real help from Bretton Woods.

It is essential that out of the production of industry, fair rewards should be provided for labour, for exceptional talent and skill, and for the use of capital. These are elementary facts which ought to be stated. As to labour, there are large organisations which make it their main business to see that labour gets a fair share of the production. I very gladly recognise that, more and more, these organisations have been approaching their task with understanding, prudence and judgment. However, talent and skill need to be fostered. I make no apology for repeating here what I said last October about the treatment of the Surtax payer, to which I have referred. Last October, I was very sorry to hear the Chancellor say that Is. off the Income Tax would give disproportionate relief to people in the higher ranges of salaries. He ignored the fact that it was merely a question of reversing a process necessitated by war, which imposed a disproportionate burden. That argument was a mean argument, and was quite out of place. That section of the taxpaying community which makes a special contribution in skill, enterprise or experience should be coaxed and cosseted, not cudgelled and cavilled at. Here we may take a lesson from Russia.

Mr. Kirkwood

We are doing it. That is why the right hon. Gentleman is grumbling.

Sir J. Anderson

The Government have not been long enough at the job to say what the results will be. As I have said, unless capital has an adequate reward, it will not be forthcoming. That is true whether the capital is in private or in public hands, and the Chancellor knows that is true. It must have an adequate reward, or it will not he forthcoming. In one sense, the further public ownership extends, the more capitalistic the Government will become.

Mr. Kirkwood

The right hon. Gentleman hopes that?

Sir J. Anderson

The more public ownership extends—[HON MEMBERS: "Ah."]—the more capitalistic the Government will become. Last October I supported the lowering of rates of interest. I support that policy today. I think I initiated it. There is, of course, a limit to the extent to which that process can be carried, as the Chancellor well knows. Frankly, I am very sorry that the increase of Death Duties proposed by ale Chancellor has not been accompanied by a reduction of Surtax. I say we ought to give Surtax payers a chance to save, as some incentive to making the maximum effort. My right hon. Friend the Member for Woodford (Mr. Churchill), when he raised the Estate Duties, made corresponding adjustments in Surtax. I know of no reason, except Socialist theory, for not taking the same course today. I have one suggestion for the consideration of the Chancellor. There has been too much tinkering with the tax structure in this country. It was inevitable, but there were schemes of taxation, in their inception logical and well-balanced, which have been altered out of recognition. Why should we not have an authoritative review of the economic implications of our tax system taken as a whole? It would serve a very useful purpose. So far as I know, nothing of the kind has ever been done. It would be very valuable, and I am sure the results could be fitted into any political theory. I commend that suggestion, very respectfully, to the consideration of the Chancellor.

May I ask the Chancellor why he has not told us anything about the very important question of double taxation? I am sure he will agree with me about its importance. The existing arrangements are quite impossible. They were devised at a time when taxation rates were much lower than they are now. The full development of international trade will be impossible unless a double taxation relief on a rational basis can be widely extended. I hope the Chancellor will take some opportunity of telling us how that matter is progressing. I would also like to know what progress is being made in the handling of the very pressing and difficult problem of our external debt.

The Chancellor had a great deal of ground to cover, and he made a long speech yesterday. I have been making a long speech today, for which I apologise. However, as I think I have shown, the Chancellor did leave a large part of the field uncovered. I trust that, before long, he will find an opportunity of following up these observations which I have ventured to submit to the Committee. In my judgment, the matters to which they relate are of vital interest to the nation. The Chancellor, in one of the more rhetorical passages of his speech, referred to "a song in his heart ", as he contemplated expanding expenditure in certain directions. Let me warn him of the real danger, that such cardiac murmurs may be diagnosed in the future, by other doctors, as symptoms of mortal disease.

4.30 p.m.

Mr. Benson (Chesterfield)

I wish to extend my congratulations to the Chancellor on his very excellent presentation of a very excellent Budget. How good that Budget is, I think we are able to judge by the extraordinarily moderate criticisms of the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson). I do not propose to follow him in his various criticisms, but I do agree with him very heartily indeed, in a number of things he said, particularly when he stated, and repeated, that our tax level was far too high. Since prewar days we have undergone a double revolution. Firstly, there has been an enormous shift in the distribution of income. Secondly, before the war, taking local as well as national taxation into consideration, our tax level was a shade above 20 per cent. of our national income; it has now grown to something just under 40 per cent. The right hon. Gentleman was perfectly right when he said that there is a level of taxation to exceed which may easily land the country in serious economic and social difficulties. It is fairly true to say, from the experience of Europe between the wars, that in any country where the burden of taxation went very much above 20 or 25 per cent., economic and social trouble almost invariably followed. We now have a tax level of nearly 40 per cent. That tax level must inevitably raise economic and social problems to which we shall have to find some effective answer.

Prewar taxation principles, so far as hon. Members on this side of the Committee at concerned, were comparatively simple. The only good tax was a progressive tax, mainly because a progressive tax put the burden on the broadest shoulders, and also because it enabled one, particularly if the tax was raised for social services, to do something towards the redistribution of national income. As only direct taxation is progressive taxation, only direct taxation was good, and Income Tax was the tax par excellence with Death Duties as a very useful runner-up. We had a very simple problem: and we found a very simple answer to it. I am not so sure that the problem is quite so simple now as it was then. The right hon. Gentleman suggested that there should be an authoritative review of the effects of taxation. I wholeheartedly support that view. I believe that at the time of the last Budget which the right hon. Gentleman himself introduced I put forward a suggestion for a commission on that very subject. I think we have to look at our tax structure as a whole. We cannot look at an individual tax and say. "This is progressive," or, "This is regressive," or "This is good" or "This is bad." That is what the right hon. Gentleman did when he rather looked down his nose at the Purchase Tax; he condemned it as a regressive tax. I think we shall have to be satisfied if our tax structure generally is adequately progressive.

It is perfectly true that the Chancellor did not venture into the realms of prophecy and indicate how our expenditure was likely to decline in the next year or two as the right hon. Gentleman the Member for the Scottish Universities wished him to do. However, it certainly will decline, and we shall have, I hope, considerable opportunities, in the next year or two, in making reductions in taxation. Before the war that would have been very simple—by reducing indirect taxation. Quite frankly, I am not sure that now the boot is not on the other foot. The situation is reversed, and the most pressing need for reduction lies in direct rather than indirect taxation. I make so hold as to say that, in its economic consequences, Income Tax -is probably by far the most harmful at present; it certainly provokes the maximum resentment from the taxpayers. I have seen the result of two Gallup polls held recently. Those Gallup polls showed very little resentment at indirect taxation, but a very high level of resentment when it came to Income Tax.

Mr. Gallacher (Fife, West)

Was it a Tory Gallup poll?

Mr. Benson

No, it was a general Gallup poll. The trouble is, it is not only the Tories who object. I have in my constituency a very large number of miners, and I can assure the hon. Gentleman they do not vote Tory, but they do not like Income Tax. Income Tax is a naked and patent extraction of one's income; it is like having a tooth out without an anaesthetic. That is the trouble. I suggest that not only is our Income Tax level too high, but that the incidence itself requires very considerable review. Take P.A.Y.E. That was a brilliant piece of work. It was logically perfect. The Board of Inland Revenue were asked to produce a scheme, and they produced the cumulative assessment. It certainly was a brilliant piece of work. It deals with every possible factor except the factor of human nature. Indeed, it is a perfect example of the perfect tax, that ha, become a perfect nuisance.

The Chancellor of the Exchequer (Mr. Dalton)

So what would the hon. Gentleman do?

Mr. Benson

The Chancellor asks me what I would do. I would hand it back to the Board of Inland Revenue who gave it birth, and ask them to see that it was reborn. Let us look at the effect of P.A.Y.E. It links up the day's work with the day's tax and makes only too clear that the less work one does, the less tax one pays. Nobody likes paying tax, and if he can avoid it, he will. Of the three great tax producers—beer, tobacco, and work—work is by far the easiest to give up. I am not suggesting that P.A.Y.E. is the sole cause of absenteeism. It is not. There is general war tiredness. There is the absence of goods to buy. But P.A.Y.E. is undoubtedly the last straw, and it is the last straw that breaks the camel's back.

Let me give an average example of the effect of P.A.Y.E. I notice that, according to our Statistical Digest, the average earnings of adults in industry today are just over £300 a year, or about £6 a week. Let us take the effect of P.A.Y.E. in the 26th week that is exactly half way through the year upon a single man who is earning £6 a week. If he works four days, his weekly income is assessed at a farthing in the pound. If he works five days, it is assessed right through at a shilling in the pound. If he works the full six days, it is assessed at eighteen pence in the pound, and if he earns£1 overtime it is assessed at 3s. 9d. right through. In fact, a man earning the average rate in industry today can work four days, and be entirely free of tax; but the income on the next two days, and all his overtime is taxed at the astonishingly high rate of 8s. in the pound. Is one surprised we have absenteeism as a result of that? I do not think there is a shadow of doubt, whether I can suggest any alternative or not, that P.A.Y.E. in its present form must go.

But I am quite certain that the depressing effect of the high rate of Income Tax on industry and endeavour is not limited to wages. Hon. Friends of mine on this side of the House tend to regard the capitalist as a very other-worldly creature—

Mr. Gallacher

Oh, no, very much of this world.

Mr. Benson

They are prepared to believe we can go on taxing him by direct taxation without limit, and that we shall get still the maximum output from him. Frankly, I do not take quite such a kindly view of capitalists. I take rather a dim view, so far as their motives are concerned. I think that, not only so far as wages are concerned but so far as the whole of industry is concerned, we are definitely suffering from too high a rate of Income Tax. I think we have to meet this matter, and that we must deal with it from the point of view of realism. We must not forget that 80 per cent. of industry is in the hands of private enterprise and that, whether the profit motive is good or bad, the profit motive is the motive of industry. In the next five years it is not the Labour Government, it is not Socialism, that will be on trial. It is private industry that will be on trial, because we shall have to demand from it a standard of efficiency, enterprise and initiative which it certainly never showed in the interwar years. That is quite certain. I am not sure we are going to get that with the present colossally high rate of taxation.

Consider the export trade, which is vital. We have lost permanently a very high percentage of our old basic exports. We have lost them because of development of secondary industries in our overseas markets. Those industries so affected cannot add to their proportion of the total increase in exports required. In this respect they are deficit industries and the proportion so lost will have to be made up by other industries. Our overseas industries must face this problem. They will have to break entirely new ground and open up new markets with new products, more complex products.

Earl Winterton (Horsham)

At competitive prices, too.

Mr. Benson

The opening of new markets with new products means, quite definitely, acceptance of very considerable risks. It means the showing of an adventurous spirit, something like the adventurous spirit our industry had in the 19th century and has not shown since. This adventure means acceptance of possible losses, and industry is not going to accept that risk unless it can make that good out of possible gains. It may be unfortunate, but I am afraid it is true. Industry has got to recoup its losses from its successes.

I want to draw a distinction between the industrial unit and the shareholder, who is merely a recipient of dividend. The normal industrial unit in this country is the limited company. It is an entirely different entity from the shareholders. The shareholders are very largely merely receivers of a possibly fluctuating unearned income. They pay differential rates of tax. But the industrial entity responsible for the productivity of the enterprise is faced with a standard rate of tax at 9s. plus 1s. N.D.C. In other words it has to bear the full 10s. rate. I am very sorry indeed that the Chancellor of the Exchequer has decided to retain N.D.C. It was a tax worthy of its author. It was put on by the late Mr. Neville Chamberlain, who was, perhaps, one of the most muddleheaded Chancellors of the Exchequer so far as taxation and finance are concerned we have ever had. It was put on, I think I am correct in saving, at the time he introduced that other brilliant suggestion of his, the establishment of a sinking fund to be fed by borrowing.

Mr. Gallacher

Is the hon. Gentleman not aware that the late Mr. Neville Chamberlain introduced one of the finest tax proposals ever put to this House? He had to withdraw it. It was Sir John Simon who brought forward the new N.D.C.

Mr. Benson

N.D.C. was the outcome of Mr. Neville Chamberlain's muddle.

Sir Peter Bennett (Birmingham, Edgbaston)

It was Mr. Chamberlain's tax, but owing to Mr. Baldwin's retirement, and a change of office, Sir John Simon introduced it. But the hon. Member is quite correct. It was Mr. Chamberlain's tax.

Mr. Benson

And if I remember rightly, Mr. Chamberlain, who never lacked courage, whatever else he lacked, admitted that he was responsible for it and the muddle—

Mr. Beverley Baxter (Wood Green)

rose—

Mr. Benson

I cannot give way any more—

Mr. Baxter

No one so far has got it right—that is the only thing.

Mr. Benson

N.D.C. is, so far as I know, a unique tax in this country. It is the single tax which falls upon activity and upon activity alone. It does not fall upon gilt-edged interest or debenture interest. It does not fall upon rents. It falls simply and solely upon profits which arc the result of enterprise. It is unique and it is unique in its badness. I am sorry to see that the Chancellor is retaining it.

Now let us take another effect of the 10s. tax on the productive and industrial unit. Consider its effect upon savings. There are three great sources of savings in this country at the present time. There are working class savings, there are middle class savings, and there is accumulation of industrial reserves. The rich long ceased to be savers. They are now dis-investors. Working class and middle class savings go into gilt-edged securities, but the whole source, or practically the whole source, of new industrial capital comes from the accumulation of industrial reserves. Middle class savings and working class savings bear a much lower rate of tax. It is only the savings which go to expand and develop our industries which bear the full 10s. rate. I suggest that that is an entirely fantastic situation. Before the war, when Income Tax was 5s., in order to put £100 aside for future industrial expansion it was necessary to allocate £133 of profit to reserve. Now, with Income Tax at 9s., and with N.D.C., it is necessary to allocate £200 of profit to accumulate £100 reserve. That may not be serious at the moment. Industry is very fluid on the whole. But it is serious even now, and it is bound to continue to he serious for those industries which are depressed and backward, particularly industries where we require more capital to be invested.

I suggest that it is necessary to differentiate between the industrial production unit and the unearned income receiver, the dividend holder. That could be done by an adjustment in the standard rate of tax. It might be necessary to compensate the Exchequer by recasting our Surtax and bringing it far down the income level. If necessary, the compensation could be in another form, for instance, by bringing Death Duties down the scale. If the dividend holder is receiving an advantage by a reduction in the standard rate on profits, there is no reason why he should riot pay tax in a less damaging form, if the Chancellor cannot afford to make a reduction as I have suggested. There is no question about it, our taxation level is dangerously high. Heavy taxation should fall rather upon the individual than upon production units. It is of very great importance that this problem should be solved satisfactorily and adequately. I add my plea to that of the right hon. Gentleman the Member for the Scottish Universities, that there should be a commission or committee to investigate the whole problem of our taxation structure, particularly in regard to its economic effect on the country, charged with the duty of making suggestions on how we can best levy our taxation, and at the same time reduce the adverse and ill effects to a bare minimum.

4.53 p.m.

Sir Stanley Holmes (Harwich)

The late Mr. Speaker Fitzroy once gave us a little homily on the way in which Debates should be conducted in the House of Commons. Among other things, he said that there should be cut and thrust with one speaker following another. I find it very difficult indeed to do any cutting or thrusting at the hon. Member for Chesterfield (Mr. Benson) who has just spoken, because I find that I so largely agree with what he has said; in the course of my few remarks, he will probably find that I shall certainly agree with him on two, and possibly three, of his points. I want to join with my right hon. Friend the Senior Burgess for Scottish Universities (Sir J. Anderson) in acknowledging the happy, interesting, and lucid way in which the Chancellor of the Exchequer opened his Budget yesterday. During the weekend, hoping that I should be fortunate enough to catch your eye, Mr. Beaumont, I made a note of some of the points which I wished to raise, but now I find there is no necessity to refer to two of them, except to acknowledge that the Chancellor of the Exchequer has already met them.

The first related to the partial remission of Entertainments Duty so far as certain sports are concerned. It will be remembered by Members of the Committee, that when the Finance Bill was considered in Committee last year, I moved an Amendment, supported by a number of my hon. Friends, to bring about just what the Chancellor of the Exchequer has now introduced into his Budget. We did not get any satisfactory reply on that occasion, except that the Financial Secretary to the Treasury stated the matter would be considered; and I am very glad indeed to note that the Chancellor of the Exchequer has given it such splendid consideration. At the same time, the Chancellor has relieved a number of his supporters from a very great difficulty. We heard the other day of the number of Government supporters who had given pre-Election pledges regarding friendly societies, but the number who did that was nothing compared to those candidates returned to the House who gave pledges to their football clubs, cricket associations, and so on, that they would support this particular reduction and were compelled last November to vote against it. Now they have got absolution from the Chancellor of the Exchequer. My other point is in regard to postwar credits for the old people. There cannot be a single Member of the Committee who does not thoroughly approve of the scheme which is to be brought into effect. Having said that, I cannot go quite so far as my right hon. Friend in praising the provisions of the Budget in relation to certain things which have been included and certain things which have been omitted.

I wish to deal, in particular, with the way in which the Budget will affect the trade and production of this country. In the first place, I should like to know what all these vague threats to private enterprise mean which the Chancellor of the Exchequer keeps throwing out. We are told that private enterprise is on its trial, and there are hints what is to happen if there is an increase in dividends. It is all very vague. Then the Chancellor of the Exchequer makes the quite unncessary suggestion that there may be a new tax next year. There is no necessity for him to say that, because he has the opportunity, as Chancellor of the Exchequer, next year of putting on any taxation he likes, and he will have the support of all those Members sitting behind him. Therefore, what is the object in saying anything about the possibility of a new tax, and making vague threats, unless it is to cause a certain amount of fear and distrust so far as industry is concerned? In this connection, I should like to remind the Committee of what the Chancellor said yesterday. He stated: I shall be guided in my decision next year, as to whether or not to impose such a tax, by a number of considerations—by the general budgetary and financial situation to a large extent, and, to some extent, by the conduct of private enterprise in the meantime…. Last autumn, I expressed the view that postwar development should come before increased dividends, and I invited industry to plough back increased profits rather than to distribute them to shareholders. The response to this invitation has been very patchy. Many of the most efficient and up to date concerns have responded very well: but others have shown a tendency to chuck money about among the shareholders, rather than to strengthen their reserves and improve their equipment. Therefore, it would be premature for me to decide now whether or not, next year, it would be in the general interests to introduce a new tax, designed to check these, as I think, unfortunate practices." —[OFFICIAL REPORT 9th April, 1946; Vol. 421,c, 1838.] What does all that mean? Is the Chancellor trying to make conditions so uncertain and so difficult in the hope that private enterprise will fail? Does he mean that in no circumstances should a company increase its rate of dividend to its shareholders? I hope the answer to both those questions is "No." The difference between private enterprise and Socialism today is that a company which requires fresh capital depends upon the subscriptions for shares of individual citizens, whereas a Socialist Government, if it acquires an industry, is able to use the printing press and create scrip. To obtain subscriptions a company must have a successful past and good prospects for the future, and if successful, it must be willing to give a share of the profits by way of dividend to the shareholders in acknowledgment of the risk which they have taken.

I want to point out one or two things in connection with that. In the first place, increased dividends are of no use to wealthy men. As the Chancellor said yesterday in another connection, the Treasury take 19s. 6d. out of every £ if a man is on the highest rate, and leaves only a small amount to any man who is well-to-do, in the general use of that term. Therefore, it is of no interest to a wealthy man for a company, whether it is his own particular company or one in which he has only a shareholding, to pay increased dividends. It is much better for him—to use the Chancellor's phrase—to plough the money back into the business rather than plough the dividend into the Treasury. Secondly, there are in this country at the present time very few people who are what are called capitalists. All the big concerns are owned by thousands of share- holders, and in the main, small shareholders. One of the leading banks has nearly 80,000 shareholders. People talk about the banks as if they belonged to a few capitalists. Imperial Chemical Industries have even far more shareholders than the 80,000 shareholders of one of our best known banks. I could give the figures for various companies. In future when companies require money and put out their prospectus to the public, it must be the small men to whom they will look, and the small men will want to have a dividend for giving the companies the money which they require.

Mr. John Lewis (Bolton)

Surely, the question is not the amount of money, but the rate or quantity of dividend in relation to the capital invested. In view of the fact that the Chancellor has given a concession by removing the Excess Profits Tax as from the end of the year, does not the hon. Gentleman think that private enterprise ought to be pleased that the Chancellor has given a warning that, in the event of firms declaring too high a dividend, instead of ploughing back the profits, he might introduce another form of tax?

Sir S. Holmes

Obviously, one of the points we have to discuss in regard to the rate of dividend is whether the ordinary share capital of a company is highly geared or not. If the hon. Member does not mind, I will not pursue that matter now as it would take too long; we may have another opportunity of dealing with it later. One company of which I have some knowledge made an investigation as to how many of their shareholders paid Surtax. This was a difficult thing to do, but they did it on the method of the Gallup poll, or the other system which is well known in industry, the Nielsen index system. They discovered that out of 22,500 shareholders holding their ordinary shares, at least 22,000 were not Surtax payers; they were people whose combined earned and unearned income was less than £2,000 a year. Those are very striking facts that have to be borne in mind in connection with the payment of dividends. It would be unfair and impracticable not to pay increased dividends in a reasonable way. I hope that, before this Debate ends, the Chancellor will be able to tell us what he has in mind with regard to the payment of dividends by public limited companies. Apart from that, I agree with everything that the Chancellor said about the desirability of companies making provision for re-equipment, placing adequate sums to reserve, and being ready to use their reserves and any sums they may receive back from Excess Profits Tax for the purpose of gearing up their business to the point of highest efficiency.

I felt too that the Chancellor was not making in his Budget yesterday a proper contribution to the production drive. We all realise that the production drive is of the greatest importance to the country. Members of the Cabinet are going to various big towns and making speeches for the purpose of getting both workers and employers to put their shoulders to the wheel and do what is so greatly needed. Yesterday, the Chancellor said that the only counter to inflation is to produce more goods I certainly agree that he has provided an inducement in that in nine months' time he will eliminate Excess Profits Tax altogether. He has, of course, indicated that the reduction of Excess Profits Tax by 60 per cent. is really only a reduction of Excess Profits Tax to 45 per cent., because the profit which is saved by a company by not paying any Excess Profits Tax will be subject to Income Tax at 9s. £ in the Apart from that, I feel that the Budget does not provide the necessary incentive for the production drive. The best production always comes if a factory is working as a team. If everybody from the top to the bottom—the managing director, the managers, the heads of departments, those in the office and those in the works—is working as a team, each one happy and contented with his lot, one gets a factory with the highest rate of production; and, of course, vice versa.

The Chancellor might have considered one or two ways in which incentive could have been increased for everybody in the factory. Many people who are at the head of a business will do their best, whether they receive adequate financial reward or not, because there is such a thing as pride in business. A man may he a member of a family who has owned a business for many years. He is proud of the business, and will do his utmost to keep it going. There are some managing directors who have succeeded their predecessors in the conduct of successful big businesses, and who are determined that they will hand them on to their own successors possibly better than they found them.

There are other considerations, however, that boards of directors have to keep in mind. They may have to consider taking up new enterprises which may involve risk to the shareholders' capital. It the yield appears to be too small the directors probably have to say that they cannot entertain the proposals. I would like, in this connection, to put forward a suggestion. The Treasury may say "No" to it. They always respond in that way at first to suggestions. They did so with regard to P.A.Y.E., which was impossible for years in the eyes of the Treasury. They eventually found a way to do it. My suggestion is that when a new enterprise is set going, or a new department is started in an existing industry, the promoters of it should have the opportunity of going before a committee, who should be able to recommend to the Chancellor of the Exchequer that the enterprise was of value to the nation.

The committee could also recommend that if the enterprise was successful the promoters should be given a special percentage of interest on capital, by way of profits, free of Income Tax, for a given time. This percentage should be divided partly among those responsible for management, partly among those responsible as workers, and partly among the shareholders who have put up the money and have taken the risk. I have in mind some body like the Capital Issues Committee, from which the Chancellor could take advice on these matters. I think that if this suggestion was carried out it might rescue many enterprises which are being turned down at the moment because of a probable low yield or because of fear of risk. It would assist in the production drive.

Now I want to express my agreement with the hon. Member for Chesterfield in what he said about P.A.Y.E. Having had great experience of this matter I say that it ought to be given up altogether. I would remind the Committee that P.A.Y.E. was instituted by Sir Kingsley Wood, and that the impulse really came from the trade unions. They pressed for it originally because, under the old Income Tax system, workers were taxed in the current year on their previous year's earnings. When wages were falling it became difficult for the worker and for his family even to exist, because he would be called upon to pay, out of his lower wages, Income Tax on the larger income of the previous year. The bait held out to the Treasury was that P.A.Y.E. would rope in sums of money from people like actors and foreign waiters, who came here for a short time to work and went away before they were assessed to Income Tax.

The gain to the Treasury has been far less than was expected. P.A.Y.E. has been a very expensive matter. Not only has it increased the number of employees in the office of every inspector of taxes but it has increased the number of clerks in every factory and office, owing to the existence of P.A.Y.E. The whole of the cost, in most of those cases, has been paid by the Treasury. I am against P.A.Y.E. for the additional reason that it has caused much irritation among employers and work people. In the past, the employer had nothing to do with Income Tax beyond making a return of the amount that each man had earned during the year. It then became a matter for the local inspector to make an assessment and to make his own arrangements to collect the money. Now, every worker when he receives his weekly pay packet finds a sum of Income Tax deducted from what lie has earned. Under the code system, the amount deducted varies from week to week, and the worker may find that when he has earned a little less than the week before more Income Tax is deducted than in the previous week when the wage was higher. The workers do not understand how that can be and they have got it into their minds that something is being imposed upon them by the employers. They think the employers are cheating them and that suspicion has a bad influence in industry. It is causing a great deal of unpleasantness and irritation. What the hon. Member for Chesterfield said about the effect upon the men is absolutely correct.

Let me put the matter in another way. I am sure that an enormous number of men reckon up what they want each week to pay their ordinary weekly expenses. So much is wanted by the single man and so much for the married man with children. One man may fix upon £7 and another upon £9. When they reckon that they have reached the required amount after deduction of Income Tax, they give up work until the following Monday. That kind of thing is being done all over the country. Therefore, we should give up P.A.Y.E. If we went back to the old system, the original reason would no longer apply in relation to falling wages. I cannot believe that the Government intend that wages shall fall.

Therefore, there is no danger whatever. The only objection which there could possibly be in the mind of the Chancellor of the Exchequer is that—instead of what happened when Sir Kingsley Wood imposed P.A.Y.E. which resulted in his getting one and a half year's Income Tax in one year—the Chancellor of the Exchequer would find himself in the year in which he abolishes P.A.Y.E. very considerably down on Income Tax on wages, but no doubt his ingenuity would enable him to think of some way to overcome that.

My final suggestion—I am still talking on the desirability of increasing production and getting good feeling in all the factories and workshops of the country—is that Income Tax on overtime should be abolished. I think that there is nothing that is causing more annoyance to men than to feel that they are asked to work on Sundays for double money, and then find that 10s. in the £ is deducted for Income Tax. In regard to any overtime, people immediately reckon up on the basis of so much an hour, half of which goes in Income Tax, and ask themselves, "Is it worth while? "I do not think that it would cost an enormous lot to do that. It may be urged by someone that if overtime were free of tax people would not do a full day's work during the ordinary working hours in order that they might be able to earn overtime. Personally, I do not think that would happen. One of the great dissatisfactions with P.A.Y.E. at the present time is that, in many cases, employers have deducted, on the instructions of the local inspectors of taxes, 10s. in the £ from people who are not liable to pay at 10s. in the £.The workers from whom that is deducted have to apply for a refund, and they are finding, at the present time, that it is very difficult to get these refunds because inspectors of taxes are saying that, through shortage of staff, they are so overburdened that they cannot deal with these demands. I put forward these suggestions with a view to increasing production, which not only the Govern- ment but all of us so much desire, and I hope that I shall, at any rate, have persuaded the Chancellor of the Exchequer to pay some regard to them.

5.24 p.m

Mr. Gordon-Walker (Smethwick)

The hon. Gentleman the Member for Harwich (Sir S. Holmes) started by complaining that there was not enough opportunity for cut and thrust in this Debate. I think that we can say that he has not made cut and thrust any easier by his speech. He began by saying that the Chancellor of the Exchequer had anticipated in his Budget Statement a great number of the points which the hon. Gentleman wanted to make and, as for the rest of his speech, the greater part of it was made up of what I do not think it would be unkind to describe as two old-fashioned ideas. The first, that practically the entire wealth of the country is in the hands of widows and orphans and, secondly, at any rate with regard to new enterprises, that ways must be found of putting public money into private enterprise without giving public control over it.

I also find it difficult to attack the speech made by the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson). He did his job very well, if I may say so. He is obviously there to oppose and criticise, and he found it very difficult to oppose and criticise the Budget Statement, so he set about praising it with faint damns. He made only one point with real firmness, and that was when he talked about the amount of expenditure and asked for economies. Although he said that with firmness, he also said it with complete vagueness. Anyone who demands economy must be precise about the fields in which he wants economy to be carried out. Such speeches, coming from the other side, lead one to think that it is the social services which those hon. Members have in mind.

What I mainly want to talk about is the relation of direct to indirect taxation, and to try to take a little further the dilemma stated by the hon. Member for Chesterfield (Mr. Benson). We have to change the ideas which we used to hold on this side of the House about the relation between direct and indirect taxation. We used to think that direct taxation was automatically good and indirect taxation was auto- matically bad, and we used to look forward to the days when indirect taxation would disappear. The disadvantages of direct taxation are becoming more and more apparent. In the main, it is not very useful to us now as a tax upon the rich. It is socially right and proper that the rich should be taxed, but it is not going to yield a great deal of money in terms of the vast sums which we now need. That means that direct taxes have to fall far more than one used to think would be the case upon the relatively poor of this country. The great demerit of direct taxation is that it multiplies deterrents upon initiative. That is particularly true of those who earn their living by being paid by shifts and overtime; it is a much stronger deterrent on them than upon those who are paid on a salary basis. In the case of those who work by shifts it is a burden on every extra piece of effort. I do not thank that P.A.Y.E. is bad for that reason. What is bad is if you bring P.A.Y.E. down to too low a level of earnings It is the exemption limit that is too low which makes P.A.Y.E. a bad tax, and it is not a had tax in itself.

The first point which I want to address to the Chancellor of the Exchequer is this: Although direct taxation is a deterrent to initiative in this way, nevertheless, if we do not bring it down too low, it is not necessarily a bad thing. It can be used for socially good purposes. In normal times we do not want overtime regularly worked in this country. We want an optimum time of work, with labour saving machines to help the workers. If we can make use of direct taxation to deter employers from making their workers work overtime, we have an instrument of democratic planning—and we have to seek all the time for instruments of democratic planning—by which we can help to fix the level of optimum work, and to deter employers and, for that matter, workers too, from going too far above the optimum level of work. Nonetheless, even by using direct taxation in that way, it still remains true that we can never raise the revenue we need by direct taxation, and that we have to rely more heavily on indirect taxation, which will have to increase.

The Chancellor of the Exchequer is right when he says that the Purchase Tax will have to remain with us as a permanent tax; I am sure that the Purchase Tax—the new form of indirect tax —is with us for ever more. Indirect taxes, of course, have one very great merit— they do not deter initiative. They do not destroy and curb initiative: indirect taxes may even stimulate initiative by making things people want more difficult to get. Properly used, indirect taxes may stimulate rather than deter initiative. But they have this great demerit. They are regressive; they fall heavily on the poor and less heavily on the rich. To some extent that is being offset by the subsidies to cut down the cost of living, and I think that the Chancellor of the Exchequer should not be too worried about the size of these subsidies, about their absolute size; and that they should be regarded in relation to the whole tax structure. They are regressive, indirect taxation in reverse They counteract to a considerable extent regressive indirect taxes.

When thinking of these subsidies to keep down the cost of living one should compare them with other taxes. For instance, the tax on tobacco brings in much more than the amount of the subsidies to keep down the cost of living, and that seems to me to be a proper thing. It is right that one smoking should be taxed in order to keep down the price of common articles of consumption which the people need. I hope the Chancellor of the Exchequer will always regard these subsidies in relation to other taxes, particularly indirect taxes, and not be too appalled by the absolute size of these subsidies to keep down the cost of living. Although indirect taxation is offset by these subsidies, it remains true that it is regressive in that it falls heavily upon the poor and not so much on the rich. I suggest to the Chancellor that he should consider the idea of progressive indirect taxes; a higher percentage tax upon higher price goods, that is to say, the tax to be paid on tobacco at 2s. an ounce should be higher than the tax to be paid on tobacco at 1s. an ounce. One should have progression in indirect taxes in the same way as we have it in our direct taxes. That, to me, seems socially desirable. We want to get away from the disadvantages of regressive taxation, and I believe it would enormously increase the taxable capacity of this country.

Every new sort of economy established depends upon the discovery of new taxes which extend the taxable capacity of the people. Walpole and the Whigs depended upon the land tax; Peel and laissez-faire capitalists upon the Income Tax. I believe that in the new economy of great social services which we are creating, we will come to depend more and more upon such taxes as the Purchase Tax worked out on a progressive and not on a regressive basis. I believe that if the Chancellor looks into this he will find it is not only a socially sound idea, but, in the strictest financial sense, an idea which may help him to solve the problem of the cost of our increasing social services.

5.35 p.m.

Sir Peter Bennett (Birmingham, Edgbaston)

I think the time has arrived when it is advisable for those of us who are unofficial Members to speak on one or two points only, and not to try to cover the whole of the Budget, otherwise we shall crowd out others who wish to speak. I propose to speak briefly on one or two points. First I should like to thank the Chancellor of the Exchequer for taking off that extra tax on outdoor games and so helping us to keep cricket alive. I believe that what he has done will assist in reviving county cricket this year. Those associated with county cricket were looking forward to a very grim time if nothing had been done. Now we shall be able to get it going again. I think cricket is more than a game; it is an institution. It is the cement outside politics which holds the Empire together, because it is English, and it is the descendants of Englishmen who play cricket throughout the Empire and so it keeps us together. We are grateful to the right hon. Gentleman for that bit of encouragement.

Passing to more important matters, may I say that we are also very grateful that the Chancellor has decided definitely to finish with E.P.T. I can assure him that it will be unlamented when it goes. We are now waiting for the details referred to in his Budget speech as to the way in which terminal losses will be dealt with. These are most important, because upon them depends the amount of finances which industry will have available for the development work which lies ahead. We, therefore, must wait for the Finance Bill to see the details, but I can assure the Financial Secretary to the Treasury that these details, which may appear of minor importance to those not associated with industry, are of real vital interest to industry as a whole.

I should like to support the view of the hon. Member for Harwich (Sir S. Holmes). I wish the Chancellor would not hold a pistol at our heads and tell us that if we are good boys we shall get something. I was speaking to a representative industrialist today, and he said the Chancellor should not do that. It may be good politics, but it is bad psychologically for Britishers to be told that we must behave ourselves and that in the meantime the Chancellor will look into the question, but if we are not good boys we may get something worse than E.P.T. put upon us. I am sure the Chancellor did not mean that. I am sure he will study the problem on its merits. When the question of dividends arises, it should be remembered that it is not a simple matter. Some companies were intending to increase their dividends when war broke out, but they have held back because they felt they ought not to do it in war time. But they feel they are in duty bound, for reasons which can be verified, to do something now. The majority of industrialists arc ordinary sound people. Various Chancellors of the Exchequer during the war have said so, and the industrialists and managements of this country are most anxious to continue the work of helping national reconstruction.

Another point made was that the Purchase Tax might have to remain. I am one of those who do not believe it. I do not believe in the Purchase Tax. Perhaps that is natural. I have spent the whole of my business career trying to get costs down, in order to widen the market, and suddenly I see a tax introduced which nullifies my life's work. So I cannot be enthusiastic about it. I think it is looked at from the wrong standpoint. It presumes prosperity, as has been done so often during the last few years. I do not think we should presume prosperity. I believe the day will come when selling things will not be so easy as it is today, and unemployment will be just around the corner. I do not think that the workers will stand being told that the prices of goods are so high because of the Purchase Tax that people cannot buy them, and so we have unemployment. I believe that when that day comes Purchase Tax will have to be looked at seriously. We have also to remember that we are governed by world conditions, and what happens in the United States can upset our markets here. Take for instance the motor industry, with which I have been connected. At the end of the last war when motor cars were reintroduced, the 10 horse-power car sold at between £600 and £700. To find a market for it was increasingly difficult, but various methods, not always appreciated, were taken and we got the car clown to something like £150. The car selling at £1,000 came down to £250 and the result was an enormous increase in production with an enormous increase in employment. I suggest that employment is going to settle this new kind of taxation. Taxation will have to be based in a way that will react helpfully on employment, and I am one of those people who believe that the Purchase Tax will have to be modified, because if it remains as it is, it will prevent employment.

Today retail traders are very much concerned at being left with stocks on their hands on which the Purchase Tax has been paid, and which they cannot recover from the public because the tax on such articles has now been removed or reduced. That is one of the matters which the Financial Secretary is worried about, and I am wondering how he is going to handle it. Perhaps he will tell us, because the retail traders are writing and telling us how impossible it is for them and how they feel that stocks will be left on their hands after they have paid the tax on them.

I mentioned a moment ago the presumption which seems to be in the minds of people that we are still on the prosperity wagon. Income Tax is estimated by the Chancellor at a higher figure and the idea is that incomes are going up. I am afraid we are still suffering from a wartime mentality. Incomes went up during the war, not because our productivity was as good as it looked on paper but because the value which is given in wartime is not in proportion to the price. The State buys everything and is not as good a buyer as the nation as a whole. The nation as a whole is a very discerning buyer, and, sooner or later, gets to the bottom of things. The business that succeeds is the one that satisfies the public in the long run.

We have not achieved our peace production, and I am not one of those who presume that the present national income will continue. Why? Because we are at the present time presuming that wartime taxation can be carried on in a peacetime world. The Chancellor has made his speech. I, too, sometimes have to face shareholders and make a speech, but I do not mind admitting that all the time I am doing so, I am thinking of what I shall have to say in a year or even two years' time. When the Chancellor was making this year's speech, what had he in mind for next year and the year after? I can see no reserves. He is eating into his reserves and we are today basing a peacetime economy on wartime taxation. He is balancing accounts by using various means—for instance his raid on Death Duties. The right hon Gentleman spoke yesterday about the number of people who have over £2,000,000 and smiled sweetly at us.

He and his advisers probably know how many people have estates of over £2,000.000 on which they will collect their 75 per cent. I do not know that, but there is one thing on which I am sure the Chancellor and I will agree—we do know how many people in the next generation will have estates worth £2,000,000. mention that because it illustrates the point I am making. We are balancing our revenue out of capital.

In the last Budget, hon. Members will remember, the Chancellor dealt rather gleefully with Surtax. The number of persons today who arc earning over £4,000 to £5,000 a year net is negligible. It does not pay a man. Just as people have been talking recently about men not working overtime, so I can tell the right hon. Gentleman that men are not going to work to earn over £4,000 a year net. Many Scotsmen have said that they do not intend travelling to London by night trains and going hack at the weekend, because it is not worth while. I am not complaining or arguing in favour of a man who gets £4,000 a year net, but when it is remembered that if he earns another £10,000, he only receives £250 of it, it is only human nature that he should not bother, in the same way as a worker will not bother to work overtime.

I am afraid that the Chancellor will find that this prosperity which is presumed will not exist in years to come. He has hinted at a reduction in the cost of the Services but I did not hear any suggestion of a reduction in any other direction.

I agree with the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) that there is no sign of any economy drive. The whole emphasis is on the growth of expenditure. I hope that we realise that it all has to be paid for.

There is a phrase which goes floating round, tacked on to the name of the right hon. Member for Wakefield (Mr. A. Greenwood) to the effect that pounds, shillings and pence are "meaningless symbols." I have been trying to make my people realise what they do mean. The Committee will remember that a few weeks ago a story came over the radio of a free health service. Free? Eventually it is going to cost £152 million. I tried to explain to my people what that meant, but it was rather difficult. In fact I have difficulty in understanding what millions are like myself. I said that it represented 600,000 people earning £5 a week for a year They asked me to repeat it, so that they could really understand what it meant.

Food subsidies have been referred to. They are to cost £335 million. I am not complaining, but that is equivalent to 1,340,000 persons working for a year at £5 a week. In the Debate on manpower I tried to estimate what our normal Budget would be like when we are running on a level keel, and I could not see it coming out at much less than £2,500,000,000 Have hon. Members realised what that means? The Lord President of the Council said the other day that we should have 20 million workers in the country. A Budget of £2,500 million will mean that at £5 a week 10 million workers—half the total —will be working for the national service, and that the rest of the country will have to do everything else that is required. Our forefathers did not have quite such a big bill to carry, and they are the people who put us on our feet as an industrial nation in the forefront of the world. Half our people have to do more than our fathers did if we are to recover our position. We have lost our start; we are behind scratch.

I wish to emphasise all that was said by the right hon. Member for the Scottish Universities. We have to get production back—production at the right prices— otherwise our standard of life will fall. There is no mystery about that. Otherwise this country will not maintain its place, but will go into history like other small Empires that held their place for a short period by great vitality. We are only a small population in these islands without great national advantages. We reached our position by sheer grit and courage, and the work of our forefathers. We shall have to do it again if we are to get back our position.

I should like to say, with the right hon. Member for the Scottish Universities, that we did not expect to hear everything from the Chancellor on one occasion. We listened to him yesterday for two hours and we enjoyed what he said, and we hope he will amplify his statement later His second innings was a great success; he batted as well as he did on the first occasion I congratulate hint but he must remember that one of these days the rain will come and the wicket will he very sticky. It will be interesting on that day to watch how he bats when the googlies come, and the wicket is very troublesome. Of course it may not rain, it may be all sunshine, but that is not likely.

5.49 p.m

Mr. Piratin (Mile End)

I confess that as I listened to the two hours' speech made by the Chancellor of the Exchequer yesterday afternoon, I was charmed into an atmosphere of benevolence and I found myself applauding from time to time in accordance with the custom of the. House. I was very pleased indeed that I had an opportunity last night to give some consideration to the details of the Budget statement in order to be able to make my contribution this afternoon. A study of what the Chancellor announced yesterday reveals that there is a certain amount of taking from Peter and giving to Paul. In fact there is an excellent effort of jugglery; although at the same time the Chancellor deserved the congratulations of hon. Members for the way in which he has been able to give a titbit to everyone, not excluding the City stockbrokers. I therefore wish to say that I approve wholeheartedly of the various remissions and adjustments which the Chancellor has introduced, and that I welcome in particular his proposal to increase the earned income allowance. I also welcome the repayment of postwar credits to old people, and the removal and reduction of Purchase Tax on various household appliances. While the Chancellor was speaking, I asked myself what should be the policy of the Labour Government in the field of finance, and I now put to the Committee three propositions. First, I believe it should be to ensure a more equitable distribution of income; second, that it should be to effect the modernisation and greater productivity of industry; and, third, it should be to maintain a high, if not full, level of employment.

On the question of the redistribution of income, we find that a net decrease in revenue of £246 million is expected. I have given a little of my own rather inexperienced attention to dividing that sum according to sections of the community, and I have roughly calculated that there will be a reduction of £127 million on the basis of those earning wages and salaries, and that the remaining £119 million will come from sections of the community who receive income from profits and interests. I do not believe that this is a real effort, on the part of a Labour Chancellor, to redistribute the national income. Earlier today, the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) appeared to be very depressed at what he called the lowering of the high income range. He said that we were all going clown the scale. At that time, the document he was referring to was Command Paper No. 6784—not another document, as some Members seemed to think. On page 16 of that Paper it states that in 1938–39 the number of those receiving £1,000 net or more per annum, was 230,000, whereas in 1944–45 this figure had been reduced to 220,000, or 10,000 less. This seemed to cause the right hon. Gentleman a lot of distress, but I want to say, plainly, that when that White Paper says that in 1944–45 only ho people received a net income of more than £6,000 a year that is nonsense. The workers pay Income Tax adequately, because the tax is taken from them through the Pay-as-you-earn system. It is deducted at the source. But when I think of a firm named Simmonds, and many other such firms, I am aware that capitalists have many ways of evading tax. This White Paper figure is not the actual figure; it is a paper figure. The right hon. Gentleman the Member for the Scottish Universities tried to create the impression of poverty among hon. Members opposite, and their friends. Well, I am not impressed by that poverty.

I would like to draw the attention of the Committee to the fact that during the war the proportion of income from profits went up from 29 per cent. to 33 per cent., while the proportion of wages and salaries went up from 38 to 40 per cent. It is well understood that the proportion of people involved in the latter item is several times the proportion of those involved in the first item. Yet the first section is receiving nearly as much as those who actually earn their living. The Excess Profits Tax brought in last year £440 million, but the actual excess of income in profit-making concerns was £1,400 million. There are instances of the still rising share of the national income that is being obtained by those who make little or no contribution towards it; and of the very substantial sum with which this section is left, even after paying E. P T. I believe the Chancellor should indicate that he intends to introduce two other measures in order to attain a more equitable distribution of income. He should increase the exemption limit of Income Tax up to £150 from the present £110. We all know many people who, earning £2 10s or £3 a week, have to pay a few shillings a week in Income Tax. There are many who say that it is the duty of everyone to pay Income Tax. Yet the people with small incomes pay taxes when they drink beer or tea, or take sugar, or go to the cinema. They are paying indirectly all the time. To take direct taxation from people who are earning £3 a week or less is a crime, and I say that with no sense of sharpness, but with an earnest desire to remedy this wrong imposed by the Chancellor's predecessor.

Further, there should be some relief of indirect taxation. There may be different points of view, and different economic theories, on this matter, but it is clear that this form of taxation affects, primarily, working people. It also affects the poorer sections of the community, who feel it most. They feel it through the additional cost of their tea, their glass of beer, and their tobacco. I would like to make several proposals, but I will limit myself to two. I would like the Chancellor to consider some relinquishment of the tax on sugar and tea. I would have liked to add beer, but in that respect the party which I represent is equally divided as to the importance of that commodity to the nation.

With regard to the modernisation of industry, the Chancellor referred to the ploughing back of capital into industry. I may be pessimistic, although that is not my nature, but I do not share the right hon. Gentleman's confidence in the capitalists' support of his policy. I recall what has been said in this House and outside on this matter by hon. Members opposite; and would quote what was written in January of this year, in an evening paper, by the hon. and learned Member for Brighton (Mr. Marlowe) who wrote: ' Nationalisation must be fought not only by those who represent anti-nationalisation in Parliament, but also by those who can defeat it in other ways.' I see that the hon. Member for South Dorset (Viscount Hinchingbrooke) signifies agreement. It is good to know who is lined up with the hon. and learned Member for Brighton. I see that the lion. Member for Hornsey (Mr. Gammans) indicates that he too is lined lip with his hon. and learned Friend. What are they saying? They are out to sabotage the Government's efforts to raise the standard of living in this country, and, therefore, I cannot share the same benevolence as the Chancellor towards opposition of that kind and expect that type to plough back into industry the profits of industry.

Viscount Hinchingbrooke (Dorset, Southern)

Does the hon. Member identify nationalisation with the raising of the standard of living?

Hon. Members

Yes.

Mr. Piratin

Members opposite so often use the word "doctrinaire" that they delude themselves as to what is doctrinaire. As I understand it, the policy of the parties on these benches is to nationalise industry precisely in order to raise the standard of living, and not to nationalise for the sake of nationalising or to give the Opposition a theoretical argument. I claim that there is need on the part of the Government, and that is not alone the province of the Chancellor, for real planning if we are to get the profit ploughed hack into industry, and it is time to introduce a national Investment Board. The Government should ensure that it has a Board to control capital, because in the long run the Government will have to ensure the provision of the capital.

Mention has been made of the withdrawal of the Excess Profits Tax. I agree with this because I believe it is now unfair. It has lasted for a certain period and should be replaced by something more equitable at this stage. Happiest of all, seem to be the City dealers. I read in an evening paper of a City boom. Stockbrokers were lining up today to buy shares that will now provide higher dividends. Millions of pounds have turned over today. [Laughter.] Hon. Members opposite laugh. They know it is true, and it exposes their humbug about a raw deal. The E.P.T. was due for withdrawal, but, in my opinion, the Chancellor should not delude himself that the withdrawal is going to make for a new era in productivity. All it has done in the City of London is to provide those holding certain shares to make millions of profit at the expense of those who do not have the shares. I, therefore, ask the Chancellor to introduce a measure that will restrict dividends because I believe that will be one way by which we can ensure that the profits of industry are ploughed back. I would say to those who are afraid of inflation—and none of us desires to see it—that there is a danger of inflation. Make no mistake however it is not from the workers' wages that we shall get it, but from the fact that dividends are now being distributed at a rate which industry cannot afford. That is the way the danger of inflation arises.

I conclude with one or two remarks on the question of expenditure. The right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) earlier referred to the need for economy. [Interruption.] My attention has been called to the fact that the rest of my party is here. At least we have 100 per cent. representation, which no other party can claim. The Committee has had an opportunity of considering the expenditure side, that is, the £3,800 million which it is expected we shall spend in the coming year. There will be several items which we shall discuss on another occasion, but I want to refer to one point now. We are expected to spend almost half of that— £1,600 million—on the Services. Many of us on this side of the Committee have asked more than once for a reduction in this item, a speed up in demobilisation, and for other measures of that kind, which might well bring down that sum of £1,600 million. I claim that one of the causes of the high expenditure arises from the foreign policy of this Government which is getting, nevertheless, full support from those who have asked for economies. Given a change of policy, many of our Services could he reduced, and I would like some consideration given to this.

To summarise my remarks, I think the Chancellor has introduced a Budget which has given a little satisfaction to a lot of people, at little cost. I do not believe the satisfaction will last when the people begin to examine carefully what they are to receive, and I believe that if the Labour Government are to carry out their responsibility to the people who elected them and to ensure those principles of finance to which I referred earlier, the following steps, in particular, should he taken to ensure the equitability of the distribution of income: first, some measure of relief on indirect taxation; secondly, the raising of the exemption limit of Income Tax to £150; and, thirdly, the limitation of dividends in order to ensure that the money is really used for productivity rather than to cause inflation.

6.8 p.m.

Sir Stanley Reed (Aylesbury)

I was rather surprised when my hon. Friend the Member for Harwich (Sir S. Holmes) entered into his dissertation on P. A.Y.E. If I touch upon it briefly now it is in no spirit of controversy; but rather because the Committee should not be under any misapprehension. He gave the Committee to understand that P.A.Y.E. was introduced on the representations of the trade unions. I do not know what part the trade unions took, but they were by no means the only or the strongest force. When Sir Kingsley Wood decided, with the approval of the House, to carry Income Tax to the lower scales of wage earners, I warned him from the other side, from my long experience, that he would never collect that tax unless he did so at source. Sir Kingsley Wood was always receptive to suggestion and sent an official of the Treasury to discuss the proposal. I told him of a country I lived in for some years where Income Tax was carried down to a low income group and it had always been collected at source. I warned him that if the tax was not collected at source, the greater part would not be collected at all. This forecast proved correct and Sir Kingsley Wood cancelled 10 months' Income Tax due in order to get it on the P.A.Y.E. basis. Whether P.A.Y.E. is a good or bad way of proceeding with the tax, and whether the exemption limit is right or wrong, I hope the Committee will understand that this was one of the reasons why it came to be put into force.

I listened with great appreciation yesterday to the Chancellor's development of his Budget theme. I only regret that his later contribution in the evening in another place was not couched in the same spirit of wisdom and statesmanlike in his approach to our national finances. I do not want to touch upon total figures, for they reach such astronomical proportions that I do not think they mean anything to anybody, and I doubt if even the Financial Secretary and his advisers really grasp what they actually represent. It seems to me that the cardinal feature of this Budget is that, in this early stage of our postwar reconstruction, we are now within measurable distance of a balanced Budget. I do not want to make a fetish of a balanced Budget or to say that in times of depression we should not have an expansionist policy, or a deflation policy in times of prosperity. The essential feature is that we are very near the stage when the control of a balanced Budget will be in our hands, instead of being forced upon us by economic conditions, and I think that is an exceedingly reassuring stage to have reached at the present time.

As I understand it, the gap at present existing in the Estimates before us can be closed by the small savings of £520 million, which we can hope to get within the next financial year, and that is of tremendous significance. However, I would put this to the Financial Secretary and to the Committee: these small savings impose on the Chancellor and Parliament a tremendous responsibility. This gigantic sum of between £6,00o million and £7,000 million of small savings, representing the sacrifice, public spirit, and patriotism of a large number of our citizens, charges Parliament with the very great responsibility of seeing that they are not frittered away or dissipated by a policy of extravagance which leads to inflation. The greatest problem before the country at the present time is the prevention of inflation and the arrest of any process which leads to inflation. That is a special responsibility we have to those who have made these sacrifices during the war years, and from whom we are asking an additional sacrifice at the present time. I want to see a reduction in taxation as much as anybody, but I would far rather have for a year or two, or even longer, the penal taxation to which we are subjected now, and the austerity to which we are called than that there should be any progress in the inflationary forces which threaten us for, unless they are carefully watched, they will get out of control.

There is one obvious threat of inflation arising from a release of a large amount of purchasing power before the consumer goods to absorb the purchasing power are available, but it is not the only danger that faces us. As to that particular danger, we have only to look abroad today to see the perfectly fantastic prices paid for uncontrolled goods, and at the huge profits made by certain distributing agencies out of uncontrolled goods, to realise the nature of the danger with which we are confronted. The President of the Board of Trade has warned our people that they must practice austerity through this critical period. It may be easier for him to practise austerity than for consumers, but that he was performing an eminent public service in laying that duty before the nation, I am absolutely convinced. I would only add that the general body politic is not the only body which should practise austerity. There is no less responsibility on the Government to practise austerity in their own expenditure, and we should like to hear something more on that matter from the Financial Secretary when he comes to reply, because while we may rely on the small savings to bridge the gulf between income and expenditure in the year before us, that gulf might not exist at all, if the Government were as active in practising austerity as they advise the general community to be in their own way of living.

We have heard a great deal of the policy of cheap money. I do not like the word "cheap "; it very often means something inferior. I would rather substitute the term" a reasonably low interest rate on public borrowing." Will the Financial Secretary bear this in mind?

I say, Do not reduce your rate of interest on public borrowings to so low a point that it is not worth anybody's while to lend. I do not know what actual net rate of interest the Government are paying at the present time but, if one takes the rate of interest less the tax deducted from it, I think it is about 1⅛A per cent. It is certainly not much more, and 1⅛ per cent. is not really a great incentive to those who have a little margin not to spend it nor keep it liquid but to lock it up in Government loans and have an insignificant yield and all the complexities of Income Tax to face as a result. So I ask the Financial Secretary to let the Committee know exactly what the Government are paying today on their borrowings and, in their future policy, whilst keeping interest rates low, not to make them so low that it is not worth while for people who have a surplus to lend it, when it is as easy for them to keep it perfectly fluid and spend it when they get a chance.

The Chancellor referred, in passing, to our contribution to U.N.R.R.A. and to its effect upon our economy. I think it is time a little plain talk was indulged in over U.N.R.R.A. After all, our £80 million or £90 million to U.N.R.R.A., whether in money or in goods, is a very considerable sacrifice by our people at this time. If in cash, it comes from resources we can ill spare; if in goods, it is adding to the difficulties of our dollar exchange, and is taking out of this country things of which our people are in urgent need. To illustrate, not long ago, in company with some of my constituents, I waited on the head of our transportation company to complain rather bitterly of the irregularity, slowness and inadequacy of our means of communication. He said, "I quite admit it is bad and defective and ought to be rapidly improved, but what has happened? We have lost 500 of our engines, others are falling to pieces, and we cannot promise anything better until we get new ones." A day or two afterwards I saw in my paper a picture of a magnificent engine, one of a number of British manufacture, going to Yugoslavia under U.N.R.R.A.—

Mr. Austin (Stretford)

Is not the hon. Gentleman wrong in referring to U.N.R.R.A.?

Hon. Members

Order.

Sir S. Reed

I read again a day or two afterwards that in Yugoslavia, where every public expression of opinion is controlled by the present Government there, day in and day out there is nothing but continual abuse of Britain, of the Commonwealth and Empire, and of all its ways. We are making sacrifices and will continue gladly to make them for the rehabilitation of countries which suffered in the war, but there must be some genuine response and some genuine recognition of what we are doing and there must be something better than continued abuse and criticism of us and all our ways.

Another point to which passing reference has been made, and which is, frankly, a nightmare to me, is our overseas debt and the growth of that debt. I think the Committee should know quite clearly, either from the Financial Secretary or the Chancellor, the amount of that debt, the way in which it is growing, and how we can hope to discharge it, without introducing into our relations with countries with which we hope to keep as cordial as we can, an element of distrust and an element of some bitterness. As is perfectly well known, in some countries— in one at least—there is a growing resentment at the development of these overseas commitments, and an intense desire to see at least some rebate I think the Committee and the country are entitled to know, as clearly as possible, the nature of these commitments, whether they are growing or being reduced, and how we hope to discharge them within a reasonable period.

To sum up, I listened with high appreciation to the Chancellor's exposition of our financial policy and I trust that in later Debates we may have these other issues cleared up so that we can face the year before us with the courage and address he used in his exposition of our financial position.

6.22 p.m.

Mrs. Wills (Birmingham, Duddeston)

I would like to deal with the Budget as I see it, as an ordinary housewife. I believe it has changed the Chancellor from a benign uncle, as he was described last year, into a real ladies' man. I believe the women of this country will be very pleased with the reliefs they are getting. A lot of pleasure will be given to large numbers of housewives looking forward to replenishing some of the goods which are very shabby, worn, cracked and almost unusable, in their kitchens and homes. But women are very like Oliver Twist, and will be asking for more. I suggest to the Chancellor that he might consider how very worn and shabby are our curtains, carpets and towels and household linen, and that at a very early date he might consider letting us replenish these free of tax. Parents with young children are suffering most in this respect, because children will pull curtains, and curtains get weak very quickly. Children in their muddy shoes walk upon the carpets, and they often make unseemly messes of the table linen and bedclothes. To do something for the relief of these families would be to show a great measure of gratitude for all that our women have done during the war. Very many of these women have been doing two jobs, and doing them well.

I think it has been recognised in this Budget, by the extra allowances for married women at work, that they have been doing two jobs and ought to receive some relief from the extra work put upon them. This has meant extra cost. For instance, laundry has had to be put out because of the long hours worked in the factory and the inadequate time and opportunity to do that kind of work at home. Nursery charges have gone up, and I believe the extra £30 allowance will be much appreciated by women. Women are very responsive to good treatment. The older woman who gets her postwar credit will appreciate that relief, because it will enable her to buy a new hat or something which will make life very much brighter in the future. Even the thought that what she has rendered during the war period— and many of these older women have done an immensely valuable job for the nation—has been recognised and is appreciated, will do a great deal to encourage and stimulate the energy of women in this respect.

It did us good to hear the Chancellor say that the Budget is almost a balanced Budget. Housewives who have had to balance very small, inadequate, budgets for years and years, know the fears there are of an unbalanced budget. It will give them a sense of security, and of being almost out of the wood and looking forward to a very much better future.

The Entertainments Duty concession will be much appreciated by the young people who play cricket and football or enjoy seeing professional matches played. I am sure that will lead to a much healthier atmosphere amongst our young people and will encourage them to get out into the open air. The educational relief will be appreciated by all who have tried to run clubs for young people and to provide educational facilities out of doors and indoors for the youth of the country.

The right hon. Member for the Scottish Universities (Sir J. Anderson) said that he thought there was in the Chancellor's speech some discrimination in taxation against the rich and asked that we might try to get a more equitable taxation. The rich have very many benefits which the poor do not get. They can afford to be generous during this period of restoration. After all, it is amazing that we are in the position in which we are at the present time, considering how many of the friends we thought we had have not turned out to be quite such friends in our state of adversity. We are having to stand on our own more and more as years go by. I think it is good to have to stand on our own, as it shows that we have backbone. I am confident that our people are prepared to stand on their own and show to the world the courage which, in my opinion. no other nation is able to show. I feel that the rich should be proud to stand alongside us and show to the whole world their determination to help this old country out of its present plight.

With regard to charities, and the question of Surtax and so on, it seems to me that this House should consider die way in which people preach and perhaps practise charity at someone else's expense. It is right that the Chancellor should look to that particular part of the tax.

With regard to Pay-as-you-earn, many people have felt that so long as taxation was levied on such low incomes and at such high amounts, there was something at which to grumble. Our people will never be deprived of a grumble, they will have a grumble, and will see that they exercise that grumble. I believe that this method of collecting tax is a good one, and with the reliefs that are now being provided, it should be a good way of enabling those who pay it to keep out of debt. I believe that our people really want to keep out of debt. One of the things that told against the old method of collecting Income Tax was the way in which many hard-working people were forced into the courts to show reason why they should not pay Income Tax claims, after they had spent the money which they had earned and had gone through a period without any wages at all. I believe that Pay-as-you-earn has clone away with that sort of thing, and in that respect it is a good way to collect a reasonable tax. I commend the Budget and the Chancellor for the way in which he has put it forward. I believe we shall be in a very much better position during this coming year, and will appreciate the reliefs which the Chancellor is giving.

6.32 p.m.

Mr. Spearman (Scarborough and Whitby)

Before listening to the Chancellor of the Exchequer yesterday, I thought it would be interesting to read through some of the speeches made by his predecessors 100 years ago. Then, of course, their job was simply to balance the Budget, and their skill was judged by their success in estimating expenditure and in levying taxes to meet it. Now the right hon. Gentleman has a very different job. He has to expose the whole financial policy of the Government. It is rather difficult to know what it was that those predecessors talked about at such inordinate length in the old days. In fact, Mr. Gladstone, on one occasion said, on opening his Budget: The divining faculty of an intelligent audience altogether outruns either the power or necessity of a detailed statement. He then proceeded to speak at rather considerably greater length than did the right hon. Gentleman yesterday. So I feel that Mr. Gladstone, on that occasion, perhaps did not have a great respect for the intelligence of our predecessors.

The right hon. Gentleman won admiration from all sides of the Committee for his brilliant exposition yesterday. It was no small achievement to keep the attention of the whole Committee, as he did, for more than two hours, and to make it so easy for us to listen to him. There were those of us who were more impressed by his skill in, I will not say juggling, but in displaying his figures, than we were reassured by the near balance which he achieved. In fact, there will be many of us who would agree with the leading article in "The Times "this morning, which suggested that the estimates were more technical than real. But I can imagine Budgets much more unbalanced than the one we are now debating which would be far less dangerous in their inflationary tendency.

I would like to ask the Government how they relate their expenditure on social services and defence, with industrialists' expenditure on capital equipment and consumers' expenditure throughout the country, and how they relate that to total output. I do not think there is any evidence that the Government have got a clear idea as to what should be the total expenditure of the Government and of the citizens, and what are the total resources available. In the past, we have suffered from that sort of miscalculation. We can have twin evils arising out of that miscalculation. One is the evil of unemployment, which was so grievous in the prewar years. It may be that on this occasion it will lead to the great evil and greater social injustice of inflation. I wish the Chancellor could have seen his way to have given us an estimate of what he thought the total resources of the country would be, and what he estimated would he the Government's expenditure, and that of the ordinary citizen, so that we could have known where we stood.

I have tried to make some sort of estimate of that nature. I realise it is rather rash of a Private Member to put forward such figures, but I feel that those who, like myself, are really alarmed at the fear of inflation should try to put forward the basis of their fears, so that the Government spokesman, if he will, can show that theme is no foundation for those fears, or so that, if he fails to do so, a note of warning can be sounded, even from such a humble quarter of the Committee. I have made a guess that our total resources in a normal year would be in the neighbourhood of £5,600 million. In these calculations I am assuming 1938 prices, for the sake of simplicity. I have arrived at that figure by taking the gross national product for 1938, given in Table I of the White Paper, to which I have added 10 per cent. I am now rather apprehensive that that was a rash amount to add. I have done that in the hope that full employment and greater output would produce that increase on our prewar figures. In fact output is not rising, but falling. My right hon. Friend the Member for Aldershot (Mr. Lyttelton), in a striking speech in the manpower Debate, pointed out that, in his opinion, the fall in output per man week was exceeding 20 per cent. over prewar years. I have not yet heard that estimate controverted from the Government Front Bench. The City article of "The Times" last Saturday indicated that in the export industry the falling off in output per man hour was over 14 per cent., as compared with prewar years.

As regards full employment, in 1938 there were 1,700,000 men out of work. We cannot hope to get all those men in work. Sir William Beveridge, I remember, took a figure of 3 per cent. of the insured population as the minimum we could reach. That would be a figure of about 600,000. Then, the President of the Board of Trade told us, in the manpower Debate, that 800,000 men would be required to make up for the loss of our foreign investments and invisible exports, so there we have accounted for 1,400,000 out of 1,700,000. I am afraid that this ill-timed attempt to reduce the hours of work below those of prewar might well wipe out any other advantage there might be. I am all for reducing hours of work, and for greater leisure, when we get to normal conditions, but I do not think that this is the time to do it. Therefore, taking these figures into account, it is perhaps a little rash to estimate such a big increase over prewar years. However, I have taken that for my assumption.

Then as regards the other side— expenditure—I have taken the expenditure on consumption goods during 1945, at 1938 prices, because after all the nation will not readily agree, after six years of war, to consume less than in the last year of war. For investment on capital equipment I have assumed 1938 expenditure plus 25 per cent. I think that is rather a moderate increase when we remember the urgent need for re-equipping our factories and also when we remember that out of this comes all the expenditure on housing. I have taken the figure for defence as the amount given in the White Paper. Of course, we all hope that may be reduced, but under existing conditions I do not think we can rely upon a reduction. That leaves a balance of £835 million. The prewar ex- penditure of the Government and public authorities on goods and services amounted to £816 million. It we subtract the amount 1 have already allowed for defence services, that leaves a balance available of £360 million. If we cannot increase our output more than ten per cent over 1938, if we spend only what we did in 1945, if we increase our prewar expenditure on capital equipment and housing by only 25 per cent., and spend on defence what has already been put in the White Paper, then there is only £360 million left for the Government to spend. The Government are already spending £335 million of that on food subsidies alone. The Chancellor mentioned £145 million as an extra expenditure this year on social services and estimated a further £200 million in the next two years.

I suggest that we are arriving at a very dangerous position. I would say that if these figures cannot he contraverted, then there really is a pretty good case for the Government cutting their expenditure even if it means going back on some of their Election pledges.

Mr. Gallacher

For instance?

Mr. Spearman

There will be too much money, running after too few goods. We know that too much money always wins that race. Of course, the right way to safeguard against that is to create conditions in which so many goods can be produced that they cannot be caught up by the money. If these goods cannot be produced, then the Government have a duty to put obstacles in the way of that money, so that it cannot catch up with those goods.

If we are going to have a cut in our consumption below the level for 1945, I suggest it would be undesirable to have an unorganised cut because that would mean a scramble, in which the workers would come off worst. If the Government cannot produce the conditions to increase the amount of goods, and are unwilling to cut down their own expenditure, then, as a lesser evil, they ought, somehow or other, to cut consumption. Otherwise, we are going to have inflation. I suggest that this is not a time for the Government to continue finding new means of spending money. I am bound to add that strong as I think is the case for increasing Members' salaries, I do not think this is the time to do it, especially when output has been so disappointing. A year ago, we all thought the production of the country would be far greater than it is now, a year after the war. Estimates were made for various expenditure which is quite out of place now. I urge upon the Government not only that they should cut out all avoidable expenditure, but at this stage they should even cut desirable expenditure temporarily.

Taxation is, of course, not primarily to collect money for revenue but to divert from the common pool of resources sufficient for Government purposes. I am sure the Chancellor would also agree that it is a method for redistributing the wealth of the country. We all want to raise incomes from the very low level existing before the war. I think mane hon. Members would agree that we do not much mind if that is done by levelling down some of the very high incomes there were before the war. But I wonder whether hon. Members opposite sufficiently realise how far this process of redistribution has gone. I would like to quote from the White Paper. I know the hon. Member for Mile End (Mr. Piratin) did not accept the figures given in the White Paper. I think that was a most undeserved reflection on the Treasury statisticians, for whom I have the greatest respect. If indeed a Government White Paper is not accurate, that does not seem to me to be a good argument for increasing Government interference and for nationalisation. If we cannot depend on the accuracy of Government figures, then the sooner we go back to complete freedom from Government control—to a far greater extent than most of us on this side of the Committee want—the better. I think that would be the only safe course.

In 1944 there were three times as many people with incomes of between £250 and £500 a year as there were in 1938. There were less than half as many people with incomes over £2,000 a year. In fact there were only 33,000 people in the whole country with incomes of £2,000 a year—

Mr. Norman Smith (Nottingham, South)

After deduction of tax?

Mr. Spearman

Yes, after the tax had been deducted.

Mr. Smith

That is rather different.

Mr. Spearman

The total income of everybody with incomes over £1,000 a year in 5938, after deduction of tax, was £3,600 million It is now £5,800 million. The total income before 1938 of everybody receiving over £2,000 a year was £530 million and it is now £225 million.

Mr. Callaghan

No.

Mr. Spearman

The figures are here in the White Paper. The hon. Member for Mile End did not accept these figures. Perhaps he will accept the figures I am now going to quote from this production by the Fabian publications department, which, at any rate, has a cover of a colour he will like—

Mr. Callaghan

Before the hon. Member goes on to deal with that very excellent publication, from which I hope he will quote fully, I would point out that as I read Table 12, the incomes of people over £2,000 a year amount to £570 million as against £530 million in 1938 before tax.

Mr. Spearman

After tax?

Mr. Callaghan

The hon. Member is giving the figures before tax when he reaches the total of £530 million.

Mr. Spearman

The figure, as I see it, after tax, is £225 million.

Mr. Callaghan

After tax, yes.

Mr. Spearman

That was the figure I tried to indicate. I now refer to the other publication. The hon. Member for Mile End appeared to think that there was an immense reservoir in the money distributed to shareholders, on which the Government could draw, and that that was having an inflationary effect. I did not quite follow his argument. As I understand them, the actual facts are that the percentage on home produced national income distributed to ordinary shares is 5 per cent. whereas the proportion going to wages is 41 per cent. That is to say, £350 million is distributed to ordinary shares and £2,865 million—over eight times that amount—to wages. I am not critical of that distribution at all. I merely point out that it does show what a limit there is on the reservoir on which we can draw. I had wanted to speak about the methods whereby I thought the Government might expand production. I see the right hon. Gentleman the Chancellor has come in, and I am sorry he should have missed the bouquets I have been trying to give and come in time for the stings I shall try to inflict. I would have liked to support the case for increasing the allowance on earned income and increasing the money raised by indirect taxation, but, having spoken at such length, I do not propose to touch on that now. I will only make two brief suggestions.

First, I would like to ask whether, in this attempt to increase output, which is so desperately necessary, use could not be made of those factories in North Italy which, I understand, are now, with vast plants and labour, unused. Could they not be employed to work on our account so that they could have work to do to occupy their workers and so that we could benefit from the goods they produce? And, particularly, are the Government absolutely determined on restricting the entry of foreign workers? It does seem to me that, if we could take in foreign workers—and there must be in Europe today a great many skilled workers who would be only too glad to come here under almost any conditions—if we could have 100,000 in the mines, it would surely solve that great problem, and enable as to release the Bevin boys. I for one, hate the idea of compelling boys in peace time to work at jobs which they do not want. It would also give us the opportunity of directing labour where it is wanted, thereby doing away with one of the greatest difficulties of really full employment in a free society, and enable the Government to extend the social services without restricting expenditure by the ordinary citizen. I suggest that the Government should consider that point.

I remember, when I was at school, that it was thought that no king ever did a more stupid thing than Louis XIV of France when he expelled the Huguenots and we were lucky enough to acquire their skill and their energy. Why are we not taking advantage of those people in Europe to do these unattractive jobs that our people do not want? Is the President of the Board of Trade really speaking for the Government when he takes the opposite point of view? When the hon. Member for Monmouth (Mr. P. Thorneycroft) and I made that suggestion in the manpower Debate, the right hon. Gentleman said this: That, I am afraid, is a suggestion which would be quite impossible."—[OFFICIAL REPORT, 28th February, 1946; Vol. 419, c. 2258.] I suggest that it is time that we gave up these restrictionist and old-fashioned ideas. I realise that, if there is a greater supply of labour than there is demand for goods, we are going to have unemployment. We must have equilibrium between the demand for goods and the supply, but why not have it at the highest possible level? There is no limit to which we could not raise the standard of living of our people. Let us get all the goods we can, and let our people enjoy them. It seems to me that these remedies of 1930 are out of place in 1946, and I hope something will be said about the specific statement of the President of the Board of Trade which I have quoted.

In conclusion, may I say that I realise that the Government cannot make bricks without straw, but I do suggest that they can avoid creating buildings without foundations, and that they can create the conditions in which we can get the maximum amount of straw. I ask the right hon. Gentleman if he remembers the story of Catherine the Great when she visited the Crimea and was shown by her Ministers the immense building operations in which they were engaged. These supposed buildings turned out to be only cardboard facades. Are the Government raising edifices of paper—I mean, by paper, the paper on which their many Bills are printed—without the resources which can convert them into bricks and mortar? I suggest to the right hon. Gentleman opposite that, if so, the Government might find a modern electorate, served by a vigorous Opposition, less gullible than an 18th century despot.

6.56 p.m.

Mr. Gaitskell (Leeds, South)

The Chancellor has produced a Budget which is deservedly popular. He has put in a good many entrants for the popularity stakes, and most of us can choose one or other of them. I would like to select my own favourites. I think the first will be the favourite of the Committee as a whole, and that is the repayment of postwar credits. I think we can say that it will give maximum satisfaction with the minimum inflationary consequences, because I think the old people who are going to get these credits back are unlikely to "blue" them all at once, and that it will, at the same time, create the minimum administrative difficulties. My hon.' Friend the Member for South Cardiff (Mr. Callaghan) is a much greater authority on this matter than I am, but I believe it does create considerable administrative difficulty to repay these credits, because of the difficulty of linking them up with tax actually paid in previous years.

My second favourite is the remission of the Entertainments Duty on sports. Certainly, in my own constituency, as elsewhere, there are many followers of Association and Rugby football, among whom there will be rejoicing. Thirdly, I think the Chancellor has done very well to exempt the contributions of workers and self-employed persons under the National Insurance scheme, but I would like him to clear up the position of the non-employed person, the third class of contributor A non-employed person may be one of the idle rich, though there are not very many left nowadays, and I do not think the idle rich will form a very large proportion of that class. One will find in it women who have to live at home, perhaps to look after elderly relations, and I hope the Chancellor will treat them reasonably sympathetically, too. My fourth choice is the earned income relief for married women, although I may have one or two criticisms to make on the limited extent of this concession later on.

I come next to two points of perhaps a rather more controversial character. I was delighted when the Chancellor announced his intention to continue to stabilise the cost-of-living index. I regard the subsidies paid out in connection with food, and, to a very much smaller extent, with clothing and one or two other articles, as having been a major instrument in preventing inflation during the war years, and certainly also of immense importance in preventing industrial friction in the postwar period. I suggest that the maintenance of stability in the cost-of-living index is the counterpart to the policy of the present Foreign Secretary, which has been continued by his successor at the Ministry of Labour, of trying to introduce stability into wage agreements. The Government should consider very carefully before they depart from this policy. There are millions of wage-earners in the country whose earnings are directly linked with the cost of living, and one should not imagine that, in the removal of the subsidies, the resulting effect upon food prices would be the only consequence. On the contrary, there would be a succession of further increases of prices, because of the effect on wages.

My second comment on that point is that I see nothing wrong, in principle, with the policy of subsidising food. I know that some hon. Members on both sides of the House who represent agricultural constituencies are uneasy about this, but I would ask them to realise that it is a perfectly sensible policy for the Government to say that they will deliberately cheapen certain necessities of life and will pay for doing so out of general taxation. I am not saying that it should be paid for, particularly, out of direct taxation. It might be quite a reasonable thing, for example, to pay for the cheaper food out of the tax on tobacco, and I agree with my hon. Friend the Member for Chesterfield (Mr. Benson) about the ease—and there is no doubt about it—with which the tax on cigarettes and tobacco is being carried at the moment.

I come next to the Purchase Tax and, here again, I welcome the decision to make this a permanent tax. It should be graded, as is evidently the intention of the Chancellor, so as to let out, as far as possible, the essential articles, or at any rate to keep them in only at low rates, and to retain the luxury articles. I think the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) was wrong in saying that this tax is necessarily a regressive tax. A regressive tax is one in which people are taxed more than proportionately to their incomes. If this is a tax on luxuries, that will not be the case. The greater part of clothing is exempted from Purchase Tax because it is utility, and most other utility articles are also exempted.

I turn now to certain rather more fundamental issues. Everybody realises nowadays that the Budget is an immensely powerful weapon for influencing the whole of our national economy, and the Chancellor made that quite plain. One knew, of course, that he was aware of that long ago, but he made it plain in his speech yesterday. I propose to ask one or two questions in this connection. The first is, Are we heading for inflation or not, is there any real danger of inflation, and does the Budget increase that danger? The right hon. Gentleman the Member for the Scottish Universities made some rather misty, and even mystical, remarks about inflation at the conclusion of his speech. I must confess that I found them difficult to follow. But I suggest that one should approach this problem in two ways. Inflation may be caused by an increase in expenditure, it may come, so to speak, from the expenditure side, because the Government are spending a lot more, or the public are spending a lot more, on consumption, or industrialists on investments. It may also come, I suggest, from the income side. It may come through continuous rises in wages followed by rises in prices, in the old spiral way.

If we approach it in that way, taking the first case first, the total expenditure, I must confess I do not share the alarm expressed by the hon. Member for Scarborough and Whitby (Mr. Spearman). The deficit, as everybody recognises, is much smaller than we expected. It may, perhaps, be dangerous to say that it is only £300 million in this sense because, from the point of view of expenditure, I am not sure that the terminal payments are not pretty relevant. We cannot assume that the gratuities and paid leave and various other payments made to industrial firms will not be spent. They will be spent, I am sure, and some part of those terminal payments, from the point of view of economy, must he counted as a deficit.

But there is another point in this connection which no hon Member has so far referred to. This year we are incurring a substantial deficit on our balance of payments; that is to say, there will be a large surplus of imports over exports and the effect of that, strange as it may seem, is deflationary in its influence. That is to say, the income which is generated is not spent on goods here. What we are concerned about, on the expenditure side, is expenditure on goods and services in this country. If that deficit is £750 million, I suggest it is a contribution against inflation. Against this, of course, one expects and indeed welcomes an increase in investment. Investment has been negative for some years during the war, quite naturally and inevitably, but this year we expect it to go up. I would ask the Financial Secretary whether the Treasury have made any estimate of what they expect total investment to be in the coming year. On that basis, I do not feel that there is any great danger of a steady rise in national income in relation to output as a result of the Budget deficit or budgetary policy, but I would ask the Chancellor or the Financial Secretary one or two other questions.

Is the estimated increased yield for Income Tax on the basis of the old rates in the coming year the result of men and women coming out of the Forces, where they were paid, to a considerable extent, in kind and where their allowances were free of tax, and pay more in taxation when they get back into industry, or is it based on some general impression that incomes, as a whole will go up? There is another aspect of this problem which should not be overlooked. The numbers at work are, of course, falling at the moment, and the Government's estimate is that at the end of this calendar year there will be only 20 million available for Work as compared with 19,750,000 in 1938 and with 22,500,000 actually employed in the peak year during the war. There is one other point which puzzles me a little. The estimate of Income Tax yield is up while the estimate of E.P.T. is very heavily down by about 33 per cent.—a fall of £130 million. I would be glad if that apparent discrepancy—it may be due to the dates at which the estimates were made—could be cleared up. As I say, my feeling is that there is no great danger from that side.

I turn, therefore, to the other aspect of inflation—the effect on costs Here, I must confess, I am not quite so happy. We all know that the abolition of E.P.T. is desirable. Nobody likes the tax, and everybody agrees it is far too much an incentive to waste, and I am glad it is going. But I cannot help feeling somewhat anxious about the effect of the complete abolition of E.P.T. with nothing in its place at all. I cannot help wondering what effect this may have on wage demands. Up to now, the trade union movement has been extremely conservative in putting forward claims for higher wages. Throughout the war, of course, it was very restrained, and one of the reasons for that was because there was 100 per cent. E.P.T. But, if we are going to allow employers very substantially larger profits, there will certainly be demands for increased wages. Some of us on this side of the House might say, "Why not let us have the higher wages?" and I should entirely agree with that if I could be certain that the Increase would not be passed on in higher prices, but I fear that our experience indicates that it usually is passed on in higher prices. One can no doubt say, "Let us have price control." If that is the lesson, by all means let us have price control to prevent the wage increase being passed on. I have some experience of that subject, and I know there are limitations to it. It covers only a small part of the field—

Mr. Spearman

I would like to point out that what the Chancellor said yesterday was that the yield from E.P.T. would be running down during these years, with a gradual cessation of profits due to war contracts.

Mr. Gaitskell

I agree, but I would have thought that although war contracts fall off, other orders would come in. However, we have rather passed that passage in my remarks. As regards the effect on costs, then, I am not so happy.

My next point is the familiar one which has been touched upon by various Members, of output and incentive. I do not share the view which some hon. Members opposite hold, that there is an alarming and widespread fall in productivity which is supposed to be associated with some change in the psychological attitude of the workers. I think the fall in productivity is largely due to the natural difficulties of a transition period. One cannot expect, in a factory where a lot of trainees are suddenly taken on, to get the same productivity as one would with people who had been working there for three or four years. However, I do not wish to go too far in that direction. There may be some fall off in productivity. If there is, the major influence is the effect of Income Tax. I do not think it is any good just saying generally that high taxation is bad for work or output. It affects different people very differently according to their circumstances. The essential difference is between those whose income is directly related to the efforts that they make, and which varies with their efforts, and those whose income is not directly related to their efforts.

In the first class fall the whole of those engaged on piecework where there is a strict relationship, and certain time workers who, for technical reasons, and partly for psychological reasons, may or may not go to work. into that class also fall the free lance people, such as those who make money by journalism, or as lawyers who may take on extra briefs and so on. Into the second class fall most of the salaried workers and, to a certain extent, workers engaged at weekly rates of wages and who are not in the habit of absenting themselves. I thought my right hon. Friend was somewhat lighthearted about the consequence of Income Tax upon the first class, and I was not very impressed with the examples he gave. He said a single man with an income of £2 8s. a week now paid no tax, and a married man earning 00A3;3 10s. now paid no tax. Those are very low rates of wages, and I do not think they are very relevant to the problem.

The essential point is the change in the rate of taxation affecting the marginal increments of income, that is to say, the extra bit of money which is brought in by the extra bit of work. I refer to the change from nil tax to 3s. in the £, from 3s. to 6s. in the £, and from 6s. to 9s. in the £. If one takes the case of a married man with one child, earning £320 a year—that is about £6 10s. a week—he gets a married person's allowance of £180, £50 for the child and £40 earned income allowance under the new proposals. Of his £320 a year, £270 is not taxed at all. The remaining £50 is taxed at 3. As soon as he goes above that figure he pays 6s. That is where the higher rate of tax comes into operation and that is where the disincentive, if I may use the expression, comes into operation.

I realise that one can take any example one likes, and somebody will be affected by this change, but surely the essential point, looking at it from the angle of production, is how many people will be affected. I think the Chancellor made a mistake in introducing the additional steps within that £165 of taxable income. I would prefer to see a tax of 4s. 6d. in the £ for £165, than the present three steps of 3s., 6s. and 9s. in the £. From the point of view of incentive, there would be much better results. Nor must one overlook the fact that the amount of money involved is not very great. The total Income Tax derived from wages in 1945 was only £240 million. The total Income Tax taken from all persons with incomes below £500 a year in 1944 was only £330 million. I do not propose complete exemption for those classes—that, obviously, cannot be afforded—but I do suggest the matter should be considered in detail to see whether one could get a tax which is more scientifically graded so as not to affect incentive so adversely.

Earl Winterton

If a tax of a low income acts as a non-incentive to work, why should it not do the same with a higher income?

Mr. Gaitskell

I did mention—perhaps the Noble Lord was not here at the time —that I thought certain types of high income fell within that class—the free lance type such as lawyers, who may vary their income as they like according to their work, but that salaried persons—I can mention my own case before the war, for example—are not affected in the same way. They are paid a salary, and it does not affect the amount of work they do. This matter is vitally important. When one considers the great importance of getting an additional 100,000 tons of coal per week, it would surely be worth risking a little extra Budget deficit for that result.

My last point is with regard to Death Duties. I welcome the changes which the Chancellor has made. Death Duties seem to me a much better tax from the point of view of incentive, and they are an excellent tax from the point of view of social justice. But I would ask my right hon. Friend whether he is yet satisfied with the rates of tax imposed on estates? Even now the scale is far from progressive. For example, the rate on an estate of £20,000 is 10 per cent. The rate of 20 per cent. is not reached until £45,000 estates come into the picture. The rate of 40 per cent. does not come in until one gets to the £200,000 estate. So that, in fact, there is no progressive scale at all for estate duties.

Mr. Dalton

I do not think my hon. Friend is using words in the same sense as I use them. In the ordinary sense of the term, a progressive scale means that for every increase in the amount of the estate, the amount of the tax rises.

Mr. Gaitskell

I would not dream of arguing with my right hon. Friend about the appropriate terminology. Apart from the fact that he is Chancellor of the Exchequer, he is also a great authority on taxation. I was using the term "progressive" in another sense—meaning " increased more than proportionately." My right hon. Friend wrote a famous book called "Inequality of Incomes" as a result of which he became a Doctor of Science. In it he analysed the causes of inequalities in incomes. He also gave evidence to the Colwyn Commission on the same subject. On both occasions he emphasised the great importance of inheritance as a major cause of inequality. Before he stops being Chancellor of the Exchequer I ask him to bring in a major reform, and strike a really hard blow at inheritance for the sake of social justice.

7.20 p.m.

Mr. Boothby (Aberdeen and Kincardine, Eastern)

We have listened to an extremely able speech such as we always expect from the hon. Member for South Leeds (Mr. Gaitskell). He used one or two expressions which surprised me a little. When, for example, he talked in a rather airy way of "only £300 million," and so on, it seems to me that, by any accounting system, that is a substantial figure. There was another moment in the course of his observations when he seemed to imply that we should keep a £700 million deficit on our overseas trading account, as a kind of precautionary measure against inflation. However, we on this side of the Committee can only expect the peroration which he delivered. So far as Death Duties are concerned, no doubt he is a full supporter, as once the Chancellor was, of the Rignano scheme. I must say that, although I do not in every way approve of the Chancellor's present proposals, I had hoped they meant that the Rignano scheme at any rate had faded from his memory.

Having, in a Sunday newspaper, anticipated the Chancellor's Budget with almost embarrassing accuracy, I do not feel I have much to say by way of detailed criticism of the proposals he has brought forward. Like everybody else in the Committee, with the possible exception of the Communist Party, I welcome the abolition of E.P.T. I do, however, deplore the veiled threat which accompanied it. I think it was quite unnecessary. There may be something to be said for a differential tax on profits distributed as dividends, and profits ploughed back into industry, carefully worked out and judiciously applied in a cold scientific manner. There is nothing to be said for the use of the threat of such a tax, as a kind of bludgeon against private enterprise. I think the right hon. Gentleman has once again unnecessarily disturbed the economic system upon which the Administration is depending for four-fifths of the production of this country.

That is the real trouble; and I beg of the right hon. Gentleman—and I wish he would impress this upon his colleagues, and particularly upon the Minister of Fuel and Power—to remember what happened in the days of the New Deal in 1938 and 1939. Some of the Measures conceived by the Roosevelt Administration were very wise, particularly the devaluation of the dollar. But ultimately we were all put into a deflationary spiral, which did the Western democracies untold damage, and greatly weakened their strength upon the eve of the outbreak of the second world war, mainly because of the vague, unthought-out attacks, which were levelled generally against industry in the United States of America. That really was one of the principal causes of the deflation of 1938 and 1939, which did us unlimited damage, and greatly weakened our strength at a critical moment. I had hoped the Government would at least draw a clear line of demarcation between those industries they proposed to nationalise, or take under national control, and those industries which they proposed to leave to private enterprise; and to encourage rather than discourage the latter. I am sure the Chancellor sees the force of this argument; and I hope that upon reflection he will see that vague threats against private industry will not do the Government, or the country, any good.

I welcome the delayed increase in the earned income allowance. But I think this allowance should have been completely restored: that is to say it should have been increased not to one-eighth but to one-sixth. As the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) pointed out this afternoon, there was an implied pledge, given by the late Sir Kingsley Wood when he put this tax on, that these allowances would be fully restored. So far as earned income is concerned, that pledge has not yet been honoured by the right hon. Gentleman. It was not honoured in the last Budget; and it is not honoured in this Budget.

Like everybody else, I welcome the reduction in the tax on sport; the modest beginning of the repayment of postwar credits; and, most of all, the increase in the allowances for married women earning incomes of their own. I need hardly say that all these suggestions were made by the Opposition in the course of the last six months. Naturally, we take credit to ourselves; it is a source of great pleasure that our advocacy had such a weighty effect on the mind of the Chancellor. We hope that may continue during the anxious and difficult years that lie immediately ahead.

I greatly regret the refusal, the inexplicable refusal, of the Chancellor to increase the allowances for children. I confess I cannot conceive what is the object of the Government in this respect. At the present time we are suffering from a shortage of labour, and we are likely to suffer an increasing shortage. Also, there will be an extremely low birth rate during the next 20 or 30 years. I should have thought it would have been the policy of the Government to encourage an increase in the birth rate in every possible way—to encourage the production of children, as of everything else in this country at the present time. I would like some explanation, if the Chancellor will give it, as to why there is this refusal to restore the children's allowances.

I also regret, as I think did the hon. Member for South Leeds and other hon. Members, the failure of the right hon. Gentleman to deal with the very urgent problem of the taxation of overtime under the P.A.Y.E. system. No one on either side of the Committee can possibly say this does not act as a definite check on production. It is not to be denied, and I need add nothing to what the hon. Member for Harwich (Sir J. Holmes) said on the subject.

I have almost given up hope of any substantial relief, or indeed any relief at all in the measurable future, for those unfortunates who drink and smoke. I would only say to the right hon. Gentleman that their contribution to the national revenue is out of all proportion to their sins. I would also say that if the Chancellor is going to heap these burdens on the drinkers and smokers, he might as well give them something decent to consume. If beer, for example, is to be taxed at its present level, it might as well be beer. In his last Budget the Chancellor held out some hope that there might be some improvement in the quality of the beer; but he has had nothing to say on that subject this time. Indeed, I go so far as to say the right hon. Gentleman definitely stated, when speaking on his last Budget, that he did not think it was fair to tax people on what purported to be beer, but was in fact wash; and that it was a situation which would have to he rectified.

As for whisky, I have mentioned this subject before, and I shall not detain the Committee at any length. Our treatment of the whisky industry in this country simply will not bear examination. Last year, 1945, we exported nearly five million gallons of whisky. The cereals for making this whisky cost £1½ million. We got, in hard currency, just under £9 million from the sale of the whisky. In other words, the value of the exported whisky was six times as great as the value of the barley which we put into it in this country. With the money thus earned we could have bought, and no doubt did, that amount more food than the amount we consumed in this country. To bludgeon this industry out of existence—which is apparently the policy of the Government at the present time—borders on insanity. It is the greatest single earner of dollars that we have in this country. Therefore, it is the greatest earner of food and raw materials, of which we stand in such dire need at the monent, that we possess.

I think we are all agreed that the all-round performance of the taxpayers of this country has been truly wonderful during the past financial year. As the Chancellor rightly said, we are entitled to boast about it. I think that, from that point of view, his Budget, with the unexpectedly favourable figures which it disclosed, has made a very great impression all over the world. But there are certain aspects of the long-term situation which give cause for grave anxiety; and it is with these that I particularly wish to deal. The Chancellor is clearly counting upon a steady increase in the national income, and therefore of national productivity. In my submission, he will not get it, if the rates of expenditure and taxation remain at anything like their present levels. Yet the right hon. Gentleman appears to contemplate, with comparative equanimity, a continuation of the rates of expenditure and. of taxation at something like their present levels. Astonishingly, he held out no hopes of further substantial tax remissions for the next two or three years. Still more astonishingly, as the right hon. Gentleman the Member for the Scottish Universities pointed out, he never even mentioned the paramount need for economy in administration, especially in view of the statutory obligations which have already been authorised by this House.

In my opinion no economic system—capitalist, Socialist or Communist—can indefinitely sustain the present burden of taxation in this country, and survive. This applies, above all—and here I might carry the hon. Member for South Leeds with me some part of the way—to the standard rate of Income Tax. Nine shillings in the pound is not a tenable figure for the next three or four years. Here let me return to an old theme of mine, and ask the Chancellor to give serious consideration to the possibility of differentiating between earned and unearned incomes at every level of taxation, including Surtax. No country depends as this country does upon the ingenuity and skill of its professional classes. When hon. and right hon. Gentlemen opposite say this is a question of the rich versus the poor, I say that is complete nonsense. I am asking for a differentiation between earned and unearned income. At the present time there is no incentive to the professional classes to work harder than they have ever worked before. Yet it is upon these men, the technicians of industry, the managers of industry, and the executives, that the economic welfare of the country primarily depends. We are not giving sufficient incentive to these men to do their jobs really well.

Furthermore, by the present scales of taxation we are making it quite impossible for the professional classes, and the artisan classes, to lay aside any money for their old age or for their wives and children. That is unhealthy in any economic system. I say the right hon. Gentleman should make a sharp differentiation between earned and unearned income, right through the scale. I think the Colwyn Committee was wrong to abolish the differentiation that existed prior to 1920. I would take it down through Surtax, to Income Tax at the lowest level, because I think it is absolutely essential to give every inducement and incentive to every class in this country. The professional classes, executives, technicians, managers, trade union leaders, skilled artisans, and workers will all have to work harder in the next two or three years than they have ever worked before.

On the expenditure side, the most serious and alarming figure, to my mind, is the £335 million in cost-of-living subsidies. It is a colossal sum. I remember when this policy was initiated by Lord Woolton I was at the Ministry of Food at the time. We began with what now seems a modest, but then seemed a formidable, figure of £50 million a year. Little did we think what a mushroom growth it would have, or that it would ever reach a figure of this magnitude. Apart from the burden on the taxpayer. it puts agriculture on an altogther false basis. It is now quite out of touch with reality. The hon. Member for South Leeds was quite right when he said that some of us who represent agricultural districts in this country are deeply anxious about the colossal subsidies that are being paid. I will tell the Committee why we are anxious. It is because we fear that it may, indeed must, result, in the long run, in a revulsion against the cost of agriculture on the part of the general body of taxpayers in this country, and in a growing cleavage, so happily healed in the war, between the countryside and the towns.

That is what we arc afraid of. It has already had one bad result, namely, a reluctance, and an otherwise inexplicable reluctance, to raise the wages of the farm workers of this country, which will continue as long as a moderate rise in agricultural prices is refused. I think this rise ought to take place, and take place very soon, under the greatest possible safeguards, and under the watchful eye of the Chancellor. I think the pledge to hold the cost-of-living index at its present level at all costs is an unwise and an unsound policy, not only in the interests of agriculture, but in the interests of the country as a whole.

I believe that a moderate price rise for agricultural products would have a less inflationary effect than the continuation and, possibly, the extension of the enormous subsidies that the Chancellor of the Exchequer is paying at the present time. If it comes to wage rises, I say this: As long as wage rises are related to output, I am all in favour of them; and if the Chancellor of the Exchequer sticks to this principle, and relates wages to productivity, he need have no fear of wage rises on a moderate scale.

Perhaps the most dangerous feature of our internal economic situation is the acute shortage of labour in our two basic industries, agriculture and coalmining; upon which, in the final analysis, the whole national economy depends. There is absolutely nothing in this Budget designed to remedy that situation. I entirely agree with my hon. Friend the Member for Scarborough (Mr. Spearman) that we ought seriously to consider the import of labour into this country. I think we ought seriously to consider the employment in the mines of Poles who are reluctant to go back to their own country. I think we ought also most seriously to consider importing domestic servants into this country. Any hon. Member on either side of the House who sits for an agricultural seat will know that one of the greatest difficulties and burdens now resting upon farmers and their wives is the lack of domestic service, which imposes an almost intolerable burden upon them, and has a grave effect on our agricultural efficiency.

I come to the fundamental objective, which has been mentioned by several hon. Members this afternoon, and most notably, by the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson), a balanced national economy. We cannot have a balanced national economy without a balanced trade. The austerity drive of the President of the Board of Trade has been attended with a considerable measure of success, and we are glad to see it. But danger arises from too great a dearth of consumer goods. When there are no goods to buy in the shops, you make leisure the only luxury. And, this is at a moment when increased effort and output are absolutely vital.

An increased and stable overseas trade is essential to an increased national income, to the pursuit of an effective economic policy, and to the achievement of a balanced national economy. The prospects of our trade with the Empire are still overshadowed by the threat to Imperial Preference, and we may as well face that fact. The situation in Western Europe also gives cause for grave disquiet. Here we have—and I am sure the Chan- cellor of the Exchequer will agree with me—in Western Europe a group of comparatively small countries, including our own, with similar political ideals and similar economic aims, including full employment and a rising standard of living. All of us are dependent in a marked degree on overseas trade; and all of us are dependent, in an even more marked degree, upon trade with each other. Before the war, in the case of Britain, France, Belgium, Holland, Denmark and Norway, overseas trade accounted for anything from a quarter to a half of the total national income of these countries. Yet today the trade between all of us is a miserable trickle.

Why is this? It is not so much due to the lack of a coherent foreign policy, as to the complete absence of any positive economic policy, with clear and defined aims. It is a disaster for all of us that, at a time of acute shortage of coal and iron and steel, the industries of the Ruhr should be throttled back merely because we have not yet reached any agreement. By the end of March the decline in coal output was nearly 20 per cent. The need for comprehensive commercial and financial agreements between the democracies of Western Europe for the mutually advantageous exchange of goods, has become a matter of urgent, practical necessity; and I beg the Chancellor of the Exchequer to consider this. He will never get a balanced national economy, or an effective economic policy, until he does.

The objective must be the stabilisation of trade at the highest possible level. The methods by which this can be achieved are varied, and none should be excluded. Bulk purchase, about which the Government professes to be so keen; tariff reductions; payments agreements, which automatically provide the finance of international trade; medium-term credits. It will, of course, involve a modification of the "most favoured nation" clause. In this connection I should like to quote to the Chancellor of the Exchequer a remarkable statement which recently appeared in the "Economist ": It the doctrine of non-discrimination means that, when one country allows its trade to fall off, all others must catch the infection and none must inoculate itself, it will turn out to be the most powerful weapon for spreading the virus of depression and restriction that was ever invented. I would ask the Chancellor of the Exchequer, in the interests of this country, to pursue a positive and not a merely negative trade policy.

The verdict on this Budget must be what it was on the last Budget: pedestrian. There are a few economic concessions here and there. But no imagination, and not much courage.

7.41 p.m.

Mr. Scott-Elliot (Accrington)

I want to discuss the question of incentives but first I should like to thank the Chancellor for the reduction he has made in the Entertainments Duty on cricket and football matches. I feel that this reduction will generally be welcomed and that clubs will be in a much better position in the coming season not only to make reductions in their charges, but also to provide better facilities for the spectators. I feel that there is one thing this country wants above all others at the present time, and that is, an increase in the volume and the rate of out production. If we are to achieve that we shall have to give the maximum amount of incentive both to the employer and to the worker, and, therefore I want to consider the Budget proposals in this light. Within the last six months the Chancellor has had in make a very important choice between two alternative courses of action. It was obvious that he was going to have a heavy deficit, running at least into 1947, although some of it, as he explained to us yesterday, will be of a terminal nature. On the one hand, he could have taken the old-fashioned traditional line and said that he was unable to reduce taxation to any marked degree because it was necessary for him to fortify his revenue to the greatest possible extent. If he had taken that course, it would, I believe, have been disastrous for this country. On the other hand, he has taken the modern expansionist line and has, in fact, said that although he is faced with a considerable Budget deficit, nevertheless, he wishes to give as much relief in taxation as he can, in order to stimulate production, to stimulate the national income, and thus increase his source of revenue. I believe that when the history of the transition period comes to be written some historian in the future will point to this decision as one of the major factors in providing a speedy recovery in this country.

I want to say a word now about incentives and dis-incentives. Since the end of the war there have been far too many dis-incentives by both employers and workers. Take the case of the workers first. There has been the dis-incentive of the lack of goods in the shops, with the result that in certain cases, I am afraid, where the workers were unable to buy goods they have chosen instead to purchase leisure at the expense of production. Then there has been the dis-incentive to which my hon. Friend the Member for Chesterfield (Mr. Benson) has already referred, the dis-incentive of Income Tax as levied upon workers who have not been accustomed to pay it. I believe that to be a very serious dis-incentive, and in this connection I should like to draw attention to the question of overtime. Throughout the workshops of this country, and more particularly in the North of England, the remark has gone round that, if one works two hours' overtime, one gets paid for only one hour's work. Hon. Members of this House well know that that is a very great oversimplification: indeed, it may not be true at all in the case of an individual who has not been paying the standard rate of Income Tax. Nevertheless, there is a certain amount of substance in it, and I ask whether it may not be possible ultimately to provide some system by which overtime earnings may not be regarded as distinct from ordinary income and separated from it when assessments for tax are made.

There has been the dis-incentive of the Pay-as-you-earn system. It is the perfect system theoretically but I believe the workers in this country would rather have a system that was, broadly speaking, fair and equitable, and, at the same time, was understandable by them. As it is, they have a system which is perfectly fair and equitable, and, at the same time, completely incomprehensible. We have had two years' experience now of the working of the Pay-as-you-earn system. I know that what I am going to ask the right hon. Gentleman is a big thing, because I realise how big a thing it is to overhaul any system of taxation. Nevertheless, I do ask him whether he could not consider overhauling this tax, both with a view to excluding overtime earnings and, at the same time, to make it more simple to comprehend.

Turning now to the question of the employers, the major dis-incentive has been E.P.T. As the Chancellor of the Exchequer pointed out yesterday, E.P.T. is an excellent tax for a short war, but the further we get away from the standard years upon which E.P.T. is based, the more unjust does it become. I feel it has been pressing particularly hardly upon two forms of business. First, it has been pressing upon businesses which during the standard years of 1935 to 1937 were working in only a small way and have built themselves up during the course of the war. Today such businesses may be operating at a far higher turnover and, therefore, making more profit than anything that can have been envisaged during 1935 to 1937. Similarly, E.P.T. has been pressing hardly upon those businesses which were paying badly during the standard years and which may be doing better today. Here again these businesses are having the bulk of their profits skimmed away by E.P.T., instead of being able to plough them back into the business, as is so desirable.

Here I conic to the warning the Chancellor gave to those businesses yesterday, because I feel it is of great importance that businesses which arc freed of E.P.T. should not use the money thus made available for the payment of increased dividend, to the shareholders. By and large, I believe, that intention of the Chancellor of the Exchequer has been carried out by the larger and more progressive companies. My experience is that the increase in dividends is taking place among the smaller types of companies. Only today I was looking through a financial paper and I saw that a company in which I happen to hold a small number of shares has put up its dividends from 30 per cent, to 37½ per cent. although the earnings appear to be comparatively modest. I consider that to be utterly and completely wrong, because these earnings should have been ploughed back into the business and not distributed to the shareholders.

In conclusion, I want to say a word about general policy in dealing with incentives. As a Socialist I naturally believe in the idea of service to the community and service to the State but, at the same time, I believe that there must be a monetary incentive for the individual whether he is an employer or whether he is a worker.

Mr. Scollan

Or a sharehaolder?

Mr. Scott-Elliot

No, certainly not. I regard these two views as not inherently antagonistic but as potentially complementary. They are both needed in the country today. Moreover, I believe that the British genius for harmonising apparently divergent points of view will bring these two things into alignment. In doing this we shall teach the world something which it is good for the world to learn, namely, that individual initiative and public enterprise can go forward hand in hand together in a spirit of mutual cooperation and good will.

7.52 p.m.

Lieut.-Colonel Nigel Birch (Flint)

I shall refrain from attacking the hon. Member for Accrington (Mr. Scott-Elliot), first, because I agree with most of what he has said, and, secondly, because he has already suffered such heavy sniping from behind that he does not need to come under my fire as well. I join with the hon. Member for East Aberdeen (Mr. Boothby) in congratulating the Chancellor of the Exchequer on taking the advice of the party opposite on matters against which he voted last autumn. I can assure him that he can be confident that we shall give him equally good advice on this Finance Bill. The hon. Lady the Member for Duddeston (Mrs. Wills) said that everyone had a right to have a grouse, and I have a right to mine. The main criticism of this Budget is that in spite of the Coalition White Paper on Employment, and in spite of the fact that the Chancellor talked in his interim Budget and yesterday about a five year plan, and in spite of his dictum that there is nothing very sacred about the period the earth takes to go around the sun, we still have a completely old-fashioned type of Budget and have been given no idea of what is the real global plan.

No attempt has been made to say what the plan will be over the next few years, and we have heard nothing whatever about the planned shape of the national income. We have heard nothing at all about the rate of capital expenditure on new plant, which is a most vital factor and to which I shall refer again later. I regard all this as not very progressive. There was a slight difference of opinion between the hon. Member for South Leeds (Mr. Gaitskell) and the Chancellor of the Exchequer about the meaning of the word "progressive," but all I can say is that this Budget is not very progressive. In the past we have often had much more information given about the future. For instance, Sir Austen Chamberlain, in 1919, which is a comparable period, gave a forecast of what he thought a normal Budget should be As the Financial Secretary to the Treasury is to reply to the Debate, and as he always quotes Gladstone, perhaps I may go so far back as 1853 when, in his first Budget, Gladstone had a seven year plan, as a result of which Income Tax was to be reduced from 7d. to nothing—that was something like a plan. As the Committee will remember, the Crimean War intervened and, by and large, Income Tax has gone up ever since. Such are the results of over-ambitious plans both of mice and men. This extreme reluctance to give us more light on the future is rather hard to understand. I cannot help feeling that hon. Members opposite are unwilling to give up the reputation they believed themselves to have acquired when in the ante-chamber of power of always being right. They have told us again and again what ought to have been done after the event, and have always succeeded in backing the winner after the race. What they are faced with now is the question of backing a winner before the race, and they are not willing to go nap on anything in the dark.

Leaving the question of a general plan, I should like to turn to a more specific point and to ask how far the declared intention of maintaining the cost of living at 31 per cent. over the 1939 level is really consistent with the rest of the Chancellor's programme, and, if it is inconsistent, what is going to happen. We are all agreed about the evil of rising prices and of the suffering entailed on many people, and we know that if it goes too far it results in the murder of the middle classes In order to keep the cost-of-living index steady, it seems to Inc that certain things have to be done. Mist, we have to keep interest rates low. Through a combination of power and the arts of the company promoter, the Chancellor of the Exchequer is being extremely successful, and I do not think we need go further into this matter. Secondly, savings must be kept very high and in my humble way I have done what I could for the savings movement, and I will, it asked, do the same again. One cannot help feeling, however, that the trend is against us. For instance, in 1942, savings as a percentage of personal income stood at 19 per cent., in 1945 at 16 per cent. while in 1938 they were only six per cent.

The next condition, which is the most important, is that we must somehow preserve the balance between our expenditure on consumption goods, and the creation of new capital and plant within our real resources. New capital seems to me to be the most vital of all questions. An improved standard of living depends, absolutely, on our industrial efficiency, but, so far while we have heard a tremendous amount of what is to be spent on defence and on social services, we have heard nothing about what the Government consider to be a reasonable figure for new capital creation each year. This is a legitimate question to ask, because the Government control capital expenditure on new plant through their physical controls. Therefore, I think we should hear a word about it. It is fundamental, because we want to put up our standard of living and have better social services. We cannot do all these things at once, but we should be able to choose with our eyes open how much jam we shall have today and how much jam we shall have tomorrow. As the facts have been presented, nobody, except somebody in the Government, has any chance of knowing what the real plan is and what is really going on.

I will now turn to the question of taxable capacity, because, as has been pointed out from all parts of the Committee, the question whether we can keep the cost of living at the present level depends very much on taxable capacity. The subject was dealt with at some length by the hon. Member for Chesterfield (Mr. Benson). I will not go into the rather dreary figures about how many rich people there really are, because I have no doubt that the hon. Member for South Cardiff (Mr. Callaghan) would trip me up on some figure if I did so. I think one can deduce from the figures of really rich men that the whole lot of them would go into a couple of tumbrils without undue overcrowding. They have been soaked, and the result of that process is that the weight of taxation that has to be raised now falls on people with lower incomes, as has always been the case in more egalitarian economies than our own. Before the war, in Queensland and New Zealand, the taxation of a married couple with three children was about five times as high as it was in this country at that time. The trouble about this is that it is also most inconvenient for politicians, because when one has to tax the broad masses of the people, one cannot help remembering they have votes and they make themselves heard. When hon. Members opposite commend the National Health Service Bill by saying that it will mean no more doctor's bills, I think they underestimate the intelligence of the public, who realise very well that there are several sorts of doctors, and that the one who sits on the Government Front Bench will present a bill that will be much higher than that of the medical variety.

It is an historical fact, as the hon. Member for Chesterfield pointed out, that between the wars it was a general fact observable in all countries that when the total burden of taxation exceeded about 25 per cent. of the national income a rise in prices always followed. What the level of taxation will settle down to in the coming years we cannot tell, but it is certain that the figure will be very much more than 25 per cent. Figures have a way of defeating the most noble sentiments, and I feel that in this country we are a little in the same position as France was after the last war. We arc badly overextended. One of the Finance Ministers, France alter the last war, the Comte de Lasteyric, talking about his badly unbalanced Budget, said that the deficit was due not to excessive expenditure, but to insufficient revenue. These admirable Keynesian sentiments did not stop the depreciation of the franc to four-fifths of the prewar value in 1928, and a further depreciation in 1936. One should remember that debasing the coinage has always been the one from last argument of kings.

I have no doubt the Government will make every effort to control prices, and I do not underestimate the vast powers of the Government today, but one has to remember that one cannot bend events entirely according to one's will unless one has control of all the factors and unless the policies one is pursuing are consistent with themselves. One can see in the world today what a terrible mess you get into if you try to put ceiling prices on without having control of all the factors. I believe that one of the reasons for the famine in wheat has been the endeavour to control rigidly without having control of all the factors. Further, the coming famine in bricks has a very great deal to do with the question of ceiling prices. It is immensely more difficult than it appears to be on the face of it. It is very simple to say "Control prices," but it does not work out quite that way in practice. The Government are up against a situation very similar to that of Dame Partington. The Atlantic came into her house and she tried to swill it up with a mop. The mop was all right to soak up the slops, but not much good against a tempest. I feel that some of the Government's plans for dealing with a rise in the cost of living are rather on the Partington level.

8.7 p.m.

Mr. Coldrick (Bristol, North)

I join with other hon. Members in congratulating the Chancellor upon having done so much to give so little. It is not my intention, however, to mention the things with which I am in agreement so much as to concentrate on the main point on which I am in complete disagreement with the Chancellor. I regard the Purchase Tax as one of the most pernicious taxes that have been inflicted on the country. I have been somewhat concerned in this Debate to find that many hon. Members are now arguing in favour of the retention of the Purchase Tax as a form of progressive legislation. I can quite understand the Purchase Tax having been introduced during a period when the supreme desire was to restrict the consumption of goods; I can understand it being retained during the period of transition; but if it is now to be elevated into a principle, I submit it is the most regressive form of taxation that could be imposed upon the people of this country. It has been argued that indirect taxation is regressive in so far as its incidence falls disproportionately upon poor people, and by a curious form of logic it is now being suggested that, if one retains the Purchase Tax and grades it, presumably it will be exceedingly progressive.

What in essence will it mean? I have always believed that progress is made by bringing an increasing range of goods down to a lower price, in order that the mass of the people may be able to enjoy their consumption, but if we are to retain the Purchase Tax, and make people pay an added tax in order to consume a superior article, inevitably we shall create a class system. The poor must have everything cheap, and the people in more favoured circumstances will have the superior article. Therefore, I presume that if a person is musically inclined, and is prepared to make some sacrifice in order to ac quire the necessary purchasing power to get a piano, which at one time, I understand, was an article of respectability, in future, in addition to paying the price of a piano, he will have to pay a levy in order to enjoy that luxury. Likewise, if people want to go in for real silk instead of artificial silk, presumably they will have to pay not merely the added cost of production, but something in the form of a levy. I hope sincerely that the Chancellor will endeavour, to the best of his ability, to remove this Purchase Tax as quickly as possible. Apart from the fact that it denies poorer people the opportunity of consuming the better articles, it tends to do the very thing which the Chancellor insists he does not want to do, and that is, to promote inflation. Obviously, if people have to spend more money to acquire the same quantity of goods, that is bound to have an inflationary tendency. For that reason, I hope that nothing will be done by the Chancellor that will be calculated to raise prices, first, because it will prohibit a wide section of the community from enjoying the superior articles, and secondly, because I think it will tend towards inflation.

One other point of marked importance was raised in the course of the Debate. It was with regard to the Income Tax. I have never known any form of tax that was popular, and I suppose that most of us would evade all forms of taxation if we could. It has been suggested that P.A.Y.E. is a great deterrent, but I have heard nobody suggest an alternative. Does any Member of the Committee imagine that, if it is difficult for the worker to pay his contribution week by week, it will be easier for him to pay quarterly or yearly? The system was instituted because of the difficulty experienced by millions of workers in meeting the claims of the Revenue at half-yearly or yearly intervals. Therefore, when we criticise the existing practice, a responsi- bility lies upon the critics to supply an alternative.

It has been suggested from the other side that some incentive should be provided. I am particularly glad to discover that hon. Members opposite have now recognised that the great mass of the people of this country require some incentive if they are to increase production. With a fairly long experience in industry and a fairly good knowledge of the history of the working class, I say that, generally speaking, there has been an evasion of any incentive to working-class people, whose wages have never gone up in proportion to the prosperity in industry. The only incentive that has ever been applied has been that of fear. Permanent fear of "the sack," has caused many people to retain their allegiance to the employer. I was reading during last month a statement made by a well-known employer in this country that he could increase production enormously if there were a million unemployed people.

I say to the Chancellor of the Exchequer that I have not the slightest confidence that the remission of E.P.T. will have any effect in causing people to plough back the extra money into their industries. The only thing that will cause them to plough it back, or to reinvest it, would be the incentive of making more profit for themselves or the fear that the Government would utilise their power of taking over industries which are not run efficiently.

I suppose hon. Members know that I am actively associated with the Cooperative movement, which is anathema to a great number of hon. Members opposite. This fact is due to their knowing nothing, or very little, about what the Cooperative movement has done or what it seeks to do. They have a desire to smash everything which tends to create a greater measure of equality. We are often accused from the other side of tending to create a monopoly, and efforts have been constantly made to impose additional taxation upon the Cooperative movement, with its £500 million of capital and £500 million worth of trade. We do not pay fabulous figures to our directors such as other directors seem to require in order that their businesses may be run efficiently. When the industries of the country are conducted upon the principles applied within the Cooperative movement, we shall hear very little talk of incentive such as is being used at the present time.

I appeal, therefore, to the Chancellor of the Exchequer, having regard to what the Cooperative movement has done and what it seeks to do, that he should remove from it one of the vilest forms of taxation that could be conceived, double taxation. When one looks at the history of this matter, and at what was done during the term of office of some of the illustrious predecessors of the Chancellor of the Exchequer, one discovers that efforts were constantly made to impose additional taxation upon the Cooperative movement. Each Chancellor of the Exchequer affirmed that the movement was bearing its fair share of taxation. It was, unfortunately, through the ill-fated Government in which the late Mr. Neville Chamberlain figured so prominently, that their vindictiveness found expression. The result is that, even at the present moment, double taxation is imposed upon the Cooperative movement, although it is the one movement that is doing more to promote the prosperity of the ordinary people than any other organisation in the country.

The Cooperative movement now has 9,500,000 members, and, with the families of those members, represents well over one half of the population. I am, therefore, not appealing on behalf of any limited section of our people. Obviously, we pay the full amount of the taxation that the Exchequer demands, but when we have met our obligations to the Chancellor of the Exchequer we ought to be free to do what we like with what we make. If we elect to spend the money in such a way as to pay someone a profit in order to secure for us certain goods and services, that is our lookout. If, on the other hand, we elect to form associations in order to provide ourselves with goods and services, and by so doing effect savings, I submit that there is no case for taxing those savings.

Experts recognised this fact as long ago as 1933 and 1935. They said that they would not tax the proportion that was distributed in the form of a surplus, or was maintained in order to carry on the business effectively. Let me say, in passing, that we are doing, incidentally, what the Chancellor is now exhorting the private traders to do, saving a part of the surplus and ploughing it back into the trade. That portion of the surplus of our savings is taxed at the present moment, and is an addition to the other taxation. I sincerely hope that the Chancellor of the Exchequer will look into this matter, and I hope, now that he has power, that he will use it to establish justice and equity.

8.15 p.m.

Mr. Gammans (Hornsey)

I hope that the hon. Member for North Bristol (Mr. Coldrick) will not think I am discourteous if I do not follow him into the very interesting realms of controversy he opened up in regard to the Cooperative movement. I might tell him, if he does not realise it already, that on this side of the Committee we have no animosity against the Cooperative movement. Certain misgivings have been aroused in our minds by hearing the Cooperative movement announce, as part of their definite policy, that they are out to eliminate altogether the small trader. That is when we feel that something has to be done about it. I was very interested in the point made by the hon. Member about double taxation paid by the Cooperative movement. That is a new one on me. I believe that many traders are under the impression that cooperative societies do not pay single taxation—but we will not argue about that tonight. I hope that the hon. Member will not think I am discourteous if I do not pursue that argument.

With regard to the Budget, it is a fact that at one time Budgets set out to do one thing only. They were a means of collecting national revenue. In those days the amount involved was small, and the purposes for which the money was spent were very restricted. During the last 30 or 40 years, our national Budget has come to do something else, which is entirely different. It has become more and more the means of achieving certain social and economic ends. By means of the national Budget we have effected a redistribution of the national income of this country which is revolutionary, and which very few people abroad fully understand. It is also by means of the Budget that we have effected control over interest rates; we have fostered new industries; and we have protected some of the old ones. By the Budget year by year we have built up a vast system of social services and we have also laid the foundations of a great volume of inter-Imperial trade. These two functions of the Budget are accepted to a greater or lesser degree by all parties in this House.

I think that this year the Budget has set out to do a third thing. It has set out to regulate our position abroad. We have done that unwittingly, I think, and somewhat unwillingly, but, in fact, because of our responsibilities abroad, and because of the fact that we arc a great importing nation, the Budget, for the first time this year. has to be judged in the light of the extent to which it is solving our foreign trade problems. I will say a word about that later on, but before I do so, I want to make a very brief reference to what I would call the old function of the Budget, and that is just straight taxation.

Almost all hon. Members who have spoken today, including the hon. Gentleman who has just sat down, have referred to the Purchase Tax. With much of what he said I was in complete agreement. What struck me as being some-whit disturbing was when the Chancellor of the Exchequer said that he thought that the Purchase Tax would have to go on almost indefinitely. I never thought that I should live to see the day when a Socialist Chancellor of the Exchequer was going to take off direct taxation and Impose indirect taxation. The real reason, of course, is something which the right hon. Gentleman would not care to express publicly, and, therefore, I had better disclose it for him. The trouble is that he is faced with this problem: How to make the public pay for the vast schemes of Socialism which his Government are going to bring in. He is finding that Socialism costs money, and that that money has to come from taxation. He is finding that the vast volume of taxation today has to be paid by the middle classes and also by the working classes. That is where the vast amount of money has to come from, either in the form of direct or indirect taxation.

So far as direct taxation is concerned, the artisan in this country has very largely gone on strike. He refuses to pay it. He says that if you are going to charge him high taxation under Pay-as-you-earn then you will not get the output. That is why the right hon. Gentle- man is bringing in an indirect form of taxation in order to get the money in another way. The trouble is that so many schemes of social security over which Members in all parts of the House are in agreement are put forward under a bogus label. We hear a lot about free milk in schools, free doctoring, free hospitals, free this, that and the other. Of course, it is not free at all. The public has got to pay for them. Now the Chancellor of the Exchequer is faced with the dilemma of how to make the public pay for them. So long as we use the word "free," we are like the men who, before the war, used to attempt to sell fountain pens in the Strand. They said, "You do not have to pay anything for the fountain pen. It is absolutely free," and when you went up to get your free fountain pen they said, "We are going to charge you 5s. for the nib." That is exactly what the right hon. Gentleman is doing.

The third and new function of our annual Budget is in relation to the international position. What I contend matters most at this moment is not balancing our Budget at home but balancing our external Budget. It is our ability to pay for our essential imports with exports that is the foundation upon which the whole of our postwar prosperity has to be built. What distressed me so much was how little the Chancellor of the Exchequer said about that in the course of his Budget speech, and how seldom hon. Gentlemen opposite, in their speeches up and down the country, ever referred to it at all. All that the Chancellor said yesterday was this: A much more serious and more anxious problem is presented by another kind of deficit, by the deficit in our overseas balance of payment."—[OFFICIAL, REPORT, 9th April, 1946; Vol. 421, C. 1819.] He went on to say that for the calendar year he put that deficit at £750 million. What worried me was when he finished up by saying that this deficit could not disappear in this year, and that it would certainly persist into 1947 and, possibly, into 1948.

I often wonder if most of us really understand what an extraordinary country this is in the economic sense. Whatever we do, we can only produce one-half of our food. We have only one raw material and that is coal. Nevertheless we have managed to build up, in this small island, the highest standard of living in the whole of Europe. How have we done it? We have done it by importing raw materials from all over the world, processing them and selling them again, very often to the people from whom we bought the raw materials. On what a precarious knife-edge the whole of our economic prosperity rests. Our civilisation is that of an inverted pyramid. If you topple it over, you will never push it up again.

I was hoping that the Chancellor of the Exchequer would tell us what was his long-term policy with regard to our import and export trade. I think this point is worth considering. What is the minimum of imports without which this country cannot carry on. I think that it is a fair assumption to say that we must have £1,000 million worth of imports of food and raw material. That is not on the 1938 standard of living, but on the present austerity standard of living. If we do not get our £1,000 million worth of imports year by year, then either we are going without food or our factories are going without their raw materials. Unless, somehow or other, we can import that £1,000 million worth, we are going to have the worst unemployment that this country has ever known in its history, simply because there will he no raw materials for our factories. Our Queues will get longer and our rations will get shorter. I hoped that the Chancellor was going to tell us how, year by year, he was hoping to pay for that minimum amount of imports without which we cannot live at all. If we cannot get these imports, all our other schemes of prosperity, and all our schemes of social betterment, simply mean nothing at all.

As the Committee knows very well, before the war, although we imported in a very large way, we did not have to export nearly as much as we imported. We used to make up the balance by our invisible exports, that is the interest on our foreign investments, profits of our shipping and all those miscellaneous services which were performed by the City of London. There is, unfortunately, a new factor in our economic life. Today we have to export a considerable amount more than we import for two reasons. First, as everybody knows, as a result of the war we have lost a large part of our overseas investments, but there is another reason that has 'not been men- tioned once in this Debate as far as I can recall. We have to pay back somehow or other £4,000 million borrowed in the sterling area during the war. Not one single word was said by the Chancellor about that sterling debt. That sum is equal to nearly six years of our prewar export trade if we never imported a single thing. How are we to meet it? When are we going to pay it back? All the Chancellor said was that we did not expect to balance our external Budget before 1949. Are our creditors going to wait until 1949 or 1950 before we pay this enormous sum? Have any negotiations been entered into with our creditors in the sterling area to see whether this amount can be funded, and what is the rate of interest and what are the other terms of repayment? My view is this, that the sterling area or, for that matter, any other part of the world will not be prepared to go on indefinitely supplying this country with goods on credit. Therefore, any Budget which does not take that into account is, in my opinion, a completely false picture of the position of this country.

What are the Government plans for the restoration of our export trade? How are we to make up that additional amount over and above the imports we require, probably another £200 million? How are we to export £1,200 million worth of goods? As far as coal is concerned we have been told by the Minister of Fuel and Power that the days of cheap coal are over. Whatever nationalisation is or is not going to do for the coal industry, apparently it is not going to make it so efficient that we shall get any cheaper coal. If we are not to export coal—which brought us in 12 per cent. of our total exports before the war—what is to take its place? Are textiles to take its place? It is no good for the Chancellor to say that export trade is buoyant, because, at the moment, anything can be sold to anybody at any price. Will it be buoyant in two or three years, when American production gets into its stride, when traders will not be able to sell anything to anybody at any price, and when we shall only be able to sell only in so far as we can compete with others in price and quality? I think what should concern us is not only what is going to take the place of coal or the staple industries which are never likely to revive, but what is going to make up that additional export difference of 75 per cent. in the volume of our export trade, which we must have if we are to balance our export budget.

I venture to say that nothing can save this country in the long run unless we get an upsurge of energy and initiative in our industrial life. The only way we can save ourselves is to capitalise our inventive skill and initiative. The Chancellor in his Budget has tried to give some encouragement to new industries and also to some of the old ones by the removal of the Excess Profits Tax. I commend him for trying to do that, hut I suggest to him that the removal of a tax is not enough to create that great upsurge of energy to which I have referred. There has to be created a psychological atmosphere as well, and that is what is lacking at the moment.

For example, I imagine the Government are hoping that American capital will come here, and that American money will be put into new industries, or perhaps into old ones. I ask them quite sincerely whether they expect any American money to come to this country after the speech we had last Saturday by the Minister of Fuel and Power. Do they think that anyone in his right senses would put money into a country and be abused from then onwards? Do they expect people in this country will sink their savings and ideas, and put their initiative and energy into a new industry, when there is a kind of atmosphere which prevails today?

I think that the real trouble is that, to so many hon. Gentlemen opposite, the words "private enterprise" have become a stigma of moral turpitude. I am quite sure that many of them honestly feel about private enterprise as in the Middle Ages people used to personify evil in the form of a devil, complete with tail, horns and so on. If we go on in that way, if business men are to be abused for every venture in which they indulge, and if it is to be a venal sin to get on in the world, it is hopeless to expect the upsurge of energy and the new industries which are essential if we are to regain our place in the world. The issue is perfectly clear; either the Government must take over all industry straight away and create the complete totalitarian State—[HON. MEMBER S: "Why? "]—or say definitely which industries are to be nationalised.—[HON. MEMBERS: "They have."]—

That is one thing they have not done. They have not said whether iron and steel are to be nationalised. One week it is "Yes "; then there is a reprieve followed by a finger wagging at the weekend by the Lord President of the Council and a dose of abuse by the Minister of Fuel, and on the next Wednesday the Prime Minister makes an appeal for national unity. Either let the Government take over all industry and bring in the perfect Communist State and have done with it, or else let them allow private enterprise to work in its own way under the only conditions in which, in the long run, it can possibly flourish.

I summarise this Budget as follows. At home the Chancellor has given very welcome tax reliefs in many directions. As he himself has said, he has taken certain definite risks, and we hope that he will be justified in the long run. So far as the external position is concerned, he has ignored that altogether. He has forgotten that although up to a point it is possible to coerce and bully the people of this country, no Socialist oratory will have any effect upon those from whom we have to get credit abroad and who, we hope, will supply us "on tick "for the next four or five years. And no Socialist oratory, whether from the Front Bench opposite or from elsewhere, will have much effect on the people to whom we owe today £4,000 million. I regard that as the greatest fundamental weakness of this Budget and I hope the Chancellor himself, or possibly the Financial Secretary, will tell us the Government's plans with regard to this external debt, and for balancing our imports with exports over the next three or four years. I should also be glad if we could be told the Government's plans for increasing our export trade, so that we can pay for that minimum amount of £1,000 million per year upon which the very life of this country depends,

8.40 p.m.

Mr. Diamond (Manchester, Blackley)

I must remind the hon. Member for Hornsey (Mr. Gammans) that what has been given to private enterprise is the very thing for which private enterprise has been appealing to successive Chancellors for quite a little time, namely, the utter and complete repeal of the Excess Profits Tax. If anybody is to complain about the Budget, it should not be those who repre- sent private enterprise, and I do not share the view he has described as held by certain Members on this side of the Committee as to the horns and tail and other impedimenta of private enterprise.

This is an occasion on which I am delighted to congratulate the Chancellor of the Exchequer on what seems to be a really excellent Budget. It shows that it is quite possible to be at the same time a professor of economics and a man with a heart. It was a tremendous spread of vision. We were taken from seven-year covenants to the seas at the cliffs of Dover; from closing loopholes in the Purchase Tax to the wind on the downs. When one listens from these Benches to that sort of speech from the Chancellor of the Exchequer, bearing in mind the sort of attitude one generally expects of a Chancellor of the Exchequer, one must say to oneself, that it is good to be alive, it is good to hear these things. I was particularly pleased to hear the optimistic tone with which the Chancellor opened his Budget; a very necessary antidote, so it seems, to the gloom deliberately spread by certain sections of the Press for reasons which I leave hon. Members to judge for themselves, a gloom which I feel is doing its best to gather on the Opposition Benches even at this moment.

I want first to draw attention to the cost-of-living figure and the remarks which the Chancellor made as to keeping it to its present level. I cannot attach too much importance to that attempt. If there is one thing that appears to me to be important from the point of view of the ordinary man, it is that he should understand that his wages packet—and his wife should understand it too—will buy the same this week as it bought last week, and will buy the same next week; and that if his wages packet is bigger, it will proportionately buy more. That gives him a sense of security and freedom from fear—one of the freedoms, surely, for which this war has been fought. I appreciate that nearly £1 million a day is an enormous sum but it is money well spent to achieve that sense of security and that happiness for the people, and to achieve an assurance for the ordinary man that there is no monkeying going on with money, which is a fear continually at the back of his mind.

I would like to draw attention to a point I raised on the last Budget—earned income relief. I hope the Chancellor will not think I am concerned solely with that and with no other relief whatever. There is one point about earned income relief in this Budget which seems a matter of some importance, and that is the total amount on which earned income relief is to be granted. For the first five years of its history, earned income relief was granted on a total of£2,000 up to 1925 and from 1925 up to this moment on £1,500.

I now gather that it is to be granted on £1,200. From 1925 to 1946 is a considerable period. To alter the figure of £1,500 to £1,200 seems to me worthy of comment and explanation, and I do not think that we have had quite sufficient explanation from the Chancellor on that point. In fact, it the Report is correct, what he said was perhaps confusing. He referred to "the present maximum of £150 a year "and increasing" the earned income relief allowance of one-tenth to one-eighth." If my arithmetic serves me correctly, £150 times eight is approximately £1,200. Later on he said: All those with earned incomes of £1,500 a year will benefit.''—[OFFICIAL REPORT, 9th April, 1946; Vol. 421, C. 1835.] If that second statement is correctly reported—it was reported in the Press as well as in HANSARD— I cannot follow it. I cannot follow how all incomes under £1,5oo can benefit. If, however, instead of £1,500 we read £1,200, the matter is perfectly clear, but it seems to me that the discontinuance of the long practice of granting earned income relief on £1,500 is something which is important; something to which I do not object in the slightest, but something on which I think we are entitled to have a fairly full explanation as to the need, and as to whether it represents a settled policy for the future.

The right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) also laid great stress on the question of earned income relief earlier in today's Debate but, with the greatest deference to him, I was not impressed by his argument, which seemed to me to be that because something existed in 1940 it should be restored. I can see no particular weight in that argument, certainly to appeal to hon. Members on this side of the House. In fact, the Chancellor is doing a most encouraging thing in giving what amounts to an earned income relief of approximately one-sixth for the winter months of the corning year; that is to say, the whole of the one-eighth is not to be given over the whole year but over the half-year, and if one doubles the difference between one-tenth and one-eighth, one arrives at approximately one-sixth. Of course, it leads to the assumption that one-sixth is to be the rate which will apply in future, that is, after the next Budget, and I would like to ask the Chancellor not that direct question—because, of course, that would anticipate his next Budget by perhaps 12 months—but I would ask, in view of the effect on the P.A.Y.E. tables, whether there is likely to be an interim Budget fixing rates for the year 1947–48 before we have reached that year.

May I make a few more comments on P.A.Y.E.? First of all, as to the system itself. I have nothing but praise for it as a system. It has achieved what it set out to achieve—the payment of tax as it is earned; it has undoubtedly resulted in a considerable increase of tax so far as the revenue is concerned; it has worked with reasonable simplicity. It was, however, an experiment, and as an experiment it is surely capable of review and perhaps capable of improvement, and it seems to me that the time has arrived when it ought to be reviewed, especially as to its machinery. I refer particularly to the very high proportion of cases where tax tables have to be kept, where ail the procedure has to be gone through, but where, in the end, no tax is payable by the taxpayer concerned. In one organisation for which I have responsibility, I find that as many as 800 cases out of 2,000 turn out to be wasted effort; that is to say, they are cases where at some time during the year the actual liability to deduct tax has arisen, but, by the time you get to the end of the year, for one reason or another—altered allowance, variation in personal circumstances, alteration in amounts of pay, and so on—those tax cards are no longer required because no tax has, in fact, been found to he payable over the whole year. I imagine that there will be found to be the same sort of wasted effort in many offices of the Inland Revenue. We should give careful consideration to a review of that system to see whether that very high proportion of wasted cases cannot be avoided.

On the question of P.A.Y.E. I would like to make one or two remarks about incentive. I have not heard every speech in the Debate today, but I have heard most of them, and I have not heard anyone say what I believe to be the fact, that all this talk about P.A.Y.E. being a tremendous deterrent, is grossly exaggerated. To my mind it is a complete libel on the ordinary working man in his approach to his wages. I speak not without some experience of this, and if any managing director or other person with responsibility in a large works said to me that he finds that a large proportion of the people in his works refuse to work overtime or are absent for reasons connected with P.A.Y.E., I would say to that man in the words of the Prime Minister: You look to your own job first. Have you carried out your own responsibility?'' I would ask if he had called the men together and told them what P.A.Y.E. means and that it is nonsense to pretend that it suddenly crops up on overtime or on payment for coming in on a Saturday morning when working a five day week. I would ask him if he had taken steps to see that the local inspector of taxes comes and describes the system, and if he has a welfare officer whose job it is to go round to the work people and help them with their tax problems. If he has done that, he will find there are practically no cases where this sort of thing arises.

I can speak with limited experience of something like 2,000 workpeople, and I have not come across a single case where absenteeism was deliberately attributable to P.A.Y.E. or where there was refusal to work overtime because of it. I think it right that this should be said from these benches. I see the hon. Member for Chesterfield (Mr. Benson) is present. That permits me to say that I most heartily disagree with what he said earlier on this topic. I would suggest to him that it is not open to the ordinary bricklayer to use economist arguments as to the effect of P.A.Y.E. as a tax. He does not work it out in that way, or feel it in the way the hon. Member for Chesterfield put before us and with which I most humbly but definitely disagree.

It is a great privilege to he able to congratulate the Chancellor on this Budget. It is an excellent Budget, and has given everybody something. It might be rightly described as a People's Budget presented by a man of the people. The Chancellor told us that the credit of this country stands high among the other countries of the world. I can assure him that his credit, both in this House and in the country, also stands very high indeed.

8.54 p.m.

Mr. Baker White (Canterbury)

I hope the hon. Member for Blackley (Mr. Diamond) will forgive me if I do not follow his line of argument. My time is very short, and I want to devote it to analysing, and possibly adding to, the figures given by the Chancellor yesterday and given in the White Paper. The Chancellor has given us a number of figures, but I do not think he gave us quite enough, because he did not give us the comparison with the days when we were a rich nation. In order to compare the position then with what it is today as a poor nation, I turn to the National Debt. In 1900 it was £648 million; in 1939 it was £8,494 million. Today it is in the neighbourhood of £24,000 million. It is well to remember that our National Debt, during the last financial year, increased at the rate of 6 million for every day of the year. I wish to turn to taxation, because it is a vital factor in the restoration of our export trade. Today local and national taxation, direct and indirect, is £70 per head of the whole population. In 1913, when we were a prosperous and rich nation, it was £4 per head. If we were to produce similar figures for our competitors and potential competitors in the world market, we would find that their burden of taxation was considerably lighter than ours. The daily rate of expenditure in March, 1938, was £2,800,000 per day. Last year it was in the neighbourhood of £15 million per day, and it is still in the neighbourhood of £ million per day.

The Chancellor yesterday referred to the food subsidies. We have come to accept as natural a food subsidy of over £300 million per year. I wonder if we remember how quickly that figure has grown. In 1940 it was £70 million a year, in 1943 it was £145 million a year, by 1944 it had risen to £205 million a year, and it is now something over £308 million a year. We are in great danger of living in a fool's paradise over the subsidising of the price of food. As the Lord President of the Council said recently, it has all to come out of production. It would be folly if we did not relate our rate of production and our rate of exports to our national expenditure.

My hon. Friend the Member for Hornsey (Mr. Gammans) referred to our coal exports. They are, after all, one of the exports upon which the whole of our overseas trade was built. Let us look at the figures. In 1938 we exported over £37 million worth of coal; last year, £6,610,000. In terms of tonnage, we sent abroad, in 1938, nearly 36 million tons of coal; last year, 3,334,000 tons. I do not think there is much encouragement to be gained from the figures for the first two months of this year. We have exported 851,000 tons. The average for the two months, in 1938, was six million tons. Whatever the reason, the fact of the matter is that something like 800,000 tons of coal less per week is coming out of the pits today than before the war. That is a vital factor in relation to our national expenditure and to the restoration of our export trade.

Finally, I wish to refer to the cotton textile trade, one of our basic industries, because in that again the same situation occurs. In the first two months of this year we sent abroad 2,887,000 lbs. weight of grey unbleached cotton yarn, as compared with over 18 million lbs. in the same period of 1938. Our machinery exports are picking up, and so also are the exports of our iron and steel manufacturers. Coal and textiles must be restored in volume and value before we can face with any sort of satisfaction our present rate of expenditure.

There is one other point which I wish to make. The Chancellor has made certain concessions in regard to Purchase Tax on sports and pastimes. I regret that he has not included any concession for small sailing craft of the type that are used for artisans' sailing clubs and what are generally known in the yachting world as "club" boats. I mention that because yacht racing is not in these days a rich man's pastime. The "club" boat and the small sailing dinghy are now the poor man's pastime. I hope the Chancellor will consider whether he can make some concession on that point.

9.2 p.m.

Mr. Mikardo (Reading)

I have listened very carefully to this Debate and I have tried very hard to listen to it with no element of prejudice. I have tried to listen to it in fact, not with the ears of a Member sitting on these benches, but with the ears of one in the gallery above who came to hear this Debate without any background knowledge or partisan feeling in the matter and with no real understanding of the relationship between the two sides of the Committee. In attempting to do that, I came to the conclusion that this Debate, so far, can be summed up very simply as a contrast between solid achievement on the one side, and rather superficial criticism on the other, and, indeed, between an elastic, realistic, sensible approach to problems of great magnitude, on the one side, and reactions which are completely hidebound, on the other.

I feel quite sure that some hon. Members will decline to believe that this judgment is an objective one. In order to attempt to convince them, I propose to adduce one or two examples of each of the two sides of this antithesis. First, I will deal with the Chancellor's statement. I have no doubt that whatever else it does, or does not do, it shows an elastic and sensible approach to the realities of the problem, and a complete absence of any obstinacy on the part of the Chancellor or the Government. It is an open secret that any Chancellor receives in the few months before his Budget representations from many interests and many people about remissions of taxation. Clearly, the Chancellor has a difficult task in weighing up the respective merits of these. A Chancellor who is working up a deficit Budget must be doubly parsimonious with every pound of remission. He must judge every pound of remission on one of two criteria. They are: "Will this give the maximum satisfaction for every pound of revenue which I forgo?" or, "Will it create a maximum amount of impetus to output for every pound of revenue which I forgo? "If one analyses the Budget which my right hon. Friend put forward yesterday, one finds all his remissions of taxation fall clearly under one of these two headings.

One example has been freely quoted in this Debate. I refer to the lowering of the rate of Entertainments Duty on open air sports, which seems to be greatly appreciated by the Committee as a whole, and by the country Here is an example where the Chancellor has staid "How can I give the maximum pleasure and satis- faction to the greatest possible number of people per pound of revenue which I forgo?" I want to refer to the example of the other criterion to which I have referred which measures up as the answer to the question "How can I get maximum productivity for every pound of revenue which I forgo? "That is the remission of the Purchase Tax on office machinery, on which I know the Chancellor has received representations from many quarters, and on which he has clearly listened to the force of very powerful and very valid arguments. It seems to me strange that this realistic, sensible, balanced attitude should become the object of criticism from hon. Gentlemen opposite.

The hon. Member for Hornsey (Mr. Gammans)—I am sorry he is riot in his place—said that he never expected to live to hear a Socialist Chancellor take something off direct taxation and put it on indirect taxation. In other words, he never expected a Socialist Chancellor to face the realities of a situation in which the immediate demand for a Budget of incentive offsets the long-term demand of general taxation ethics. What would have been the effect if the Chancellor had done just the opposite? Hon Members opposite would have been quick to say "You people on the opposite Benches are hidebound and doctrinaire." The latter word is the favourite adjective with hon. Gentlemen opposite. When the Government pursue the policy of long standing principles, they are doctrinaire; when they depart from that, for reasons arising out of the present economic situation, they are accused of inconsistency. In the same way, the hon. Member for Hornsey called for the Government's plan for this, that and the other, but the hon. Member devotes a great deal of his activity in this House to criticising the whole concept of planning.

How much validity has there been in the rather half-hearted criticism of the Budget from the benches opposite? I say "rather half-hearted," because I had the impression that none of the hon. Gentlemen who spoke in criticism of the Budget has had his heart in the job, and I felt in particular, in listening to that long and beautifully-balanced speech from the right hon. Gentleman the Member for the Scottish Universities (Sir.T. Anderson). that he was groping around wildly trying to find something to criticise, and that, in spite of himself, almost he had come to curse and remained to praise.

We have heard a lot of talk about P.A.Y.E and its deterrent effects, and especially the deterrent effects on overtime and working Saturday mornings. It is a foible adequately exploded by the, hon. Member for North Bristol (Mr. Coldrick), who said to the critics, "All right, what is your alternative? One has to have the revenue, anyway." Will the Chancellor find that the best deterrent is to collect the tax in big lumps, rather than collect it weekly? Secondly, we have heard a great deal about the deterrent effect of progressive taxation upon managers and technicians. The hon. Member for Blackley (Mr. Diamond) said that what had been said about the deterrent effect of P.A.Y.E. was a slander on working-men. The suggestion from hon. Gentlemen opposite that taxation is a deterrent to managers and technicians, is, equally, a slander on that class of worker. I speak on this matter with personal experience. I am one of these people, and I work with them, whereas hon. Gentlemen know them only from reading about them or employing them, two conditions which make their knowledge equally second-hand and remote.

I do not know any engineer who says that, if he wished, he could put the output up 50 per cent., but will not do so because he would have to pay Ins. 6d. in extra tax. There is no class of the community in which the exercise of judgment and initiative for its own sake, and for the feeling of self-satisfaction at having created something, is so clearly marked as in the class of manager and technician. I do not believe any of them is deterred by, or stops to think about, the amount of taxation he will have to pay out of increased earnings through using initiative in this way.

The hon. Member for Hornsey made a point about the fear of insecurity on the part of business people and investors. Who, he said, is going to put their money into British industry after some of the comments made by Members of the Government? He cannot have been reading the financial papers very closely lately, otherwise he would have seen that every time there is an issue, it is over-subscribed 10, 15 or 20 times. There seem to be no great fears there.

Finally, the most spirited criticism has been a defence of the Surtax payer. It must seem very remarkable to those objective listeners to our deliberations who arc in the gallery that the only time the Opposition ever really draw their great sword, and rush to the defence of anything, is in defence of the poor Surtax payer. Once or twice today I have felt like walking out of this Chamber and weeping sad salt tears for the poor Surtax payer.

The only criticism common to the Opposition's attitude to the interim Budget in October last and the present one, and the only argument which was repeated on both occasions, was the plea for the poor Surtax payer. Hon. Members opposite occasionally pay lip service to all sorts of people, sometimes to people in the Services, to trade unionists and to business men, but the only time they really get excited is in defence of the poor Surtax payer. On those grounds, as well as on some others which I have indicated, I feel that their criticism loses its sting, and that the solid achievement behind this Budget lies unsullied by the things which have been thrown at it.

9.13 p.m.

Mr. David Eccles (Chippenham)

I must begin by telling the hon. Member for Reading (Mr. Mikardo) that I propose to criticise this Budget with a good heart. In the second place may I say that before I have finished, I shall have provided the alternative to P.A.Y.E., but that the hon. Member will not be here to hear me, as he will be sobbing outside the Chamber when he has heard what I have to say about the poor Surtax payer.

Some years ago the Chancellor of the Exchequer gave a hostage to fortune. He wrote a book on public finance. I have the ninth edition of it here which informs me that the book has been translated into Arabic, Czech, Dutch, German, Japanese, Turkish and Urdu. So it must be a work of importance. After a chapter on taxation as an instrument of distribution, the right hon. Gentleman went on to observe: We must measure the relative ability of individuals to pay by the relative effect of their payments, not only upon distribution, but upon production and, indeed, upon the whole economic welfare of the community. The doctor's principle was sound, but how does it square with the Chancellor's performance? How does this Budget hold the balance between the Socialist itch for the levelling down of wealth, the Conservative —[An HON. MEMBER: "Levelling up."] —everything the Chancellor has done has been downwards—wish to encourage the national income, and the aim of hon. Members on all sides of the Committee to stave off inflation?

To judge from the interesting Debate which we have had today, it is the conflict between these three objects of taxation which has most worried hon. Members. My right hon. Friend the Member for the Scottish Universities (Sir J. Anderson), my hon. Friends the Members for East Aberdeen (Mr. Boothby) and Scarborough and Whitby (Mr. Spearman), the hon. Member for Chesterfield (Mr. Benson) and others, have drawn attention to the fact that the incentives to production are not enough in our present circumstances. They have also drawn attention to the fact that economy has not been practised, and to the level of taxation relative to the national income. I will have a word to say about that later. Other hon. Members, including the hon. Member for Mile End (Mr. Piratin), do not think that the redistribution of wealth has been effected as thoroughly as it should have been.

On the other hand I think there has been a general consensus of opinion, apart from a little tightrope walking by the hon. Member for South Leeds (Mr. Gaitskell), that we arc in danger of inflation. At this time of day, it seems appropriate that I should again ask whether the Chancellor has paid more attention to the distribution or to the production of wealth, and whether he has paid anything like enough attention to stopping inflation. In answering these questions, I hope to find a peg on which to hang some observations about the great differences in principle which separate the Socialist and the Conservative Parties in their approach to taxation policy.

So long as the national income remains about £8,000 million, and the Government's expenditure remains at the appalling total of about £4,000 million, we all recognise that the Chancellor cannot balance the Budget. He has to borrow the savings of the people, which would he much better employed in creating the physical assets that we need so badly, to finance the deficit, and, as he himself admitted, he must run a serious risk of inflation. But he seemed to try to con- vince tile Committee that if he could balance the Budget next year at a figure round about £3,000 million he would have removed the danger of inflation. Several speakers, notably my right hon. Friend the Member for the Scottish Universities and the hon. Member for Chesterfield, have pointed out that that is not true. On all the evidence that we have, from comparative studies in public finance in democratic countries, the public will not allow more than 25 per cent. of their income to be absorbed in taxation, without inflation following as night follows day.

The hon. Member for South Leeds said that when my right hon. Friend referred to this fact, he talked in a mysterious and vague way. Of course, he did. This is one of the mysteries of community psychology about which we know very little, but it is a fact which has been well established, that there is a certain point beyond which the public will not tolerate taxation. They would prefer rising prices. The chain of cause and effect is obvious. When the burden gets beyond a certain point, the public say that they prefer to reduce the charge of the debt and the other fixed charges by letting prices go up. We do not know why it happens; all we know is that it does happen, and any Chancellor who disregards that fact does so at his peril. The right hon. Gentleman will be taking over 35 per cent. of our national income in taxation, assuming that this deficit is wiped out next year. On all the evidence that is open to students of public finance, that is beyond the point where we can hope to hold the price level where it is.

I would like to say a word about inflation. Are not we all entering into a sort of conspiracy to hide from ourselves the fact that inflation is already with us? It is really humbug for the Government to talk about holding the cost of living at 31 per cent, above the prewar level. When the hon. Member for North Bristol (Mr. Coldrick) said that prices had been kept stable now for a long time, and what a great benefit that was, it simply was not true. Is there any housewife who would say that 27s. today goes as far as £1 did before the war? If the hon. Member says it is true, how can he support the proposal to increase our own salaries from £600 to £1,000? That is a 66 per cent. rise, and we know that is about what has happened. If anybody goes to a race meeting, or into a room where an auction is in progress, or reads the reports of the Stock Exchange prices, they see that inflation is here. I believe it is better to face up to this, the worst of all social evils of the financial kind, openly and frankly, and not to hide our heads in the sand, because if we admit the danger the public will be ready to take the necessary steps to keep it at bay.

I am very much afraid that we are now going through a period in the great battle against rising prices very similar to the period from 3rd September, 1939, to May, 1940, in the last war. We shall look back on this period as the "phoney" period of the battle against rising prices, and I do not want that to happen. We could not do more injury to the mass of our people. In circumstances such as these there is no purely financial justification for any changes in the total of the taxes which are not directed either to stopping inflation or to stimulating production. That is the view of those who sit on these benches. Our contention is that the Chancellor has made some changes which are good as incentives, but he has left undone many other things still more important which he ought to have done. Before I describe what these omissions are, may I ask why has he left them out? The answer is that many hon. Members opposite, as has been proved by the speeches today, have not got their minds solely directed to stopping inflation or stimulating production. They have a third objective, and many of them put it first. They want to use taxation to redistribute wealth and to iron out the inequalities of wealth. That is to use the collection of revenue to change society. It is a policy which involves a principle that must come into conflict with the other principle of encouraging the growth of the national income, if it is pushed too far.

I want to direct the attention of the Committee to the conflict of these two principles. We have gone a long way from the time when John Stuart Mill described progressive taxation as "graduated robbery" and when another eminent man said that it was no part of the taxation system to readjust the vicissitudes of fortune. Times have changed, and the amount a Government now has to spend is so large that it cannot possibly be collected if the taxes are not governed by the principle of ability to pay. We all agree with that, and that means progressive taxation. How far ought we to push this principle of progressive taxation? The hon. Member for Reading had better get ready to leave the Chamber.

Mr. Mikardo

I shall try to stand it.

Mr. Eccles

It is here that Conservatives and Socialists part company. Men and women always have been, and always will be, born unequal; they differ in their brains and ability, they differ in their willingness to apply their brains and abilities. They also differ in their willingness to save, and thus, in that worthy manner, to accumulate an income out of capital. We on this side of the Committee say that those differences should be reflected in some differences of fortune. We say that the State ought to respect inequalities of fortune which are a proper reflection of differences in ability, application and thrift. That is our principle. It follows that we think it wrong that the Chancellor should push graduated taxation, as he has done last autumn and yesterday, to a point where any part of a man's income is as good as confiscated. That is not levying tax; that imposing a penalty, which ought to be done by a court of law and not by an Income Tax inspector.

Here I come head on against the Socialist doctrine which holds that no man can be worth more than a certain income, and further, that the amount of that income ought to be fixed by politicians. As I watch the nationalisation Bills coming before this House I see that right hon. Gentlemen opposite do not object to high salaries, provided they nominate those who are to receive them; and I learn from the current number of "Tribune" that when the Socialists have got the power to fix all incomes, as they will have to do when industry is completely nationalised, we are to look forward to the total abolition of Income Tax. That is entirely Logical, because direct taxation becomes completely superfluous once the Government have to fix all wages and salaries before they are paid.

I should like to say to the Committee with such emphasis as I can command, that never in British history has a group of men aspired to such absolute power as would be theirs if they could fix every citizen's income. Further, be it noted, that in such a Socialist society there would be no certainty of a greater equality of income. Indeed, I am told that in Russia inequality of reward is a most marked feature. But there would be a certain logs of freedom, and in those circumstances ambition—that ruthless, savage, and almost universal emotion—ambition, which is now largely measured in terms of money, would then be largely measured in privilege and power, with the cruel results that can he seen in any totalitarian economy. We on this side of the Committee will never allow that any handful of men has the right to fix the value of all their fellow citizens in terms of money. Such power would corrupt angels, let alone our honourable selves. We on these benches, on the other hand, are resolutely determined that the real differences in ability, application and thrift should be the test of differences in fortune. [Interruption.] Yes, I mean that.

Mr. Benson

Would the hon. Gentleman allow me? To which of these attributes would he ascribe the inheritors of income?

Mr. Eccles

Under the third, thrift. We hold that the best way of mitigating improper inequality is by way of positive action, that is, by promoting the opportunity for all men and women to get on in the world. It is not an accident that the great piece of reform introduced by the Coalition Government should have been the Education Act brought in by my right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler). I am quite sure that if the British people were satisfied that ability and application and thrift were everywhere fully and freely encouraged and fairly rewarded we should hear no more about this monstrous proposition, which is implicit in Socialism, that a handful of men should fix every wage and salary in the land.

Hon. Members

Nonsense.

Mr. Callaghan

Do I take it that the hon. Gentleman is opposed to those of his hon. Friends who advocate a national wages policy?

Mr. Eccles

I am opposed to the State's taking over the whole of the wage-fixing powers of the trade unions.

Mr. Sydney Silverman (Nelson and Colne)

Would the hon. Gentleman say which handful of men, other than this handful of men elected by the people to this House, should determine a wages policy?

Mr. Eccles

I have just said that I am in favour of the present negotiating machinery. No handful of men should take over the fixing of the wages of all the wage earners of this country.

I attempt now to take up the challenge thrown down about P.A.Y.E. by the hon. Member for Chesterfield, the hon. Member for Harwich (Sir S. Holmes), the hon. Lady the Member for Duddeston (Mrs. Wills), the hon. Member for South Leeds, the hon. Member for North Bristol, and one other hon. Member. They have all thrown down a challenge that P.A.Y.E. was not a good tax in its present form and that they did not—

Mrs. Wills

I did not.

Mr. Eccles

The hon. Lady mentioned P.A.Y.E. but, perhaps, I have misunderstood her. If so I beg her pardon. Why is it the Labour Government, the self-styled representatives of labour, have done nothing at all about P.A.Y.E.?

Mr. Medland (Plymouth, Drake)

Self-styled?

Mr. Eccles

I know what the Chancellor of the Exchequer would say, that he has done his best to take out of the range of P.A.Y.E. as many taxpayers as he could. But let us be quite clear what the Chancellor of the Exchequer has been doing. He knows quite well he has got to tax wage earners very heavily if he is to cover expenditure. He knows it is much easier to get money out of the lower income groups by indirect taxation than it is by direct taxation. It is much more popular, and no one on this side of the Committee can teach the right hon. Gentleman anything about courting popularity. What is the result of this policy? It is to concentrate the whole burden of the Income Tax upon the profits of industry and upon the middle and upper range of taxpayers; a burden which has been remarked upon in a great many speeches and which, in my judgment, will cripple the ability of the private sector of our economy to find the capital with which to reequip and make efficient our industries. It is not pos- sible, when industry is paying 9s. in the pound and N.D.C., for it to accomplish the repairs and renewals that we need, and this Budget has done nothing whatever for the capital requirements of industry.

E.P.T. has been removed, and that is a good thing, but who will be helped? It is only going to help a very select number of industries, and it is not going to help those industries which have been concentrated as, for instance, has the cotton textile industry, to which my hon. Friend the Member for Canterbury (Mr. Baker White) drew attention. Yet these are the industries which most need new capital, and they are not to get any help by the removal of E.P.T. I do not think, if we look at this Budget, we can say it is going to do very much to put new tools into the hands of industry.

Turning back to P.A.Y.E., I would say that this is a bad tax on two grounds. First, it is incomprehensible. The wage earner does not know how he gets his code number, and why the sum deducted every week from his earnings is that particular sum. I do not blame him. I have tried to study arithmetic for a long time, and I still cannot make out my own assessment, and have to employ a firm of auditors to do it for me—it is a horrible expense, but it has to be done. The wage earner does not understand it, and that is thoroughly bad democracy. The one thing we ought to do is to see that every tax is comprehensible. Another shocking feature is that it comes upon the wage earner suddenly, like an attack of lumbago, and the sudden onset cripples his power to bear it philosophically.

The Chancellor cannot contemplate taking the tax off altogether, because he must find the money, so far as is possible, for this great expenditure. These evils can he remedied, however, by a bold stroke in administration. The administrative difficulty about this tax is that it has to be deducted weekly or monthly, whereas the allowances have to be given annually. Therefore, the thing to do is to separate the deductions of the tax from the payment of allowances into two distinct operations. In that way, there would be a flat rate of tax levied on earnings from the first pound to the last. Each taxpayer would be given, once a year, a book of vouchers representing personal and other allowances due to him. He could lodge these vouchers with his employer to use against the tax which has to be deducted, or, alternatively, on his own choice, cash the vouchers at a post office on production of proof that he has paid tax to that amount. That would be an enormous simplification.

Mr. Diamond

At what rate are these allowances to be valued for cash purposes?

Mr. Eccles

Exactly the same as now. The advantage would be, instead of a man looking, for taxation purposes, upon his wife as an incalculable negative sort of blessing, he would count her as a positive asset, and that would be a great gain in family life. I can assure hon. Members that the psychological effect of separating allowances from the assessment of tax, and making them something positive, instead of wrapping them up in mystery, would be very encouraging indeed. There would be no sudden onset, since every wage earner would know his money was subject to the same flat rate, whether it was the first pound or any other pound. I commend the suggestion to the Committee, because it is a radical simplification, it would make the Tax comprehensible—we ought to be ashamed of incomprehensible taxation—and would remove the sudden onset which turns the Tax into an attack of financial lumbago.

In conclusion, I want to ask one favour of the Financial Secretary, and I have only one favour to ask. When he comes to reply, would he lift up his bat and make one run? I am very anxious that he should make a single, even if it is only through the slips. I am going to bowl him a really easy bail, and it is the only one which I want him to hit. Will the Financial Secretary let us into the real secret in the Chancellor's mind? Will he tell us whether the Chancellor of the Exchequer is more afraid and whether he trembles more violently at the thought of inflation, or at the thought of economy? [HON. MEMBERS: "No bail."] Very shortly the Chancellor will have to make a big choice. He will have to choose between a substantial reduction in taxation or a substantial rise in prices. The Government are gambling with the value of the pound. They are speculating that by December of this year the supply of goods will be sufficient by itself to restrain inflation_ They are going to lose that gamble unless the proportion of the national income taken away in taxation is reduced from over 35 per cent. to under 30 per cent. I do not like to prophecy, I know it is rash to do so, but I will end by saying that I think the odds are not better than even that this Commitee will meet again next year to discuss the 1947 Budget Resolutions in the unhealthy atmosphere of a serious fall in the purchasing power of the pound sterling.

9.41 p.m.

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

I should like to congratulate the hon. Member for Chippenham (Mr. Eccles) on what is, I think, his maiden effort on an occasion of this kind. I believe this is the first time he has, on behalf of his Party, wound up a Debate of this sort, and I think has acquitted himself with the utmost felicity. We have all enjoyed his speech. I hope, before I conclude, to try to hit the ball which he has bowled to me. Although I am not entirely in the confidence of the Chancellor of the Exchequer, I cannot conceive of any set of circumstances in which he would find himself trembling. Therefore, whether it is economy or inflation, I am sure that "trembling" is not the right word to use.

I think it can be said that the Chancellor's Budget proposals have been very well received in the Press. I believe that even the "Daily Express," this morning, had a good deal to say in his favour, and apparently the only newspaper which had some doubts about him was the "Daily Worker." The Press as a whole has received my right hon. Friend's proposals with some pleasure. The same holds good of this Committee. There have been, very properly—for that is why we are here—certain criticisms against some of the proposals which my right hon. Friend propounded yesterday, but on the whole his proposals have found a good deal of support in every part of the Committee.

The right hon. Member for the Scottish Universities (Sir J. Anderson) welcomed the changes which my right hon. Friend is making in the Entertainments Duty. The hon. Member for Edgbaston (Sir P. Bennett) said that this summer people will be able to play cricket with a good heart and without feeling that their club is going bankrupt. I would like to remind him that when we were discussing this matter last October, and the hon. and gallant Member for Holderness (Lieut.-Commander Braithwaite) was, with much eloquence, pressing my right lion Friend to do what lie has now done, I pointed out that even if it did not happen until now, it would still be in time for the cricket season. I am glad to think that what I then said has turned out to be correct. The football world will enjoy this concession next winter.

The right hon. Gentleman tile Member for the Scottish Universities and others paid tribute to the National Savings Movement. There was a time when one could scarcely have a Debate of this kind without a number of Members saying hard things about that Movement. Today, all of us have reason to praise it. It is one of the greatest bulwarks against inflation. The promise which it has made—and there is every reason to believe it will be implemented—to raise from among small savers not less than £520 million this year, will go a long way to nullify the gloomy prognostications made by the hon. Member for Chippenham, who sees inflation lurking round the corner. The right hon. Gentleman asked me to give the Committee an indication of the situation now with regard to double taxation. The Committee will no doubt remember that an indication was given by my right hon Friend in his Budget last October that agreements were in process of being made between this country and the United States, and this country and France, in regard to double taxation. An indication was also then given that other States would, if possible, be brought into the same type of agreement. I am happy to be able to tell the Committee that not only was the agreement concluded with France regarding a particular type of double taxation, but that an agreement has been completed with the United States subject to ratification by Congress. Furthermore, negotiations have been started with Canada, South Africa, and Southern Rhodesia. Draft agreements are now under consideration, and I hope they will be signed shortly. Contacts have been made, in addition, with Belgium and with one or two other countries, and we hope that they will lead to fruitful results. In addition, as no doubt most lion. Members know, Mr. Chiffley, Prime Minister of Australia, is about to visit this country. My right hon. Friend intends to discuss this matter with him when he arrives. 1 hope that these conversations will also prove valuable.

The right hon. Gentleman also had something to say about seven year deeds. He suggested that the proposals of my right hon. Friend might occasionally work out unfairly to the charitably minded. I hold the view, and I think the Committee will share it, that that is unlikely to happen. Even if it does happen, it cannot be helped. Frankly, this matter was going a lot further than any Chancellor of the Exchequer in the past had thought it would. Perhaps I might remind the Committee that all we are suggesting is that the seven year charitable deeds should no longer be able to attract a rebate in respect of Surtax. They will still be able to attract, as hitherto, an allowance in respect of Income Tax.

Mr. Oliver Stanley (Bristol, West)

May I ask the hon. Gentleman, as he was not quite clear, whether this is retrospective, or does it only apply to new agreements?

Mr. Glenvil Hall

It is for the future and it comes into operation straight away. The Committee may be interested to know that in 1935 the number of these deeds in existence was 55,000. In the year ending September, 1945, there were in existence 259,311. and they were growing at the rate of between 60,000 and 70,000 a year. The Committee will understand why when I give one illustration to show what could happen under the law as it stood up to yesterday. An individual, whose yearly income was in the neighbourhood of £25,000, would covenant to pay a certain charity £1,000 a year. With Income Tax at the current rate he would be able to deduct £450 and pay over to the charity £550. That charity in the fulness of time would be able to collect from the Inland Revenue £450 in respect of the Income Tax which had been deducted, giving to that charity, quite rightly under the present law, £1,000 to which it was entitled. But the individual would be able, when he came to make out his Surtax return, to deduct the whole of the £1,000 against income and get full relief in respect of the Surtax. That would mean a relief of £525; hence the Inland Revenue would lose that £525 and also lose the £450 subsequently repaid to the charity. Altogether, all the donor, in effect, would be giving, would be £25 of the £1,000 and the Inland Revenue would be losing £975. I am positive there is no one in the Committee who believes that that kind of thing should continue, and my right hon. Friend holds that the time has come when it must stop. Therefore, in future, these covenants will not be allowed as a rebate against Surtax liabilities.

A great deal has been said by the hon. Member for Harwich (Sir S. Holmes), the hon. Member for Edgbaston, the right hon. Gentleman the Member for the Scottish Universities and other speakers about the tax which, to use their own phrase, my right hon. Friend has threatened to impose to replace the Excess Profits Tax, which is to come to an end on 31st December. The hon. Member for Harwich rather deprecated the phraseology used by my right hon. Friend. He thought it was a threat, and an unfair threat, to industry and companies. I do not think it is. After all, these people were not born yesterday. We are all men of the world. We know that if the E.P.T. comes to an end it is possible that some other tax may have to take its place. In the present circumstances nothing, in my view, could be franker or more reasonable than my right hon. Friend's remarks. He indicated not only to the Committee, but to the City that there is this possibility and that he could not leave it out of account. These hon. Members really should not be so thin skinned, but rather they should be grateful to him for having warned them. The hon. Member for Harwich asked: Did it mean that no company, firm, organisation or industry could increase its dividends at all? Quite frankly, the answer is that it all depends upon the way the company increases its dividends. I can visualise instances where a company could quite easily increase its dividends without bringing down on its head the ire of my right hon. Friend.

Sir S. Holmes

Does the hon. Gentleman mean quite easily, or does he mean quite properly? It would be easy, but would it be proper in his eyes?

Mr. Glenvil Hall

Does the hon. Member mean, to increase the dividend?

Sir S. Holmes

Yes.

Mr. Glenvil Hall

There are occasions when it would be proper. Perhaps I was using language too loosely, and, if so, I apologise. I meant not only easily, but properly. There are firms which have not paid dividends as high as they might have done during the war years. They felt that it was not quite the thing to do, and there may be cases where an increase of dividend would be legitimate and to which no one could take exception, but we do ask industry as a whole —and it is the only direction in which we ask it in this matter—to be as conservative as it possibly can when it comes to distributing dividends during these next years. Industry has to be rehabilitated and re-equipped and it seems to us unfair as well as unwise that these enormous dividends, if they are enormous, should be distributed during the coming years when the whole tendency of Government propaganda is towards ploughing back available resources into business in order that exports shall be revived and the country got hack to its feet again.

A great deal has been said about P.A.Y.E. I think almost every speaker had something to say, and from the number of persons who have dealt with it, I think the speeches can be said to cancel themselves out. Some hon. Members have suggested that P.A.Y.E. should be abandoned; others have taken the opposite view, and have indicated that it would be very difficult at this stage to give up P.A.Y.E. and return to the old method. One thing we are certain about is that in the year in which the change would be made I imagine there would be a very great loss to the revenue.

The change-over would make a great deal of difference to what came in from this particular source. We know that with some people P.A.Y.E. is unpopular, that they are not only irritated by the fact that they have to pay the tax by this means, but because they have to pay it at all. That is a thing we cannot help. It is our view that now taxation is so high, and the amount in bulk over the course of 12 or even six months is so much, that it is better to take the tax in this way, out of the pay packet, than to go back to the old system and take it in arrears.

The real remedy for many of the complaints which have been raised—and I agree that they are real complaints—is to raise the exemption limit. It is the poorer taxpayer, who finds a few shillings difficult to bear, who makes the greatest complaint. One can understand that. But in this matter we can take comfort from the fact that my right hon. Friend has, in his wisdom, exempted at least 2,000,000 people from payment of this tax, and that in a full year another 500,000 will be added to that total. These people will find themselves exempt under the taxation reliefs which were announced last October and yesterday by my right hon. Friend.

My hon. Friend the Member for South Leeds (Mr. Gaitskell), whose contributions to our Debates are always well worth listening to, asked me one or two questions. He asked why an increase in the yield of Income Tax was expected in view of the drop, as he put it, in the numbers employed as compared with the war years. He suggested that it might be due to the fact that Servicemen are now coming back, and possibly earning more than they received while in the Services. That does partly account for the upward tendency for which we have estimated, but it is largely due to other causes. One is the expected increase in the profits of concerns which, during the war, were not on munitions, and were not doing very well. Now we are returning to a peacetime economy we have every expectation —and it will be a poor lookout for the country if it is not fulfilled—that their profits and business will increase. We hope that that buoyancy will express itself in an increased yield in Income Tax. Although E.P.T. is coming down, those firms which are paying it may still keep up their Income Tax profit, even if they fall short, as they naturally will, of what used to be their E.P.T. profit level. I can only say that the proof of the pudding is in the eating. Our advisers, who are expert at this kind of work—and only yesterday we had examples of how near they do estimate in difficult circumstances—suggest that the increase which is shown in the Estimates is one which can be counted upon. My hon. Friend also asked me what the overseas deficit was likely to be. I would remind him that my right hon. Friend thought that it would be £750 million this year, and that there might well be deficits in 1947 and 1948. I cannot say more than that at the moment. It is, as the Committee knows, an act of faith, or of prophecy to look forward into the next few years, and to say what is expected under this head.

A lot of complaint has been made about direct and indirect taxation, and were the times different, I think we might have had a most amusing evening discussing this subject. But such a discussion would be purely academic at the moment. It is not a question of whether direct taxation is better than indirect. My right hon. Friend has to use both methods with a very heavy hand. The need today is so great that he has to be empirical in these matters, and cannot lean on theory for the kind or type of taxation that he will use. It has turned out in the Budget my right hon. Friend opened yesterday, against all the canons of our Labour forefathers—if we ever had any—that he has plumped for indirect taxation as against direct. The truth is that both at high levels are necessary to meet the very large amount of revenue we require.

The right hon. Gentleman who opened the Debate for the Opposition began by saying that expenditure at present levels so long after V.J. Day—I took his words down—was "staggering." He also said he was disappointed that the Chancellor had practically nothing to say about economy in the speech he made yesterday and he accused the Chancellor of complacency. Of course, expenditure is staggering; no one can deny it. It is staggering eight months after the war against Japan, but what hon. and right hon. Gentlemen opposite forget, I think, is that the last eight months and most of the coning 12 months are involved in the winding up process following the greatest and most terrible war that the world has ever seen. For six years the world has been engaged in total war, and it is quite impossible for a nation such as ours to wind the thing up in the space of a few months with a quick reduction in expenditure such as some hon. Members opposite appear to expect.

Demobilisation has been going on at a great pace, as my right hon. Friend said yesterday. If it had proceeded at a slower pace the amount of the deficit would not have been as large as it has been. The termination of contracts was a legacy of the war and I am sure that no hon. Member opposite would want us to go back on our word and refuse to honour our bond in that direction. The expendi- ture we have to meet now is staggering, but not so staggering when we look at the commitments we have had to face and will have to face during the coming year. I think the right hon. Gentleman was less than fair to my right hon. Friend when he accused him of complacency. The mere fact that in a crowded speech full of good meat which lasted over two hours he did not enlarge on certain aspects of the situation does not for one moment mean he was either complacent about the level of expenditure or, what is more important, has done nothing to try to keep it down. What the Chancellor of the Exchequer said last October still remains true. He then indicated to the Committee quite clearly that he was as anxious as anybody that waste should not take place and particularly, to use his own words, that we should hurry down Services expenditure as speedily as possible. The Committee can, therefore, be assured—and I give them the assurance now—not only that my right hon. Friend is anxious to see expenditure brought down, but that he has taken all possible steps and will continue to take them to see that expenditure is reduced to its lowest possible level compatible with the commitments which we have to face during the coming year.

Lieut.-Colonel Thorp (Berwick-upon-Tweed)

rose—

Mr. Glenvil Hall

If the hon. and gallant Gentleman wants to raise a point I will give way, although I have not a great deal of time.

Lieut.-Colonel Thorp

I was going to ask if the Chancellor of the Exchequer is assuming a non-complacent attitude at the moment.

Mr. Glenvil Hall

There are quite a number of my predecessors facing me now on the bench opposite, who know as well as I do how these things are done, but I would like to assure right hon. and hon. Members opposite, and the Committee at large, that all the Estimates have been very closely scrutinised. There has been no slackness either in the Treasury or any of the Departments in this matter, and although the Estimates presented this spring, which have been printed and are now known to Members in every quarter of the Committee, have been stated, it is still the policy of His Majesty's Government to try, by every means possible, to prevent the totals of those Estimates being reached. The Departments are being constantly reminded of the great need for economy where economy can be practised. The difficulty, however, has been that the attack tonight, just as the attack last October, has been in general terms. No evidence has been forthcoming from hon. and right hon. Gentlemen opposite that they could have done better. I make no complaint of what has been said, but it would have been interesting, and probably instructive, if they could have given us the precise ways in which they would have practised the economy they talked so much about.

The right hon. Gentleman the Member for the Scottish Universities talked of the danger of over spending and he wanted what he called a balanced economy, but he gave no real indication of what he meant when he used the term. It would have been very interesting, as the hon. Member for Smethwick (Mr. Gordon-Walker) said in a speech earlier this afternoon, if the right hon. Gentleman had given us some indication of what he had in his mind. It would have come with particular force from him as he is an ex-Chancellor and was at one time the chairman of the Board of Inland Revenue. He gave us no indication, beyond saying he thought the expenditure must come down and that taxation must come down too. My right hon. Friend yesterday indicated that, so far as the Civil Estimates are concerned, there is an increase this year of £145 million—£21 million on education; housing £19 million. Do hon. and right hon. Gentlemen opposite want those reduced? Old age pensions, £14 million—do they want to cut that in half? Forestry £2 million, civil aviation—so that we can take our place, as we should, among the other great nations of the world in this new type of transport—£11 million. Do they want to cut those down? Development areas, £10 million. They gave no indication of where they want economies made, and I ask them now, and I think I am entitled to ask them, which of these items do they want cut? The plain truth is—

Mr. Jennings (Sheffield, Hallam)

Cut some of your Government staff down.

Mr. Glenvil Hall

I do not want now to be drawn into a long discussion about Government staff, but the difficulty is that we have not the staff we want. Far from cutting the staff down, we would like to see it increased in order to give a better service to Members of this House as well as to the outside public. Time is going on, and I have not time to answer many of the questions which have been put, but I might in one final word answer the hon. Member for Blackley (Mr. Diamond), who indicated that the earned income allowance of one-eighth did not mean that one got one-eighth on £1,500 but one-eighth on £1,250. Actually, it is one-eighth on £1,200. Although it is quite true that the full benefit is only felt by those who receive salaries of £1,200, some benefit is felt by everybody whose earned income lies between £1,200 and £1,500.

The right hon. Gentleman the Member for the Scottish Universities indicated that last October my right hon. Friend had said that he would set up again the Committee on National Expenditure. I rather think that the right hon. Gentleman was, for the moment, confusing that Committee with the Estimates Committee. The Estimates Committee is now at work, and has, I believe, set up a number of sub-committees. That means that the old method of watching the Estimates is now getting into its stride and I am delighted to think that that is so.

Finally, I know that quite a number of points which have been made in various quarters of the Committee have not been answered tonight, and I apologise for it. My right hon. Friend will be winding up the Debate tomorrow evening and I will see that certain points are passed on to him. I am positive that he will deal with them then.

It being a Quarter past Ten o'Clock, the CHAIRMAN left the Chair to make his Report to the House.

Committee report Progress; to sit again Tomorrow,