AMENDMENT OF LAW

HC Deb 17 April 1947 vol 436 cc348-467

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.]

3.39 P.m.

Mr. Brendan Bracken (Bournemouth)

If bulk speaking and bulk spending were the qualifications required of a Chancellor of the Exchequer, the right hon. Gentleman would have overshadowed almost all his predecessors. Unfortunately, neither of these accomplishments can solve our present troubles. There was great need for a spirit of economy, for wise monetary and fiscal policies after the most costly war in history. An unprecedented, an enormous accumulation of savings during the war and an acute shortage of all goods inevitably increased inflationary tendencies. The present Chancellor is, of course, not responsible for the inflation caused by the war. Nor is he responsible for the shortages of all goods. But he is responsible for the things he has done, and left undone, since he entered the Treasury. Our case against the right hon. Gentleman, which I will attempt to state with great moderation, is that his juggling with figures, his busy encouragement of stock market inflation, his broken promises—such as that he would not borrow from the City in the last financial year, or the other promise that the American Loan would be mainly spent on capital equipment—have been wholly harmful to Britain's recovery. Furthermore, the widespread feeling that the right hon. Gentleman's Budgets contain more spite than sense has also added to the general depression.

A sober monetary policy could have played a great part in helping us through the last two difficult years. Instead of sober monetary and fiscal policies, we have had a series of stunts—sizzling stunts. The greatest was the cheaper money campaign, based on manipulated markets and the creation of limitless quantities of new cash by the Chancellor in order to sell his own gilt-edged wares. The right hon. Gentleman has been so busy bustling and bragging about his artificial cheap money that he has neglected the prime duties, or the main duties, of his office. That his neglect has inflicted great injury on our affairs, I shall try to show in the course of my remarks. Again, anything I say will be marked by the utmost moderation.

Let me begin by turning to the comparatively uncontroversial question of cheap money. There is a sort of natural cheap money, which is the product of wise stewardship of our financial affairs, and prosperity in our home and export trade. Natural cheap money is welcomed by all sensible persons. The right hon. Gentleman's recent predecessors were great battlers for cheap money, and worked hard to produce conditions for a steady reduction in interest rates. Cheap money was no invention of the present Chancellor. His predecessors successfully used it to finance our war effort at half the cost, pound for pound, of the 1914–18 war. That was a considerable achievement. The three previous Chancellors of the Exchequer, like all other considering persons, believed that interest rates must be kept as low as possible so that Britain might be eased in bearing her tremendous burden of debt. I fear that the Chancellor's roaring cheap money stunt, and his methods of manipulating markets, may prejudice the prospects of maintaining low interest rates over any long period of time.

The Chancellor is, or was, an economist, a professional economist, and he has neglected to look into the price-raising effects of cheap money in conditions of full employment. An hon. Member opposite, speaking last night, gave us an interesting analysis of the inflationary effect of cheap money in conditions of full employment. I entirely agree with the hon. Gentleman. The price-raising effects of cheap money in conditions of full employment and a virtually closed economy—because that is what we now have—can be very serious. Cheap money is meat in conditions of under-employment but may be poison in the these days of inflation. I am surprised that the right hon. Gentleman—that ornament of the London School of Economics—did not dis- cover that fact before he started his cheap money stunt.

The Chancellor, in defending his cheap money drive, modestly compared himself with Lord Goschen, "approaching the grand phalanx of 3 per cents. in 1888." What a singularly unfortunate comparison. Goschen preened himself greatly on his dateless 2½ per cents. He was congratulated in this House by Mr. Gladstone on his achievement, but the luckless people who bought and held the Goschen 2½ per cents. had no reason to preen themselves. Their capital losses were simply staggering. Alas, the famous Goschen security was often sold at less than half its original price, a point which should be remembered by the "fans" of the right hon. Gentleman opposite. If that was the fate of Lord Goschen's 2½ per cents. in the days of Britain's greatest prosperity—

Mr. Alpass (Thornbury)

When agricultural workers' wages were 12s. a week?

Mr. Bracken

Hon. Gentlemen opposite would apparently prefer the condition of England today to England's condition in the days of Queen Victoria. I am bound to say that the Chancellor of the Exchequer would be very glad to have the National Debt that existed in Queen Victoria's reign. Let us return to Victorian statesmanship. If what I have indicated was the fate of Lord Goschen's 2½ per cents., what is the good of the right hon. Gentleman deluding himself and the public by claiming that these 2½ per cents. are an impregnable security? I think he called is "a standard for future generations." Really, the Chancellor should control his predilection for stunts. Unless our credit is irreparably damaged by the present Government, Britain ought to look forward to a continuance of cheap money. I think it likely that interest rates will probably settle down round 3 per cent. without any Government manipulation of markets and without the creation of vast supplies of new cash to support the giltedged market. So, if the Chancellor is wise, he will now consolidate his cheap money gains and not over-reach himself in new chases after artificial interest rates.

I know that that advice is contrary to the right hon. Gentleman's temperament, but as a former colleague I beg of him to take it. On Budget day, he gave us a long disquisition on what he conceived to be the merits of his cheap money drive. If one did not know the facts one might believe that it had brought vast savings to the Exchequer. The real savings in interest account, after the deduction of Income Tax—because the Chancellor left out that small consideration—can be estimated with fair accuracy, and are comparatively trivial. I believe that the inflationary effect of the Chancellor's cheaper money drive is more than wiped out in savings on interest account.

Though the Chancellor is a great lover of stunts and publicity—[Interruption.]—I know that hon. Gentlemen opposite do not like these statements, and I take it as a compliment when they barrack me—it would be foolish to assume that such a seasoned Socialist politician launched his cheaper money drive without a political motive. I am sure that in striving for an artificially low rate of interest, he is mindful of the fact that he may soon have to issue £1,500 million to £2,000 million of nationalisation stocks. I think that forecast is accurate. The Chancellor can correct me if I am wrong. When the new nationalisation stocks have been issued, the Chancellor will show much less interest in cheap money. I am very sorry indeed for the unfortunate railway and electricity stockholders who will receive these nationalisation stocks. They will be victimised twice over, once by being paid too low a price for their properties, and again by being paid in Government stock on which, in future, they may have heavy depreciation.

The Chancellor will render a great service to the country if he will now try to make up for his neglect of more important matters than squeezing interest rates to untenable levels, or mulcting the unfortunate electricity and transport shareholders. It would, I think, be difficult to exaggerate the consequences of the Chancellor's neglect of the prime duties of his office. The first and worst of these neglects is the control of departmental expenditure. The fantastic waste he has permitted, condoned, or overlooked during the last two years would have injured the credit of the richest nation in the world. I do not want to take up the time of the Committee by roving over—[HON. MEMBERS: "Go on.''] Never was a compliment more acceptable. I do not want to take up the time of the Committee by roving over the inflated staffs of Government Departments. I will give just one instance of extravagance in a Department most dear to the heart of the nationalisers, the Post Office. Though that Department is steadily cutting down the services it rendered to the country before the war, no less than 8,522 persons have recently been added to the staff. What a record. As my right hon. Friend the Member for the Scottish Universities (Sir J. Anderson) reminded the Committee yesterday, the Chancellor has boasted of his content—I do not think that the word was "joy"; it was "content"—in greeting all proposals made to him by his spendthrift colleagues.

The Chancellor of the Exchequer (Mr. Dalton)

I think we must get it right on the record. The phrase which the right hon. Gentleman is quoting had specific reference to making good the damage due to floods, the loss to agriculture and other interests in flooded areas, towards which the Government undertook, with, I think, the general approval of the House, to make a substantial contribution. I used the words in that connection. I said, "I am happy," and then, thinking, of the misfortunes of those who suffered, I felt that "happy" was not quite the appropriate word, and I said: I am very content to be pledged… We shall not be niggardly about this."—[OFFICIAL REPORT, 15th April, 1947; Vol. 436. C. 44.]

Hon. Members

Withdraw.

Mr. Bracken

I should be very sorry to misquote the Chancellor. After all, I was only quoting a statement made from this side of the Committee yesterday. But I say this to the Chancellor: I am quite content with the quotation of the song in his heart. That is all that need be said of an extravagant Chancellor. I think that the Chancellor has admitted—I do not think that he will deny this quotation—that he has been a prodder of slow spenders. [Interruption.] It does not matter. If the Chancellor is going to turn the Treasury into a soup kitchen, I think we have a right to complain.

Captain Peart (Workington)

Is the right hon. Gentleman arguing now against extra money for plans for development areas?

Mr. Bracken

I am arguing that the first duty of the Chancellor of the Exchequer is to look after the public purse. Surely, it is not to be wondered—I am sorry to interrupt the Financial Secretary to the Treasury—

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

I was wondering if the right hon. Gentleman would tell us which is preferable—unemployment with its resultant misery and costs, or creative industry, which would result in production and the creation of wealth?

Mr. Bracken

If the right hon. Gentleman will listen to me, I will tell him something. What is costing the country most today is that we have got half employment. Most of our major industries are paralysed through the futility of his own Government. [Interruption.] I am very glad for this respite. Now, if I could he allowed to go back to my uncontroversial argument, I ask, Is it to be wondered at that the Treasury's control over expenditure is weaker now than at any time in its history? Even Charles Townshend, hitherto the most foolish Chancellor of the Exchequer, kept more control over his spending colleagues than the right hon. Gentleman opposite. [An HON. MEMBER: "The right hon. Gentleman said that last year."] One cannot repeat the truth too often. The truth is that good management is going out of the Treasury. Under the right hon. Gentleman's administration, waste, eccentricity and confusion are taking its place. This may turn out to be a great disaster to producers and savers in Britain.

One of the duties of the Chancellor of the Exchequer is, of course, to exercise a general supervision over the Civil Service. If ever there was a time when it needed supervision, it is now. There are no fewer than 713,589 civil servants in this country, and the number is increasing. Indeed, I notice in one of the recent public opinion polls, that the Civil Service now apparently makes a greater appeal to youth than at any other time in our history. [HON. MEMBERS; "What is wrong with that?"] I will say what is the matter in a moment. A safe career with a fair pension, at the end of it, seems to have a special appeal to youngsters today. What an odd world we live in. There are also many young men, particularly ex-Service men, who are striving with all their might to get any sort of job overseas. They see no future for themselves in a land ruled by paralytic planners. I do not know which of these groups of young men renders the greater disservice to the country, the lively and adventurously minded who want to leave it, or the "safety-firsters" who want to swell the Civil Service.

I cannot understand why the Chancellor —[HON. MEMBERS: "Hear, hear."] I am pleased to confess it; many hon. Gentlemen opposite would do well to emulate my frankness. I cannot, I say, understand why the Chancellor does not make some attempt to reduce our vast army of bureaucrats. Ministers are constantly issuing White Papers, or making speeches saying that our salvation rests in more production. What does an army of bureaucrats produce? Little save unnecessary work for the producing citizens of this land. Some of the critics of our over-blown Civil Service maintain that its members are nothing but drones. That is an unfair and inaccurate statement. A great deal of work goes into the tautological forms they produce, but I cannot see that we can ever achieve the production standards we desire, unless we cut down our painstaking but parasitic bureaucracy. John Stuart Mill, who was at least as good a political economist as the Chancellor, declared it to be one of the glories of England that Nine-tenths, of the internal business which elsewhere devolves on Government is transacted by agencies independent of it. That is a quotation that ought to attract the Chancellor, but I believe that if the Chancellor has his way, nine-tenths of the internal business of this country will in future be performed or delayed by bureaucrats.

One of the worst of the right hon. Gentleman's offences is the way in which he has deranged all the carefully contrived standards of promotion and remuneration in the public service. He and his colleagues have created all sorts of lush nationalisation jobs carrying salaries and allowances much greater than those received by the heads of the higher Civil Service. For instance, when the Government recently appointed a director of what they once described as a wicked cartel, to be our chief planner, he was given a salary infinitely greater than that given to the much respected head of the Civil Service. I am quite certain that these large salaries and allowances given to members and officials of the new nationalisation boards will encourage higher civil servants to seek these jobs, and will inevitably cause a costly adjustment of all Civil Service salary scales. The Government are, in fact, setting up a new and attractive form of competition with the higher Civil Service upon which the good administration of many of our affairs mainly depends. The Chancellor will not disagree with that. He should long since have noticed what was happening. We have a limited supply of the best talent available to the Civil Service, and by setting up these nationalisation boards he is interfering with the machinery he should use to control expenditure, because if we weaken the higher Civil Service, we create a good deal of confusion in our affairs.

Let me turn to another of the Chancellor's neglects. In his Budget speech he uttered some unfinished criticisms against the unfair demands made upon us by creditor nations whom we saved from destruction or pillage by Germany or Italy. [An HON. MEMBER: "Or Japan."] Or Japan. Save for the Chancellor's violent verbiage on Budget day, what has he done to cut down the inflated demands made on us by countries like India and Egypt? Nearly two years have passed without a settlement. Our war debts to those countries are not commercial debts. Members of all parties will agree with that statement. They are, in fact, examples of some of the worst book-keeping in history. The National Government, of which the Chancellor was a member, never concealed its intention of seeing that these inflated debts would be heavily scaled down at the end of the war, and our great friend President Roosevelt encouraged, and, indeed, pressed us to seek a sweeping reduction of these fantastic charges. It is not unreasonable for us to expect sharp reductions in our war debt to Egypt. What would have happened to that country if Field-Marshal Rommel or the greedy Mussolini had occupied it? Let us not be too modest. British and Dominion Forces saved the whole population of Egypt from becoming slaves of the Axis and from losing all property of any value. I noticed that the Egyptian Finance Minister was recently reported as suggesting that we should begin repaying our debt to Egypt by handing over the shares of the Suez Canal and the Anglo-Egyptian oilfields. Does that gentleman really believe that the British public are going to work for years to pay off some of the debts we have incurred by saving Egypt from invasion? Are our people to be kept short of clothes and furniture and other amenities of life, in order that our factory workers shall toil for years for the benefit of the Egyptians whom we saved from Axis invasion, exploitation and pillage? [Interruption.] Hon. Gentlemen on the other side seem to agree with me. Moderation is working.

Let me remind the Committee that the Chancellor has been in office for nearly two years. What has he done to scale down those debts? Are we to pay enormous reparations to India for saving her from a Japanese invasion? During the war India was a profiteer's paradise. Are we really going to foot the profiteer's bill? If not, why have we not long since sent in a bill to India for saving her from the disaster of a Japanese conquest?

Mr. Alpass

That is what should have been done after the first world war.

Mr. Bracken

The first thing the Chancellor should have done on the morrow of our victories was to send in the bill for all we did to save India and Egypt from brutal Axis looters. I cannot understand the right hon. Gentleman's inertness about scaling down these inflated charges

Mr. Benson (Chesterfield)

Who allowed the inflated debts to be incurred? Which Chancellor?

Mr. Bracken

We were engaged in fighting a world war, with the benefit of most of the leaders opposite as colleagues. If the hon. Member has any criticism, he should give it to the party meeting upstairs.

Major Bruce (Portsmouth, North)

It might be published.

Mr. Bracken

Perhaps the Committee will allow me to return for a few minutes to the effect on our fortunes at home of this Budget. The Chancellor has the dubious honour of being Britain's greatest producer. Today, everything in Britain is scarce save his money. In his Budget speech he Called upon the country to aid him in warding off the dangers in inflation. It would be quite wrong to withhold from the Chancellor some credit for producing a Budget which, in part, is a mild deterrent of inflation, but he has never really faced up to the problem of our continuing inflation. One of the best ways of solving that problem is, of course, to wage war against waste in Government Departments. Alas, the Chancellor's cardiac condition rules out this remedy. When he makes speeches in this House, the right hon. Gentleman appears to be a very bold man indeed. But, alas, all courage seems to ooze out of him when he is faced with the problems of our inflated war debts and the ever-growing costs of administration and subsidies. Consider his attitude to food subsidies. It was quite remarkable. Pontius Pilate would have envied the right hon. Gentleman's facility. He deplores the ever-growing cost of food subsidies. But what does he do about it? He merely shoves his responsibility on to the unfortunate Minister of Labour, who is expected to produce a less antiquated cost-of-living index, and, when this appears, the Chancellor may, or may not, cut down some of the more exotic subsidies. Surely, the Minister of Defence has no monopoly of timidity.

To sum up the case against the right hon. Gentleman, this is a Budget of stagnation. It has little value save that it provides a few chinks for the seeing eye to discover what will happen when the sellers' market ends, and when our foreign loans are exhausted. [Interruption.] The hon. Gentleman does not seem to think it matters much when our foreign loans end or when the sellers' market ends. Believe me, thousands of his constituents will differ from him. The time is not far off when, I think, the Chancellor will agree that the sellers' market will come to an end. He has told us about his apprehensions of our running out of dollars. In these circumstances, is it not a pity that the Chancellor did not prepare a Budget to encourage the producers of this country? It would have cost him very little if he had carried on the good work done by my right hon. Friend the Member for the Scottish Universities (Sir J. Anderson) by increasing the allowances for depreciation of industrial plant and equipment. Had he done that, he would have given practical encouragement to industry at a small cost to the Treasury. I do not think that the Chancellor will disagree there. The case for such a policy is overwhelming.

Let me once again remind hon. Members opposite that those people who talk about our obsolescent machinery do not seem to realise that a large part of the responsibility for that obsolescence rests upon the mulish refusal of the Treasury to give British industrialists the same freedom to write down machinery as is enjoyed by their opposite numbers in the United States. I imagine that the right hon. Gentleman, who was a very busy President of the Board of Trade, must have made representations to the Treasury from time to time to help our industrialists to deal with the problem of obsolescence, and, therefore, I had hoped that he would have had a murmur in his heart, and, in this Budget, would have encouraged industry by granting further obsolescence allowances.

Mr. James Callaghan (Cardiff, South)

What is it that the right hon. Gentleman wants to do now more than he wanted to do—and did—in the 1945 Income Tax Act?

Mr. Bracken

I do not disagree with the hon. Gentleman at all. I quite agree that the Chancellor has got his connections with the tax collectors, one of the most worthy bodies in the country. But he is apparently not sympathetic on this question of obsolescence. [HON. MEMBERS: "Answer."] I will answer exactly in the time I choose. I am going to say now that the allowance referred to by the hon. Gentleman was, in my judgment, insufficient. The Chancellor, who knows a great deal—although one might not discover it in some of his speeches—has a thorough appreciation of the extraordinary capacity of American industrialists, for instance, to pull down factories, and to scrap plant and equipment. I had always hoped that the industrialists of this country would emulate them. But the Treasury must bear a part of the responsibility for industrial obsolescence in England. I had hoped that the Chancellor would have given to industrialists the opportunity of further concessions in connection with obsolescence.

But whom has the Chancellor sought out for such benefits as he offers this year? Of all people in the world, the rentier. This year the rentier who owns preference shares and debentures is treated tenderly, but the ordinary shareholders who have to take the risks—and believe me unless they take big risks there is no future for this country—are singled out by the Chancellor for invidious treatment. Take, for instance, the hypocrisy of the Chancellor's performance about taxing bonus issues. That would have made Uriah Heep blush. The right hon. Gentleman's position may be summarised in two sentences: "A bonus issue is deceptive"—what, no cheers?—"—not to say wicked. But the Treasury will condone it for a fat rake-off." What an appalling example to under-the-counter dealers. Whitewashing the black markets is the Chancellor's new function. I aver that this Budget will do nothing to increase production. In some ways it will discourage it, and, by so doing, must postpone Britain's recovery.

On Tuesday night, the Chancellor made a broadcast which, fortunately, did not last for three hours. In describing his Budget, he packed into one quarter of an hour a prodigious amount of spiteful disingenuousness. He boasted about his synthetic surplus. To the beneficiaries of his Budget, he rapturously described—as only he can—the increases he was able to give them in spending power. But he neglected to tell them that under his stewardship the purchasing power of the £ has fallen and is falling rapidly, and that, unless the Government face the unpopular task of cutting out waste, the Chancellor's Income Tax exemptions, increased pensions and, indeed, all social security will become a mockery.

4.17 p.m.

Mr. James Callaghan (Cardiff, South)

I am very glad indeed to have the opportunity of following the right hon. Gentleman. I did not have the opportunity of knowing him before he went to the Admiralty, but it seems to some of us who came into this House recently that he has acquired a certain quarter-deck manner. Very breezily, he disposes of all his opponents, and yet, perhaps, on reflection, I am not sure that it is not more of a swashbuckling pirate we see, one who is as likely to hit at his friends as he is at his foes. Of course, he has a difficult job to fulfil. He represents the rentier class. No doubt the dowagers of Bournemouth will be delighted to hear what he has said. He is also—

Mr. Bracken

The hon. Gentleman is a bachelor.

Mr. Callaghan

He has, of course, to fulfil the secondary task of his chairmanship of the "Financial Times," which is, needless to say, much more respectable and much more erudite than he is. Indeed, I think it is that job which has put him in his difficulty this afternoon. I do not know whether the Committee have read the "Financial Times" during the last few weeks, or have followed its views on the form that a Budget ought to take. When I heard the right hon. Gentleman lashing about this afternoon, and when I remembered the old tag, which I will not repeat now because he knows what I mean, I realised to the full that it was precisely because the Chancellor and the "Financial Times" seemed to have hit on some of the same solutions together that he had rather a thin case to make today. For example, what did the "Financial Times" say on 1st April? I know it was All Fools' day, but they indicated there were two things which the Chancellor ought to do in his Budget, and, by some coincidence, they have been done. One was to balance it. [An HON. MEMBER: "It has been overbalanced."] There is no occasion to take any credit for the surplus. It is a balanced Budget for the first time in this decade, and even the "Financial Times" could scarce forbear to cheer.

Mr. Bracken

I am sorry to interrupt the hon. Gentleman, but may I point out that hon. Members on the opposite side of the Committee seem to find it difficult to understand that in capitalist newspapers we give freedom to our editors?

Mr. Callaghan

I am certain the editor of the "Financial Times" has freedom; otherwise, there would be no way to account for the difference between the sensible views which he so often expresses, and those we hear from the right hon. Gentleman. The main part of the right hon. Gentleman's speech was devoted to the control of expenditure, and here I think there is some measure of agreement. But I would say to the right hon. Gentleman that the Departments of State escaped from Treasury financial control during the war. They did not escape from that control when the Labour Party came into power. The Admiralty has been consistently and glaringly a case in which the Treasury has been almost unable to exercise any financial control of any magnitude, and it is the task of this Government and of the Chancellor to recapture the control which was lost over the spending Departments during the war. It is that task which he indicated during his Budget speech he is performing. He indicated the amounts which are being recovered from Votes of credit which have been passed by this House during the years gone by. But I do not differ from the right hon. Gentleman when he calls for much closer control of these Departments. Indeed, if the Treasury achieve control over the Admiralty it will be almost the first time in history, and the Chancellor will go down in history as the first man who has been able to do it. At least, I think there is more chance of the present Chancellor doing it than many other Chancellors.

I did not think the right hon. Gentleman opposite was quite at his best when he talked about cutting down the number of civil servants. I can understand that the unthinking man would say that is the way partially to solve the problem, but the right hon. Gentleman knows as well as I do that when one says, "Cut down the number of civil servants," one really ought to say which Departments and which policies should be cut down. The civil servants are only the executive instruments of those policies, and it would have been far more helpful to the Committee if the right hon. Gentleman had gone into details of some of the policies in relation to the spending Departments and the Departments of State which he would have cut down in order to save a large number of civil servants. Then I think we should have been able to answer him more easily than when he speaks as though he were a fellow talking in a pub, and saying, "All you have to do is to get rid of all the civil servants."

Mr. Bracken

I said I could not rove over all Government Departments, but I did bring out the case of the Post Office, which is the biggest employer among Government Departments. If I had been asked at the time, I would have said, "Abolish the Ministry of Supply and many other Ministries, and then we would get some real economy."

Mr. Callaghan

Those are the sort of issues we can debate as soon as we get something like that from the right hon. Gentleman. He did mention the subject of food subsidies. He put his toes in the water, but he found it a little cold and withdrew them again. No one on the Conservative side has gone quite as far as the "Economist" has gone in its last week's issue in one of the worst articles it has ever printed. I have been waiting to see whether they would. What the right hon. Gentleman intended to say about food subsidies I do not know. I waited with pencil poised, but nothing came. Instead, he moved on to another inaccuracy in connection with the replacement of obsolescent industrial machinery. He knows, as I and everyone else who has studied the problem knows, that very substantial advances and increases were given in cases of wear and tear and obsolescence, by common consent on both sides of the House in 1945. Those advances which were made at that time were subjected to no party criticism. They were, indeed, the subject of all-party agreement. So far as I remember, from reading those Debates, there was no suggestion that an unwilling Treasury was having money extracted from it or concessions forced from it that it would not readily give. I believe the Chancellor of the day had the benefit of the advice of many industrialists who were then sitting on this side of the House, and some of whom are with us no more, as to what should be given and what should be done. I do not pretend that that Act is the last word in wisdom, and that there are not changes which ought to be made, but it is clear that even within the limits of the existing Income Tax Act, 1945, there are substantial improvements and advantages which can be derived by industry both in the matter of replacing buildings and in replacing machinery.

If I might return again to the question of the control of expenditure, in connection with which the right hon. Gentleman referred to the Chancellor's spending propensities—and in doing so, was, I thought, punctured immediately by the Financial Secretary—I would like to know whether the right hon. Gentleman means that the Chancellor should not stimulate spending in the development areas in order to get the factories going which were planned by the Development of Industries Act, introduced by the Government of which he was a Member. Does he mean that? I do not think he does. If not, why make the point? It serves for nothing but a headline in the papers tomorrow. Then there is the question of compensation in respect of the floods. The right hon. Gentleman knows perfectly well that it was particularly in relation to that matter that the Chancellor said he was content to make those payments, and there is no one on either side of the Committee, unless he is trying to score party points, who would try to put upon that statement an interpretation other than that which was intended.

I was surprised to hear how inaccurate the right hon. Gentleman was when he talked about the attraction of the Civil Service. Does he not know that a year ago the Financial Secretary had to reduce the entrance fees for the examinations because he could not get enough candidates of the type required in the Civil Service? Is he not aware that the rate for a temporary clerk in the Civil Service is something like £4 10s. or £4 11s, a week? Is that a very attractive wage which will call the best of the young people away from industry? The plain truth is, of course, that in many of the Departments today those who took up jobs in those Departments when they returned from the Forces are now leaving the Service, and in some of our bigger Departments the turnover of men who came back from the Forces, went into the Civil Service and found it offered a very doubtful career and future is rather prodigious and alarming from the point of view of the country, if we are to get people of sufficient calibre to do the job. Do not let us assume that the Civil Service is in a pampered or exceptional position. Indeed, it is not.

One part of the right hon. Gentleman's speech with which I did agree, and which I cheered, was that in which he dealt with the question of sterling balances. I am bound to say to him that we have not paid anything yet. Perhaps we shall. I believe we have a realistic Chancellor of the Exchequer; and, perhaps, when one is in a position of responsibility one does not say as much about these things as when one is not. The only point I would make about sterling balances is that if it is the case that the politicians in Egypt and India are unable to make an agreement with this country because they would lose their jobs it they did, the time may come when we will have to say, "This is what we are prepared to do." Instead of trying to conclude an agreement we may have to say to them: "This is what our proposals are. This is what we intend to carry out"

Mr. Bracken

Hear hear. Get on with it.

Mr. Callaghan

The right hon. Gentleman referred, finally, to the Budget helping the rentier class, for which no doubt Bournemouth will be duly grateful. But what he did not say was that, in point of fact, the increase in Profits Tax does not fall on trading profits; it falls only on distributed profits. Any company which wants to plough back into industry the profits that it has made, suffers no liability on that account. It is not a tax on venture or on risk. Indeed, how much risk is there at the moment in that type of venture?

Mr. Bracken

A tremendous lot.

Mr. Callaghan

I would like to say just a few words about the question of food subsidies. I was a little unhappy about the note of hesitation in the Chancellor's voice when he said he was wondering about their continuance. I do urge him to hold on for a bit. He knows—nobody better—what the effect of a decrease in the amount of food subsidies would be upon the housewife's shopping basket today. Taking as an example an ordinary family of four—a man, his wife and two children—I do not think I would be far wrong in saying that taking off these food subsidies would mean an addition in cost, on the housewife's shopping basket, of 14s. a week. That, of course, would set in train a change of an indescribable nature. I do not want to prophesy, but I am not sure that the time is not coming when world food prices may start to turn downwards. That, I think, is what the Chancellor is waiting to see. I hope he is. If, indeed, they do turn downwards, then he will be able to hold the loss there, and to recover I trust some of his losses—because they are, in fact, losses; they come out of the taxpayers' pockets, although I still think it is the best way of doing it. I hope he will hold on, to see what the future may bring in the matter of nature's beautiful harvests in the rest of the world.

I wish to say something about our relationship to the rest of the world as far as dollar payments, and other matters of that sort, are concerned. Of course, we are not the only people who are running short of dollars. Canada, Sweden and France are all in difficulties with dollars already. We are not in difficulty yet, although we shall be in two years' time. Of that I have no doubt. I want to say this to the Chancellor and to the President of the Board of Trade. I believe the best contribution we can make, is, not by hitching ourselves more closely to the unstable economy in the United States, but by making our first priority the restoration of the health and prosperity of Europe. The distorted economy of the war years and the succeeding peace years, has resulted in our drawing far more from the New World than we ever did before the war. But, because of its distorted nature, it is apt to make us too much inclined to think that the United States can he our only source of supply. Indeed, it cannot; indeed, it need not. The hon. Member for Chippenham (Mr. Eccles) was too much of a dismal David last night. Really, to suggest that we should have to go crawling to the United States for another loan, and that we shall be faced with hunger and unemployment, is wild exaggeration, even when the dollar loan has run out—especially if, first of all, we can restore the economic prosperity of Europe.

I should like, if I may, to say a few words about the taxation position. May I congratulate the Chancellor on doing a very remarkable thing, namely, finding a relief to give which nobody else had thought of? He is always getting advice beforehand; he is always told what reliefs he ought to apply. Here is one he thought up for himself, and I must say it is one that has not received a lot of attention in the past. I think it was a very wise choice to select the dependent relatives' relief. There are many small homes in the country, where the wage earners, the sons and daughters, are doing their filial duty in supporting their aged parents, or their invalid brothers and sisters, where this extensive relief will come as a very welcome addition. If I may say so, respectfully, I think it was a very wise choice indeed.

I have nearly finished, but I should like to turn briefly to the question of Income Tax expenses, which were referred to by the right hon. Member for the Scottish Universities (Sir J. Anderson) yesterday. I have read his speech with great care and I still do not understand fully the point he was making. As the Committee will remember, he referred to the Prime Minister's salary and the expenses he is given under Rule 10 of the general rules applicable to Schedule E. What he said was this; The rule applicable to the Prime Minister and other persons in a similar exceptional position, gives complete discretion for the Treasury to say that so much remuneration shall be exempt from tax. That is an end of it. Indeed, it is not. What Rule 10 says is, that only expenses which are incurred wholly, necessarily and exclusively in the performance of the job of anyone in this position shall be counted.

Mr. Glenvil Hall

As under Rule 9.

Mr, Callaghan

It is precisely the same as the position under Rule 9. As the Financial Secretary reminds me, it is exactly parallel. The right hon. Member for the Scottish Universities made a contradistinction He said: But"— "But," you see— the ordinary law, embodied in Rule 9 of Schedule E, is in very stringent terms."—[OFFICIAL REPORT, 16th April, 1947; Vol. 436, c. 208.] It is in stringent terms, but it is precisely the same as the rule under which this expenses allowance is being made to my right hon. Friend the Prime Minister. I do not know quite why the illustration was brought in. Knowing the right hon. Member for the Scottish Universities, I would not suspect him of any ulterior motive. But I am sure he is under some confusion when he draws attention to the difference in this way. Indeed, of course, there is no difference at all.

I congratulate the Chancellor on attempting to tighten up the present position. Indeed, there is flagrant and cynical evasion of the present rule going on at the moment, and I have drawn attention to it in this Committee before. But I would say to the Chancellor that there is a lot more that could be done under the existing law if the staff had the time to do it. I agree with the right hon. Member for the Scottish Universities in his reference to the conditions under which the staffs are working. An Income Tax man likes to do a good job of work, but he is having to skimp his work at the present time. He is not able to examine these Income Tax cases with the care with which they should be examined, nor to give them the scrutiny it is his duty to give. There would be much less of this flagrant and cynical evasion of Income Tax liabilities if the staffs of the Inland Revenue offices had time to get down to some of these jobs. Of course, we know—and I aver it without fear of contradiction—that there are a number of large taxpayers in this country today who are delaying payment for political motives. Now, that is a serious charge to make, but it is true. There is evidence about it. On neither side of the Committee, I think, would that be condoned.

Mr. Bracken

Yes, but where is the evidence? It is a very serious charge. Would the hon. Member give us the evidence, which he said was there?

Mr. Callaghan

Yes, I will give the evidence on another occasion, when it is more suitable.

Mr. Bracken

Oh!

Mr. Callaghan

I am now coming to the end of my speech. I would not make a charge like that unless it were true. Of course, any hon. Member can put down a Question to the Chancellor, asking him what percentage of tax has been collected by certain dates this year, and compare it with the same dates last year, and see what the answer is. I do not know what the percentage is. Indeed, there may not be a great deal of difference, unless one picks out the large-scale people about whom I am talking. However, that there is deliberate political delay I have no doubt at all.

I have covered wide ground, but I would say in conclusion that I think the Chancellor's Budget marks a turning point in the national finances in this decade. This is the first time since 1940 that we have had a Budget which is balanced, and that is, indeed, a great achievement. But it is more than that. The Chancellor has courted no easy popularity in this matter. He has done what is necessary; and indeed, he has served notice on the world that Britain's resolution and her determination is not less than her capacity to succeed and win through.

4.30 p.m.

Mr. Spearman (Scarborough and Whitby)

The hon. Member for South Cardiff (Mr. Callaghan) has given us an interesting and vigorous speech, as, indeed, he always does. However unfortunate I may think his general view I generally find myself in agreement with, at least one point in his speeches, and today's is no exception. I do so much agree with what he said, that we should take the sternest possible attitude with regard to sterling balances. But I would point out to him, in respect of what he said about our not having yet paid anything thereby implying that there was no reflection on the Chancellor for past omissions, that we have paid out large quantities of exports which our housewives here would only too gladly have had, and which ought to have been used to obtain, in return, raw materials and machinery we so urgently need. But I must leave the hon. Member's speech, because if I follow him further, I shall go on too long.

I think that on all sides of the Committee we should not deny the Chancellor a tribute for the physical feat he performed on Tuesday. In his speech of three hours and three minutes, there was, so far as I could see, no alteration in the quality of the plausibility of every sentence he uttered. But I do not think that on any side there was any conviction that he was substituting a real plan for the policy of drift which we have had in the last year. It may have been the Chancellor's high spirits, which we all admire; but there seemed to be a touch of complacency or self-satisfaction in his speech, and it is for that reason that I am venturing to read to him a sentence or two from a leading article which appeared in a quite important paper a few weeks ago. I know the right hon. Gentleman is very fond of reading the national Press, and of quoting it to us, but this, perhaps, is a paper that he does not read. The article said: Frankly, we think that several of the Ministers deceive themselves; they regard the whole electorate as enthusiastic converts to Socialism. They believe that however trying and irksome our present troubles may be men will blissfully murmur: 'Attlee's in 10, Downing Street. All's right with the world'. That is a treacherous delusion. Is the Government doing this part of its job—informing the people, explaining to the people—as well as it could be done? The 'Daily Herald' thinks not. I did not read the "Daily Herald" yesterday. I normally read it every day, and take it in; but I have not had time to do so, and I did not see what was said in the leading article. But if it was as penetrating as the leading article on "Telling the People" it may have referred to the comment of my right hon. Friend the Member for the Scottish Universities (Sir J. Anderson) on the Chancellor's so-called surplus. The right hon. Gentleman, with that studied moderation he always uses, said he could not say that that surplus was wholly genuine. I think that the "Daily Herald" might have pointed out that a surplus of this sort was no real way of indicating to the country the real situation of the nation's finances, nor was it any contribution to the checking of excessive spending power. It seemed to me that the right hon. Gentleman the Chancellor, in his hankering after financial purity, was modelling himself more on Mr. Gladstone than on Lord Keynes. What Mr. Gladstone did in 1880—if that was the date—was, no doubt, all very well for those days. But at that time the object of the Budget was to raise revenue, whereas now we look upon it as an instrument for economic planning; and I would, with all diffidence, suggest that the Budget speeches of my right hon. Friend the Member for the Scottish Universities showed more clear indication of the modern outlook of budgetary planning than any of the present Chancellor's.

I now come to the point that has been raised by so many of my hon. Friends. Though they have said it so often and so well, the gravity of the situation seems to me so serious that it cannot be repeated too often. I am, of course, thinking of the balance of payments. I suggest that it is so much the most urgent objective today, that everything else should bow before it. Obviously, we can achieve that only by a surplus of production over consumption sufficient to enable us to export enough to obtain our vital imports. It is quite clear that the American loan, on which we have been living so much during the last year, is going to run out far ahead of the time in which we can repay it. It has been suggested that we may have to ask for another; that we may have to consider accepting another loan from the United States. I would suggest that, perhaps, the favour of lending is more important than the favour of receiving. We may have to consider more what the United States will do than what we can expect. I do not for one moment suggest that the United States would take into consideration what party was in power in this country, but I do suggest they would take into consideration the degree of progress we were making towards recovery. I do not believe they lent us this money in order that we should die easily, but in order that, in our period of convalesence, we should have enough to emerge successfully. I believe that enlightened self-interest in the United States, is now convinced that a prosperous Great Britain is of advantage to the United States. For that reason, I feel that it is vital that we should make far greater progress towards standing on our own legs. Even if we have to go back and ask for another loan, it must be because we need it for continued recovery, and not because we are dying.

Production is failing catastrophically in this country today. It has had the misfortune of the fuel crisis, which, I believe, was a crisis that might well have been avoided. It accentuated that difficulty very much indeed, but, as a matter of fact, our production was ceasing to rise before that crisis occurred. I think it worth while examining why we are failing in our production. I believe it is directly due to the Government's policy. I take hope from that, because if there is a reason that we can cure, then we can hope that, even with this Government, things may get better, when the Government realise their misdeeds. I have no doubt it is partly due to the fact that men are not working hard enough, and I wish that the Chancellor could have seen his way to increasing the incentives more than he has done. It is, no doubt, in part due to inadequate machinery, because of our inability to renew it during the war. But I do not believe that either of those two reasons is the real cause of the failure in production. I believe the real cause is the failure of the flow of stocks and component parts in factories.

The "Manchester Guardian" had a survey made of the industry of the country a few weeks ago, and in case hon. Members did not see its report, I am going to quote five instances of failure in factories. There was one large factory held up entirely for want of one machine. Another factory was having to cease production because there was no boxes for the goods it produced. In a third factory a conveyor belt was working at one-third of the normal speed because otherwise it would run out of component parts. In a fourth case, 3,000 men were idle in a motor-car factory, because no door hinges were available, and the final instance is of a cement factory which had to halve its exports because there were no paper bags in which to send them. Labour is being wasted in some factories, while it is urgently wanted in others. There are jobs for everyone, but everyone has not got work, and many men are in the wrong job. I believe it is essential to secure continuity of supply to vital production, even at the expense of reducing other production. A friend of mine who is well known to the right hon. Gentleman, and who is the chairman of a great industrial company employing many thousands of men, and making an article for which there is the greatest demand for export, tells me that they are working at part-time; that his men are working only 34 hours a week; that there is a hold up of necessary parts and that production is being entirely held up on that account.

I suggest that that failure of the flow of stocks to the right places has been having a catastrophic effect in holding up production, and that it is due, to some extent, to the financial policy of the Chancellor. There is this tremendous pressure by purchasers which is first dammed up one side and then breaks out on another. As one financial paper put it, the song in the Chancellor's heart is wind on the nation's stomach. Goods are being made which people do not really need. We often buy goods we do not really need because we cannot get what we really do need, and that is a fearful waste. Men are being retained in industry who are not working full time, because of this inflationary situation. The employers knows that rising costs do not really matter, because he can add them on to his prices, and, consequently, he keeps his men on part time and there is a huge concealed unemployment. Men are employed in the wrong industries, in football pools and in all sorts of other activities, when they are urgently needed in agriculture and the manufacturing industries. All this is a product of an inflationary situation.

Finally, we have the insistent demand for higher wages. Higher wages merely mean greater prices, unless they are accompanied by greater production. I do not think it is sufficiently realised that a fight for higher wages, unless accompanied by increased output, is not a fight against the employer, but a fight against the consumer. I suggest that, unless the Chancellor can adopt a financial policy which will act as an astringent and take the water out of the system, he will be forced to adopt a wages policy which might be difficult to get over with the trade unions.

What plans have the Government made in regard to the expenditure of our precious dollars on machinery? It seems to me that it is most unwise to be buying machinery, however good dividends it will pay in years to come, unless it is going to pay dividends immediately. We cannot afford to wait several years for results in our present day position. I understand that we have bought a large quantity of machinery for the cotton trade. It might well be most valuable in years to come—indeed, I think it will—but it is not likely to produce any results for the next year or two, and that is the time that matters to us. The Government should have a clearer plan. Secondly, what is their plan in regard to the disposal of machinery from this country? Last year, we sent out of this country three times as many turbines as we sent out in 1938. In 1945 and 1946, we sent out of this country several times the value of generating plant sent to Russia as in 1938. In 1938, we sent out £44,000 worth; in 1945, £860,000 worth; and, in 1946, £940,000 worth of generating plant. This I believe is one of our crucial bottlenecks which so disastrously interferes with the production of the power stations.

Finally, I want to say a word about the Chancellor's abuse of deflation. If I remember rightly, the right hon. Gentleman referred to certain people in the Press as "baleful Bourbons" who had forgotten nothing and learned nothing. I do not know to whom he referred, but those who have been most prominent in that direction are Lord Brand, Professor Robins, Sir Herbert Henderson and the editor of the "Economist." The first two served the State during the war with such distinction that I think their opinions are entitled to consideration and the third is an important ex-Treasury official. I think it was a little confusing that the Chancellor should have expressed such a poor intellectual opinion of these gentlemen—I think those were his words—when he was making a pretence of adopting just the policy they were recommending. But, on further investigation, I found that there was a rather human explanation of this, because the journal most prominent in urging this policy had also stated that Ministers like the Chancellor, who misled the people, should either be muzzled or removed. I suggest to the Chancellor that there is nothing essentially bad about an inflationary policy or a deflation policy. It is entirely a question of the conditions existing at the time it is applied. A medicine which is good for a man with a temperature of 105, is a bad one when he has a temperature of 95. Before the war, we suffered from the condition that there was a far greater supply of goods than there was demand, and the result was a slump. At the present time, we are suffering from a greater demand than there is supply, and there we have inflation. Before the war, we did not, apparently, know how to arrive at equilibrium. We did not know that, until Lord Keynes published his work on the general theory of unemployment in 1937. It was then left to chance. Now, the Government, unlike any of their predecessors in this country in peace time, have the chance.

I suggest to the Chancellor that he should not advance into totalitarianism in the form of regulation of wages and direction of labour, although I think that might be vitally necessary if something is not done, and would be logical, even though it would be distasteful. Nor, I suggest, should he retreat to laissez faire. There is another pair of trousers he should put on; he should get a clear picture of what total expenditure will be, and what the total resources are, and see that they meet. So far there has been in none of his speeches any clear estimate of 'what total production is to be and what total consumption is to be. By that I mean expenditure by the State, by capitalists on equipment, and by consumers. After all, that is the balance that has to take place. The balancing of the Budget is not a vital matter. What is absolutely necessary is a balance of total production and total consumption. I would like to refer to something that was said by the President of the Board of Trade: Total resources and total needs must automatically balance. If they do not do so in accordance with some plan, then they will by deficience appearing perhaps on the very things of which there is the most vita] need. It seems to me that, at the present time, the Chancellor should be exerting the greatest possible disinflationary pressure. I remember that when Lord Keynes first joined the Bank of England, surprise was expressed that one who had been so critical of that institution should have joined it. His reply was; "Orthodoxy has picked me up." It almost looks to me as though orthodoxy on its move forward had overlooked the Chancellor. The Government have repeatedly stated that the resources are not available for all that they want to do. Has not the time come when they should make up their minds on priorities? If they do not do so, they are indeed abdicating from their responsibilities. I would like to quote a short passage from the "Economist" of 15th February: There is an over-all shortage, and unless drastic steps are taken to establish priorities there may be a general breakdown. But the establishing of priorities involves the cutting down of those programmes that do not get the first priority, and cutting down is unpopular. So everything is allowed to go ahead indiscriminately—nationalisation, social welfare, housing, health, education, industrial reconstruction, exports, and defence The danger is not that the devil will take the hindmost, but that the devil will suddenly swoop and take the lot. That is the point I want to press home. It is not a question of giving up something that we need; it is the case that unless the Government choose which they will give up, all may be lost. Last year the Government were still spending 28 per cent. of total expenditure, which I think is about double the proportion of before the war. I am not sure whether the State can continue indefinitely at that rate and retain its vitality, and even its morality.

In conclusion, I urge upon the Chancellor to put first things first, and to think more than anything else about what financial policy can be adopted so as to increase production, to cut down expenditure by the Government, and to cut down expenditure by the public in any degree that is necessary. I believe the sands are running out. I do not take the alarmist view that we shall be "on the rocks" in a year's time, but I say that at this rate within two years we shall not have the raw materials and food necessary to maintain a decent standard of living in this country. If we do not get right by that time, the future will be a very black one. I do not ask the Government to give up their plans of nationalisation, but I suggest that they defer them both because of the dislocation they cause, and because, I believe, the pace of legislation is in danger of causing a breakdown in the administrative machine. I know that hon. Members opposite can say they have a mandate; they are fond of talking about their mandate; but I suggest that there has been a change in conditions since they got that mandate. A doctor may prescribe a certain treatment for a patient in one condition, but only a lunatic would continue that treatment a year and a half later when the disease had entirely changed. We are in a very different position today from what the electorate in June, 1945, thought we would be in. Unless the Government make a contribution towards bringing about conditions in which production can be expanded, I believe we shall suffer in this country a poverty which we have never before experienced, and one in which the workers in this country will be the first to suffer

5.5 p.m.

Mr. Wilkins (Bristol, South)

My Friend the Member for South Cardiff (Mr. Callaghan) concluded his observations by offering well-deserved congratulations to the Chancellor on his Budget. I think the Chancellor may also take some comfort from the reception given to his proposals by the national Press and by hon. Members on both sides of the Committee. It is not, however, entirely good for my right hon. Friend's health that no one should administer some sort of reprimand to him with regard to some of his proposals. I want to make my protest against what I regard as the most vicious tax which has been inflicted upon a long-suffering public. The imposition of this extraordinary increase in the tax on tobacco has caused consternation in the city, part of which I represent in the House. Perhaps I ought at this moment to disclose my interests. First, I am a very heavy smoker, and secondly, practically the whole of the largest tobacco factories in this country are situated in my constituency, and about 80 per cent. of the employees are domiciled there. I feel that I must make a strong protest on their behalf. I have already received a number of letters expressing concern, if not fear, about possible short-time working as a result of the decline in the demand for tobacco.

I realise, as I believe every hon. Member does, the great necessity for curtailing imports of tobacco from dollar sources. I do not think anyone is under any illusions in that regard. When it is a choice of food or to use a common term—"fags," then I come down on the side of food every time; but, I ask, is the way which the Chancellor has proposed the sensible course? I know that by whatever method a curtailment of demand is achieved, the rich people will get their supplies all right, and it will be the humble people who will suffer in consequence, because money still talks, and it talks in a very loud voice. I have no doubt the Chancellor has considered the possibilities of rationing tobacco. There may be very sounds reasons why it is not a practical proposition, but I fail to understand why tobacco cannot be supplied on personal points in the same way as sweets are supplied. There is more than a 30 per cent. increase in the consumption of tobacco compared with prewar days. Some of us could probably hazard a rather shrewd guess as to how that increase has come about. But it is not all due to women smoking to a far greater extent than they have done in the past I think that life in the Services has led to a considerable increase in tobacco consumption, and I am convinced that the trials inflicted upon the Civil Defence services during the blitzes certainly encouraged a greater consumption of tobacco.

If tobacco were made an issue on personal points, the adult sweet ration could be used, making it clearly an alternative choice, between sweets or tobacco. If this method caused a decline in the consumption of sweets, I think the Minister of Food might be very pleased to use any surplus sugar to help the housewife through with her domestic ration. Whatever method it may be desirable to adopt, I want to protest most strongly against the one suggested, because it is vicious and will discriminate between rich and poor; with it, away goes the Chancellor's so-called equity and justice which he so proudly proclaimed here on Tuesday. Even more objectionable is it to any Socialist because it is a means of rationing by the very method we have always denounced— rationing by restriction.

My final point is this. Other hon. Members have mentioned the extreme penal action which this will inflict upon the old people who are drawing old age pensions. I really cannot accept the view that it is impossible to make provision whereby they could get their bit of tobacco at a cheaper rate. I admit that a system of concessions would have to be watertight, but what is against the issue of vouchers with the pensioner's pension book, enabling him to obtain tobacco at a cheaper rate on surrender of the vouchers? I know that a possible objection is the fear that the coupons or the vouchers will be bartered, but I believe the risk of such a thing happening is infinitesimal. The majority of old age pensioners—I know quite a number, I have a very strong old age pensioners' organisation in my Division—are, I am quite certain, still very fond of their pipe of tobacco and are not likely to surrender any privilege they may get to people who want tobacco on the cheap.

I would therefore ask the Chancellor if he cannot give consideration to the two points I have raised. I am absolutely sure that the people would prefer to have a rationing of the supply or an issue on points to curtail the import of tobacco, at the present price or perhaps a slightly enhanced price, rather than this vile system of rationing by restriction, to which I am most strongly opposed in principle. I ask him to look at this matter again and see whether, between now and the Committee stage of the Finance Bill, lie cannot make some improvements in his proposals which would be more acceptable both to the people in my own city and to the nation at large.

5.14 p.m.

Mr. Norman Bower (Harrow, West)

I was very interested in the remarks of the hon. Member for South Bristol (Mr. Wilkins) on the subject of the increase in the Tobacco Duty, and it appeared to me that what he was really attempting to do was to shift the burden, or part of it, from his own constituency, where they manufacture tobacco, on to the constituencies of certain other hon. Members, perhaps particularly that of the hon. Member for King's Norton (Mr. Blackburn), where I believe they manufacture sweets on a very large scale. I do not know whether that would meet with the approval of the other hon. Members concerned. I do not really know whether the system that he suggested would be practicable or not. I do not know whether it could be easily administered. But I have seen it stated that any direct attempt to restrict the sale of tobacco would lead to the establishment of a large black market and, as the hon. Member knows, a black market always favours people who have got money at the expense of those who have not. I rather doubt, therefore, whether the system he suggested would be preferable to the straight increase in the duty which the Chancellor has proposed.

Now I would like to make a few comments on one or two of the issues raised by the Budget. First, I am bound to say that I welcome wholeheartedly the Chancellor's assurance that we intend to stand absolutely firm against the peril of a return to a policy of deflation, which has had such disastrous consequences in the past, and would undoubtedly have disastrous consequences again in the future. I agree with my right hon. Friend the Member for the Scottish Universities (Sir J. Anderson) that what we have to do is to avoid the twin evils of run-away inflation and uncontrolled deflation. What we require, of course, is the greatest possible measure of stability at a high level of activity, with probably a slight inflationary trend, which we are almost certain to get under such conditions as the hon. Member fox Smethwick (Mr. Gordon-Walker) described yesterday. If I were compelled to choose, I would rather have to deal with the problem of preventing a run-away inflation than with that of arresting an uncontrolled deflation, because on the whole I believe that our technique of dealing with a potential inflationary situation is somewhat more advanced and efficient than anything we have so far evolved for dealing with the results of deflation once that policy has really got under way.

A word or two about the cheap money policy, which has already been thoroughly raked over by a number of other speakers. Up to recently, when the prices of gilt-edged securities have been steadily rising for a long period, the Chancellor claimed that fact as a measure of the confidence felt in the Government by the investing public, or by that section of the public who put their money into Government securities, and a measure also of the high standing of the Government's credit generally. He rather tended to ignore, or skate lightly over, those factors which created an artificial market in gilt-edged securities, as the hon. Member for Chip penham (Mr. Eccles) pointed out yesterday. The fall in the prices of gilt-edged securities consequent on the fuel crisis must, I think, have come as rather a rude shock to the Chancellor, indicating as it did a reversal or semi-reversal of public sentiment in that respect. Whatever he may say about the small volume of selling and the reluctance of jobbers to take stock on to their books, and so on, it cannot be denied that the fall did indicate that such confidence as is felt in the Government is built on somewhat flimsy and shaky foundations, which are liable to be undermined or swept away by a comparatively mild wave of adversity.

By and large, however, it must be confessed that the Chancellor has, during the last 18 months or so, won great victories over the rentiers with, on the whole, great benefit to the national economy. It seems to me that this whole operation may very well be likened to a battle. In that battle the Chancellor has made sweeping gains and has driven the rentiers back into a small corner of the field. This, however, is a very peculiar sort of battle, because the consummation of the Chancellor's victory, and therefore the ultimate success of his whole policy, depends not on exterminating the enemy but rather on keeping him in existence. In fact, he must keep him in existence, because if he presses his adversary too hard, so that he either ceases to save at all or indulges in an orgy of gambling and speculation, in order to obtain higher yields or to live on capital appreciation, well then, while appearing to have won the battle the Chancellor will unquestionably have lost the war, because a wave of uncontrolled inflation will set in which his whole policy will crash in ruins.

Therefore, I would submit that everything in this cheap money policy depends at the present time on knowing just where to stop and consolidate the ground which has been gained. The Chancellor reminds me very much of the man who had a horse, and who in order to save money gave it a little bit less to eat every day in order to see how little it could live on. He was eventually compelled to confess sorrowfully to a friend that he had just got it down to nothing at all, when it died.

Mr. McAdam (Salford, North)

Was it not a camel?

Mr. Bower

It may have been a camel, but I think a horse will do just as well; I only hope that this particular horse, or camel as the case may be, will not succumb to a similiar attack as a result of the insufficiency of diet allowed by the Chancellor. I am sorry, therefore, that he did not lay more emphasis on his speech on the need for consolidation rather than on the need for further advances. If this policy is carried much further the appeal which he made in another part of his speech to the people to save, is likely to fall on deaf ears, despite the undertakings which have been given by the leaders of the National Savings Movement. There is something inconsistent in continually urging people to save while denying them the due reward of their savings. There will undoubtedly come a point beyond which the savers will feel that they are not being given the due reward for their saving.

Now I will say a word about the direct taxation reliefs. I am afraid that I may now say something rather unpopular and may find myself in disagreement with some of my hon. Friends on this side of the Committee as well as hon. Members on the other side. I must protest this year, as I protested last year, against what I consider to be the vote-catching manoeuvres of the Chancellor of the Exchequer in continuing the policy of relieving so many people of the liability to pay direct taxation, instead of making a reduction in the standard rate of tax, while at the same time varying the Profits Tax on companies. Last year, no fewer than two million people were relieved of the liability to pay Income Tax, and this year another 750,000 people will be so relieved. One of the greatest dangers to democracy has always been the tendency of masses of people to vote for expensive reforms which they fondly believe other people will have to pay for. That danger is no less today than it has always been. Since Income Tax was extended, under the exigencies of wartime finance, to cover practically the whole people, even people in the lowest income ranges, those people have gradually become disabused of that idea.

The hon. Member for Accrington (Mr. Scott-Elliot) said yesterday that one thing he had learned was that working people do not like paying Income Tax. Of course they do not. I am prepared to accept that as a fact. Nobody likes paying Income Tax. In my submission the working people would have got used to it, as other people higher up in the scale of income have had to get used to it. Before a realisation that the cost of reforms and of other items of Government expenditure have to be paid for by the community as a whole, and not by a comparatively small class, has had time to sink in, it is once more being largely eradicated from the minds of a very large number of people. What is required is a complete recasting of the rates of taxation in respect of various slices of income, in such a way that there shall be sufficient incentive to people all the way up the scale, while at the same time ensuring that everyone however small his income and however little direct tax he pays, shall be made fully aware of the direct relationship that exists between what he pays in tax and the level of national expenditure as a whole. To relieve so many people from the sphere of direct taxation, at the present time particularly, is a blow at democracy and at personal responsibility, and consequently a blow at the stability of the country, which in these unstable times we should try to preserve at almost any cost.

5.25 p.m.

Mr. Richard Adams (Balham and Tooting)

It is with some diffidence that I follow my hon. Friend the Member for South Cardiff (Mr. Callaghan) and take up some of the points that were made by the right hon. Gentleman who sits for Bournemouth (Mr. Bracken) and represents the City of London. In his dual capacity as controller of the "Financial Times" and as a member of a number of company boards in the City, he is a financial Colossus who sits astride our financial affairs. One feels somewhat like David attacking Goliath in taking up some of the points made by the right hon. Gentleman. Most of the speech of the right hon. Gentleman consisted of bombastic grumbling against the Chancellor, combined with some well thought-out, but meaningless phrases. We heard the cry which he has made so often before about "rigging" the market. If the right hon. Gentleman repeats it often enough, perhaps he will convince his own editor, even if he does not convince himself, of its truth. He made a number of gibes about the cheap money policy, but how many of his friends are glad enough to take advantage of that policy? He called it a poisonous policy but I can only say that many of his friends in the City seem only too glad to take poison, judging by the situation on the Stock Exchange.

Mr. Bracken

If the hon. Member is trying to make something out of what I said, he is singularly unjust. I said that in certain circumstances, cheap money may be a blessing, but that in other circumstances it may be a poison. I have no friends in the City who want to take advantage of this Government.

Mr. Adams

I certainly gathered from the right hon. Gentleman that he implied that the cheap money policy was wrong at the present time. Although it may seem to the right hon. Gentleman to be wrong, there are people in the City who are glad enough that it is being operated. The right hon. Gentleman went on to say that he suspected the Chancellor's reason for the low interest rates. I am sure that the right hon. Gentleman will allow me to wonder why it is that he opposes the low interest rates and why he would ask for those rates to be higher. He condemned, too, the addition of some 8,500 new employees to the Post Office. I think he will agree that the Post Office is a very large organisation. The right hon. Member was very careful to make no mention of those new additions to company boards that were made after July, 1945. I should have thought that, in some degree at any rate, they were helping to inflate the wages and salaries bill.

The right hon. Member also talked about turning the Treasury into a soupkitchen, when he was referring to the Chancellor's remarks about the development areas. I should have thought that what the Chancellor said in that connection was simply wise housekeeping, designed to prevent a situation arising in which a soup-kitchen would become necessary, as it was so often necessary under the administration of the party opposite, in the years before the war. The right hon. Gentleman talked about the increase in the Civil Service and seemed to decry the efforts made by the Chancellor to get the best possible brains by offering high wages. I would like to ask the right hon. Member what he thinks of the policy of his Party before the war for getting the so-called right kind of people into the Foreign Office, for example. Surely he would agree that some improvement upon that system is required if the policy of the Socialist Government is to go through?

The right hon. Member spoke, with some envy, of the desire of some people to go abroad in order to avoid this—as he put it—"paralytic planning." I can only say that if such people as those exist, we are very glad to see them go. If any Members on the Front Bench opposite should try to draw out their money in dollars in order to go, I am sure that the Chancellor would be only too glad to give permission. We should not like to see them go but if they feel that way about things perhaps it would be best. Moreover, as Mr. Henry Wallace said in his broadcast last Sunday, it might be to the advantage of this country if some of the bad ambassadors who have visited America stayed there permanently instead of returning to this country after doing their damnedest to worsen the position of this country in the eyes of the world.

Mr. William Shepherd (Bucklow)

Does the hon. Member mean Professor Laski?

Mr. Adams

The hon. Member knows full well to whom I am referring. I am sure that he would not like me to name some of them.

Mr. Bracken

Why not?

Mr. Adams

I gather, too, the right hon. Gentleman the Member, for Bournemouth objected, in his speech, to high salaries.

Mr. Bracken

I did no such thing.

Mr. Adams

I can assure him that neither Bernard Shaw nor any other good Socialist objects, in principle, to high salaries being paid to the right people. They should be paid to those who know how to do the job—

Lieut.-Commander Gurney Braithwaite (Holderness)

Like Sir Ben Smith?

Mr. Adams

If hon. Members on the benches opposite were able to persuade the people of the country that they bad sufficient brains to manage the affairs of the country they might be returned to power, and they could then make their own appointments. If that happened we would not deny them the right to pay adequate salaries to those in charge of administering the nationalised industries. However, I do not want to spend any more time on the right hon. Gentleman's speech, except to ask him how he manages to describe this Budget as a Budget of stagnation while, at the same time, he says we are being carried along on a continuous spiral of inflation. The two statements do not agree.

I would like now to refer to the witty speech made yesterday by the hon. Member for Flint (Mr. Birch) in which he chided the Chancellor for his allusion to the British boxing champion, Woodcock, in my right hon. Friend's B.B.C. broadcast. I can only say that, so tar, this Debate has produced no Baksi from the other side to punish the Chancellor. My right hon. Friend is still upstanding and smiling, and still, if I dare say so, with a song in his heart. As I understand that the right hon. Gentleman the Member for West Bristol (Mr. Stanley) is to enter the ring in the last round, there is always a chance that an unlucky blow may temporarily increase the cardiac murmur of my right hon. Friend's heart. [Interruption.] I have no doubt those punches will be given in the same courteous manner in which the right hon. Gentleman opposite always delivers his punches, but I am confident that the Chancellor will emerge unscathed, when the final bell goes at 10 o'clock, as the successful champion of yet another Socialist Budget.

I would like to refer now to what I regard as the most serious contribution made to the Debate yesterday from the opposite side of the Committee, namely, that made by that progressive Tory the hon. Member for Orpington (Sir W. Smithers). I thought his contribution made that of the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) seem very much like an essay by a skittish Scottish schoolboy. The hon. Gentleman's reading from his first two volumes seemed to be a serious challenge to that reactionary document which was recently published by the hon. Member for Monmouth (Mr. P. Thorney-croft). I shared his distress when, in his endeavour to find his missing volumes, the hon. Member sat down for a moment and, in your absence, Major Milner, the Temporary-Chairman called on another Member to take his place. I offer the hon. Gentleman this consolation, that if he can find those missing volumes I will do my best to get them serialised in the 600 new Labour weeklies which are shortly to be published, because I am sure they will make interesting reading for many people in the country. I must confess that up to now I have considered it more important to make some reference to the illuminatory remarks made by the right hon. Gentleman the Member for Bournemouth, before coming to the more ordinary study of the Budget itself.

I gained the impression that the Chancellor was manoeuvring in somewhat narrow waters, rather than taking broad sweeps in the wide ocean, and I should like to congratulate him on not going aground, like the "Queen Elizabeth" did recently. If I may briefly summarise my impressions of the Budget, I would say that to the ordinary man the Chancellor gave welcome cuts in Income Tax while, at the same time, giving him the alternative of spending that money on the increased price of tobacco. I must say that I do not regard the proposed duty on tobacco as being very fair. I recognise the need for cutting down dollar expenditure, but I wonder whether the Chancellor has considered the possibility of an internal adjustment by a graduated scale of Purchase Tax? I am quite sure that wealthy industrialists, and Members on the two Front Benches, would willingly pay a high rate of Purchase Tax on their Havana cigars and best Virginia cigarettes, while leaving manual workers and the humble back-benchers free to enjoy their modest "Weights" and "Woodbines" with only a moderate rise in price. I would also like to ask whether the Chancellor has given any consideration to a tax on virtue.

Mr. Bracken

He would not know what it means.

Mr. Adams

As a heavy smoker and moderate drinker myself, I admire the virtuous man who does not smoke or drink, or go in for any other form of entertainment. But surely that virtuous man is not virtuous merely in order to avoid taxation, and I should think that at the present time he might be willing to make a special contribution to the Chancellor. Since he does not indulge in any of these national vices, there might be some kind of poll tax on the virtuous man—

Mr. James Hudson (Ealing, West): Oh!

Mr. Adams

I am coming to my hon. Friend in a moment.

Mr. Hudson

Am I the only one?

Mr. Adams

I suggest that there might be some kind of poll tax and an annual certificate issued somewhat to this effect: "I am a virtuous man. I do not smoke, drink, gamble, or seek low forms of entertainment, and I therefore gladly make this special contribution to the Exchequer." This certificate would be countersigned, "With love and gratitude from the Chan- cellar." The document would be obtained from any post office, like a wireless or dog licence, on payment of the appropriate fee. I am sure that my hon. Friend the Member for West Ealing (Mr. J. Hudson) would gladly pay, say, £20 a year for such a testimonial in these difficult times.

To be more serious, I am sorry the Chancellor did not agree to be more drastic over Death Duties. Many of us on these Benches still await the plan for completely cutting out large estates over two generations. I agree, too, with what my hon. Friend the Member for South Cardiff had to say about food subsidies, and I ask the Chancellor to bear in mind that these subsidies help to redistribute the money available within the present limits. If he once takes off the food subsidies, he will encourage that spiral rise of wages we are all anxious to avoid. I ask him to think again before he is encouraged by anything said on the opposite side about the advisability of taking them off quickly.

I also approve the increased duty on the Stock Exchange plan and company profits; particularly the differential tax on distributed profits, and I hope that, in future years, the Chancellor will take the opportunity of playing up and down on the rates of non-distributed and distributed profits That is one small way in which he will be able to govern the rate of investment. I hope moreover that he will be encouraged, at some later date, to consider the possibility of a distinction between different industries and investments by a differential tax on the profits, according from whence they come. I think the Chancellor himself would agree that it was not difficult to produce a Budget surplus against a background of full employment, high wages and cheap money. I think that he was perfectly right not to go in for a policy of deflation. I think that what we require at the present time is fuller production, 'not unemployment which would result if the suggestions made by hon. Members opposite were adopted.

The Chancellor of the Exchequer, in my view, rightly emphasised that the danger at the present time is external and not internal and I would like to deal with that particular problem of our external position. In the first place, I think we must be extremely tough over the sterling balances which have been mentioned by so many non. Members. I think that we ought to say to those countries to whom we owe this money that we will agree later on to pay scaled-down charges, provided we get suitable current trading arrangements at the present time. I think that America, too, must be told quite clearly that she must be more helpful if she is not to lose her most valuable overseas market.

Again, I would ask the Chancellor if he has thought about national incentives. It is very popular now to talk about incentives. Why should not we have some national targets with incentives for us to attain. Why should not the Chancellor say for example that he will promise to take Is. off Income Tax next year if the national production exceeds X thousand millions. Why should not he undertake to say that cigarettes shall be 20 for is. 6d., if the export target of X million is exceeded by the end of the year, or that Purchase Tax will be cut by X million if the savings target is exceeded? It seems to me that such definite targets as this would be encouraging to the national effort that must be made if this country is to win through. In my view, the Budget is sound enough, but more is needed if the Government are to get the people of this country working together to produce the output which is required if this country is to win through to greater prosperity and better times than we have ever before enjoyed.

5.44 p.m.

Sir Stanley Reed (Aylesbury)

I think that this House is recovering from the shock and surprise of Tuesday, when we listened to the Chancellor's Budget speech without much hope of being in sight of a balanced Budget. We were so surprised that we had not only a balanced Budget, but also a surplus, we lid not quite realise at first what that meant Now we know what this nominal surplus means. I am reminded of an experience of Mr. Arthur Balfour, when he visited Belfast, as Chief Secretary for Ireland. He was presented with a cigar, manufactured from Irish tobacco, whereupon a wit remarked: "This is an illustration of the old adage, 'Never put a gift cigar in the mouth'." I think that a wise Chancellor of the Exchequer would say "Never afflict me with windfalls." With our knowledge of the enterprise with which the sleuth hounds of the Treasury have traced down all these unexpended balances and presented him with these windfalls, I think that he might feel inclined to say, "I fear the Treasury even when they come bringing windfalls." I have experience of windfall Budgets in another land; there is nothing more disruptive and disturbing to organised finance and the prudent administration of a country's financial affairs, than windfalls.

We are now beginning to realise what these windfalls really mean. So far from there being a genuine surplus at the end of the year, arising out of the increased industrial activity of the country and its general prosperity, we are, windfalls apart, faced with a deficit of £20 million. That is a matter which should cause very serious and anxious consideration. It may be quite true that if these windfalls have been treated as a reserve fund, and not carried into revenue, and the surplus produced at the end of the year used for the avoidance or discharge of debt, the the account would remain substantially the same. But this has a psychological as well as a material aspect, and I fear that the psychological effect of this surprising revelation of what looks like a surplus, and is clearly a deficit of £20 million, may distract the attention of this country from the gravity of its present position. It may destroy the incentives for hard work and hard living which we must practise if we are to win back to the state of prosperity which I think we deserve for all the sacrifices which we have made in the past and weaken the wise appeals of the President of the Board of Trade and intermittently of the Chancellor himself.

The Financial Secretary is not here, but perhaps the learned Solicitor-General will convey this to him: Why do we treat war damage, E.P.T. refund and payment of postwar credits as capital charges instead of what they surely are, and that is revenue charges? If these were taken into account, it would reveal a very different position from the glowing picture presented by the Chancellor in his great oration on Tuesday. There may be a good reason for it, but it has never been disclosed, and I think that the Treasury should make it quite clear why this unorthodox finance is pursued in the Budget.

There are two or three general remarks which I should like to make. One is that we all rejoice in the readjustment of the Income Tax to see substantial relief given to the married man with a family. One of the greatest difficulties of those who have had to deal in industry with substantial staffs is to get any sort of equilibrium between the bachelor and the married man with a family. This Budget goes a long way in that direction, and that part of it deserves wholehearted support.

I want to refer to the hint the Chancellor gave about food subsidies. It is quite true that our food subsidies represent one-third of the yield of Income Tax, and if we did not meet these changes in the form of food subsidies we should have to meet them in another direction. There is, however, the international aspect of food subsidies and their reflection on what suppliers abroad think is our cost of living, though it is not the actual cost of living at all. I am now referring to the fictitious prices we are accepting and which are interfering with our commercial relations with food producing countries. Very little attention has been given to that, though I am sure the Parliamentary Secretary to the Ministry of Food is fully cognisant of the fact: we are being exploited today by those to whom we have to look for certain of our essential supplies. For instance, there is a duty of 7d. a pound on the export of tea from Ceylon, and 4 annas in India, which have to be paid by the consumer in this country either directly in the form of Income Tax or concealed through a food subsidy.

In these ways the international situation we are building up conveys a totally false picture of the state of this nation. It is of immense importance that something should be done to reduce the total volume of subsidies as much as possible, though maintaining the subsidies on certain foods such as milk, bread and other essentials which none can do without. This reduction should be sought not so much in the interests of the correct redistribution of the costs, but to disclose to the world the real economic position of this country and the sacrifice we have to make even to retain our present standard of living.

I think that the Chancellor has taken the right step to reduce our dollar expenditure by the increase in the price of tobacco, despite what has been said by the hon. Member for South Bristol (Mr. Wilkins). We should all like to see an alternative method of achieving his aim, either by a points system or by ration- ing, but anybody who gives any attention to this question must be convinced that it would open the door so widely to illegitimate transactions and black market dealing that our last state would be worse than our first. There has been too much sapping of the morale of the nation through avoidance of restrictions, how. ever necessary, that we dare not carry the risk any further. I sincerely hope that the Chancellor will get the result at which he aimed, namely, the reduction of the volume of the purchase of American tobacco.

I should like to say a word about the necessity to reduce the cost to this country of American films. If as a smoker I have to give up a quarter or one half of my tobacco consumption, and indeed may be compelled 'to become a nonsmoker entirely, which heaven forbid, we who do not go to the films are entitled to ask for a proportionate reduction in the expenditure on American films. I do riot go to the films except on very rare occasions, but on those rare occasions I see some of the most appalling garbage that has ever been shown in any part of the world at any time; if we were to cut down the American import of films by one-half it would not keep out one good picture. Those pictures alongside our own admirable pictures, which are improving, would provide adequate entertainment for our people. We are entitled to ask the Chancellor to give this matter his earnest consideration, because he is asking those of us who are smokers to make a very heavy sacrifice.

There is evidence that the international aspect of the Budget has not been fully presented by the Chancellor. We are prepared to make the utmost sacrifies for our stability and our solvency; we are making sacrifices that are very real; but they are concealed under the rather roseate picture which he presented to us. Our international obligations are, I think, the most formidable proposition ever confronting not only this country but any country in recent financial history; the huge sterling balances are my nightmare. This is not my conviction of just today or yesterday; for I stressed it over and over again in the last Parliament and directed my remarks to previous Chancellors and to the Treasury. It is as clear as night follows the day that these enormous balances, which are something like £12,500 million, cannot be paid in full without dragging down that standard of living of our people to a degree which is too horrible to contemplate and international disturbances in character. If we could see daylight at the end of immediate sacrifices we might be prepared to make still further sacrifices, but the end —failure—would be the same. It is quite absurd to suggest that these enormous balances, which are the result of our special efforts in the war, can ever be paid in full by unrequited exports.

It is not an easy question to explain this to the ordinary man in the street, but one hon. Member on the other side of the House gave a very impressive explanation in a recent Debate. I am quoting from memory, but I think the figures I am giving are correctly quoted. He said that the loss of interest consequent on the sale of our Argentine railway holdings was the equivalent of the export of 325 locomotives a year at a cost of £25,000 each locomotive. The argument goes further than that. It is not appreciated yet that the sale of the Argentine railways not only transfers this capital asset to the Argentine Government in discharge of our sterling balances with that country; it is the transfer of a valuable business interest. It used to be said that Leeds lived on materials supplied to the Argentine railways. There was a natural trend by the people who controlled those railways to turn to British industry to supply their needs. That will now end and we shall have to go out into the open market in the face of severe competition to supply the needs of the Argentine railways.

So we come back to these sterling balances, one of the biggest we have ever had to face. I cannot join in the criticism of the Chancellor that he has not taken any definite steps to regularise the situation. He has put out well-informed inquiries in different countries. The Financial Secretary to the Treasury cannot tell us tonight what the results of those inquiries are, but I am quite certain that they are not very cheerful either to him or to his chief. This issue has to be settled in the course of time, but it cannot be settled by unilateral action on our part. It has been suggested that we should scale down these obligations. Such a step by unilateral action would poison our commercial relations with the countries concerned for a generation to come. Such action was once taken by Parliament, under pressure from Lancashire, when an Excise Tax was levied on textiles manufactured in India. The Indians regarded that as an affront, an injustice, as oppressive action which was an attempt to retard their industrial development. That feeling lingers even to this day, although it is some 20 years since the tax was finally removed. Failing agreement—and agreement will be most difficult—I would ask whether an approach cannot be made through the International Monetary Fund or the Bank of International Settlement? It seems to me that if an impartial element were brought into the discussions we might be nearer the solution than we can perceive or obtain by direct negotiation or individual action.

This is a very complex matter. Apart from all other considerations, in some cases these sterling balances represent a substantial part of the reserve against the note issues of the country concerned, and that is a great problem for them as well as for us. I would say this. I do hope that the Chancellor and the Treasury will set their face like flint against the funding of these loans at the present stage on any terms whatsoever. If we look back on the history of our loan from the United States after the last war it was not the acceptance of the loan that baffled us. It was the interest rate. We made enormous sacrifices to meet the interest and in the end we had made no real attack on the loan at all. Until there is a complete adjustment, if we accept an interest obligation, I fear that we shall be very much in the same state in regard to the sterling balances. We shall strain our resources to the utmost to meet our obligations; these will remain substantially as at the beginning. This is one of the great problems we have to face.

People in other parts of the world, therefore, with whom we shall have to negotiate very difficult questions in the years to come should not be left under the impression that a nominal surplus in this Budget is a true reflection of our financial, industrial and economic position today. The true reflection is that with Income Tax and other taxes at a very high rate we have really to face a deficit of £20 million in this year. It is on that picture and not on the roseate prospect the Chancellor visioned which we must face if we are to carry through the grim days which I believe are in store. We can carry through; we will carry through, if the Chancellor and the Treasury acknowledge the position and the Government will give this country a clear and definite lead and not induce the nation to believe it is a time for soft congratulation, and for slacking off. The impression created by the Budget is superficial; the actualities underlying it are those I have sought to present.

6.5 p.m.

Mr. Benn Levy (Eton and Slough)

The Chancellor of the Exchequer has introduced a Budget which in nearly every respect we on this side of the Committee will welcome. If there is one reservation which probably the majority of us would have, it is in respect of the proposal for the Tobacco Duty. This has already been mentioned several times this afternoon. Nobody, of course, would dissent from the proposition that it is essential to spread out the American Loan as long as possible, and, therefore, as thinly as possible, and to save every dollar that is possible. What I am averse from is doing it by making the price of a smoke prohibitive, or nearly prohibitive, to people with the smallest incomes.

I realise that the only practical alternative is some system of rationing and that the practicality of that is very much in dispute. Many systems and proposals have been mooted and they have been riddled. Among others, however, I believe one has been recently canvassed which does get over the twin difficulties of complexity of administration, on the one hand, and a possible black market, on the other. That is a proposal by which the existing sweet coupons shall be made valid also for a supply of tobacco, and that this supply shall be partly in substitute for sweets or may vary up and down in quantity with the choice of the consumer. I believe that that is a practicable proposal and I would ask my right hon. Friend to consider it very carefuly before he adopts this other method, the method of extra taxation. It may indeed have one additional advantage. One of the disabilities of the conditions attaching to the American Loan was, I believe, that we are prevented from discriminating against American tobacco. Here, however, is a method by which, it seems to me, we could legitimately get round that because there is no reason at all why only Virginian tobacco should be liable to this proposed form of rationing. I cannot conceive that any agreement with a foreign country could interfere with our right to internal rationing as we please; so that here might be a means of getting round both difficulties.

When the question of dollar-saving comes up for consideration, the Siamese twin of tobacco is always films, and I was glad to hear, as I came into the Chamber, that the hon. Gentleman the Member for Aylesbury (Sir S. Reed) was having some very forceful things to say on that subject. There is a specific suggestion that I should like to put to the Chancellor which I think might be a very practical and useful way of dealing with the matter. It is a footage tax; that is to say, a tax of, say, £10 a foot, or whatever the figure might be, on every foot of imported film. It would really have a number of advantages, not the least of which is simplicity. It would be a source of revenue—

Mr. Glenvil Hall

I had not intended to interrupt my hon. Friend, but I should like to ask him what about traffic the other way? Might not his proposal adversely affect the export of British films?

Mr. Levy

I will mention that presently. As a matter of fact, that is one of the ways in which this system might be a help rather than a hindrance; but may I come to that in due course? I was about to suggest that this might be, first of all, a source of revenue, secondly, a means of saving dollars, thirdly, a means of weeding out the cheaper films from our cinemas—and it so happens that the more expensive films tend to be, broad and large, also the more efficient films so that there would be no great net loss culturally, if one can use that word, but a net gain —and fourthly, it would create more showing space, more time in our cinemas, for the home product. It would act as a stimulant there and, moreover, it would do so without removing the valuable competition which comes from the better class of imported American films. Finally—and this answers the point put by my right hon. Friend the Financial Secretary to the Treasury—it might even be a means of opening up, or helping to open up, the American market to British films, because it could be linked with a system of rebates bearing a ratio to the British films accepted by the exporting country. I hope that it will be considered seriously as a feasible proposal. Now, Mr. Beaumont, I should like to make my third and, I think, most important suggestion.

I am glad that we have a Chancellor of the Exchequer who does not regard the Budget as an occasion merely for annual financial accountancy, but also as an instrument of social policy and of economic planning. But there is one large hiatus in our economic planning which still remains to be filled—it is the most important and urgent of all—and that is the problem of what is called "maldistribution." Hon. Members opposite are fond of reminding us of the value of incentives, and for them that word not unusually connotes merely the possibility of bigger profits and lower direct taxation. I will not dispute that it is arguable that these two things can produce an overall stimulation, but an overall stimulation is just precisely what is not needed at this moment. What is needed now is not an indiscriminate stimulation but a particularised stimulation—a stimulation here, and a discouragement there. It is quite useless to introduce measures designed to attract labour and capital to industries which lack the materials and the wherewithall to work and which, even if they did not lack them, are not desirable or essential industries anyway.

I suggest that the proper solution is a differentiating Profits Tax. The present Resolution proposed by my right hon. Friend is merely a revenue-raising device and is not a planning device. I put it to him that if it were a planning device it would also be a better revenue-raising device; because at present he has had to pitch it at so low a rate and so modest a scale in order to avoid injuring the vital industries. But if it were a differential tax, it would be possible for him to raise the rates far above the proposed 5 per cent. and 12½ per cent. respectively. It would be possible for him to net far more than the £20 million for a full year, for which he is budgeting. Indeed, it would probably be possible for him to make good the loss he would make on his tobacco tax if, as I hope, he should decide to abandon it in response to the blandishments from this side of the Committee. There are numbers of inessential or less essential industries which are making vast profits at the present time. I do not want to weary the Committee with a lot of figures but let me give a few examples recently published; Belle Vue, Manchester, 54. per cent.; Thomas De La Rue, 80 per cent.; 0. & M. Kleeman, 115 per cent.; Woolworths, 130 per cent.; Wembley Stadium, 199 per cent.; and West Ham Stadium, 285 per cent.

Mr. Bracken

What is the capital involved?

Mr. Levy

Under the proposed scheme of the Chancellor of the Exchequer 285 per cent. made by West Ham Stadium will be reduced to 250 per cent. I appreciate that hon. Members opposite may have their hearts wrung at this possibility but I am sorry to say that, although I admire these humane emotions, I cannot share them. Indeed, I should regard with complete and stony impassivity the limiting of the profits of Wembley Stadium even to 10 per cent. I go farther. I should like to see a uniform ceiling of 10 per cent. on distributed profits; and on undistributed profits a tax exemption varying from 100 per cent. to nil per cent. in accordance with the needs of the industry concerned and also with the essential and inessential nature of the industry concerned. This is what my hon. Friend the Member for Smethwick (Mr. Gordon-Walker) yesterday described as a profits policy. It has all the advantages of a wages policy and a good few more besides. A wages policy, as we know, is very dear to many hon. Members opposite and for that reason I confidently look forward to considerable support if not unanimous support from them in my advocacy of a profits policy. It is a means of raising revenue. It is a method of stimulating vital industries and discouraging inessential ones. It is a very valuable weapon against what my right hon. Friend has called inflationary pressure. And it may be a more practicable alternative to a wages policy. Even if a wages policy should still be necessary, then—let there be no mistake about it—the establishment of a profits policy is the indispensable condition upon which, the only condition upon which the workers would dream of accepting a wages policy: and they would be right. Hon. Members opposite, with their well-known passion for equality, may object on strictly egalitarian grounds. If they do, I can only remind them that the present distribution of profits is not uniform and not equal. It is, therefore, surely the part of patriotism for them to support me in urging that such inequalities as there may be in the future shall be harnessed to the national interest, instead of remaining arbitrary and haphazard.

This principle of differential taxation is no novelty. Differentiation exists between earned and unearned income. The Purchase Tax is a differential tax. Import taxes are differential taxes. And I am firmly persuaded that sooner or later we shall have to extend this principle and ex-tend it widely. For it is the inevitable corollary of a policy of full employment. There are attractive jobs and there are dirty jobs; there are popular jobs and unpopular jobs. And I should like to see the introduction of marked tax allowances in respect of unpopular jobs: for example, exemption from P.A.Y.E. for the mining industry, for the agricultural industry, and for other essential industries which it is necessary to stimulate. I urge my right hon. Friend therefore, seriously to consider some radical measures of differential taxation and without waiting for another vital year to go by.

6.20 p.m.

Lieut.-Colonel Sir Thomas Moore (Ayr Burghs)

I do not propose to follow the hon. Member for Eton and Slough (Mr. Levy) in his attractively phrased speech, nor do I intend to follow practically any of the arguments that have been used so far from the opposite benches, except perhaps that I think I should congratulate the Chancellor on the present unanimity of his well-drilled supporters and the ingenuity with which they have translated his arguments into their own language. There has, of course, been one point of difference, and that is this savage increase in the Tobacco Tax. I cannot understand the attitude of the Chancellor. He must know that it is intensely unpopular, he must know that it is the last anodyne in our dreary lives, he must know that it is a method of tax of class distinction such as no Tory would ever have undertaken because, undoubtedly, it is the rich who will be able to go on buying tobacco and cigarettes, and it is the poor who will have to go without them. It is the worst blow to the working classes, and especially to the old age pensioners, that any Chancellor has dealt in my lifetime. Why did he evade the issue of the cinema raised by the hon. Gentleman—why did he ignore the import of films from America—and a tax on the "tote," so simple to work? It seems to me that the Chancellor has avoided several most useful sources of taxation, and almost deliberately chosen the one which will hurt hardest those who can bear it least.

On Tuesday, after listening to those long three hours—[HON. MEMBERS; "Oh!"]—three long hours, to put it more grammatically, of the Chancellor's speech, I confess I marvelled at the patient endurance of his audience, but I marvelled still more at the efficacy and potency of the cordial which so admirably sustained him. Then I listened again to his broadcast later in the evening and I wondered just why it had taken three hours in the afternoon to deliver a speech which he had been able to concentrate into 15 minutes in the evening. Apart from digressions on both occasions into purely party propaganda, there was little to stir the imagination, to stimulate the enterprise, or to raise the hearts of our people. Of course he got cheers; he got cheers from the thoughtless and inexperienced, which no doubt was all he expected. Why did he get them? He got them under two headings: first, by referring to the £292 million that he tried to show had been achieved by a Socialist Administration, conveniently ignoring the fact that it was a windfall and due, possibly, to bad forecasting last year and the year before. The second reason why he got his cheers was because of his rhapsodies over the social services and, as we all know, every social service piece of legislation passed by this Government was introduced in the form of a White Paper under the Coalition, but yet the Chancellor, quite improperly in my opinion, sought the credit for that.

Dr. Morgan (Rochdale)

Passed by the T. U. C.

Sir T. Moore

There was one phrase, however, that did linger in my mind when he was referring to the speech he had made at Swansea. He ended the sentence by what I thought was a most accurate description of our economic position. He said, "We must export or expire."

What I want to know is what has he or the Government done to prevent us from expiring? That I shall examine in my few remarks. He has increased the Prime Minister's salary to £104,000 a year. [HON. MEMBERS: "Cheap."] My right hon. Friend the Member for the Scottish Universities (Sir J. Anderson) put the case very fairly yesterday when he said that no one man who works hard should be selected for specific and special treatment. The Chancellor, and again the President of the Board of Trade, has exhorted the workers to work harder and has warned all of us to tighten our belts a little more. This, mark you, after six years of hard and dangerous living, and after being offered a life of ease and plenty once we had selected and elected a Socialist Government. But I had almost forgotten: they have also set up a superplanning committee presided over by a well paid super-planner. That is all. But it must have occurred to every hon. Member here, will this committee of superplanners get us more coal? Will they produce more goods? Will they inspire our people to face the further hard lot that seems inevitably to lie in front of them? I believe that the House and the country have their answer to that. Indeed the present situation of this unhappy country of ours—and I cannot share the optimistic outlook submitted by many hon. Members—

Dr. Morgan

A Jeremiah.

Sir T. Moore

No, I am trying to be a realist, which many hon. Gentlemen opposite deliberately avoid being, closing their eyes to the truth because they are frightened. Now to get on with my speech—

Mr. McAdam

The hon. and gallant Gentleman is frightened about his dwindling majority.

Sir T. Moore

The present situation of our unhappy country affords a tragic commentary on our immediate past achievements. I think it is advisable to put the background of this Budget, because it is the background not of the last few months, but of the last few years. This was the first Budget in which the Chancellor had a great opportunity to raise and elevate and exhilarate the people and the industry of this country. He has failed, and I think we should therefore consider the background. The background is that when we went into this last war we did it for a principle and an ideal, not because we were attacked, but because we believed that every nation and individual should be free to live, work, play and pray, including ourselves—I want to emphasise that—provided they did not harm a neighbour. What is the result today? Our lives are controlled, our work is directed, our play is circumscribed. The only thing we have left to do is to pray, and we shall have to do a lot of that while this Government lasts.

Mr. McAllister (Rutherglen)

How do you spell "pray"?

Sir T. Moore

When we emerged from the war, battered and bruised, we had the comfort and consolation that we had saved ourselves by our efforts and the world by our example. Therefore, we had some right to look forward and face the future with a sense of encouragement and a sense of something good to come. We were looking forward to this Budget, the first clear Budget that the Chancellor had to declare, based on trade and exports and imports that have been running for the last 12 months. We were apparently the leaders of Europe, of all free nations, and we were gladly acknowledged as such. Then we had the midsummer night's madness when we changed our national leadership and thereby, at the same time, lost our world leadership. The world was quick to recognise that fact, and they did. It remembered that old proverb we hear so often nowadays, that a country gets the government it deserves. And so they said, "It is true Britain is finished. The effort was too much. Let us get to the pickings."

The trouble about losing that national leadership is that ever since our domestic affairs, whether financial, economic or even spiritual, have steadily deteriorated, and our foreign affairs as well. I ask the question, What are we to do now if we are to be saved? The chief responsibility for this saving process rests undoubtedly on the Chancellor and the President of the Board of Trade. I think everyone will agree that it is on our financial solvency and productive capacity that our emergence from possible bankruptcy depends. The Chancellor offers us cheaper and still cheaper money. [HON. MEMBERS: "No."] If hon. Members read his speech in HANSARD, they will see what he said on Tuesday. Everyone realises the value of that policy, but it must not be carried to extreme or absurd lengths. I submit that is what the Chancellor is doing. In his activities over the past year and in this Budget, he has simply destroyed the interest of the investing public in the gilt-edged market, and left himself to rely on Government Departments such as the Post Office, banks and insurance companies to take up the slack on his loans. I am neither a financier, nor an economist, but it seems to me that if we reduce interest rates, we therefore reduce the income of the investor, and thereby his capacity to fortify the Revenue. That seems ordinary commonsense, but I will leave the question to the more ardent students of economy.

Mr. Hector Hughes (Aberdeen, North)

Before the hon. and gallant Gentleman leaves that point, can he refer to any specific statement of the Chancellor's speech justifying what he has just said about cheap money?

Sir T. Moore

The hon. and learned Gentleman cannot have been present. There is a whole paragraph devoted to it in the White Paper, which, no doubt, the hon. and learned Gentleman has read.

Sir William Darling (Edinburgh, South)

Column 61.

Sir T. Moore

Column 61, thank you very much. As I am fully aware that there are many other hon. Members who want to take part in the Debate, I am not going to be carried off my arguments by this species of red herring.

Mr. Hector Hughes

rose—

The Deputy-Chairman (Mr. Hubert Beaumont)

We cannot have two hon. Members on their feet at the same time. Unless the hon. and gallant Gentleman gives way, the hon. and learned Member cannot interrupt.

Sir T. Moore

The hon. and gallant Gentleman is not going to give way. The Chancellor offers us cheap money. What does the President of the Board of Trade offer? He offers little or nothing, except hope, and, as I said a few minutes ago, prayer. Unfortunately both these doctrinaire Ministers—and I am now coming to two points I want to make before I sit down—[HON. MEMBERS: "Hear, hear"]—I will make them briefly, but if hon. Members make further interjec- tions it will take longer. These two Ministers regard the average citizen merely as a productive unit, and not as a human individual. Therefore, to them the problem of production is simple; so many units will work so many hours, and the result will be so much x production, whether it is tons of coal, yards of cotton or motorcars. Unfortunately, it does not work out that way. I had an example of how it works given me by a miner friend some time ago who said he never thought of going down the pit after Thursday night, because the shifts he worked on Friday and Saturday brought him within the sinister scope of P.A.Y.E., and the few shillings he would get would not make the work worth while.

I suggest that the whole problem should be approached from a psychological angle, and not from the angle of the unit system of production. Two factors are involved: the wage earner, the man, and the wage spender, the wife. Ministers should remember that these two are human beings and, like all human beings, want reward for effort. That is the one thing hon. Members opposite are always frightened of facing, that everyone who does anything does it for some reason. The reward may not be the kind of reward they would seek, or that we would approve, but there must be some incentive, love, hate, fear, greed or, possibly, the lesser motives of more comfort for one's wife and more opportunity for one's children. Any of these may be the incentive, bin the inducement or incentive must be there. I think the greatest inducement for the wage earner is a full wage packet at the end of the week. That means substantially altering the incidence of P.A Y.E. I think the Chancellor has done something in this connection—[HON. MEMBERS: "Hear, hear"]—I agree he has done something quite substantial, but he has to do something more. I am speaking now for myself only, but I think that for the next few years it would pay the country to eliminate all taxation on incomes under £400 a year.

Mr. Allpass

How would the hon. and gallant Gentleman make it up?

Sir T. Moore

I am coming to that. I think the worker cares little how he spends his pay packet, provided it is intact and the choice of spending is left with him. The Chancellor, if he faces that fact, will also have to face the fact of how he is to make good the income he will be losing. Many hon. Members have made suggestions, and, of course, the loss must be made good. It could be made good through indirect taxation. I am quite convinced that the ordinary wage earner is quite willing to bear the burden of indirect taxation, provided the choice as to what he spends his money on is free to him. Then we come to the wage spender, the wife. I am sure hon. Lady Members opposite will agree that the average wife has little incentive to work herself, or to encourage her man to work extra hours today; the benefit is so little, and the shops are so empty.

So we come back to the President of the Board of Trade. He must give an incentive, and the only encouragement is to put more exciting, attractive, and more essential goods in the shops, pretty clothes, fine silk stockings, curtains, towels, pots and pans—those are all the things the woman wants. For all these an increased pay packet will be necessary. Therefore, the wage spender will see that that pay packet increase is forthcoming. Of course, the President of the Board of Trade may say, "What about my export trade, and the essential hard currency?" It is "so hard to come by," as the Chancellor said the other day. I believe that the President of the Board of Trade need not worry. Given these two essential requirements to production —a full purse with which to buy and full shops from which to buy—production and increasing production will follow. I feel that if these suggestions were adopted, our economic and financial position would rapidly right itself, and, far more important, would right itself with the cooperation, good will and growing contentment of our people.

6.41 p.m.

Mrs. Ridealgh (Ilford, North)

I would like to congratulate the Chancellor on continuing his policy of relieving the lower incomes as against the higher ones. In view of so much that has been said on the question of reducing the food subsidies, I would like to thank him for his assurance that he has no immediate intention of reducing the cost-of-living subsidies. There must be some limit to these subsidies both in time and in the amount of subsidies which are to be paid out. I accept the fact that there cannot be any further in- crease in the subsidies, but I would urge that there should be no reduction in them. Until prices go down they must remain on their present basis. That means that the Chancellor will be putting first things first. He will be seeing that the capacity of the people to pay for the commodities they need provides a decent standard of living.

I regret, just as the whole Co-operative movement regrets, that the Chancellor has not approached the question of Purchase Tax with the same attitude of mind as that in which he has approached the levelling down of income. Equivalent policy in this matter would have been to remove Purchase Tax from household necessities and, if necessary, to increase the tax on what we should call luxury articles. That has not been done. I might be asked what determines a luxury article. I would say that when an article is, by its price, without the tax, put beyond the reach of the average income-earner, then it is in the luxury class. But if it is in price, without the tax, within the reach of the small income groups, it is most unjustifiable that that article should be subject to Purchase Tax. The Co-operative movement, which supplies at least half of the consumers in this country with a variety of domestic needs, has consistently urged the reduction and removal of Purchase Tax on necessities, and on behalf of consumers, the movement will continue to do so. We consider it to be quite unjust that revenue should be raised by a tax on such articles i4 discriminates most unfairly against the lower income groups. We submitted to the Chancellor a list of articles which we considered necessary articles. Most of our suggestions related to articles which have not been accepted as worthy of a reduction of Purchase Tax. The hon. and gallant Member for Ayr Burghs (Sir T. Moore) mentioned some of those articles. I go all the way with him when he asks that enamel hollow-ware, such as coal scuttles and hollow-ware made of steel and aluminium, comprising goods not used in the preparation of food or drink, should be removed completely from the scope of Purchase Tax. At the moment it is levied on them at the 16⅔ per cent. rate. Household goods like clothes props and posts, copper lids, curtain rods, and numerous articles like that of every day use should be removed from the scope of Purchase Tax.

I welcome the reduction of the tax on certain sports goods, because that, coupled with the handing over of property for the purpose of providing hostels to be administered by the Youth Hostels Association, is an important concession to our Youth Movement. I am sure that our Youth Movement in various parts of the country will be exceedingly grateful to the Chancellor for this generous concession. It is, however, regrettable, that little has been proposed by way of removing Purchase Tax from the wide range of household goods which one would regard as real necessities. There are two classes of people who will be particularly hard hit by the continuance of Purchase Tax on these articles. The first class will be those living in areas that were depressed before the war. At that time, they were living on a very low standard of life, and were unable, at any time, to have a reserve stock of cutlery or household goods. They are now compelled to purchase these articles because they simply had no stock. That means that they are being severely penalised by the Purchase Tax which has to be paid on those particular articles. The second class of people who will be hardly hit are the young "newly-weds ", those setting up home for the first time. Not only are they finding difficulty in getting a house, or else are having to pay inflated prices for houses; they are also faced with Purchase Tax on a big range of commodities which are absolutely necessary for running the home.

I regard it as an imposition that Purchase Tax on electric and gas apparatus should be restored. I consider that a retrograde step. While I fully recognise the necessity for restriction on the consumption of fuel, I do not agree that the way to achieve it is by attempting to restrict consumption by raising prices to an extent which may put these articles beyond the reach of the very people who most need them, while those to whom they merely mean an additional luxury, will not be prevented from buying them. They will continue to buy these articles without being unduly affected by the tax. Working-class households do not instal electric cookers, unless there is a real necessity. It is just possible that the continued use of out-of-date equipment might use more rather than less fuel at the present time. I understand that during the war the Minister of Fuel and Power had some control over the installation of this type of equipment. I suggest that similar methods could be used now, in- stead of raising prices by the addition of Purchase Tax.

Ministers have paid great tributes to the way in which the women carried on with their jobs during the war, and to the splendid spirit with which they are facing up to the problems of peace. Women today are looking for more than lip service. They think it is time that there should be some real appreciation of what they have done. They want some tangible recognition. The only item in the Budget that directly affects the housewife is being altered to her detriment. It may not be the case in the better-off homes, out certainly in working-class homes the housewife usually has to provide her equipment from her housekeeping money. If she wants to lighten her work by the use of these goods, she is penalised if she does so. I ask the Chancellor to think the matter over, and to pay a material tribute to the housewives of Britain.

In regard to Stamp Duties, the Budget proposes an increase for the conveyance and transfer of properties exceeding £1,500. I am sure that the Chancellor is fully aware of the tragic need for houses. Many people in this country are realising that they will have to wait for a few years before they can get a council house and instead they are trying to buy a house. Many of these people are being driven to pay exorbitant amounts for houses in order to get out of their misery. We know that a house which, prior to the war, cost between £600 and £900, now costs anything in the region of £2,000, up to £2,800. Those are the amounts people are paying for small houses. The result is that our young men and women are paying their last penny in a deposit on a house such as this. They are paying their gratuity and all the savings they have left, after spending money on furniture and necessary domestic needs on which they have to pay Purchase Tax. The State should not be making money out of their tragic need. I ask the Minister to raise the limit of £1,500 to £2,500 with a sliding scale to £2,950 for small houses. I put in that proviso of small houses to safeguard the position. I ask for this reduction so that the added Stamp Duty will not act as the final straw which breaks the camel's back. I agree that if the Chancellor is to accept some of these reductions he will need to find revenue in some other way. The suggestion has been made already that we might increase the Stamp Duty on bonus issues. I suggest that it would not be too much to increase the rate to 25 per cent. from 10 per cent. There would be no real hardship. These bonus issues are something which the recipients could not legitimately expect. I hope that the Chancellor of the Exchequer will consider my remarks and endeavour to give the British housewife a square deal.

6.53 p.m.

Sir William Darling (Edinburgh, South)

Hon. Members will have followed with very much interest the observations made by the hon. Lady the Member for North Ilford (Mrs. Ridealgh). It must be disappointing to the Chancellor of the Exchequer to know that such a loyal, longsuffering, faithful supporter has been compelled to make the speech which she has just delivered. She has said, very movingly, what we all know to be true. The housewives of this country are disgusted with this Government and their policy. I read the Chancellor's speech, which seemed rather longer than necessary, and I could not seriously believe that this was the third Budget of the longdreamed of Socialist Goverment. I have read the Chancellor's book on finance. I could not believe that he has not got some other source of guidance and direction. Therefore, I fell back, literally fell back, upon a pink document. It is entitled "Four T.U.C. Documents Approved by the Blackpool Congress of 1945." This important document seems to me quite at variance with the Chancellor's speech and, indeed, at variance with his policy. I find myself in ready agreement with much that it contains.

This document lays down principles which I cannot discover that the Chancellor has begun to follow. The Committee will indulge me by permitting me to read a few lines: Taxation has never been regarded solely as a means of raising sufficient money to cover the indispensable cost of government. It is one of the main instruments by which the Government influences, in one way or another, the economic activity of the nation. Further it says that, in the distribution of the national income, taxation can be used to promote productive efficiency by the effect it can have on incentives to enterprise. When the recent Economic White Paper was published I regretted to find that the word "incentive" appeared only once. If it appeared only once there, it appeared not at all in the Chancellor's Budget. This is a no-incentive Budget. It is a Budget couched in the terms of the most profound depression. It is a Budget which is reflected in the same way not alone by the hon. Lady the Member for North Ilford but by the whole country.

What does this Budget give us, to be quite precise and accurate? It gives relief to 750,000 people in Income Tax. It gives us something off sports goods. Oxford and Cambridge will be able to get their oars a little cheaper, and the tennis clubs their balls and rackets. That is the incentive which the Chancellor gives. It gives us something off the cost of our domestic china—both kitchen and bedroom ware, I understand. It gives—and I think this is a most nauseating offer—it gives to the women of this country the magnificent rebate of Purchase Tax upon non-existent silk stockings. I hope that the hon. Lady the Member for North Ilford will tell the members of the Co-operative Guild what the Chancellor has done for them. Is there any hon. Lady in this Chamber who can tell me or lead me to where one can buy a pair of silk stockings in the County of London?

If ever a shameful fraud was practised on the women of this country it was to offer them tax off goods which they cannot buy. It was as if I had said I would remove the tax on orchids. It is a depressing Budget, deficient in incentives, which makes it impossible for us to provide the anodyne which some get in the consumption of tobacco. What kind of Budget would the people of the country want? I do not refer to the people on these Benches, but to the constituents of the hon. Lady the Member for North Ilford and the hon. Lady the Member for Black-burn (Mrs. Castle). They would have wanted an incentive Budget which would take their minds off the grim realities of the daily situation. They would have wanted some encouragement and so, too, would the industrialists of the country. First, the country would have wanted an encouragement to produce. Has the Committee considered the absurdity of the present system whereby the last hour, or the last day, of work which calls for the greatest output of energy is the one upon which taxation falls most heavily? If I work for five days, I get a normal pay which is fairly free from taxation, but in connection with the extra one or two days' work which is wanted from me, upon that period of extra exertion, the heaviest taxation falls. I put it to the Chancellor that an ad valorem tax of 6d. on the first £ and 6d. on the tenth £ would be more productive. At the moment the inducements and incentives are all negative. If that is true of production from the wage earner's point of view, it is also true of production from the point of view of the manufacturer and distributor. The more we earn the more we pay. The more we exert ourselves the more it costs us. That is the Budget policy of the Government which wants to encourage production and export. Surely, there never was a stranger association of object and means?

Again, this Budget without incentives is very faulty in that there is no inducement to save. The only inducement to save is the employment of a large number of well-intentioned persons to mouth the watchwords and slogans of the Chancellor in constituencies throughout the country. I have taken my share. But what is our reward? When we first sought to encourage savings, we could say with truth that it was in the national interest, and the nation recognised it. We were able to offer a return of 3½ per cent. It fell to three per cent. Now the Chancellor of the Exchequer, who needs savings more than any other Chancellor in human history, tells us that the reward of abstinence is two per cent. or at best 2½ per cent.

I agree with what was said yesterday, that it would be well for the Government to consider a level of saving on which there might be an uneconomic rate of interest. I am prepared to say that for the first £500 anybody can save, he should be paid five per cent. free of tax, four per cent. for the next £500, and so on up to £5,000, which would attract people to save. Two and a half per cent. may please the banks and satisfy the insurance companies and the great investment institutions, but are the working men and women going to impose economies on themselves in order to secure £2 10s. per cent. per annum? No. If we believe savings are worth having, we should provide an incentive, and a generous incentive. I am not asking for five per cent. for persons of substance who have accumulated large sums of money, but the savings movement is entitled to something more than lip service and a few slogans and posters. These are not the methods to encourage men and women to lay the foundation of their fortune by saving in the interests of the State. The present figure is a shameful and shameless figure. If the Government want to look upon a happy, healthy, thriving savings movement, they must look again before filially deciding the figure.

I would like to see many other incentives. I would like an incentive to export. What encouragement is being given? I am engaged in the export trade. The difficulties I meet when I want to send representatives overseas are piled one on top of the other, and one would almost think I was engaged in criminal enterprises in seeking to export. Yet, the Chancellor says, "Export or expire." What inducement has this Budget of no incentives offered to the producer who seeks a market overseas? I know of none and I defy the Financial Secretary to point out an inducement to export rather than to cultivate the easier home trade. What inducement does the Budget offer to our friends in the Dominions and Colonies? Previous Budgets were used as instruments of policy by means of which we said to our friends, "Come and trade with us and have advantages," but this Budget is naked of any such policy. We are treating the whole world as if it were the United States. We are being no friendlier to the Dominions and Colonies than to the hard currency countries. A Budget of this character should recognise the difference between hard and soft currencies, and offer large inducements to the soft currency countries to trade with us. That would be using the Budget as an instrument of Imperial policy.

This might have been a Budget of encouragement and incentive, but neither is the wealthy man who receives 6d. in the pound for his efforts encouraged to produce or expand his business, nor are the poor encouraged, because they are told that they are to have less and less and to have to pay more and more for less and less. This was a Budget on which the people of this country had rightly set high hopes. Even those who study the intentions of the Socialist movement had high hopes. The Government had a great and unique opportunity to display Socialist statesmanship at home, but they have failed to supply incentive and have bitterly disappointed the country.

7.5 p.m.

Mr. Norman Smith (Nottingham, South)

We have had from the hon. Member for South Edinburgh (Sir W. Darling) a most interesting variant on the plea for dearer money opened on 10th March by the right hon. Member for Aldershot (Mr. Lyttelton), renewed the following day by the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson), and echoed by one hon. Member of this Committee after another in the last day or two. I can assure the hon. Member for South Edinburgh that whatever happens on his side of the Border, in England the working class are not looking for four or five per cent. Ever since I can remember they have been accustomed to 2½ per cent. in the Post Office or a little more in the Co-op. I want to explain to the hon. and gallant Member for Ayr Burghs (Sir T. Moore) very patiently and clearly just why we value the cheap money policy which we enjoy thanks to the Chancellor of the Exchequer. This afternoon the right hon. Member for Bournemouth (Mr. Bracken) mentioned very tentatively three per cent. If the interest on the local authorities' housing schemes went up from 2½ to 3 per cent., on a £1,300 house, the rent would be 2s. 6d. a week more, merely to satisfy the moneylender. Every vote for a Conservative is a vote for a half-crown on the rent of council houses. That is one reason why a Conservative Government in this country is absolutely impracticable within any predictable period of time.

There is another reason why a Conservative or even a Coalition Government in this country is impracticable within any predictable period of time. We have had plea after plea from the Opposition that the food subsidies should be reduced. I believe that the right hon. Gentleman the Member for the Scottish Universities was the first important speaker from that side to raise this question in March. What would be the effect? Every trade union in the country would proceed to put in demands for higher wages. We should have a spate of strikes and lockouts and for that reason likewise, either a Conservative or a Coalition Government is totally impracticable within any predictable period of time.

Mr. Nigel Birch (Flint)

As I read what the Chancellor of the Exchequer said, he is quite certainly going to reduce the food subsidies.

Mr. Smith

I will put the hon. Member right. It will be within the recollection of the Committee, and it is on record in the OFFICIAL REPORT. My right hon. Friend made it clear that it was from the figure of £425 million, that he would have to look into the subsidies. He used the words, "so far"—so far as £425 million per annum. I hope that my right hon. Friend will keep the retail cost of living subsidies at not less than that figure, for this reason. It is quite wrong and a total superstitution that Budgets ought to be balanced. Budgets ought not in normal circumstances to be balanced. I hope this is the last balanced Budget we shall have in my lifetime. [An HON. MEMBER: "It probably will be.''] There may be some excuse for balancing a Budget at the present time, but we have heard a lot of talk about the little game of musical chairs—£7,000 million of purchasing power chasing £6,000 million of goods in the shops, an apparent surplus of £1,000 million of purchasing power. There is a great deal to be said on the other side. If I remember rightly, the net capital formation last year was £710 million, and to the extent that undistributed profit or money invested out of income is used for the purpose of renewing, modernising, replacing, or adding to capital, that is downright deflation.

We have heard a lot à propos the Profits Tax. It is differentiated in favour of companies which do not distribute their profits. But, just as wages are a cost of production, so are profits; and just as wages are reflected in the prices of commodities, so are profits. To the extent that profits are paid out, they are circulating in the consumers' market. Either by withholding profits or by attracting people to subscribe to companies out of income, we get deflation. I say that the programme for the current year is a deflationary one. There is a surplus of £270 million, plus new capital formation of not less than £710 million—probably more— under the influence of this Profits Tax collection. That is £980 million of deflation straightaway, quite apart from any sort of savings campaign. It is wrong to balance a Budget for that reason. The whole idea of financing out of revenue or withholding profits is in itself deflationary. For that reason it is wrong to balance Budgets.

There are two ways to unbalance the Budget. The first way, as my right hon. Friend is doing, is by means of food subsidies. Excellent! A second and even better way would be either to increase the benefits under the social security scheme or to decrease the contributions. We should do one or other, or adopt all three methods. But, to my mind, the right way to do it would not be to leave it to the discretion of the Treasury. If I had my way there would be an independent statistical department charged with the duty of ascertaining the extent to which deflation takes place in this and other ways. That is the right way to do this thing. Let us forget this nonsense about the balanced Budget. So far, the food subsidies have not been financed by the taxpayer, because, up to the present time, the Budget has not been balanced. These subsidies are being provided by short-term loans at 10s. or 12s. 6d. per cent. per annum. When we get out of the present inflationary potential, as we shall within the next 12 months, then the Chancellor will have to consider the question of the floating debt of £7,000 million, which is a burden on the country, and which can quite properly be very gently, quietly and unostentatiously wiped off. I believe that that hon. Member for Flint (Mr. Birch) yesterday used the word "euthanasia"; I would apply that to the floating debt.

The right hon. Member for Bournemouth may laugh, but I would remind him that nobody parted with any money in the loaning of that floating debt because banks create money out of nothing when they lend to my right hon. Friend at 10s. or 12s. 6d. per annum. Is he prepared to have this millstone round our necks until future generations choose to rectify the position? I seriously suggest (a) that within a year we shall be out of the inflationary potential, and (b) the time will then have come to reconsider this floating debt. The money attracted in savings campaigns is a different thing. That debt must be honoured.

I would like to refer briefly to the question of the Tobacco Duty. I take the right hon. Gentleman at his word. I believe that we must reduce dollar purchases. I happen to be a non-smoker. I gave up smoking 21 years ago. It has been better for my health, but not for my pocket, because I found that, although I gave up smoking, I got more enjoyment out of wine. Giving up smoking was excellent for my health, but prejudicial to my pocket. We have got to show the Americans that we are prepared to make a tremendous effort to do without their stuff. I know that my constituents will not like the Tobacco Duty, but I shall tell them that their quarrel is not with my right hon. Friend. If anything, their quarrel is with the present Leader of the Opposition who, when in 1942 he arranged with the late President Roosevelt the extent to which everybody was to take a part in the war effort, and when it was agreed that we should sacrifice our export trade and tur[...] our industry over to munitions, quite forgot to get any undertaking from the late President Roosevelt that Lend-Lease should be continued, at any rate until we had had time to get our overseas trade back again. The sacrifice of our overseas trade was a part of the joint war effort. The war did not end on V-J day, nor did its consequences disappear. The Americans have put a very harsh one over on us. Of course, my right hon. Friend the Chancellor cannot say that; but I, as a humble back bencher, can and do say it.

There is the possibility of a windfall. I can suggest one. We have heard a lot about the sterling balances. Why cannot we go to the Egyptians and say, "We are clearing out of your country and are giving you home rule. We are leaving a lot of costly military installations which are immobile, and which we are sure you do not expect to get for nothing "? I have a Motion on the Order Paper which no hon. Members are willing to sign, and I can quite understand why. If the Americans really want to treat us in this harsh and unconscionable way, very well. There are certain assets with which we can part, which are of very little use to us, and which, I am credibly informed by people who understand military strategy and tactics better than I do, we could not hold for 24 hours if the Americans decided to take them from us. We have certain West Indian possessions, the sovereignty of which was parted with by the right hon. Gentleman the Memfor for Woodford (Mr. Churchill) when, in 1940, he had a bargain— a swap—of destroyers for bases. We got 50 antiquated destroyers which had been lying in the Hudson River, heaven knows how long. I do not blame him. We wanted them badly, but is our need at the present time any less urgent? The sovereignty of these islands has gone. If at one end of Bermuda there is a foreign Power's naval base, and if at the other there is the same Power's air base, what is the use of saying that we have not parted with its sovereignty? Let us say to the American, "Stick up the Stars and Stripes if you like"—

Mr. Birch

What about the people who live in the islands?

Mr. Smith

The people who live there enjoyed the protection of the American fleet and of the American Air Force during the war. I would like to make the following suggestion about the people of those islands. There is a historical precedent for those worthy people. The loyalists, who in 1776 did not go in with George Washington, but remained in with George III, went in 1783 up to New Brunswick and Nova Scotia. There is plenty of room in the British Empire for those people who still wish to live under the Union Jack.

Before I sit down, there is one other thing I wish to say. I regret that my right hon. Friend was unable to find a way to tax betting. What is the good of pretending that people do not bet and gamble? I do not back horses, I have nothing to do with dogs, I do not even play cards for money; but I recognise that most people do and that most of my constituents do. I can imagine nothing more popular than that my right hon. Friend should do three things. First, he should nationalise football pools without compensation; secondly, he should run three sweepstakes a year in this country—on the Derby, the Cambridgeshire and the Grand National, respectively; and, thirdly—the hon. Member for South Edinburgh would help me in this—in the savings movement he should put out bonds at a lower rate of interest than that prevailing, the lower rate of interest being compensated by the expectation of being in the draw.

7.21 p.m.

Colonel Crosthwaite-Eyre (New Forest and Christchurch)

So far as the first three quarters of the speech of the hon. Member for South Nottingham (Mr. Norman Smith) are concerned, I am sure everyone in the Committee will congratulate him upon at last getting his "Douglas" first eleven colours. I think he was certainly going against all known precedents by suggesting that without any consultation or permission of the inhabitants of our West Indian possessions they should be given away, and secondly, by saying he wanted to tack on to Social Credit a sort of State lottery scheme which he would find the originators and the backers of Social Credit would be the last to accept. If I do not pursue him further, it is because Social Credit is a field which changes so quickly and in which one sticks stamps on bits of paper money to make them move faster, that I honestly do not think I am sufficiently clever to follow it in all its ramifications.

Mr. Norman Smith

What is Social Credit?

Colonel Crosthwaite-Eyre

Social Credit is the prime example of where theory and practice never, by any chance, correspond.

In this Budget we have been told by the Chancellor that the problems at home, however difficult and severe they may be, are nothing to the problems that face us abroad, and I think that is very true. However much we may plan in this country, and desire to change its structure, to redistribute wealth and recreate industry, to do this, that and the other, depends upon our ability to he able to taskle the overseas problems. Therefore, it was with the deepest regret that in the whole of the three hours' speech given by the Chancellor of the Exchequer to which I listened, only some 10 minutes were devoted to the overseas problems. Even those 10 minutes started by a sort of gallant challenge in which the Chancellor, having fortified himself with that mysterious cocktail he had in front of him, drew himself up and said, "I am going to speak frankly." But directly he got anywhere near the subject he shied off and decided it was easier to talk about taking the Purchase Tax off silk stockings.

We have two very great problems. The first is that of the sterling balances to which reference has been made by so many hon. Members. I do not think the Chancellor has shown himself willing, or is at the moment willing, to try to satisfy this Committee in any sense that His Majesty's Government are going to be sincere in tackling this problem. The Chancellor has said he has got to be realistic. He has said there is no method of diminishing or expunging these great debts except through unrequited exports. As far as I can make out from him, an unrequited export is something we ourselves do not need, and in these dark days the only thing of which I can think to export would be the Minister of Fuel and Power. Apart from that, there is practically nothing which cannot be sold over and over again in the home market. If one looks at the sterling balances in 1944 at the end of the year, one finds they were £3,171 million. By mid-1945 they had grown to £3,555 million, and today they are £4,214 million, which, on the Government's target for 1947 exports, is the equivalent of 3½ years' export output of the whole of this nation. We are told by the Chancellor that he is going to try to solve these debts on the basis of counterclaims. He said in answer to questions that it is the intention of the Government to submit these counterclaims to all those nations to whom we owe debts.

But when one reads reports in the Press of what has actually happened in the negotiations with 1ndia and Egypt, one finds that no such counterclaims have ever been entered, that nothing has been done, and that the words of the Government bear no relation whatsoever to their deeds when they come to be faced with facts. If they meant anything about getting a just settlement, why did they allow the Argentine balances to be thrown away in the manner they did? We owed them something like £125 million, money which they obtained by charging us scarcity prices for the essential foodstuffs and materials we had to have in the course of the war. That was the sum they managed to gain at our expense—a nation which remained neutral not only to the eleventh hour, but until victory was so certain that there was no risk whatsoever in participating in the United Nations. Yet the £125 million is used by the Argentine Government, with the concurrence of the Treasury, to purchase our assets in the Argentine. If that is the way His Majesty's Government propose to settle these claims, indeed those few assets we still have abroad will be lost in very quick time and we shall be faced with a burden of debt, with nothing to back it, and which we can only repudiate at a moment when it will do us most harm, instead of making it clear now that we view these sterling balances as something which was incurred by the United Nations in the prosecution of the war, and which must be settled on the basis of the United Nations equally sharing in the financial burden of the war.

The second factor in the overseas situation is the balance of trade. We have heard a great deal about this. The Chancellor even yesterday stated that we must try to export more to hard currency areas. One of the things he never told this Committee is how he thinks that will be done. If one looks at the trade between this country and the Western hemisphere, one finds that the adverse balance we have today is exactly the same as the balance we had before the war. It is something like six to one against. I spent a considerable time going through the Trade and Navigation Account to find out what these exports comprise. Once one takes away the whisky, which is the staple, one finds there are a few raw materials like jute and tin, but, apart from those, the whole balance is nothing but luxury goods such as silver and gold, curios, linens, damasks and furs. How can we hope either to increase those exports, or get in on the standard exports which this country produces to sell throughout the world? We have no chance of being able to compete in the wide and ordinary ranges of production with the Americans. We cannot hope, with our staple industries suffering from the inability to reconvert themselves with speed, to make up the position which they had even before the war. The position is even worse, because we are told that if we are to come through this transitional period, we cannot live to borrow more than £350 million this year from the American loan.

If one studies these figures of the adverse balance of trade, on the face of it, in the White Paper Estimate which the Chancellor said yesterday is already out of date, we shall have an adverse balance of at least £440 million because of the difference between the volume of imports which we take from the Western hemisphere and the volume of exports we could make to it. If one adds to that the factor of the rising dollar prices, the fact that export targets will not be met this year, and the fact that import targets must be increased if we are to get our industries running, far from being £350 million as in the White Paper, or £441 million as it must be from the trade figures as disclosed in the Trade and Navigation Account that adverse balance should be far greater and somewhere near £750 million at the very least.

The Chancellor of the Exchequer has said that he views the Budget as an instrument, not for distributing burdens to those best capable of bearing them during the current year, but as a weapon of long-term planning, for producing the best results in the national interest in the economic and social life of the country. Our complaint on this Budget is that it does none of those things; that it merely tinkers with a number of home problems, and leaves those great problems outside this country on which our future must depend completely untouched, and no solution is even advanced for the consideration of this Committee.

The situation is such that the Chancellor must bear the full blame. He has no excuse for not knowing what the issues are; he cannot complain, like Koko in Gilbert and Sullivan, that he has been wafted to heights undreamed of. From the London University School of Economics he has had experience; he has had all the advantages of travel, wide reading, and contacts with people who should know what the problem is, and if he is ignorant it is his fault. He has done nothing to try to put these problems before the Committee. He has been so busy heartening his supporters behind him in chasing the Socialist Jack-o'-Lantern through the marshes of nationalisation, that he has done nothing to try to face those major problems which beset us. He is so busy congratulating himself that by Death Duties he has crippled families who have done well by this country throughout the centuries, and in hounding the last super-taxpayer to his death, that he has no time to consider the ordinary man, or the inevitable smash which must come if this question of overseas trade is not tackled.

In his peroration, the Chancellor quoted Cromwell and Emerson. I can think of no two more unsuitable people for the Chancellor to quote. He is no more like Emerson than he is exactly comparable with Bunthorne, who, hon. Members will remember, in "Patience" was always so amazed at his own virtue and his own integrity, who walked down Piccadilly with a lily, but whose actual effect beyond self-appreciation was nothing. It is the same with the Chancellor. He is not like Cromwell either. He is much more like the Duke of Plaza Toro, who was always keen on leading his troops from behind, so that when there was a reversion of policy he would be found in the front. That, too, is like the Chancellor. He tinkers, he makes gestures, he tries to assuage those great feelings of class hatred that exist behind him, but he does nothing in trying to build something for the future and in tackling the problems which beset this country. He appeals to us for a lead. He says that unless this country is led, unless it is prepared to give of its best, and unless it is prepared to do all in its power to solve these problems, we shall fail. If that is so—and I believe it to be—it is up to him to give that lead. He has not done it. He has not tried to do it. He has shirked every issue which needs solving. He prefers instead to rely on some cheap popularity rather than giving the country the means whereby to continue its existence.

It is for those reasons that we think this Budget, far from being anything of which to be proud, is something of which every hon. Member opposite ought to be ashamed. Instead of trying to solve problems it is merely seeking for a little popularity; instead of giving a lead to this country, it is providing within the next 12 months—vital months for us—none of those things which will help us solve the problems we must solve if we are to secure for ourselves those fruits of victory, for which everyone, on all sides of the Committee, has striven for so long.

7.35 p.m.

Captain Peart (Workington)

This afternoon we had a most interesting piece of verbal bluster from the right hon. Member for Bournemouth (Mr. Bracken).

Mr. Bracken

Hear, hear.

Captain Peart

I am glad the right hon. Gentleman agrees with that description. He merely repeated the principles which were put forward by his right hon. Friend the Member for the Scottish Universities (Sir J. Anderson), and the hon. Lady the Member for South Aberdeen (Lady Grant), who yesterday argued for economy. The right hon. Member for the Scottish Universities—who, I understand, is the principal speaker for the Opposition in this Debate—indulged in a measure of speculation. In my short speech this afternoon I wish to ask the Committee to speculate what kind of Budget we would have had if a Tory Chancellor of the Exchequer were in control. We have had their Budgets before. Of course, there would have been economy. But economy in what? From the evasive reply which we had from the right hon. Member for Bournemouth to interjections from this side we know the answer. There would have been economy in social services. Cuts in the social services would have, been the first order of the day.

Mr. Bracken

The hon. and gallant Member has no right to say that. I have never suggested a cut in the social services. I might have suggested that some of these bulk buyers should have been put into the strait-waistcoats from which they escaped. That is one method of achieving economy. I could suggest others.

Captain Peart

I shall be delighted to give evidence out of the mouths of hon. Members opposite. Under a Tory Government Budget for this year the British people would not have had the National Insurance Act, the Industrial Injuries Act, increased old age pensions; nor, I believe, under a Tory Government would we have had the raising of the school-leaving age. [Interruption.] If only hon. Members will wait, I will give my evidence. The Budget Debate has revealed this outlook. It was revealed in the recent Debate on our economic position and in the subsequent Debate on the manpower situation. I will not go into details now, but if one reads some of the speeches, of the right hon. Member for Aldershot (Mr. Lyttelton), the right hon. Member fur the Scottish Universities, and the right hon. and learned Member for West Derby (Sir D. Maxwell Fyfe), it will be seen that they all suspected it would be a bad thing for this country to raise the school-leaving age while our manpower shortage existed.

Sir J. Anderson

I said nothing of the sort. I said this. There are a lot of fallacies about that which must he got rid of. That is the job of the Government. If the Government decide this is the time to raise the school-leaving age, they must see to it that their action is not misconstrued.

Captain Peart

I merely ask the right hon. Member to read his own speech again. If he wishes for further evidence from Tory Members, I should like to quote to him the speech of the hon. and gallant Member for Ecclesall (Major Roberts), whom I do not see in his place this evening. In the Debate on the economic situation he said—and it was never denied by hon. Members opposite— I would also say in order to save our economy and the fact that we have already lost income we must postpone some of the most expensive items of health, education and insurance. I appreciate that this is an unpopular thing to do. Politically, it may be a silly thing to do"— Then the hon. and gallant Member was challenged from this side by my hon. Friend the Member for Epping (Mrs. Manning), and he replied: but quite sincerely we cannot afford it … we cannot afford some of the more expensive items."—[OFFICIAL REPORT, 10th March, 1947; Vol.434, c. 1042–3.] That is, and always has been, the mentality of hon. Members opposite. I believe it has been revealed clearly by the speech of the right hon. Member for Bournemouth. Hon. Members opposite have never denied the views of the hon. and gallant Member for Ecclesall, who spoke so frankly in that Debate. They, I know, are the views of a younger Tory, who, perhaps, has not learned to clothe his real thoughts in the veiled language of his more experienced Parliamentary colleagues; but I believe them to be the views of the Tory Party spoken frankly—in spite of the political fifth column tactics of the hon. Member for Monmouth (Mr. P. Thorneycroft), who seeks to liberalise the Tory Party; which, perhaps, is a vain thing to try, because the Tory Members do not change their spots so easily.

The Chancellor of the Exchequer has been chided for talking in terms of spending. One could again quote from the speech yesterday of the right hon. Gentleman the Member for the Scottish Universities. I am really amazed that Tory spokesmen should today bring out of the coffin the old Tory skeleton. I am confident that the argument was successfully countered by the Financial Secretary to the Treasury, and I again invite the right hon. Gentleman the Member for Bournemouth carefully to read that speech.

I wish tonight to compliment the Chancellor of the Exchequer upon his attitude to education and the Development Areas. I believe that money spent in those directions will reap rich dividends. I wish for no financial stringency in those directions. As the Chancellor has mentioned, last year we spent £139 million for education, which was £31 million more than in the previous year. This year, the Chancellor has indicated a further £29 million.

Mr. Bracken

Whose Bill was it?

Captain Peart

The right hon. Gentleman asks whose Bill it was. It was a Coalition Bill, we agree; but this Government are going to implement that Act; and I believe that if hon. Members opposite had been still in power that Act would have been guillotined by the axe of the Tory Party. This year, as I have said, the Chancellor has indicated that a further £29 million will be spent on educational items—school dinners, further education for demobilised men and women, more scholarships; £3 million of additional money for the universities, making for the universities a total estimate of £12 million of public money. They are all worthy objects, but the most important of all is the raising of the school-leaving age. That is, perhaps, the most important step which this Government are taking this year. It is a bold decision, which can be rightly termed an act of faith.

Mr. W. Shepherd

rose—

Captain Peart

I promised to be brief, and so I ought not to give way again, as I have already allowed several interruptions. In spite-of the doubts, and in spite of the criticisms which were raised by Tory Members in the Debate on the Distribution of Manpower and in the Debate on the Economic Survey, I am confident that this step by the Minister of Education, aided by a generous Treasury, will be welcomed—and is welcomed—by all responsible educational thought. I quote "The Times Educational Supplement," a non-party paper, of 5th April. In its editorial it states: The extra school year will improve the quality of all engaged in industry and agriculture, and raise the standard of citizen ship. On 8th March in an editorial that excellent paper said: The raising of the school leaving age is a necessary and urgent investment. I know there are tremendous problems which will face the Minister of Education. There are short-term problems of accommodation and the supply of trained teachers. But these two problems are not insoluble. The raising of the school- leaving age is a great step forward towards educational opportunity, which is fundamental to a democratic community. Again, I compliment—I sincerely compliment—the Chancellor of the Exchequer for providing the extra finance this year to enable this part of the Education Act to be administered.

I welcome the statement of the Chancellor on Development Areas. This year he provides £4,500,000 more. Last year we had £10 million extra. Much of the money will be spent on the acquisition of land for factories. It is, indeed, refreshing to have a Chancellor of the Exchequer who will prod when necessary. He agreed, along with the President of the Board of Trade, that factory development has been marching too slowly, and now those responsible will be prodded, too, by the President of the Board of Trade I am glad that we have a Chancellor of the Exchequer in control who appreciates the needs of the distressed areas. I do not think the distressed areas had any sympathy before the war from hon. Members opposite. Today, there is a contrast in policy, a contrast with the days when the old distressed areas had to beg from a tight-fisted Treasury. We cannot, as the Chancellor of the Exchequer said, tolerate local unemployment. I raised this matter in the Debate on the distribution of manpower, that we have still serious unemployment in our Development Areas, and again I stress the urgency of remedying that; and that is why I welcome the fact that Development Areas have had special mention in the Budget presented by the Chancellor of the Exchequer.

It was pleasing to see that the Chancellor had budgeted for another £10 million for roads, £2 million of which will be provided for roads in Development Areas. I know that in my own area of West Cumberland the people are anxious to speed up road development. The area itself has been geographically isolated. We are handicapped, too, by an antiquated railway system. Perhaps our road problem in that area is more important and urgent than that of any other Development Area in Great Britain, and we hope in West Cumberland that in this new allotment of finance West Cumberland will be regarded as priority No. 1.

Lastly, a few observations on the Tobacco Duty. The Chancellor has indi- cated, and it has been stressed, that it is not a question of collecting revenue, but one of saving dollars. Before giving my full support to the proposal of the Chancellor of the Exchequer I do require more information. The argument of the Chancellor of the Exchequer is strong. If it is right and moral to restrict smoking by this device, then we shall support it, however unpopular it may be. We all agree with him that we have been spending our dollars improvidently. But as the tax affects more the lower income groups I should like to ask what alternatives were considered to meet the urgent need of preventing valuable dollars for food and machinery going up in smoke. I should like to ask what alternatives were considered. Can we have any information about the difficulties of administering- such alternatives? I assume myself there are two; one, the cutting off of tobacco at the source, thereby creating a shortage in the shops, and, secondly, a rationing system. Perhaps the first method would encourage a black market; and the second method would be administratively impossible. But I believe that we should have answers. We should have the argument which made the Chancellor of the Exchequer reject such alternatives. If I am convinced that he took the only path, I know that I shall go to my constituents, in spite of the unpopularity of the measure, to defend it, and I am confident that every other Member in this Committee will.

But it raises the wider question of the use of the American Loan, and I sincerely hope that the Government have plans for future spending. The year 1949 has been mentioned as the year when the Loan may run out. We may have to ask for another loan. We hope that, from our own resources, from the speeding-up of our export drive, that no such loan will be necessary, but I hope that plans are being considered.

In conclusion, I believe that the Budget is sound in the circumstances, and that it is framed in a spirit of reality. I believe it is one step forward, even though a little step, towards security for the million rather than millions for the already secure.

7.50 p.m.

Lieut.-Commander Gurney Braithwaite (Holderness)

The speech which the Chancellor delivered on Tuesday, and the two days' Debate which has followed it, seemed to me to provide a fitting epilogue to the three days' discussion which we had last month on the general economic situation of the country. The House has now reviewed nearly every aspect of what I might call the ponderables of our economic situation—the manpower budget, the coal budget, questions of production, and now finance—but I want to address myself for a few minutes to what I would call the imponderable, which makes itself felt on every aspect of this great subject, and that imponderable is best defined by the single word "confidence" It is not easy to define this confidence, and I feel very much in the position of the schoolboy, who, when asked to define an elephant, said he was unable to do so but knew one when he saw one. That I believe to be true of confidence in the business and industrial world. There are many things which are undermining confidence in all sections of our national life at the moment. I am not going to put them necessarily in order of priority, but in the order in which I think they will he best followed by hon. Members of the Committee.

The first distressing thing about this Budget now presented to us is the apparent complacency of the Chancellor of the Exchequer that this country should, in time of peace, go on a wartime level of taxation. It was when we were left alone, when we stood against the mightiest military power in the world, that, for the purpose of survival, the previous Parliament accepted Income Tax at 10s. in the £. We arc now told that 9s. in the £ Income Tax is apparently something quite reasonable in time of peace. That is the first aspect of the Budget that will cause the gravest disquiet in all sections of the community, because the Chancellor made it quite clear in his last three Budget Statements that he regards Income Tax as the most onerous burden which the country as a whole now has to bear.

The next aspect of the matter on which I would speak has also caused a certain amount of disquiet, and not only on this side of the Committee, because it has come out in speeches we have heard from the benches opposite, and particularly that of the hon. Lady the Member for North Ilford (Mrs. Ridealgh), who referred to the future of the food subsidies. When the Chancellor of the Exchequer introduced his interim Budget in October, 1945, he de- clared his intention to peg the cost of living at 31 per cent., at which it then stood, whatever the cost might be. He showed some signs of anxiety a year ago, and on Tuesday he told us—I do not think I am paraphrasing him unfairly—that the time had come to call a halt, that there was going to be a new index figure and that he would have to go into the whole question. That means that this whole matter of food subsidies is now in a condition of uncertainty. We are facing, to my mind, something of the nature of an inverted pyramid, and it is already causing no small concern among the agricultural community, who have relied so much on this camouflaged form of subsidy during recent years.

The third aspect of the matter covers some of the consequences of the system of bulk purchase by the State. Much has been said from the benches opposite about how it is going to be used, and hon. Members opposite have applauded the closing of the Liverpool Cotton Exchange. I submit to the Committee—I know that figures are dull, but they save time—that vast sums have been mulcted from the British taxpayer by incompetent operations in foreign markets by the purchasing activities of the State. Our business has been very badly done. I give the Committee three reasonably comparable dates —August, 1939, just before the outbreak of the war; May, 1945, the month of the surrender of Germany; and the 1st April this year. I have taken as examples some base metals which play some part in our manufactures.

Copper, in August, 1939, cost £51 per ton, and, in May, 1945, £62 per ton. Since then it has risen to the incredible figure of £137 per ton. That is during two years of Socialist administration. Zinc stood at £15 in August, 1939, at £31 in 1945 and at £70 at the beginning of this month. Lead cost £16 in 1939, £30 in 1945 and £90 on 1st April last. Tin was £290 in 1939, £300 in 1945, and is now £437. If I may pass from base metals to a much more homely commodity which interests our lady constituents, and, indeed, the hon. Lady opposite, the essential household article soap, the price per ton in 1939 was £23, in May, 1945, £48, and, on 1st April this year, £110. All these increases have come about in the last two years, and all these rises have taken place in sudden jerks, without notice, but have been imposed upon the manufacturer, falling upon him like a block-busting bomb without any warning at all, and they have done indefinite harm to the whole machinery of our export trade while also spending quite unnecessary money.

I know that hon. Members opposite do not like the old-fashioned machine, and that is why they applauded the closing of the Liverpool Cotton Exchange. They do not like the idea of people speculating, but I am going to submit to them that, if these ordinary futures markets had been allowed to operate, a few hundreds or thousands of pounds may have been made by speculators here and there, but the cost would have been infinitely less than that which has fallen upon us, because, as soon as John Bull appears on the market, particularly if he appears in the person of the Minister of Food, people say, "Here comes a mug," and up goes the price. Where there is a bulk buyer, there is a bulk seller, and very heavily indeed does the taxpayer pay.

I now turn to a much graver matter. The Chancellor, in his broadcast—I did not have the pleasure of hearing it, as I was in the House—made reference to bonus issues and strange doings in the City. I am sorry the Chancellor is not here to listen to what I am about to say, but it is perhaps more important to have a Law Officer here, and I am glad to see the Solicitor-General present. During two hours before the right hon. Gentleman the Chancellor rose to address the Committee or Tuesday, the prices of British Celanese and Courtaulds shares rose very sharply on the Stock Exchange. I have made it my business to visit the market and try to find out the reasons this rise should have occurred at such a moment, and I am informed by jobbers that there was heavy and influential buying. The question I want to address to the Government is this: Who has been talking? Where is the leakage? There has been undoubtedly a Budget leakage. Passing into the tobacco market, I find that they were accurately informed also, before the Chancellor rose, of the exact amount of the increased impost on tobacco, although it is only fair to add that no share dealings appear to have taken place in the tobacco market. Dealings did, however, take place in the shares of artificial silk. It is not very long since a national figure was drummed out of public life in almost similar circumstances. There was a Budget leakage, dealings took place on the Stock Exchange, and a very well known Minister—

Mr. Tolley (Kidderminster)

And other prominent Members of the House, too.

Lieut.-Commander Braithwaite

I said he was a national figure. We all remember the gentleman, and he is still alive. I think it would be invidious to mention any name. This is a matter of some seriousness. At that time, the House took the gravest possible view of that incident. A National Government was in office. Hon. Members may recall that an inquiry took place, and as a result of that inquiry, it was made crystal clear that a Minister of the Crown and another Member of the House, who could not have had access to the secrets, had taken advantage of certain Budget information prior to the Chancellor's announcement. I do not want to go any further into this matter now, but I ask the Solicitor-General whether he will take note of what I have said. I believe this to be another case for a very careful inquiry by the Chancellor of the Exchequer, or, indeed, on a higher level than that, because it is quite obvious that someone who had access to the Budget secrets made use of that information for the purpose of financial gain in the stock market.

The Chancellor told us in his Budget speech that the revenue consequences of the February fuel crisis would not manifest themselves, he thought, during the present financial year. I am not so sure of that. I believe that the effects of the fuel crisis of February will begin to have marked results as we enter next winter, but in any case, I think we have to take serious note of the fact that the effect on the revenue is now hanging over us like a dark cloud. It does not require anything much in the way of financial genius or mathematical knowledge to be able to say now that in April, 1948, we shall be faced with a heavy prospective deficit on the next Budget if it is based upon present levels of taxation. That will be bound to have a detrimental effect in more than one way.

Hon. Members may recall that in the Budget Debates a year ago, I pointed out that the whole structure of our National Insurance Scheme depended absolutely upon industrial production in this country. I well remember the Debates upon the Beveridge Plan, as it was called at the time. It was stressed from both sides of the House that the National Insurance. Scheme relied for its ultimate success upon the increased productivity of this country, the recapture of our export markets and, above all, holding prices reasonably steady where they were in 1944. One of the most agreeable features of the National Insurance Scheme, which commanded the greatest support on all sides at the time, was the proposal to raise old age pensions to the present figure. The advantage of that increase is rapidly dribbling away, and the purchasing power of that 26s. is already considerably less than it was when the Beveridge Plan was first adumbrated.

I ask hon. Members opposite to recall what they have often said in the past about hon. Members on this side. I remember that when there was a modest increase in the Tobacco Duty when we started rearmament—I believe 2d. was imposed in 1937, in 1938 and in 1939—hon. Members opposite said: "We think that a tobacco tax as such is quite a fair way of helping to rearm the country, but it is something which the rich man can take in his stride easily but which will fall with the most merciless cruelty upon the old age pensioners." No more merciless blow has been struck at the old age pensioner than that which the Chancellor dealt him last Tuesday. I am not yet in a position to know what old age is like, but I have always tried to picture myself, if ever I should reach old age, enjoying two things—sitting in the sun and smoking a pipe. In this country it is a very rare experience to sit in the sun. We get only fleeting glimpses of it and the sun appears fitfully as an act of God. The tobacco of the old age pensioner is now to be whisked away by an act of folly of the Socialist Government. If the old age pensioner is to keep up his smoking at the present level, it will cost him something like 7s. a week out of his pension of 26s. The Debate so far has shown that I am not alone in my feelings on this matter, and there are hon. Members opposite who feel the same as I do. I hope the Chancellor will reconsider the whole matter.

I turn now to the method of operation of P.A.Y.E. I am not one of those who think that this method should be swept away, I think it has many advantages, and that it has worked reasonably well since its introduction; but perhaps the Financial Secretary will be good enough to examine some of the methods that are being used to assess P.A.Y.E. Some very curious things are being done in regard to some of the little trades which support men back from the war, and so on. I will give an example of a hairdresser operating a saloon in a West End hotel. When he goes along with his takings, his cheques for business done, to the Income Tax official, the official says to him; "You have taken 30s. in tips this week." The man shows the cheques and says, "No." The official then says, "We assess you as if you were a waiter, and we assess the waiter's tips by the number of bedrooms in any particular hotel." What on earth has the number of bedrooms in a West End hotel got to do with the number of people who go to a barber's shop? How many people in London for a day or two go for a haircut or a shampoo? In the Oxford Street area there seems to be a gauleiter who ought to be examined, if not removed. A man's word should be accepted in this matter; he should not be told that the Inland Revenue are not interested in the cheques he has taken and the business he has done. It seems to me to be a monstrous example of bureaucracy to tell a hairdresser that in the sight of the Treasury he has become a waiter, and that the tips are based on the number of bedrooms there may be in any particular hotel. Why not take the man's word for it, just as the word of an hon. Member of this House is taken as to his expenses to he set off against Income Tax? I hope the Financial Secretary will have a look at that.

There is another matter to which I referred at the time of the interim Budget, and here I am hopeful of carrying the whole Committee with me. I think all of us, on whatever Benches we may sit or whatever political faith we may follow, are not at all happy at the moment about the extent of black market operations in this country. This Budget gives us a very heavy burden to bear—the British are a cheerful, patient people-9s. in the £ Income Tax, a swingeing Tobacco Duty, and the rest of it. I appeal to the Government not to go on flogging the willing horse until they have rounded up the unwilling horses, Millions of pounds in loose money are changing hands in this country without the Treasury getting a penny of it in Income Tax.

Mr. Shurmer (Birmingham, Sparkbrook)

The dogs.

Lieut.-Commander Braithwaite

I quite agree; though I have no evidence, I believe that vast sums change hands on the dogs.

Mr. Shurmer

That is where they get rid of their black-market money.

Lieut.-Commander Braithwaite

Yes, but not only on dog tracks, in different places. We could all be relieved to a considerable extent in the taxation we bear if those people who are dodging their duties to the State were rounded up. There are more than one means of doing it. I made one suggestion in October, 1945, which I repeat for what it is worth, because I think the Government should have this always in their minds. They should announce suddenly, taking advantage of the weapon of surprise, that after a certain date perhaps only three weeks ahead our current Treasury notes would no longer be legal tender. They should call them in and, say, give a pink or a purple one for a green one. It was done in France with the result that half the note issue was never surrendered at all, and that would be a very great relief to the burden on the Treasury of the fiduciary issue and all the rest of it. I hope the right hon. Gentleman will bear it in mind, and do something of the kind.

Now I turn to the final remarks I desire to offer to the Committee. I believe that the machinery the Chancellor has put into operation during the past two years is quite inadequate to withstand anything in the nature of a severe slump imposed upon us from America or anywhere else. I believe further that it is liable to prevent us benefiting from anything in the way of a compensatory boom. That being so, I believe that under the present Government the cost of living will continue to rise while the standard of living will continue to fall. If I am right I must repeat the question I have put twice previously to the Government, unsuccessfully: is it still their intention to repay National Savings with paper pounds of the same value as when they were lent? May I quote the words of the right hon. Member for Woodford (Mr. Churchill) in this House on 12th March? After saying that we should all go on supporting the Savings Movement, he went on to say: At any rate the smallest class of savings might be linked to some permanent standard of values."—[OFFICIAL REPORT, 12th March, 1947; Vol. 434, c. 1338.] I believe it is immensely important if the Government are going to play fair by those whom they are still stimulating and urging to take part in the Savings Movement.

Lastly, the effect of the whole nationalisation programme upon the financial situation of the country is, I believe, an extraordinarily damaging one. Vast amounts of new money have now to be created, and that in itself must have an inflationary effect. Again it causes lack of confidence and uncertainty, the very thing which, as I have said, has the most deterrent effect upon industry. Uncertainty is hanging over industrial Britain at this moment, and descending upon us like a deadly blighting mildew. A spanner has been thrown into the whole of the delicate machinery of production, distribution and exchange.

The Emperor Nero has been censured by history on the grounds that, when Rome was burning, he was engaged in playing the violin. I have always felt that while his conduct was callous, at least he did nothing to interfere with those who were endeavouring to cope with the conflagration. What would have happened had His Majesty's present advisers had to deal with that very grave situation? There would have been a series of hurried Cabinet meetings; on Friday afternoon some Minister would have announced that the water supply would be switched off immediately, and that the fire fighters would be left without water; within a few days we should have had a White Paper pointing out that fire and heat were the consequence of kindling and that frost and cold could be attributed to dekindling and, as the last embers were dying amidst the ruins of a charred and gutted city, we should have had presented to us a Bill of 127 Clauses and 13 Schedules for the purpose of nationalising the Fire Brigade.

8.17 p.m.

Major Bruce (Portsmouth, North)

I did not quite get the point of the hon. Member who has just spoken, but I am sure I am speaking for many hon. Members when I say how much many of us on this side appreciated the intellectual honesty with which the hon. Member for Aylesbury (Sir S. Reed) addressed the Committee this afternoon. I am sorry the right hon. Gentleman the Member for Bournemouth (Mr. Bracken) was not here, because I would advise him to read the speech of his hon. Friend, belonging to the same party, as an example of how to address this Committee with some sense of Parliamentary responsibility.

I feel that the Budget that the Chancellor introduced to us two days ago arises directly from the state of affairs which was revealed to the country very candidly by the "Economic Survey for 1947." Lip service is very often paid from the Opposition Benches to the factual contents of the Economic Survey. There has been no serious challenge as to any of the factual statements made in it, but one cannot help noting from time to time that, however much lip service may have been paid to those facts, they do not seem to have seeped very far in. The Chancellor of the Exchequer has been attacked during the last couple of days on the whole policy which he has pursued in regard to financial affairs since the end of the war, and I think it is important that we should recapitulate the circumstances in which he has had to pursue his policy. It may well be that there are certain circumstances revealed which may make us very cautious, and indeed which may kill any undue optimism or complacency, but we should regard the whole of the field none the less.

The first thing we have to remember is that our capital equipment in this country is obsolete and neglected, and I shall endeavour to draw certain financial deductions from that a little further on in my remarks. There is a shortage of manpower and of essential consumer goods, and we started in with an overseas deficit. One of the most revealing statements made in the statement of national income and expenditure which was recently published was the statement that for the period 1940 to 1945 more than 10 per cent. of the value of the goods and services used by this country was financed out of foreign loans or bought at the cost of the sacrifice of assets held overseas. This is a most grievous state of affairs, which has existed for a long time, and only now has there been some improvement for this year. We also have to remember that the cessation of Lend-Lease meant the stopping of the supplies of consumer goods at a time when there were two most important factors to be taken into account. The first factor was that there were large sums of money in circulation seeking consumer goods, and the second factor, which must have been taken into account by the Chancellor, was that our home industries had not yet been converted—indeed the war was only just over—to the peacetime production of consumer goods.

This is the position that the Chancellor is now in. There has been inflationary pressure right from the commencement of his term of office, and the dangers in the situation were quite obvious. He had the immediate danger of inflation, but coupled with that and much more important, there was the actual shortage of the day-to-day needs of the ordinary people right from the beginning. There are only four solutions to these particular problems with which the Chancellor was faced when the Government was returned to power in 1945. There could have been a further tightening of the belt, but I doubt whether anybody would have cared to make that suggestion to people who were war weary after six years of conflict. They would have hesitated still further drastically to tighten their belt to make up for the deficiencies of supplies due to the cessation of Lend-Lease. The second alternative was to press for the continuation of Lend-Lease but, with the change in the American Administration, I doubt very much whether that alternative would have got very far. As for the suggestion that supplies might have been obtained from war devastated Europe, Europe was not and is not yet in a position to supply us with the goods that we require. The alternative chosen by the Government to bridge the gap was to borrow the American loan, thus imposing very great responsibilities upon us.

The bulk of our industries manufacture capital goods and machinery that produce consumer goods. I have said that our own capital equipment is obsolete and neglected. Those facts taken in conjuction with the fact that our own economy is essentially of that nature, brings a further inflationary menace into the offing and the Chancellor of the Exchequer will have to take account of it. Capital goods have been estimated by economists to carry a wage factor of nine-tenths, and those wages seek a market for the purchase of consumer goods. Our own machinery and capital equipment have not been sufficiently modernised to produce those consumer goods. That causes a second inflationary pressure which the Chancellor of the Exchequer has to meet.

The solution of that problem was to import as much machinery as possible from abroad. I was disturbed when I examined the Trade and Navigaton Accounts for last month to observe that imports from the United States were £8,180,000 for food, £3,171,000 for tobacco and only £1,146,000 for machinery. Those figures go to show that there are very important limitations to the desirability of importing as much machinery as possible. The first limitation is that we are limited by the amount we are able to purchase. I do not know how far that limitation has operated. Secondly, we cannot import machinery on such a scale as will hamper and ultimately injure our own capital goods industries. Thirdly, imports have to be paid for. These are very important factors which the Chancellor has also had to take into account. To build up our own capital goods industries upon which the production of consumer goods depends can be done only if certain anti-inflationary measures are taken which the Chancellor very rightly emphasised in the course of his Budget speech, when he spoke of the necessity for savings. He is also right, in resisting inflationary pressure, at a time when we are providing capital goods, to retain sufficiently high taxation to cover a high proportion of Government expenditure and to cover investments in capital goods. That is a very sensible step. Anti-inflationary measures which he could take would be to reduce expenditure on all items other than social services which did not yield a production increase.

I am bound to refer at this point to the question of the Armed Forces. I was hoping that the right hon. Member for the Scottish Universities (Sir J. Anderson) would be specific yesterday afternoon on this subject. He had a magnificent opportunity. I hope that when we come to a Bill on the subject of the Armed Forces later the Conservative Party as a whole will be definite on this subject. The second course would be to reduce as far as possible the personnel and expenditure of the central Government machine. The shortage of essential commodities needs personnel to enforce control. I very much doubt whether there is any Member of the Conservative Party opposite who would say that controls should go. I trust that when the Chancellor comes to the question of recruiting the Civil Service he will remember that much of the Civil Service is highly productive.

Yesterday, the right hon. Member for the Scottish Universities mentioned "pruning." The moment he did so I took my pen out of my pocket. I was about to make some notes of the suggestions he might make, and then I observed he did not feel inclined to go into detail on the subject. I concluded that his utterance was intended for the newspaper headlines and that he did not intend to go any further. There was from the back of him somebody who called out "subsidies." It should therefore go out to the country that the Conservative Party are committed to the reduction or to the abolition of food subsidies, and that they wish to raise the food prices of the people.

Hon. Members

Oh.

Mr. E. P. Smith (Ashford)

Who made that statement?

Major Bruce

If a right hon. Gentleman on behalf of the Conservative Party will repudiate what I have said I shall be delighted.

Mr. Oliver Stanley (Bristol, West)

The hon. and gallant Member has just said that it must go out to the country that we are committed to the abolition of the food subsidies. I only want him to show me from HANSARD who made that statement and in what terms.

Major Bruce

I think I am speaking within the recollection of the House when I say that the statement was made yesterday. If the right hon. Gentleman will give me a repudiation of it I shall be only too delighted to withdraw it. In any case, the right hon. Member for the Scottish Universities himself, speaking a few days ago, condemned—I now have the reference for which the right hon. Gentleman was asking. If hon. Members will turn to HANSARD for yesterday's Debate they will observe that the hon. and gallant Member for Pudsey and Otley (Colonel Stoddart- Scott), when he was challenged by my right hon. Friend the Financial Secretary to the Treasury about what reductions should be made, replied: Civil Servants and the food subsidies."— [OFFICIAL REPORT, 16th April, 1947; Vol 436, c. 297.] [Interruption.] Perhaps hon. Members will now allow me to go on with my speech. I do not want to keep the Committee too long.

The right hon. Member for the Scottish Universities referred also to controlled deflation. I was extremely interested in that phrase because, particularly in the earlier part of his speech, he had made some mention of the Budget, with which he was connected administratively, which was introduced in the financial year 1920 to 1921. Therefore I would have liked to ask him, if he had been in his place today, whether the policy pursued by the Government from 1919 to 1921 was controlled deflation or not. If there is any right hon. Member on the Opposition Front Bench who would like to elucidate those points for me, I should much appreciate it. I see that the Opposition Front Bench is silent on that point. I do not want to press them too much, but I would like to know whether that policy was controlled deflation?

Sir Arthur Salter (Oxford University)

The hon. and gallant Gentleman will remember that 1919 to 1920 was a period of inflation.

Major Bruce

Precisely.

Mr. Mitchison (Kettering)

Would my hon. and gallant Friend allow me to interrupt for one moment? I see in the OFFICIAL REPORT, the following from the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson): I would add, in that connection, that a moment when relief from direct taxation is being provided would seem to me eminently suitable to choose for a determined effort to bring down those subsidies. Our national economy will never he on a satisfactory basis until they have been reduced to negligible proportions. — [OFFICIAL REPORT, 16th April, 1947; Vol. 436, c. 202.]

Major Bruce

I would only point out the fact that the right hon. Gentleman the Member for the Scottish Universities seemed to bask in the reflected glory of Mr. Austen Chamberlain in the 1921 Budget. What were the consequences from that? In December, 1920, unemployment in this country rose to 857,840, that in April, 1921, it rose to 2,196,943, and in July, 1921 it was 1,927,699. I would also point out, for the benefit of the Committee, that this deflationary policy killed the housing schemes completely owing to the rising of the bank rate from 5 per cent, at which it stood in 1918, to 7 per cent, to which it was raised in 1920. It is refreshing to find that the Conservative Party are committed to a policy of controlled deflation. I think the general public will realise that all they have committed themselves to is exactly the same policy followed in 1920, 1921, 1922 onwards.

The final measure of anti-inflation which has to be taken lies, of course, as hon. Members in all parts of the Committee will agree, in increased production itself. The final anti-inflation measure that can be taken is to increase the production not only of producer goods but also of consumer goods, and I think that the Budget of the Chancellor has, to some extent, helped that. It has relieved a further 750,000 people from taxation altogether. Two million were relieved last year, and there are also very many valuable concessions which will contribute to the little extra incentive which everybody will agree is necessary for increased production.

There are other measures which may have to be carried out, and on which I cannot touch here. There may have to be changes in the wages structure, there may have to be more workers' representation at lower levels, there may have to be more extended efforts of the working parties, and there may have to be further socialisation—I say it deliberately—and further nationalisation of the key industries because, on the only working example we have at the moment of a nationalised industry, it is quite obvious that the coal nationalised industry is a great success and that production is going up week by week and month by month.

We all have to realise—and I say "all" advisedly—that today Britain is operating in a world, the food shortages of which are largely beyond her control, and that consumer goods and some capital goods here will have to go abroad in order to reduce the overseas deficit and in order to get the food materials that we need. I think it criminal that any endeavour should be made to make party capital out of these quite incontrovertible facts. It comes to me, and to hon. Members on this side of the Committee, as very odd indeed, that a plea for national unity should have come last night from the hon. Member for Chippenham (Mr. Eccles). It does not lie in the mouths of the Opposition at this time to plead for national unity. They are, at this moment, conducting a campaign in the country which is dividing the country against itself. They would do better if, instead of paying lip service to patriotism—and they have in the past been associated with a good deal more jingoistic patriotism than real patriotism—they remembered that there is a dignity and nobility in being British. If every effort is made in good faith and good heart this Budget will stimulate us and this country will win through.

8.36 p.m.

Mr. William Shepherd (Bucklow)

I have listened to the speech the hon. and gallant Member for North Portsmouth (Major Bruce) has made with the assistance of a not inconsiderable percentage of his followers. He has delivered the usual lecture on the economic conditions of the country and no one seems more conscious of the difficulties in which we find ourselves than the party opposite and no one is more oblivious to the remedies which are to be sought.

I want to start my speech by congratulating the Chancellor—one does not often have the opportunity of being pleasant in this way—upon the fact that he has seen fit to keep open the question of car taxation. He might well have been justified in closing the door finally on that matter. The motor car manufacturers are like hon. Gentlemen opposite, they cannot agree among themselves. But I ought to say, in justification of the motor car manufacturers, that they do sometimes produce something that works. It is, I think, vitally important to get away from the position where engine design is subjugated to fiscal considerations. I hope that, in spite of the administrative difficulties which are very real, the Chancellor will do all he can to see that this change is brought about.

When the Budget is introduced from year to year there is always some appellation given to it. What description can we give this Budget? I suggest that an adequate description of this Budget is, "The scavenger's Budget," because the Chancellor has been brushing around with his broom, stirring up the odds and ends of financial deposit which have accumulated in odd corners during the whole war period. This process I consider is not an advisable one in present circumstances. It is true that if we were approaching a normal period, the gathering together of these odds and ends, and their production at present, might well have been justified. But I should have thought that common prudence would have dictated that this secret reserve, which is what it is, might well have been retained for a period which we are approaching, because this is not the year of crisis; this is the year of impending crisis.

Mr. Shurmer

Are you not ready to bring it about yet?

Mr. Shepherd

It would, surely, have been prudent to have kept the secret reserve in hand for such a time as it might have served a more useful purpose than it serves at the present time. The Chancellor has produced it simply because he wants to say he has a surplus. But he has not convinced any reasonable person in the country that this is a real surplus. He has attempted to sacrifice the country's interests to the twin idols of expediency and popularity. I believe that this should have been the time for the Chancellor to have made a real effort to get a real Budget surplus. Nothing of the kind has been done. I should have thought that this Budget would have been the occasion when the Chancellor could have stated and demonstrated to the country that the policy of expediency was to be abandoned, and that at long last, after more than 18 months, the Government were determined V fashion events instead of being turned by them. Nothing in this Budget would convince any objective observer that the Government have the intention of directing events with a firm hand and trying to get the country out of the difficulties in which we find ourselves.

Expenditure could have been reduced, and a ruthless Chancellor would have reduced expenditure in the Civil Service. Over the Channel, in France, where they have a Government of a complexion not dissimilar to the one we have here, they have succeeded, or will succeed, in a short time, in reducing the Civil Service to the level at which it stood in 1938. We cannot expect such miracles from the limited capacity of our administrators, but we can at least expect that they should do something to reduce the level instead of permitting the constantly increasing srain on our resources by the extent of the increasing Civil Service. Subsidies on food might have had more definite attention. The hon. and gallant Member for North Portsmouth tried to associate the Conservative Party with the abolition of the food subsidies. That has never been a part of Conservative policy. We have been concerned with the growing amount of subsidies which have to be borne by the taxpayer. We have said that the time had come, before now, to look at these subsidies with a view to taking them off.

Major Bruce

Does the hon. Member endorse the remarks from his own Front Bench that they should be reduced to negligible proportions?

Mr. Shepherd

The hon. and gallant Member should realise that he cannot force words into the mouth of the Conservative Party. He has sufficient difficulty in trying to force words into the mouths of his own Front Bench leaders, without attempting a similar service on behalf of this party.

In this country we have ample testimony to the fact that the party and Government opposite have not determined to get a grip on our national affairs and to direct the country on the right lines. Indeed they are doing an extraordinary service. They are convincing people who would otherwise not be so convinced to take a favourable view of the merits of planning. If they persist in their policy of maladministration even my hon. Friend the Member for Orpington (Sir W. Smithers) will become a planner, because he will become so dismayed by the circumstances that have arisen.

I wish to refer to the balance of payments, because I feel that here the Chancellor has run away from the position. He has not indicated what he intends to do, and he has not held a. sufficiently firm direction upon other Departments during the course of this year. There has been a gross and quite unjustifiable expenditure of dollar resources during the past year. We have had the most fantastic misdirection of our exports. In the area which I represent I found the Board of Trade, in 1946, keeping cotton goods away from the dollar area, imposing a country by country allocation which almost denuded the whole of Canada, the United States of America, and the South American and Central American States of our cotton goods. Hon. Members who may have some doubt about this might look at the country by country allocation, and see how, in 1946, there was a conscious misdirection of our exports in that direction. Indeed, I do not think anyone seeking to deplete our limited resources could have done it so successfully as the present Administration.

Secondly, I want to refer to the question of sterling balances. Sterling balances are talked of by some hon. Members as something which do not matter very much, but they are a tragic burden upon this community. I suggest to the Committee that the handling of this affair by the Chancellor has been by no means enlightened and may have serious consequences for this country. Not very long ago an agreement was announced whereby the Argentine was to acquire our railway interests in that country against sterling balances. It is a very disastrous thing for that to happen. It would be bad enough if there were not sterling balances held by other countries, but what an example it is to other countries who hold much larger sums than the Argentine. Surely, this is another example of where the Chancellor has failed to act in sufficient time. Obviously, a bill should have been presented to those countries such as India and Egypt. We should have said, "We have sacrificed much on your behalf. We have done much to safeguard you from possible ravages of attack. In return we expect you to settle this bill." The advantage of that position has now been lost. Now that events have passed the stage when people think about the war with any degree of gratitude, we cannot again recapture the atmosphere when people would think it was appropriate. We are saddled with these enormous debts with little prospect of paying them. If the Chancellor has any ideas of how we can balance our payments in international accounts and make a contribution to sterling balances, we shall be glad to hear him tonight. This is another example of how the whole of the action of this Administration has been designed not to deal with any problems which are pressing upon us. Instead, the Administration have been floating in the realm of empyrean ideology to the disadvantage of the community.

8.48 p.m.

Mr. Leslie Hale (Oldham)

It is no light task to review the whole of the finances of our country in two and a half minutes. Hon. Members must understand that if I throw away certain criticisms and praise which I wished to lavish upon the Chancellor it is because of lack of time and not lack of inclination. Paeans of passionate praise have risen from the Stock Exchange and Throgmorton Street and they have been joined jubilantly, passionately, and enthusiastically on more than one occasion. Therefore, I just make one comprehensive observation that when at the end of his long speech on Tuesday, to which I listened with real interest throughout, he stood there with a Gladstone bag in one hand and a Queen Anne teapot in the other, the sun gleaming down through these windows upon him, he had all the appearance of a statue of economic liberty.

I had wished to say something about a betting tax. I can only say in ten seconds that, although I realise that it is an ethical as well as a fiscal issue and presents problems of great difficulty, if the Chancellor merely says, "The right hon. Gentleman the Member for Woodford (Mr. Churchill) could not do it and, therefore, I do not think I can," he is really obsessed by a wholly excessive modesty. There is a. very effective betting tax in operation in Australia which he might well study. It not only raises a great deal of revenue but wipes out the dishonest bookmaker, puts a premium on the honest bookmaker, and works very effectively indeed. No one can speak without mentioning tobacco. May I say in five seconds that not all my constituents like it? I wonder whether the reason that there will be a saving of 30 million dollars is really quite sufficient. Please understand that I accept at once the necessity for facing the problem, but 30 million dollars—£7 million—out of an adverse annual balance of £400 million, does not seem to be overwhelming proof of necessity for taking action of that kind. It is a drop in the ocean compared with the full flood tide of our hard currency balance. I am glad to hear that the Chancellor is endeavouring to deal with that. I cannot fully cover it in the 30 seconds now left.

I wanted to say one kindly word to hon. Members opposite because we have had from them a great deal of advice, a great deal of encouragement and a great deal of information about what they would have done The hon. Member for South Edinburgh (Sir W. Darling) wants to combine the financial rectitude of Wilkins Micawber with the financial dash of Stavisky, and says he would like to see controlled deflation without control. The hon. and gallant Member for Holderness (Lieut.-Commander Braithwaite) displayed a lot of wit, and a lack of knowledge of Roman history which was really appalling.

I want to make a brief comparison. If the right hon. Gentleman the Member for West Bristol (Mr. Stanley) will give me one minute over my time, I will be grateful. It is a little ungenerous of me, having taken a minute from him, to be rude to the Front Bench opposite. It is merely that in 1921 we had a similar position except that the National Debt was only £7,500,000,000 instead of the present colossal figure. A Budget was introduced which would provide all the imaginative action of the Tories and all the brilliance, dash, incentives and determination to restore prosperity, and it was introduced by Mr. Austen Chamberlain, who said that he proposed to make no alteration except to reduce the duty on sparkling wine and cigars. That was the Budget. I only want to give a quotation. Sir Robert Home in presenting his Budget in May, 1922, opened as follows: I do not think I shall be regarded as exaggerating if I say that it proved to be one of unexampled trial and difficulty for industry and commerce, and, therefore, also for finance. Its first three months were swept by the greatest industrial stoppage which this country, or perhaps any other country, has ever known. That occurrence had a disastrous effect upon our trade, and serious results upon the revenue of the year. But, apart from that refractory incident, there was enough in the natural flow of events to cause great anxiety. The trade boom which followed upon the war had given place to a steep and sudden slump. Many people were quite unready and unprepared. Apparently including the Chancellor. I must go quickly on. In giving his trade prospects he said: Unemployment is widespread. It is breaking the hearts and embittering the lives of hundreds of thousands of our workmen. The professional and middle classes are enduring privation today such as they have never before had to face. The unparalleled depression which beset us through the whole of the course of last year is still with us."—[OFICIAL REPORT, 1st May, 1922; Vol. 153, c. 1019 and 1039.] I thank the Chancellor for helping us to avoid that, keeping a tight control on things and finance, and giving us a credit balance which will restore confidence throughout the world and give some measure of social economy which marks an advance in our financial programme.

8.53 p.m.

Mr. Oliver Stanley (Bristol, West)

I do not regret at all the two minutes I have given to the hon. Member for Oldham (Mr. Hale). It has enabled him to display in that short time a knowledge, superficial perhaps, of American geography, Roman history, the Chancellor's mentality and a reading of HANSARD which is quite remarkable. I only wish there had been more time for him to display some knowledge of the present Budget. We have today listened to many speeches with great interest. It would, of course, be impossible for me to refer to all of them at this stage. I would recommend the Chancellor, who was out of the Chamber at the time, to read the speech by the hon. Member for Balham and Tooting (Mr. R. Adams) who had a really very novel idea for a new tax. It was to be a tax on virtue. I recommend the Chancellor to consider it because it has this great advantage, that neither he nor I would, I understand, be called upon to pay it.

There are only two speeches to which I feel I must refer. One was the speech by the hon. Member for South Nottingham (Mr. N. Smith). I did not hear it myself, but I was informed that one of the proposals he made, I think in all seriousness, was that we should meet our financial situation by the sale of the British West Indies to the United States. All of us in this Committee know the hon. Member for South Nottingham. We all like him, but we do not always take him seriously. The people of the West Indies, however, have not the same opportunities as we have, and they may take him, and in fact will take him, seriously. Nothing could be more insulting to these loyal subjects of the British Crown than that it should be seriously suggested in the British House of Commons that we should sell them to America as if they were cattle. I hope that the Chancellor, in replying, will find time to give a categorical denial to the possibility, that is in the minds of Members of any party—except that, apparently, of the Douglas Social Credit Party—that this transaction could take place.

The other reference I want to make is to the speech by my hon. and gallant Friend the Member for Holderness (Lieut.-Commander Braithwaite). Again, I do not think that the Chancellor heard it, but, in the course of his speech, my hon. and gallant Friend revealed some facts about Stock Exchange dealings which appear to justify the most serious inquiry by the Chancellor as to any possibility of a leakage of Budget information. I am sure that the House can count on the right hon. Gentleman to conduct an inquiry of that kind, and to inform us of the result.

I hope that the Chancellor will not mind if, before I pass to considering the matter of his Budget, I say a few words about the manner of its presentation. I had plenty of opportunity on Tuesday to judge the Chancellor's manner. I was one who sat on an ever-hardening bench from which, it is only fair to say, a great many of the hon. Members opposite had already fled—[HON. MEMBERS: "No."]—but I could not help wishing, at one time, that some of his excess staying power might have been transferred either to the British racehorse or to the British boxer. Unfortunately, I did not hear his broadcast. I was unaware that the B.B.C., with an instinctive realisation of relative importance which always distinguishes them, had switched his broadcast from the usual time. I am afraid that I tuned in at the usual time. The first thing I heard was: Just behind me, sitting under the arc light, is Mr. Shinwell. I thought there was something wrong; it did not seem like the Chancellor of the Exchequer to share the limelight with any of his colleagues. However, I soon realised that what I was listening to was the account of a prize fight in which the Minster of Fuel was only a spectator— this time. However, I listened on to hear the defeat of the unfortunate recipient of the Chancellor's good wishes. But those who heard both the broadcast and the speech told me that the broadcast was the same as the speech, only more so.

Naturally, we on this side of the Committee do not care what jibes or taunts the Chancellor throws at us. It is part of the trade of politicians to take as well as to give blows, and probably we are capable of giving just as good as we take. But I say, in all seriousness, to the Chancellor, who does not, I am sure, always realise how many of his remarks appear to some of his hearers: Cannot he cut out what would appear to be sneers against whole sections of the community with whom he happens to be in political disagreement? I know that in doing so he sometimes gets cheers from his own side, but, surely, the enthusiastic cheer leaders who sit dutifully behind him can get cheers for him without those excursions. He really does lose a great deal by this, because the people whom he sometimes leaves feeling insulted do not spend all their lives paying Surtax. Still less do they spend all their lives paying Death Duties. They are, in ordinary life, very often exactly those people to whom his Government are appealing for assistance in the difficulties in which we are today. They are very often those high executives, those professional men, to whom constant appeals are being made. The Government cannot have it both ways.

We can either have an all-out sectional fight in which everybody scratches everybody else to bits, or we can regard this as a fight for national existence in which all of us, whatever our views, are ultimately on the same side. Surely, the Members of the Government ought to take the same view on this. I sometimes pity Members like the Prime Minister, the President of the Board of Trade or the Minister of Labour. They must sometimes feel that they are like a modern Sisyphus, because, on a modest computation, it is fair to say that every public appearance by the Chancellor destroys one dinner by the Prime Minister, two conferences by the Minister of Labour and four orange juice parties by the President of the Board of Trade. I hope the right hon. Gentleman will find it possible to change his tactics. He will not find it too difficult. Every morning when he rises from his bed, in those few minutes before he seeks his no doubt musical ablutions, following the advice of another celebrated doctor, instead of saying as, no doubt, he says now, "Every day and in every way I grow greater and greater," let him say, "Every day and in every way I will try to he fairer and fairer."

It is the fashion within the two days after the introduction of the Budget for everyone to give his general impressions of the Budget, and I would like to tell the Chancellor what are the immediate impressions which the Budget makes upon me. [HON. MEMBERS: Hear, hear."] Hon. Gentlemen who applaud me so kindly may find within the next year or so, when measures much harder than this have to be imposed, that a great deal will depend upon the manner in which they are introduced as to whether the hardships to be borne are borne cheerfully or not. It is not possible to dissociate the two things. Do not think I am ungrateful for any applause given, for whatever cause. My first impression of this Budget is of unreality. In saying that, I do not mean just an argument about the surplus. That has been discussed sufficiently already. The fact is that, in modern times, with the power the Chancellor has to move at will both receipts and expenditures above or below the line, one can argue for ever as to whether a real surplus or a real deficit has been obtained. I cannot help feeling sometimes that if only company promoters of the past had enjoyed the same amount of freedom of accountancy as the Chancellor of the Exchequer has at the present day, very few of them, if any, would ever have enjoyed His Majesty's hospitality.

But the solid fact is—whether there was some surplus or whether there was none— we did, during the last year, make substantial progress, and good progress, towards reaching a state of financial equilibrium. That would be a most encouraging feature, if it were not for the fact that the figures we are discussing and the estimates which the Chancellor gave are based, as we all know, on the results of the past and not on the prospects of the future, that they refer to the period before the crisis which first broke out in all its severity this winter, and not to the situation of industry as we now know it. It refers to a time of what one might call the "phoney" peace, the time when, by a great amount of destocking, by tree use of the American loan, we were keeping industry at a pitch from which now, with a 50 per cent. coal allocation, we have fallen drastically. Therefore, the satisfaction that all of us would have been entitled to feel from these figures—if, at the same time, we could feel they were part of a permanent framework, and that the improvement of last year was likely to be followed by a similar improvement next year—disappears, because we know that this, in fact, refers to a situation which, unhappily, is past, and that next year we shall have to deal with much grimmer facts.

The second impression the Budget makes on me is one of foreboding. Anyone who looks beyond the facts of this year to the indications which both the Budget in itself and the Chancellor in his speech gave of next year, must feel a certain sense of depression. I do not want to join the ranks of the prophets of gloom, but I wish to say that I think even more harm is done by the Pollyannas than by the Jeremiahs. The Financial Secretary, in his paternal speech last night, singled out for special mention and, I think, equal approval, two speeches in yesterday's Debate. One was that of the hon. Member for Orpington (Sir W. Smithers), and the other that of the hon. Member for Buckingham (Mr. Crawley). The hon. Member for Buckingham made a speech in charming style, and as one who is both a good cricketer and a good Socialist, he put his left foot well to the ball. However, he gave vent to sentiments which I thought extremely dangerous. He disagreed with the Chancellor's dictum that we had to export or expire.

His thesis was, that somehow or other it would come out all right; that if, when this American Loan ran out, there was still a gap between our exports and imports, somebody would do something about it; either the American businessmen would lend us more, or the American State would lend us more, or we should be able to get from somebody else the goods that we are now getting from America. He felt that somehow or other there would always be an England, safe for Socialists to speak in. There is no more dangerous doctrine than that—that somehow or other, by some means or other, but by no conscious action of our own, things will come all right. It is false optimism of that kind which is perhaps the best and only justification for the most extreme pessimism. I myself have no doubt whatsoever that this country can save itself. The only question is, when it is going to begin doing so?

There is one very serious implication about this Budget. This is only the second full Budget since the end of the war. In this Budget we have already clearly reached the end of any automatic reduction. It is quite clear that, henceforward, we are settling down to something about the present level of taxation, and that a level which is only very slightly reduced from the maximum level attained during the great World War. The only prospect the Chancellor has held out to us of saving was the possibility that, from time to time, he might save a net quarter per cent. on the yield of Government securities. The continuation of this level of taxation depends, of course, upon the continuation of the level of expenditure, on which we have had a certain amount of discussion in the two days.

I want, if I may, to consider what is a very serious question, which, in the next year or two, will rise far above mere party discussion on whether we could cut down on this, or cut down on that, and carried on in the hope that we may get somebody to commit himself to something which can be used against him in the constituencies. Apart from certain expenditure all of us should like to cut down if we can, such as the expenditure on Germany, to which the Chancellor referred last year, but where he has still accomplished nothing, and the expenditure on the Civil Service, where the Chancellor has promised to cut, I think, 70,000, but where, again, he does not seem yet to have made much impression—apart from that, when we have got rid of all that, we have still a solid mass of expenditure, all of which, as my right hon. Friend said, can be justified in detail, the cutting of any bit of which would hurt somebody, would damage some interest, would cause some discontent—which is so important to politicians because it would mean some loss of popularity.

No one wants, of course, to make any cuts unless they are absolutely necessary. But the question we have to consider is this broad one; can this country really continue to bear for ever an expenditure at least as great—I say "at least" because of the automatic addition to expenditure which we have got to face in the future—at least as great as that which we are carrying now? Is it a fact, as some economists think, that there is a definite proportion of expenditure to national income above which it is not possible to continue without irreparable damage to the whole industrial and social system of the country? If so, what is that point? Are we beyond it now? And can we really expect, on what the Chancellor himself has forecast as being a falling national income—can we really expect to maintain a rising rate of national expenditure? This is a series of general questions which all of us have to face within the next 12 months, and on which all of us, I think, are entitled to the guidance of the Chancellor tonight.

Thirdly, my reaction to this Budget is that it is petty. It is going to have little effect upon the great national problems which are facing us at this moment. It is far more in the nature of a bookkeeping Budget than what we were promised was to be a new departure. That was the use of the Budget as a great instrument in national industrial planning. I remember that in the great Debate we had recently on the economic situation the right hon. Gentleman made only a fleeting and rather perfunctory appearance. We understood that that was because he intended to keep until the Budget Debate his great contribution to the solution of the economic and industrial problems which are facing this country today. I must confess that, as a contribution, I find this disappointing. The basis—at any rate, so far as finance is concerned—of the White Paper was that ominous gap between the purchasing power and the goods available—£7,000 million chasing £6,000 million—and it was to that, I thought, above all, that this Budget would be devoted.

There were two alternatives, both dangerous, both difficult, but either of which could have helped. He could have increased the supply of goods and could have given a real incentive, by a drastic reduction of taxation, devoted wherever practicable, to the increase of enterprise and work. Or the Chancellor could, in an attempt to reduce the supply of money, make drastic reductions in expenditure and heavy increases in taxation, leaving us a really substantial Budget surplus. Both of these courses, I admit, have great difficulties and dangers, but I say that, if successful, they could have done something to close the gap. This Budget falls between two stools. It is mildly incentive in the tax relief which it gives on earned income. It is mildly deflationary—I must not use that word; it is mildly calculated to resist inflationary pressures—In the net increases of taxation and the passage which it contains about subsidies. So far as the great economic problem is concerned, this Budget will have no effect one way or the other.

In the time that remains to me, I want to turn to some rather more detailed subjects. We have had a considerable discussion on the question of cheap money, and I do not propose to add much to what has been said. The Chancellor, when he opened the Debate on this subject used a very common dialectical trick He first of all erected a case which no one on this side of the Committee had ever made, he then proceeded to march round it, blowing his own trumpet, and he then expressed complete gratification at the collapse of the edifice. Now that we have shown that there is a real case—and that there is a real arguable case has been shown by my right hon. Friend the Member for the Scottish Universities (Sir J. Anderson), and my hon. Friend the Member for Chippenham (Mr. Eccles)—I hope the Chancellor will now give the real answer.

On the question of subsidies, I should like to say this. All through these Budget Debates, whenever a speaker is at a loss for an adjective to apply to the Chancellor of the Exchequer, either because he cannot think of one or because, having thought of one, he does not think it is safe to use it in the House of Commons, he describes the Chancellor as lucid. I bow to the majority and accept the fact that, when the Chancellor wants to make something clear, he can do it, but the corollary is that, when he fails to make something clear it must be because he does not want to do it. Certainly, I defy anyone who either listened to or has since read the Chancellor's statement on subsidies to say exactly what it means. The nearest that we got was that the Chancellor does not think the subsidies ought to go on increasing, and that he intends when he can to reduce them by concentrating upon a smaller number. He is putting off doing anything in the hope that the new index figure will destroy the old yardstick by which these things are measured, and, somehow or other, he will get away with it without anybody knowing anything about it. I may be doing the Chancellor an injustice, but my hope is that if I am wrong he will correct me by telling me what he really did mean

Fortunately we shall have an opportunity next week, an opportunity which i understand it is the hope of the Government in future to withdraw from this House, of discussing the taxes in detail on the Report stage. I therefore want to conclude by speaking of only one further point and that is the Tobacco Tax, a tax which, of course, is the most difficult and the most controversial in the whole of the Budget. I want to make it quite clear that, in so far as the right hon. Gentleman's object in this tax is to reduce our purchases of tobacco from America, we on this side of the Committee are entirely in sympathy with him. In our difficult situation today we think that the amount spent on tobacco, in relation to other more Vital needs, has been quite out of proportion and we are not surprised that the Chancellor should wish to deal with it now. We are only surprised that he did not wish to take steps to deal with it earlier. What we do question, however, is whether the method which the Chancellor proposes in this Budget is both the most certain and the most fair way of getting what he and we want.

Clearly, if all that is necessary is a reduction of the amount of tobacco to be imported, then the simplest and most certain way is to reduce the import licences for tobacco to the amount which he is prepared to allow to come in. In that way he could make quite certain of the saving required. In this way the right hon. Gentleman himself will admit that there is no certainty; when he talks about a 25 per cent. reduction it is the expression of a hope, and he cannot he unaware of the fact, that, on previous occasions when the tax upon tobacco has been increased, it has not been followed, except for a comparatively short period, by any reduction in consumption but, on the contrary, the increase in consumption has later resumed its upward course. We are therefore puzzled as to why the most certain method was not adopted, especially as it would appear—I have only to quote speeches by hon. Members on all sides of the Committee—that this method, besides being uncertain, is also regarded by most people as being unfair. We have had no explanation yet of why it was impossible to adopt an alternative course.

I have been reading the papers this morning, and I detect the presence of a P.R.O. If you walk through a field you very seldom see that industrious little animal the mole, but you detect his presence by the number of excrescences which you see in the field. Similarly, you hardly ever see that industrious person the P.R.O., but if when you pick up your morning papers you see the same thing appearing, in slightly different language, in a number of papers of wholly different complexions, you know the P.R.O. has been at work. From that I draw the information that the Government had considered the idea of restriction by licence, but had rejected it because of its difficulties. When we come to discuss this next week we shall want to have very much more information than we have had up to now as to why no alternative method could have been adopted, and we certainly cannot support the proposal in this Budget unless we are convinced that all alternatives have been considered and none offered any better prospect than this one.

I have promised to give way to the Chancellor at 25 minutes past nine. I will not ask from him those few precious moments which I surrendered to the hon. Member opposite. I will close by saying that we have a very uncertain financial future and that I see only one thing in it that is certain. It is that this is the last appearance of the Chancellor of the Exchequer in the role of Santa Claus. Even now, the part is getting a little thin. There was not as much in the sack this year as there was the year before. Whoever has to introduce next year's Budget will have a very difficult task. The halycon days are over. The days of opportunity merely to dispense in benefits those automatic savings which resulted from the closing of the war now are gone. Of course, it is not my business to advise or warn right hon. Gentlemen on the Front Bench opposite, but I do confess that if I were the occupant of an office equal in status to that of the Treasury and more favourable in prospects I should be feeling very nervous. I should regard the Chancellor of the Exchequer with a very great deal of suspicion and I should be determined that at all costs I would keep the cuckoo out of the nest. If they do not, and if they are not on their guard, Ministers who are in that position will find themselves next year quite undeservedly having to face the Nemesis which ultimately always over- takes those who are prepared to place party gains and party spite above national advantage.

9.27 p.m.

The Chancellor of the Exchequer (Mr. Dalton)

I always enjoy the speeches of the right hon. Gentleman the Member for West Bristol (Mr. Stanley) because he has a combination of qualities which are rare. He has, as a rule, great charm, great wit and great intellectual penetration. Tonight, somehow—and I am so sorry—something seems to have penetrated from this side under his cuticles. I do not know what it was. I am sorry if anything which I said in what I thought was a systematic exposition of our financial problems, and a placing of certain practical propositions before the Committee, should seem to have been out of line with the kind of way in which he thought that that particular thing should be done. I will not say any more about that point now.

As the right hon. Gentleman has said, we can all exchange blows and opinions in the political life of this country, but I thought he was a little unduly acid at some stages both in the lengthy prologue of his speech before he got down to business and in the last sentence. [An HON. MEMBER: "Three hours."] I bear no grudge, and I hope the right hon. Gentleman does not, either. We shall, as has been said, have many further opportunities in the long habitual processes of discussion which go on, year by year, in this House on finance, and which the Government intend to propose slightly to abbreviate for next year. That will all come in due course. [HON. MEMBERS: "Oh."] The right hon. Gentleman was aware of it. We propose to formalise the so-called Report stage of the Budget Resolutions. We shall have plenty of time to discuss all these matters again and again.

That must be my excuse for not dealing with all the points which have been raised, important though so many of them are. I hope that no hon. Member in any part of the Committee will feel, if I am not able in the half hour that remains to deal with the particular point that he raised, that I am desirous of ignoring it. Opportunities will recur. I did not hear the speech of my hon. Friend the Member for South Nottingham (Mr. Norman Smith). I do not know what he said—I shall read it with attention tomorrow in HANSARD about the West Indies, but, if I am asked to express the Government's view, it is, of course, our view that the West Indies are an essential, valued and ancient part of the British Commonwealth. I hope that is enough and all that I need say on the subject.

I heard only the latter part of the speech of the hon and gallant Member for Holderness (Lieut.-Commander Braithwaite). When I came in, he had already passed away from some points of interest which were reported to me as having been made earlier. He will correct me if I am wrong, but I understand he said that on the facts of the case, and on the movement of prices on the Stock Exchange, he thought that there had been some fore-knowledge of the Budget proposals in some quarters with regard to the repeal of the rayon Excise, on the one hand, and with regard to the increase of the Tobacco Duty, on the other hand. I am quite prepared, of course, to receive, and shall be glad to receive any evidence that he may have on that subject. So far as I know, he is the only hon. Member who has raised it. That is no reason why it should not be valuable evidence, but I say that he, and nobody else, has raised this point, and, therefore, it is up to him to afford me any evidence he has, and it is up to me to look at it. So we will agree that if he will give me his evidence, I will undertake to study it with the greatest attention.

I would merely like to say at first sight that it might well be that persons "in the know" who had read the proceedings a year ago in our finance Debate discussions, might think it not at all unlikely that we might lift the rayon Excise this year, because I was pressed to do it last year. I did not then feel able to do it over the whole field, but I did give a special rebate in respect of some rayon productions—the use of rayon for tyres— and I did indicate sympathy towards the idea of freeing the particular industry from this particular incubus. I have not looked it up, but I have a clear recollection of what I said. I did want to do it last year, but it was not possible, and I made it pretty clear, indeed, I was forthcoming in terms of hopes, that I might well do it some day. Therefore, it may well be—I say this before seeing the evidence which the hon. and gallant Gentleman may give me—that somebody turned up last year's Debate and thought, "Very likely, this year it may come."

With regard to tobacco, I cannot believe that the increase in the Tobacco Duty has surprised anybody at all. There may be debate as to the amount of the increase, and the increase may have surprised people. The fact of the increase, I suspect, surprised nobody at all. Equally, in this case—I am only wishing to make this statement as my primary reaction before being given the evidence—it may well be that here, too, a number of people, thinking that tobacco might be more heavily taxed, and the consumption somewhat diminished, and the profits of various companies somewhat diminished, may have sold the shares.

Lieut.-Commander Braithwaite

If the right hon. Gentleman will read my speech in the morning, he will see that what I said I thought was worthy of remark and inquiry was that the market appeared to have been seized of the exact amount of the increase, which was considerably more than was anticipated.

Mr. Dalton

Well, let us leave it there now and I will undertake to go into the evidence with every care. A number of other points have been raised and I wish to say something on some of them. With regard to cheap money, I admit I spoke at length, but I was advised it might be useful to do so, and I was almost challenged to do so by my critics. I hope that part of my speech anyhow was lucid. I do not propose to add to the defence beyond saying that, after all, the gross crime—if it be a crime—or error, if it be an error— which I am charged with by my critics is that I have been following in a pathway marked out for me by many distinguished predecessors, but that I have quickened the pace a bit too much. "The pathway along which you should go is all right" they say, "but you ought not to move so quickly." I am prepared to face that criticism in detail at the right moment. But all I claimed in my Budget speech when discussing cheap money, was that which I had done in that field, with the approval of my colleagues in His Majesty's Government, since the present Government came in. I gave the figures of reductions in interest charges and so on, whether to the Central Government, local government, or to our friends in Australia. All that I was seeking to expound to the Committee was the change which is taking place for the benefit of the nation as a whole, and to show what I had done in following the path laid down by my predecessors.

In regard to Australia, I was a little shocked, or at any rate a little taken aback, at the remarks made by the right hon. Member for the Scottish Universities (Sir J. Anderson) in regard to conversions because I do believe in Empire Preference. I do not see why we should not have Empire Preference for the City of London as well. It seems to me that it was a very proper thing for us to co-operate in, and we rejoice in the fact that our close kinsmen and good friends in Australia were also helped by our cheap money policy. We have no better friends anywhere else in the world, as will become more and more clear as the months and years march forward. Particularly do I think that that is a very reasonable step to take, having regard to the very great generosity with which only a few weeks ago the Australian and New Zealand Governments came forward with most generous contributions to the war efforts of this country in the Pacific Ocean, and elsewhere. I made a statement of appreciation of that in the House and it was warmly supported, as I would have expected, by the right hon. Member for Warwick and Leamington (Mr. Eden). I thought it a little cold when the right hon. Member for the Scottish Universities said: I think the Chancellor even seemed to be claiming some advantage from a cheap money policy for this country in so far as it enables other people outside this country to borrow on a much cheaper rate."—[OFFICIAL REPORT, 16th April. 1947; Vol. 436, c. 203.] I think that is a little cold and unresponsive when applied to our Australian friends.

Sir J. Anderson

If the right hon. Gentleman will forgive me, I made it clear, I think, that we might, on a broad view, regard it as an advantage to be able to help a friendly Government, and I said, particularly a Dominion Government, but I did not think it ought to be claimed as a direct advantage to this country. That is all I said.

Mr. Dalton

I would not claim that the cheap money policy had any justification outside this country unless it affected close friends of ours. But, since it was solely of Australia that I was speaking—solely and exclusively about Australia—I repeat I was a little surprised at the form of words used by the right hon. Gentleman. I do not see why we should not have a little Empire Preference in regard to monetary transactions as well as in regard to goods. I think I shall have the country behind me if I can manage to help Australia again.

There has been a great deal of discussion about the volume of expenditure, which was inevitable. I think the right hon. Gentleman was unduly pessimistic about it. I have said nothing to suggest that I think we have reached a rock bottom of national expenditure. I will only give totals, and not weary the Committee by subdividing them, for I did a good deal of subdivision in my Budget, speech. The figures show that the actual expenditure in 1945–6 was £5,475 million. The actual expenditure last year, the first full year of peace for which this Government were responsible, was £3,910 million. Down from £5,475 million to £3,910 million, a reduction of just on 30 per cent.—not bad for a start, I think. A further reduction which we contemplate in the coming year, on the Estimates which I summarised to the Committee, is from £3,910 million to £3,181 million, which, expressed in terms of percentage is a further reduction of another 20 per cent., as near as may be. I do not think that that is really bad going. Comparing what happened immediately following other wars, I think it will be found, although I have not got the exact figures before me, that it is not indeed quite so rapid a reduction, because this time there is a special circumstance, of which I would remind the Committee, why the reduction in the total expenditure should be less. Allowing for that special circumstance, and other factors which have been mentioned, I do not think that is a bad beginning in reducing the total expenditure of the country.

One reason why the total expenditure is not likely to drop so fast this time, as after the last war, is because, coinciding with the end of the war, there was a change of Government in this country. I am stating this quite objectively. After the sensitiveness displayed on the other side of the Committee, I am anxious to put it in the most objective and fair manner possible. There are two distinguished points of view which are held in this country, and, no doubt, there are a lot of people who hold an indeterminate view between them. Broadly, there are some people who think that it is worth while to have a pretty heavy level of taxation in the country, provided that the proceeds are spent on various forms of what are called the social services— whether it be old age pensions, health services, education, or what you will.

They think that it is worth while continuing to carry a fairly heavy load of taxation in order to redistribute a considerable part of the national income in connection with such schemes of social expenditure and the distribution of money among people, in accordance with their needs, as assessed by their age, or by their youth, as the case may be. There is another school of thought that thinks that it is dangerous to proceed so fast along the road of developing social expenditure, because that means keeping the level of taxation higher than it would otherwise be if there was less social expenditure. They think that it is, therefore, better to seek, in the first instance, substantial and rapid reductions in taxation at the cost of delaying social development and social security schemes. That is surely the difference between hon. Members opposite and my hon. Friends on this side of the Committee.

We take the view that too rapid a decrease in national expenditure, even if it brought about reductions in taxation, even if those tax reductions were well adjusted, would not be as good as pushing forward more rapidly than the Party opposite would wish to do with the social services and social security arrangements for which we stand, even though that means that the tax level has to be kept higher for a number of years. It follows from that that even if it could be shown that under this Government, pledged to the policy I have been describing, the reduction of the total rate of taxation and the total of national expenditure was lower than after the last war, none the less there are, in our view, justifications for this contained in the policy we are supporting. Having said that, I, none the less, wish to emphasise that I do not regard our total national expenditure as having reached rock bottom. There is much scope for reduction in defence expenditure yet, much scope for reduction in overseas expenditure of various kinds, and for a reduction in some selected parts of our domestic expenditure. I think that there are too many civil servants. I think that that case is only spoiled when it is put in an exaggerated and malicious way by some people who speak as though all civil servants were "below the line" and were performing no useful function, and who use offensive epithets like "parasitic."

I have said before, and I repeat, that the Government are now considering in close detail how far we can, without sacrificing any essential policy, or the execution of any such policy, bring about some reduction in staffs which may have grown somewhat too large. I do not at all despair of getting reductions there, although I must warn the House that we are not going to get enormous savings in the total merely by somewhat reducing Governmental staffs.

With regard to food subsidies, I am sorry that I was not as lucid as I had hoped on that subject. The right hon. Gentleman gave a most delightful summary which I accept completely. None the less, I say—and I want to be frank with him about this—that it is much too early at this particular moment to decide what can be our long-term expenditure, if we are to have a long-term expenditure on food subsidies. I do not accept the view put by the right hon. Gentleman the Member for Scottish Universities which has been quoted already tonight, that the national economy will never be on a satisfactory basis until these are reduced to negligible proportions. I do not accept that at all. At the same time, as I sought to explain to the Committee, it would be very gratifying if we could make certain arrangements and if, while not withdrawing from the housewife or from the agriculturalist the undoubted benefits which they have been getting, we could give them -the substance of what we have, hitherto, been giving them at a lesser cost. I will not elaborate in detail now but I will give one simple illustration.

We have lately discontinued subsidising the price of pilchards. I am very fond of pilchards; I think they are a most delightful form of fish. But I do not think it has been reasonable to subsidise them at the expense of the taxpayer.

Mr. Douglas Marshall (Bodmin)

Why do not the Government get pilchards from Cornwall and save the subsidy?

Mr. Dalton.

I do not want to claim too much for myself. I have been warned about doing that but, as a matter of fact, it was upon my initiative, following the suggestion that I made to my right hon. Friend the Minister of Food, that we discontinued the subsidy on pilchards, and on a number of other foods which really are of very secondary importance, and for which people ought to be able to pay a fair price if they want them. We have sought to eliminate the subsidy over a certain field of what I may call secondary foodstuffs. To eliminate it over what I may call the field of primary foodstuffs is a much more serious proposition. Upon that I think it is very reasonable that we should proceed with caution, particularly in view of what is going to be done in connection with the new index. I think it is fair that, until we have got the new index in working order, we should not commit ourselves to any substantial reduction of importance on the central group of subsidised commodities, but we may continue to make economies on what I may call the periphery.

Much has been said about tobacco. I was very sorry that I did not hear the speech of the hon. Lady the Member for South Aberdeen (Lady Grant). But I have read it and I am only sorry to have missed hearing it. She accused me of producing this time an electioneering Budget. Well, I am not sure that we could not do better for her if that was what we were aiming at. I thought that I had produced a Budget which, though I am prepared to defend it in detail, and I will do my best to do so, is not at all likely to be a vote catcher. The Opposition must come to their own conclusions about what they think on the different items, but I have produced a Budget which contains proposals which I think are for the good of the country—including the increased Tobacco Duty. That is undoubtedly the most unpopular thing in an otherwise not too unpopular Budget. There it is, and it does stick out in people's minds. I have been pressed very hard, of course, and very rightly, by many people. I have here a note of an exchange at Question time in the House on 4th February when the Leader of the Opposition, in a supplementary question to me, said: Is it not of the highest importance that the American loan should be used to bring in the appliances to put our industry in the latest condition, and also essential foods, and that all other expenditure should be viewed with severe restraint by the Chancellor of the Exchequer?"—[OFFICIAL REPORT, 4th February, 1947; Vol. 432, c. 1576.] A very reasonable question. Of course, as I was at that time incubating my Budget I could not say in the House that I had pretty well made up my mind to advise my colleagues to jump up the Tobacco Duty. That would have led to operations.

But it has for some time been clear to me that we must deal with this thing and it is my view that this particular matter of tobacco can best be dealt with through the Finance Bill. I shall have plenty of opportunity for explaining why this is best dealt with by a straightforward and substantial increase in taxation. That is definitely my view, and I will defend it in detail at the right moment. That view has been reached after, of course, careful consideration of other ways of bringing about the same result, including a mere limitation of the import licences without any attempt at rationing, and alternatively, the imposition of a rationing scheme.

We have looked at all these very carefully, and the President of the Board of Trade who would be responsible for administering a rationing system and is responsible for the import licence arrangements, is strongly of the opinion, which I share, that it is quite impracticable administratively to operate a tobacco rationing scheme. I will give reasons in more detail another time. I say this now so that the Committee shall not think that this matter has not been most carefully considered.

With regard to the question of limiting the importation without rationing, I do not think that could be seriously defended. That would simply lead to queues, and confusion, and difficulties on an immense scale. The only alternative which is a starter at all, as against a straightforward increase on taxation, is a rationing system, and for reasons which I will develop on another occasion, my right hon. Friend and I and our colleagues did not feel that is at all practicable. And we are sorry that that is so. We did not think it practicable, and it would also, of course, lead to a further increase in the Civil Service about which so much has been said already.

I have repeated several times that I am primarily concerned here to save dollars. I have been asked by some why this is the only way in which at this moment we appear to be taking action to economise dollars. My answer is, because this is the Finance Bill; because this is the Budget; and this is the one case where the instrument of taxation appears to us to be the right instrument for bringing about the economy which we desire.

There are other directions in which economies could be made, but it would be out of Order to discuss them in detail on the Finance Bill because I have made no provision for them. Such matters as films—others have attracted attention—in my view, and the view of the Government, can better be dealt with by means other than taxation. There are ways of dealing with these matters, but taxation is not appropriate in their case. That is why we selected tobacco. Here was what I may call the first shot in this campaign for the reduction of dollar expenditure, a battle which will be hard. I said all this in my speech. It will be very hard and full of unpleasantness, and we shall have to make sacrifices. This Government will ask the country to do it. We shall be glad of the support of those who do support us, and in the case of those who do not, we shall seek to counteract their baleful influence.

The facts about tobacco are as follow. There is a little possibility of confusion on the figures because not all the tobacco we import do we consume. We re-export some. Home consumption of United States tobacco amounted to £32 million sterling in the last 12 months. That compares with exports of all British products of all kinds to the United States in 1946 of £34,500,000. The two figures are nearly even. I would only say further, on tobacco, because, as the Committee realises, my time is limited, that I am very anxious it should not be thought that anybody has got to give up smoking completely. I give great credit to anybody who will; but it is quite possible for a smoker to continue smoking a substantial proportion of what he has hitherto smoked, and also to save a little money on it, even at the higher price. I have worked out, and will use them when Tobacco Duties are debated in detail, figures showing how a cut in consumption of one-quarter, which is what I ask as a minimum, or of one-third, which would be better, would respectively affect various types of smokers, some heavier and some lighter. But, broadly speaking, if we cut smoking by one-third, even at the new and higher prices, we can save money. Therefore, I do not wish this austerity atmosphere to be overdone. I do not think it is really in accordance with the facts to represent that any substantial body of our fellow citizens, for many of whom we have the greatest sympathy, will be totally unable ever again to be able to buy smokes. Statistics contradict such over-dramatisation.

In conclusion, I will assert in two sentences once more that, in my view, we have a surplus this year. I do not accept the argument that the surplus is "phoney." I have been rereading the Budget for 1920. The right hon. Member for the Scottish Universities told us about that Budget, and I read it with great interest, together with the Debates which took place. Sir Austen Chamberlain—Mr. Chamberlain as he then was—claimed a Budget surplus of some £230 million or so. As soon as he had made his speech what happened? The Opposition got up and tried to argue it all away. Mr. Asquith made a most penetrating and interesting speech, and said that there was a deficit. Mr. Chamberlain himself used the term "Miscellaneous Receipts." He collected £311 million of Miscellaneous Receipts in that year, and he took full credit for it. He said that the bulk of it would go to the reduction of the National Debt. It came from war stores, and so on. Not quite the same line of division, I agree, but still the same terms. The same right hon. Gentleman, no doubt, was concerned in the preparation of the speech with which Mr. Chamberlain replied to Mr. Asquith—Mr. Asquith having argued that the surplus was "phoney"—and Mr. Chamberlain assured the Committee, supported by his Civil Service advisers, that it was not.

This argument must be resumed on a later occasion. All I say is that I am quite confident I shall have plenty of arguments to deploy in answer to those advanced by the Opposition. But the time has now come for me to resume my seat, although I am afraid it will not be long before I shall have to trouble the Committee on future occasions, when, however, I will try not to make such a long speech. I am sure that they will listen to me with the same courtesy and kindness as right hon. Gentlemen opposite have shown.

Question put, and agreed to.

Resolved: 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.

Resolution to be reported tomorrow.

Committee to sit again tomorrow.