EXCESS PROFITS TAX

HC Deb 13 November 1947 vol 444 cc557-673

Question again proposed: That—

1. (a) interest at three per cent. per annum shall be payable on unpaid excess profits tax;
2. (b) paragraph (a) of this Resolution shall be deemed always to have had effect, except that interest shall in no case begin to run before the first day of January, nineteen hundred and forty-eight; and
3. (c) any Act of the present Session giving effect to this Resolution may contain provisions consequential on or incidental to any of the provisions aforesaid."—[Mr. Dalton.]

3.46 p.m.

Mr. Oliver Stanley (Bristol, West)

I must confess that I feel, and I think my feeling is shared by a large number of Members of this House, a great deal of disappointment at the Chancellor's speech yesterday. There was very much ground I expected him to cover, very much ground that I thought he ought to cover, but I could hardly believe, I do not know whether to say my eyes or my ears, when his speech came to an end. Indeed, I must confess to the Committee that for the first time and probably for the last time I actually wanted him to go on. Surely, in view of all that has happened since April when last he made a full financial review to this Committee, we are entitled to some new appreciation of the position. A great many things have happened since April, none of them I am afraid very pleasant things, and much of what he said in April is out of date today in November.

It is quite true that the Chancellor of the Exchequer spoke on the Address, but when he spoke on that occasion he confined himself entirely to the details of his operations on the American credit. It was an excellent speech, and so masterly was his defence that for the moment he quite convinced me that there had never been a crisis; that, indeed, the loan had not been suspended and that, after all, it was nothing but a conspiracy of the wicked Tory Press. But on that occasion he expressly stated that he refrained from making any more general comment because he was reserving that to his Budget statement. Of course, I can understand the Chancellor's natural diffidence. Any full statement on our financial affairs today would be in the nature of a funeral oration upon himself, and in this case he would find, I am afraid, that the old tried maxim de mortuis nil nisi bonum was quite impossible to apply. He will not, of course, expect the same delicacy on my part.

I have got a great deal to say about the Chancellor's administration and nothing I regret to say but ill, because I regard the right hon. Gentleman as being more than any of his colleagues responsible for our present disastrous position. I want to make it quite clear that in saying that I mean no disrespect either to the late Minister of Fuel and Power or the present Minister of Food. It is merely that the right hon. Gentleman's opportunities have been wider than theirs. We believe that the right hon. Gentleman, by his wilful blindness, by his extravagant optimism, and by his persistent hunting for political popularity, has allowed the financial policy for which he is responsible, effectively to sabotage at every turn the efforts of his more realistic colleagues.

In proving that statement I have some difficulty in the evidence that I am to select. I realise that the right hon. Gentleman now feels great distaste for the evidence of economic experts. The other day when he was addressing the House, when he had to refer to what the experts had written, I noticed just the same roll of the eyes, just the same wave of the hand and the same hardening of the accent which he reserves for the people he particularly dislikes, such as Surtax payers or Members on the benches opposite who contradict him. I thought at the time that it was a little hard. In the first place, it was not very courteous to the large number of those academic economists who throng his own Front Bench and who, when they are there in all their glory, give an impressive display of the mens sana, though, you will regret to hear, Mr. Deputy-Speaker, in some cases not in corpore sano. If it was hard on the economists already on the Front Bench it must have been most discouraging to the smaller but still considerable number who sit on the back benches and who remain there with politely concealed eagerness until the Chancellor beckons them, "Friend"—or perhaps I should say, "Professor"—" come down lower."

Still, I respect his scruples, and I shall therefore ignore the evidence of the experts, and I shall rely only on two sources, neither of which, I am sure, the right hon. Gentleman would class under that heading—my own observations and his own speeches. I want first to give the Committee one quotation from a speech which the right hon. Gentleman made at what I am afraid one must consider the apogee of his career. This was at the Labour Party conference at Bournemouth last year. One can almost see the right hon. Gentleman on the promenade inhaling ozone and exhaling bonhomie, obviously deprecating all the talk going on among his friends that he had made the best speech, had stolen the conference, and had even eclipsed the Prime Minister. This is what he said: The tear of inflation is diminishing. It has largely passed away. That was less than 18 months ago. Now that fear which has largely passed away dominates all our thoughts and is the sole cause of the Budget which we are now debating.

I find it difficult to tear myself away from that speech. I have read it time after time against the background of what is happening today. I think it is the best bit of escapist literature I have ever read. I cannot close my references to it without reminding the Committee of what probably is still fresh in the minds of hon. Members opposite, that is, the peroration: Upon a firm and strong financial basis—and I think we have made a good beginning—we shall build the social and economic achievements of these five years, of which the first is nearly run, before we go back once more to the electors carrying, as I believe we shall, many sheaves with us. The print is very small and I must confess that when I first read that I read it "carrying many sheep with us." It was perhaps not an unnatural mistake, but it was a mistake, and the right word is "sheaves."

I have one more quotation from about the same period, the Chancellor's golden age. Those who want to look it up can look at HANSARD for 20th June of last year for the Debate on the Committee stage of the Finance Bill. In the course of that Debate the right hon. Gentleman uttered these words: We are working according to a five year plan which is gradually being unfolded as events move forward. Each year that the Labour Government remain in power more benefits will be given and will be distributed among all sections of the people."—[OFFICIAL REPORT, 20th June, 1946; Vol. 424, c. 448.] We had to look very hard yesterday for the benefits of this year. Has there ever been such a confident prophecy which has proved so ludicrously wrong in such a short space of time? I think I am not wrong in saying that it was the Chancellor himself who, in one of his Budget speeches, applied to himself that line of the hymn: 'I do not ask to see the distant scene. He might have added: One cheer enough for me. It would not have mattered very much if these were just two foolish statements which had afterwards been proved wrong. They might have had a great effect upon the Chancellor's reputation but they would have had little effect on the national income. The trouble is that the Chancellor not only spoke those words but acted on them, and all through that time he blindly ignored the inflationary movement which was obviously developing. While some of his colleagues were doing their best to close the gap by increasing production he was doing nothing to help them by trying to reduce the money available. In fact, far from trying to reduce it, he went in several instances out of his way to increase it and, therefore, to increase the inflationary pressure. Take the case of capital expenditure. I think it is now admitted on all sides, it certainly was by the Minister for Economic Affairs, that exaggerated programmes of capital expenditure, far beyond our resources in men or material, had been one of the chief causes of the disequilibrium of the past two years. The right hon. Gentleman cannot be held solely responsible for that. All the Ministers in charge of the spending Departments have their share of responsibility, but the right hon. Gentleman was the Minister in the best position, as Chancellor of the Exchequer, to exercise some control over the activities of the others.

We know that this Government is different from all others. We can tell that from their contradictory speeches and conflicting actions. We realise that, under this Government, in the Cabinet room there is no law except the law of the jungle. There you see "Nature red in tooth and claw," and it is everyone for himself and the back benches take the hindmost. Even so, the Chancellor must still maintain some control over the spending Departments, some power to bring their programmes as his predecessors have done, into some relation with the realities of the day. Far more than having even tried to do that the right hon. Gentleman has boasted that he has not controlled but has prodded; that he did not try to restrain but to urge on. Certainly, as at every stage, he tried to pinch what he could of the credit, so today he cannot object to taking a large share of the blame.

The second point is the question of the cheap money policy. We have debated this on many occasions. I do not want today to go over the old ground. [An HON. MEMBER: "Do."] I will think about it later and perhaps towards the end I might come back to it. All our Debates on this subject have given a typical example of the Chancellor's dialectical methods. He has never attempted to meet the case put up. He has put up a case for himself and then knocked it down. He knows quite well that we have never complained of cheap money as an objective; what we have complained of are the methods he has adopted in order to reach it. That we have argued, and he has never attempted to contradict the argument that those methods in themselves caused inflation of capital value all over the Stock Exchange, gave to investor and speculator alike large and automatic profits, and many of those profits could have been and were realised for the purpose of consumption expenditure.

There was, finally, the whole question of the level of expenditure, which again we raised time after time. The Chancellor of the Exchequer has never faced up to the question whether in fact the level of Government expenditure which we were maintaining was not bound in the long run to lead to inflation. I do not propose to deal with that at this stage; I shall have more to say about it later. We cannot accept the thesis the right hon. Gentleman put forward yesterday that this inflation which he now admits is a new phenomenon caused only by the new measures which his right hon. Friend has taken. We cannot admit that the only inflationary gap with which the right hon. Gentleman has to deal today is the gap caused by those measures. We believe, on the contrary, that inflation has been present for a long time and that it has not been created but only increased by the new measures which have been introduced. We believe that at least for the last year, the measure of inflation already present has resulted in a distortion of our whole economy. We believe that it has led to big rises in the prices of everything which is uncontrolled, has therefore given to everyone engaged in those industries added power to attract labour and materials, and has defeated, or at any rate largely hindered, the efforts of the Minister for Economic Affairs, when he was at the Board of Trade, or of the Minister of Labour to direct materials and labour only into the most essential channels.

Secondly, we believe that this inflationary movement has given an ever-growing incentive to the black market and that week by week, the prices of rationed and controlled articles have got more and more out of line with the general values outside. The right hon. Gentleman is certainly entitled to regard himself as the patron saint of those spivs to whom his right hon. Friend has just been referring. I should not be surprised if they erect a statue to St. Hugh the Benefactor. This dangerous, hampering process has not only been allowed but has been encouraged by the Chancellor. The truth is that the situation we had up to last autumn, a combination of inflation at home and credits from abroad, is an absolute paradise for an irresponsible Chancellor, and the right hon. Gentleman has found himself quite at home in that paradise.

But these debauches, pleasant as they are while they last, have always to be paid for in the end, and now unfortunately, with the exhaustion of our credits, the time for payment has arrived. It is a pretty heavy bill, too, that was presented to us yesterday. It is part, but I am afraid only part, of what we have to pay for two years of the right hon. Gentleman. We believe that what he asked the country to accept yesterday would have been unnecessary if wiser steps had been taken before, and that the blame for the hardships which these proposals are bound to cause have to be laid, and laid firmly, at the door of the right hon. Gentleman. But that does not absolve us from facing the situation as it now is—whatever the blame of the past—and applying whatever remedies now become necessary. It is just as if in our private life we had had a minor ailment which, through the negligence and incompetence of our medical attendant, had been turned into pneumonia. We should put all the blame upon the doctor. We should determine to sack the doctor as soon as we could—

Mr. Kirkwood (Dumbarton Burghs)

That wish is father to the thought.

Mr. Stanley

You wait. We should not refuse to take the remedies which alone could cure us of our present illness, even though we believed it was his fault and not ours that we had it. Therefore, whatever we feel about the past and whatever we say and shall say about the past, we have to realise the situation which has actually been created and we have to consider the remedies, however harsh they are, which are necessary to meet it.

Indeed, these new taxes place a heavy burden upon the people. It is quite true that they do not fall upon the absolute necessities of life, but they certainly hit pretty hard many of the things which are far from luxuries and which people consider as part of their normal existence. Of all these taxes, I think the Purchase Tax, about which the right hon. Gentleman said the least, will prove the most burdensome. In his speech yesterday the Chancellor merely dealt with it in categories, and it is not easy for everybody to bear in mind what is included in each category. But when we look at the list, we see that there are many articles not of prime necessity but of very ordinary consumption, the prices of which will be increased by this Measure. In the first category, the 16⅔ per cent. which is to be doubled, there are garments and footwear, drugs and medicines, linoleum and wallpaper. Those cannot be called luxuries. In the next category, 33⅓ per cent. which is now up to 50 per cent., there are headgear and gloves, lighting fittings and cutlery, brushes and combs, even toys and games. We do not put those in the luxury class. It is only when we get to the very limited range of the very highest of all that we can describe the articles which will be affected as purely of luxury consumption.

One hon. Member opposite cheered vociferously the announcement about spirits and beer. To him it is a moral asset, but certainly to most of us it will be a material disadvantage. Perhaps we could not expect that the drinkers would escape today what the smokers had put on them last April, but we have to consider whether the effect of this new duty may not well be that many people who, since April, have turned from a pipe to a pint may, as a result of this, turn back again.

Major Bruce (Portsmouth, North)

Really, it will have no effect at all.

Mr. Stanley

I am glad to hear the hon. and gallant Gentleman's, remark. I can always quote it now that in his opinion—and he knows a great deal about the supporters of his party—this addition to the pint is really of no effect at all and will make no difference to the budget of the ordinary working man. I am happy to have that assurance, of which we shall make full use.

We discussed the Profits Tax at considerable length on the April Budget. We deployed then all the arguments on the principle of this matter, I think effectively, though of course nothing was said as cogent as the argument which the Chancellor himself had used against this tax when it was first introduced. The tax which he now imposes has a particularly obnoxious feature which was not present in the tax proposed in April, that is, the doubling of the tax on profits which are not distributed by way of dividends. I can quite see, when you are dealing with an inflationary situation, the argument that a tax on the part which is distributed, and by which you hope to prevent the distribution, may be deflationary in its character, but this tax upon money which already is not to be distributed, already is to be sterlised by the company, seems to me more likely to be inflationary than deflationary in these times. For this reason, take a company which has expenditure that is desirable but not immediately essential. In view of the appeal of the Chancellor not to spend, they might well say, "Let us postpone for a year or two this expenditure." They might have done so before this new taxation but now, if they spend at once, the sum never appears in their profits and no tax has to be paid, whereas, if they withhold that sum in order to spend it in two years' time, immediately this new tax will be levied upon it. This is a matter which we shall have to consider at length when we come to the further stages of the Bill.

Then there was the Betting Duty. I do not suppose there are many people in this House who feel any objection in principle to a tax on betting as long as it is practicable and brings in a worthwhile amount. However, I am doubtful of the equity of the present proposal. As far as betting is concerned, this tax is to be confined to totalisators on greyhound racing tracks and one is tempted to ask, "If dogs, why not horses? And when you are at the dogs, why only the tote and not the bookmakers?" Is that fair? Is that justice? Certainly there was one man who did not think it fair or just. That was the Chancellor of the Exchequer last April. This is what he said about it then: But we stand, and most of all the Labour Party stands, for justice; [HON. MEMBERS: "Hear, hear."] Hon. Members should not cheer before they have heard the end— and to tax 'totes' and pools alone, and let the bookmakers go free, would be wrong, it would be unjust, it would be repudiated by all right-thinking men and women."—[OFFICIAL REPORT, 15th April, 1947; Vol. 436, c. 78.] The Chancellor's ideas of justice do not seem to be immutable.

There is only one other point on the question of taxes to which I shall refer, and that is the proposal for the tax on advertising. I confess that I feel dubious about this tax, though obviously no one can take a final decision until we see the terms of the Bill because, as the Chan- cellor has told us, the Bill will contain certain safeguards which it is not possible to put in the Resolution. Certainly this means a new and not very desirable departure from normal taxation principles. Here is a legitimate expense which up till now, like all legitimate business expenses, has been treated as a deduction to be made from profits before taxation is paid. It may be quite true that some people advertise too much—it is not confined only to the commercial world. It may be quite right that some attempt should be made to stop excessive advertising, but that is not what this will do. This will penalise just as hardly the man whose advertising is wholly justified and fully in line with the scope and the purpose of his business. Therefore, while we on this side will not oppose this Resolution now, we reserve the right to give it full consideration when we see the final terms, and, if necessary, to criticise and to amend.

So much for taxation. If the Chancellor of the Exchequer was very precise about increase in taxation, he was studiously vague about the other means of dealing with the excess purchasing power—the reduction of Government expenditure. That question, we understand, is to be left until next April. That is all very well, but can the question of inflation be left until next April as well? Meanwhile we are not even to have an estimate. We are told that the expenditure on the Services declined, but we are not told by how much. Departmental Estimates have to be considered; we are not told with what purpose. Terminal expenses will run down; we are not told by how much the running down of terminal receipts will exceed or fall short of the reduction in expenses. Yet, without that knowledge, it is quite impossible to form any real opinion as to whether the inflationary gap is really being closed by the proposals the Chancellor is putting forward. We did not get much guidance from the right hon. Gentleman's speech yesterday, but I happen to have here a copy of the broadcast he made last night. [Interruption.] Hon. Members evidently do not listen to things like "Itma"—

Major Bruce

We are listening now.

Mr. Stanley

They would find it much funnier than the Chancellor of the Exchequer.

Major Bruce

You are.

Mr. Stanley

Here is a sentence from the right hon. Gentleman's broadcast: and there are a lot of other items in our expenditure which I think we can cut down without doing any damage to essential national interests. What are they? If they can be cut down without doing any damage to our essential national interests, why are they not being cut down, and why have they not been cut down in the past as our financial situation got graver? If ever we talk about expenditure hon. Members opposite immediately challenge us, and say, "What would you do about it?" What would the Chancellor do? He is the man in power; he is the man who knows what to do. Why does he not share his knowledge with us?

Major Bruce

That would be carrying subsidy too far.

Mr. Stanley

I quite agree; to ask the right hon. Gentleman to share the extent of knowledge which he possessed with anyone else would be demanding of him too great a sacrifice.

The subject on which the right hon. Gentleman was vaguest of all was the subject of the food subsidies. It is true he told us that during this year the cost of subsidies would not be increased. Hon. Members cheered him. I wonder whether they noted that he gave no promise that in future they are going to be maintained? Does any hon. Member say that he promised that? [HON. MEMBERS: "Tell us."] Oh, yes, I am going to tell them.

Mr. Warbey (Luton)

If the right hon. Gentleman will consult the records he will find in HANSARD today that the Chansellor, speaking of the present level of the subsidies of £392 million, said: I intend to find that sum this year."—[OFFICIAL REPORT, 12th November, 1947; Vol. 444, c. 398.]

Mr. Stanley

I am very much obliged to the hon. Gentleman. He has put quite excellently what I had already said. The Chancellor had given an assurance that he would maintain the cost of the subsidies this year. I was pointing out that he has given no pledge whatever as to the cost of the subsidies next year.

Hon. Members

Next year's Budget.

Mr. Shurmer (Birmingham, Sparkbrook)

Would the right hon. Gentleman like the Chancellor to say that he will not do it?

Mr. Stanley

Did the hon. Gentleman say he will not be there? Everything is to be left, like so much else, to next April. Frankly, I cannot see the point. [An HON. MEMBER: "That is usual."] It is usual not to have a Budget in November at all. It is only because the whole situation is unusual that we are having this discussion. It is because there is a danger of inflation; a danger which does not wait for the usual, and does not say, "Usually we only have a Budget in the April, and therefore I must wait until then, because it would not be fair on the Chancellor if I did not wait."

Mr. Mitchison (Kettering)

How does the right hon. Gentleman think that the danger of inflation can be met by stating figures in regard to food subsidies in an interim Budget, not for April, but for after next April?

Mr. Stanley

I am sure the right hon. Gentleman will be very grateful for that help coming from one old Etonian to another.

Mr. Mitchison

Answer.

Mr. Kirkwood

What will the answer be?

Mr. Stanley

The answer is that if the right hon. Gentleman is going to do nothing in April, he had better tell us now. If he intends to do something, and if in fact the subsidies have to be cut, why not tell us so frankly?

Mr. Shurmer

So that the right hon. Gentleman will have ammunition beforehand?

Mr. Stanley

The hon. Gentleman had better not talk about having ammunition beforehand. Hon. Members do not very much like this.

Mr. Kirkwood

No, the right hon. Gentleman is overdoing it.

Mr. Stanley

The hon. Gentleman thinks I am being too hard on them? I trust the hon. Gentleman's opinion, and I will leave it at that. I have been asked about our position on food subsidies. Quotation was made yesterday by the right hon. Gentleman from a speech by my right hon. Friend the Member for Scottish Universities (Sir J. Anderson). My right hon. Friend will be speaking later in the Debate, but I am sure he will not differ greatly from anything I say now.

We on this side do not urge, and have not urged, the immediate abolition of all food subsidies by one stroke. We do not believe it is practicable; we do not believe it could be done without terrific chaos, dislocation, and hardship. On the other hand, we do not believe that food subsidies as a permanent feature of our system are the right way of dealing with what admittedly is a difficult and important problem. The trouble is that food subsidies are wholly unselective in their operations. To many the food subsidy means the only way by which they can afford to buy the necessities of life. But, to many others the food subsidy merely means an addition to their general purchasing power, and the right hon. Gentleman then has by other means to try to take that purchasing power away from them. We believe that as a permanent solution the only right way is by trying to deal with the incomes, and not with the price of the food, and to try to provide that sufficient income is in everybody's hands to buy the food at its proper price.

That leads inevitably to the conclusion that there cannot be any substantial reductions in the food subsidies without some corresponding increase in incomes in the hardest cases. We fully face the fact that substantial reductions in the food subsidies might lead, would lead in some cases, to increases in the social services.

Mr. H. Hynd (Hackney, Central)

And in wages.

Mr. Stanley

That depends on negotiations. I am talking now about matters under the control of the Government. Let us make no mistake. Just the same thing applies here as in the case of the social services. We are accused of being anxious to cut the social services. Why should we be? We were just as much responsible as hon. Members opposite for introducing family allowances. [Interruption.] How many speeches did the hon. Member for Blackburn (Mrs. Castle) make on family allowances?

Mrs. Castle (Blackburn)

Leaving that point aside—because of course I included family allowances in my election address—the right hon. Member should ask the Blackburn old age pensioners what they think of the social services record of the Conservative Government.

Mr. Stanley

Perhaps the hon. Lady would also tell the Blackburn old age pensioners that the present system of pensions is largely based upon the scheme drafted by the Coalition Government, in which Conservative Ministers took part, and over which Conservative Ministers took as much pains as Labour Ministers.

Mrs. Castle

May I interrupt?

Mr. Stanley

No. I must get on.

Mrs. Castle

The right hon. Gentleman is very wise.

Mr. Stanley

We have to ration everything now. Perhaps we had better ration interruptions. We are faced today with problems that have never before faced this country. This problem of inflation—this terrible problem of inflation—is to us a deadly novelty, and because of its novelty it is difficult for us to realise—[Laughter.] Hon. Members should not laugh. Up to now our position has been cushioned by foreign assets against the danger of real uncontrolled inflation, into which this country has been put.

Mr. Michael Foot (Plymouth, Devonport)

Would the right hon. Gentleman deny that the inflationary pressure was very much greater after the 1914–18 war than it was after the last war.

Mr. Stanley

I do not believe it for one moment.

Mr. Foot

If the right hon. Gentleman does not agree; will he look at the facts.

Mr. Stanley

We had at that time always in reserve the tremendous deflationary effect of a vast volume of foreign exchange which was always a safeguard in the case of uncontrolled inflation. We have not got that safeguard left. I really do not understand the point the hon. Gentleman is making, because the danger of inflation today is very real. The Chancellor has not denied it. It is a tremendous danger, and a danger that we have got to be prepared to take every measure to meet. Does any one pretend that if we really found ourselves in an uncontrolled inflation, we should be able to maintain our services? We can keep prices at a stable level.

That brings me to my final point. We have been asked in this Budget to bear new and heavy burdens. We are asked to do so to avoid a still greater evil, to avoid a far heavier burden. The price we are asked to pay is high, but it would not be too high if we were certain that it was going to be successful, that in fact these proposals were going to make us safe from the dangers that were threatening us. The question is do they? The Chancellor has made no attempt to estimate the inflationary gap to be closed. Everybody knows, of course, that it is impossible to be accurate; it is difficult even to approximate; but the right hon. Gentleman is in the best position because he has the most recent sources of information, to make an approximation of that kind. Everybody outside, however, who has made a try has been handicapped by lack of the facts, certainly by lack of recent facts, because the Government's White Paper is, of course, by now becoming largely out of date. Many people outside have tried—many people have made estimates—and I must admit that all the estimates I have seen differ widely, but they all agree on one thing. They are all far in excess of the actual gap which is to be closed by the Chancellor's proposals made yesterday.

The Chancellor gave us yesterday no indication of how he arrived at the proposals which he made. Did he first make some estimate of the gap to be closed, even though he has not disclosed if to us, and then plan how best he was to fill that gap which he has estimated? Or did he just think of those proposals which would not incur too much unpopularity and then leave it at that? In other words, is this an honest determination and final attempt to avert this danger, or just another sort of gamble taken by this Government, a gamble taken in the hope that something will turn up, and when it turns up will make necessary unpleasant measures? I hope not, because those gambles always fail, and only mean in the end that still worse things have to be done. If the right hon. Gentleman is gambling this time, then he is gambling with something far more serious than fuel or dollars or those things, whatever they may, that he gambled with before. This time he is gambling with the whole chances of this country's survival, with the whole of our social system, the whole of our economic stability. If that gamble fails, then disaster will be com- plete, and improvement will be irretrievable. I hope it is not so. After all, it is not just hon. Members opposite who are going to pay the price; the price of failure is going to he paid by every man, woman and child. So it is with real sincerity that we say we hope for the best. With equal sincerity we say we fear the worst.

4.38 p.m.

Mr. Benson (Chesterfield)

Somewhere floating round the back of my mind I seem to remember an old couplet which said: True wit is like a razor keen, Its stroke is neither felt nor seen. The right hon. Gentleman the Member for West Bristol (Mr. Stanley) is undoubtedly a true wit. His speeches are always extremely witty, and are just as much enjoyed by hon. Members on these benches as by hon. Members opposite. So far as the Chancellor is concerned, I do not think that the razor's edge has cut very deep. In fact, looking back on what the right hon. Gentleman said, seldom have I heard a more witty but less effective attack upon a Budget since I have been in this House. He quoted the Chancellor's speeches of previous years, and compared them with present conditions. That is a very old Parliamentary tactic but never very convincing. We have all been optimistic in the past, too optimistic. It is no use blaming the Chancellor because he is not capable of foreseeing the future. No one, not even the right hon. Gentleman, can foresee the future, and the party opposite have been quite as inaccurate in their forecasts and as out in their proposals as any body possibly could be. When the right hon. Gentleman commenced to rebuke the Chancellor, blaming him for inflation, I could not help remembering the steady pressure for a reduction of taxation which has come from the opposite side of the House. Throughout the three Budgets we have had, there has been a clamour for a reduction in taxation, and most bitter opposition when the Chancellor has increased taxation.

Mr. Stanley

If the hon. Gentleman looks at the April Budget, I think he will see that there is not one single case where a substantial increase was being discussed that the Opposition took the matter to a Division. We expressed that as part of our policy and we carried it out.

Mr. Benson

It may be perfectly true that the Opposition did not divide, but they have been steadily critical. Certainly, if I remember rightly, they divided on the Profits Tax.

Mr. Stanley

We voted against a new or increased form of taxation which we thought was thoroughly bad. The hon. Gentleman will find that we never voted for a decrease of taxation in the Budget of this year.

Mr. Benson

I did not accuse the right hon. Gentleman's party of voting. I said they clamoured. Does he deny that? I do not think that he can. If we consider the remarks made by the right hon. Gentleman this afternoon, it struck me that when he was criticising the Chancellor for causing inflation, it was very like Satan rebuking sin. There was not a single form of taxation imposed by the Chancellor which he did not criticise. He described the Profits Tax as "harsh," he criticised the proposals in regard to advertisements and betting. By the time he had finished there was nothing left of which he approved. He made a point that there should be a further cut in expenditure. Recently there was a cut in expenditure on the Armed Forces, and the immediate effect was an enormous squeal from hon. Gentlemen opposite because the Navy had been reduced in size.

There was a very new note when the right hon. Gentleman referred to the food subsidies. I am sorry that the right hon. Gentleman the Member for Scottish Universities (Sir J. Anderson) is absent. If I remember rightly, he described food subsidies as "a running sore." The only thing against them that the right hon. Gentleman can say now is that he does not think that they ought to become a permanent part of our finances. That is a very very different tone. I am prepared to take him up on that. I am prepared to say that food subsidies can be very well justified as a permanent part of our financial structure. The suggestion that they should be cut at the present time—a step which has been advocated most strenuously in the Conservative Press on the grounds that it would be deflationary—I dismiss by saying that in view of the fact that the cost of living is linked up with so many wages agreements, the policy of food subsidies, far from being deflationary might just as well be inflationary. It is an absolute gamble.

Food subsidies are in line with the social, economic and financial development of the country over the last 100 years. They are one step more towards giving a guaranteed social minimum standard, and as such are perfectly defensible. But why pick on food subsidies? They are only a minor part of the subsidies granted by this House. The total subsidies paid to the consumers in this country amount to approximately £1,000 million a year. Practically the whole of the activities of our local authorities consist in giving subsidised services, not to the extent of 30 per cent. like our food subsidies, but to the extent of 100 per cent. These subsidies are for far less important things than food. They are for education, parks, and water, etc., for all of which there is a 100 per cent. subsidy. I could give a list as long as my arm of other subsidies. Why pick on food, the most important and vital of all articles of consumption? I think that the right hon. Gentleman has seen the red light. I think he realises now that the Tory Party dare not advocate a cut in food subsidies.

The right hon. Gentleman described the taxes imposed by the Chancellor as "harsh," and he said that they would be a burden. They are not a burden, nor are they harsh. The taxes proposed in this Budget put no burden whatever upon the community. They do not decrease consumption. The burden put upon the community is the fact that we are compelled, by forces outside our control, to make cuts to balance our imports and exports. That is the burden placed upon the community. This Budget does nothing more than try to bring the purchasing power of the community into some relationship with the decreased volume of goods available. Taxation, no matter how heavy it may be, cannot reduce the national standard of living unless it reduces the volume of purchasing power available, to a lower level than the volume of goods available. It is the volume of goods and services which governs the standard of living that a nation can attain. If the purchasing power is there, then taxation does not make any difference.

All that this Budget proposes to do then, is to adjust the spending power of the community to the actual volume of purchasable goods. What is the use of saying that this Budget places a heavy burden on the community? However, we are entitled to ask ourselves whether this adjustment has been achieved. Frankly, there is no adequate measure. To say that there is "an inflationary gap" means very little. It is not a gap which can be measured. The measure of inflation is very largely an impossible measure of varying ratios of increases or decreases of money and goods. We can get a general impression of whether or not we are in an inflationary situation. We can get a general impression of whether or not the steps taken are adequate; but beyond a general impression, there is no possibility of measuring. I ask myself, "Are the steps taken in this Budget adequate?" I can only take two figures which impress me. They are not a measurement, but they give me food for thought. The first is that expenditure on consumer goods in 1946 was in the neighbourhood of £6,500 million. I do not think that, in an inflationary situation, the reduction of consumer income by £200 million is likely to have any very serious effects. It seems to me inadequate, and, so far as measurement is concerned, I will leave it at that.

I am perturbed about the effects of inflation. If they were merely a general rise in prices, inflation could cure itself, but something else has happened, and the right hon. Gentleman mentioned it. I forget his exact phrase, but I think it was "distortion of our economy," and that is the really immediate and serious problem which we have to face. For eight years, we have had a mixed economy, partly controlled and partly free. The controlled part of our economy—the basic necessities—have been rationed and subsidised and have been subject to maximum prices. Expenditure upon them has been strictly limited, both by law and by the natural shortage but during this period in which these basic necessities have been limited and controlled there has been an enormous increase in our national income, and the increase of consumer expenditure, measured in terms of money, was 50 per cent. Our expenditure upon these basic articles has increased only 30 per cent., while our expenditure on the rest has in- creased by over 90 per cent. A good deal of that 90 per cent. increase in expenditure—not consumption—has been mopped up by heavy indirect taxation. Nevertheless, there has been a residual effect on consumption and as a result of this deflection of purchasing power, we have got an expansion of the industries other than basic. That is showing itself today by the fact that we have a labour famine in all the basic industries and the great problem facing the Minister for Economic Affairs at the present time is the readjustment of our whole industrial structure.

What are his weapons? They are the Control of Engagements Order, tardy and frail, the allocation of raw materials, utterly clumsy and inexact. At the present moment, the Minister for Economic Affairs is trying to readjust our industrial structure to the necessities of today. What are the difficulties and obstacles in his way? One is the increased expenditure upon non-basic articles by the consumer. In certain groups of industries, particularly since the war, though not so much during the war, there was an increase in employment, an increase in the wages paid in those industries, a fantastic increase in the profit margins and an increase in the prices. So long as this proportionate increase in wages operates in those industries and so long as these fantastic profit margins exist, then the operation of the Control of Engagements Order and the allocation of raw materials will be handicapped by obstacles and difficulties which it will be extremely difficult to overcome.

The Chancellor should reinforce the operation of those two weapons which the Minister for Economic Affairs is trying to employ, and the most effective weapon which the Chancellor can bring to his aid would be the Purchase Tax, first of all, to mop up such excess expenditure as there is—now likely to be increased as the result of the import-export balance—and, secondly, to reinforce the allocation of raw materials with a weapon of complete precision, namely, the placing upon certain specific articles of a Purchase Tax which will prohibit them being sold in this country. If they can be sold abroad, the Purchase Tax does not affect them; if they cannot be sold abroad, we cannot afford to spend money on making these things to be sold in this country. We cannot afford the labour for them or the raw materials involved in them. We cannot afford the transport and everything else which goes to the making and marketing of those luxuries, and, in many other cases, even semi-luxuries.

I take it that now, as a result of what the right hon. Gentleman opposite has said, both sides of the Committee have accepted food subsidies. The purpose of food subsidies is to facilitate consumption in one direction. In a state of full employment, the facilitating of consumption in one direction by the Government imposes on the Government, as a logical corollary, that they must check consumption in other directions; otherwise, they are trying to get a quart out of a pint pot. If we increase consumption in one direction by subsidies, we must damp down expenditure elsewhere. What I would like to see is a very carefully planned Purchase Tax—not one imposed indiscriminately, because I do not think that would operate without causing friction. I would like to see the Chancellor take power, to impose Purchase Tax, from time to time as the Minister for Economic Affairs indicates to him, on such and such a group of articles where the labour and materials involved in them could be better absorbed elsewhere. I think we ought to have a control of expenditure, detailed for the purpose of driving into the industries which are absolutely vital to us at the present moment both the labour and materials which today are going into goods which I do not believe we can afford.

One more point. I have not usually been critical of the Chancellor, but every dog is allowed one bite—

Mr. Sydney Silverman (Nelson and Colne)

It depends on what it bites.

Mr. Benson

I was disappointed with the volume of taxation proposed. The country was keyed up for something drastic. I think it would have been better to have done something drastic, and then gradually relax, rather than continuously to impose smaller taxes which, because they are repetitive, are irritating and depressing. I hope that the Chancellor, in his next Budget, which is not very far off, will grasp the nettle.

5.0 p.m.

Mr. Clement Davies (Montgomery)

In opening his Budget speech yesterday, the Chancellor of the Exchequer used some phrases of which I very fully approve, such as, that it was necessary without delay to strengthen the defences against inflation, that we must narrow as swiftly as we could the gap, that it was necessary to deal with a new inflationary pressure caused by the decisions which had recently been taken by the Government, and, finally, that it was necessary to reduce our total expenditure and to increase our total revenue. That brought to my mind what the hon. Member for Chesterfield (Mr. Benson) has just referred to, that we were in for some very drastic proposals, and that it would be a realistic Budget dealing with the state of affairs in which we find ourselves. But having stated so much, the Chancellor seemed to say, "The sight confronting me is horrid and ghastly, and I refuse to look at it any further," and he then turned away.

I do not propose today to deal with any of the details of the Chancellor's statement, but to confine myself to a broad outline. It is now just three weeks ago since, in a very notable speech, the Minister for Economic Affairs called our attention and that of the country to our state, and the need for drastic measures. Very rightly, he showed what the Chancellor did not show yesterday, the close relationship that exists between our external economic problems and our internal problems. They are inevitably linked together. The Minister for Economic Affairs gave us precise figures showing the enormous gap between the value of our exports and the cost of our imports and our external payments. Having done that, he said that he had decided to cut down our imports of raw materials, of food, and especially of those articles which we were getting from dollar countries—tobacco, and so on—to the extent of well over £250 million. He then showed the need for cutting our internal capital expenditure, and he decided that it was necessary for him to arrange for a cut—which I thought was too small—of £200 million in that expenditure. He warned the country that, unless we were to go through a period of grim austerity, worse disasters would come upon us.

Obviously, there is a close relationship between material controls and financial controls. One of the results of the cut in imports, the cut in capital expenditure, and the cut in the availability of consumer goods in the home market, with the object of increasing their availability in the export market, will be to increase the inflationary pressure here. That was acknowledged even by the Chancellor of the Exchequer. Even before those cuts were decided upon three weeks ago, there was already an enormous inflationary pressure in existence in this country, and the right hon. Gentleman has made reference to it in every single Budget statement that he has made since he has been Chancellor of the Exchequer. No one is in a better position than the Chancellor to estimate the amount of that pressure, and certainly no one is in a better position, with the expert advice that is always available to him, to estimate the effect of that inflationary pressure; but all the Chancellor did yesterday was to say that various estimates had been made by people who were not in as good a position as he was to make anything like an accurate estimate. Having made that statement, he then turned aside, refusing to take the people of this country into his confidence and to give them the further information which they are entitled to have when they are face to face with these difficulties.

We are entitled to know what, in the Government's estimation, is the amount of this pressure, and we are certainly entitled to know what is its effect upon our production in this country, and upon our general welfare. That is one of the duties of the Chancellor. When he introduces his Budget he should take the country into his confidence and give the people, as fully as he possibly can, an estimate of the general situation, and let that be their guide during the coming 12 months. There is, of course, always a state of inflation when the money income is in excess of the goods and services which can be bought with that money income, or, to use the Chancellor's own words, when money is chasing goods and services which are not there. That is a kind of chase which is not only futile, but likely to be extremely dangerous as we know from the disastrous consequences that have followed when such a state of affairs has been allowed to continue in other countries.

But anyone listening to the Chancellor yesterday and reading him again this morning—as I did with very great care— would have thought that there was no crisis whasoever, and that, in fact, there was really no need for him to introduce this small supplementary Budget, the only effect of which is that, at the end of 4½ months from now, he will have increased the Government's income, or, to put it another way, will have taken away from the loose cash of the public a sum of only £48 million, or, as he said, £208 million in the course of a whole year. It seemed to me that the Chancellor, when standing at the Box yesterday, was singing, "Don't worry; all is well in this country under the most beneficent of all Governments." Having listened to the right hon. Gentleman, I fail to understand how he and the Minister for Economic Affairs can remain in the same camp. I should still fail to understand it even if they only occupied the positions of Parliamentary Secretaries, but, occupying the great positions that they do—high, important and critical positions—I really fail to understand how they can remain side by side in the same camp.

Let us look at what has been happening. The Minister for Economic Affairs—if I may use a phrase which has become memorable—is, with toil and sweat, trying to create a new road along which to lead this country out of the morass and on to firmer ground.

Mr. Gallacher (Fife, West)

Oh, no.

Mr. Davies

I am glad the Chancellor seems to have the support of the hon. Member for West Fife (Mr. Gallacher). Both of them seem to be saying, "No, that is nonsense," while all the time we are going down the road to ruin and deeper into the morass. This should not have been a small supplementary Budget. It should have been, in truth and in fact, a war Budget to deal with a state of affairs which is as serious as any that we have ever had to face. The great gap still remains, and it will take some considerable time before we begin to benefit from the increased production and exports for which the Minister for Economic Affairs has called. Meantime, we have only our small gold reserves on which to fall back; even those are dwindling, and I am afraid they will dwindle far more during the coming winter months. Therefore, there is a great responsibility on the Chancellor of the Exchequer to help correct the obvious dislocation in our internal economy. Obviously, there is much more money lying loose in the country than there are goods and services which can be purchased with that money.

Let me give one instance which has continually been referred to during the Debate. I quite agree with the hon. Member for Chesterfield (Mr. Benson) that this is not the only instance of substance, but I would like to use it as an illustration because it was referred to by the Chancellor and in many of the speeches yesterday. I refer to the food subsidies. The Chancellor received great praise from his own supporters, and indeed from some hon. Members on this side of the House yesterday, for his refusal to cut down the food subsidies which now amount to £392 million. He has made it quite clear that he does not intend to increase those subsidies, and it may indeed happen, as was suggested by the right hon. Member for West Bristol (Mr. Stanley), that next April he will decrease them.

He has made no promise except one—that he will not increase them. Therefore, if between now and next April, or after next April, there is an increase in the cost of food arriving in this country or produced in this country, that increase must come from wages. Let us see what is happening in the meantime. The Chancellor has to deal with an inflationary position, and he has said to the people of this country, "Out of the tax that I have taken from you during the year, I am giving you back £392 million in the form of subsidies." Now, standing at the Box, he says, "I will correct that by taking further tax from you to the extent of £208 million." Does he seriously suggest that by so doing he is tackling the inflationary problem with which we are faced? No one has suggested that the £392 million should be wiped away with a stroke of the pen, but let us abandon every other adjective and stick to one, and say that it would be cruel—

Mr. S. Silverman

What would the right hon. and learned Gentleman do?

Mr. Davies

Will the hon. Gentleman please allow somebody else to make his own speech sometimes? Whether it is Mr. Speaker, the Chairman or the Deputy-Chairman who is in the Chair, it seems that the hon. Member for Nelson and Colne (Mr. S. Silverman) thinks that nobody is entitled to speak, except himself.

Mr. Silverman

Rubbish.

Mr. Davies

It is not rubbish. The hon. Member interrupts more than anybody else. I am sorry to have to say this, because I have a very high regard for him. Now perhaps I may return to what I was talking about. It is obvious that, despite the Chancellor's optimism, he foresees a danger in these subsidies. He is certainly determined not to increase them. What he has obviously done has been to produce a temporary, and a very temporary, popular Budget. I feel that the true description to use is to say that it is a lazy Budget. It is true that if we were to cut any of the subsidies, there would have to be great readjustments. The subsidies on food provide food cheaply to those who can well afford to pay more for it, as well as to those to whom the subsidy is a real necessity. They make no distinction between rich and poor. The proper thing to do would be to increase the weekly incomes of those who need it, so that they could make their own purchases in their own way and buy what they require. But that would mean a very considerable amount of hard, steady work to find out what would be the right thing to do with regard to those incomes.

It may be that the Chancellor proposes to look into the matter next April, but the crisis is upon us now, and the Minister for Economic Affairs has started to work now. He is working hard while the Chancellor seems to be taking a siesta between now and April. I object to the fact that we seem to be led by these optimistic statements of the Chancellor into the same kind of precarious position as we were led into by similar optimistic statements during 1939 and 1940, when we were lulled into a false sense of security by what was called the "phoney war," until we came to that terrible disaster in May, 1940, for which the country had to pay heavily.

It is the same kind of optimism which has been pursued by the Government and which has dominated them from the very day they took office. They have allowed events to take control of them, and then they have been forced to take drastic measures, such as the direction of labour, whereas they would have been able to avoid such a state of affairs if they had taken the correct measures in time. Instead of blaming themselves, they fall back upon one of two excuses, or both, and they say, "Our present condition is due entirely to the war or to conditions outside this country." Of course the war and the general conditions in other countries were bound to have a very serious effect on the welfare, production and standard of life of this country. But the real question is: need things be so bad as they are today? The answer is: not if the proper steps had been taken at the proper time. When the Liberal Party were in office, things like these would not have been allowed to happen. The Chancellor has been practically silent on the question of reducing expenditure—

Mr. Gallacher

Is not the right hon. and learned Gentleman aware that when his party were in power we had the greatest unemployment crisis in this country up to that time, with riots in every principal city?

Mr. Davies

That information must be entirely new to everybody in the country. We were in office from 1906 to 1914, and the amount of unemployment was very small. Moreover, anticipating what might happen when we were out of office, we introduced unemployment insurance to prevent starvation. As I have said, the Chancellor has been practically silent on the question of the reduction of expenditure, and economy in respect of unproductive expenditure, and he has left us in the belief that there really is no great state of emergency. What is worse, by his very attitude, and still more by his broadcast last night, he has really caricatured his right hon. and learned Friend the Minister for Economic Affairs. He has practically made fun of the austerity which the right hon. and learned Gentleman has preached.

The only thing that is obvious is that the Chancellor, by avoiding tackling the financial problem, by refusing to exercise control over finance—and be it remembered that he has greater powers of control than any other Chancellor before him ever had, with not only indirect but direct control over the Bank of England, as well as of the finances of the Government—by refusing to do his duty, is creating the very conditions which are leading to measures which are obnoxious to the people of this country, and obnoxious to on. Members opposite: for he is creating the very conditions that lead to the greater need for control over materials. What is far and away more significant, he is presenting an argument, which would otherwise not be there, to the Minister of Labour to come forward with proposals for greater and greater control over free men, and to direct their labour in a sort of slave State. I wonder if that is his object. As I listened to the right hon. Gentleman the Member for West Bristol (Mr. Stanley) there came to my mind a recollection that the Chancellor of the Exchequer had once used the words I do not ask to see the distant scene, One step enough for me. That is not the attitude which should be adopted by the Chancellor of the Exchequer. The country is entitled to know what is the distant scene which he has in mind and towards which he is working. I want to know today whether he is merely gambling in this Budget on receiving American aid, and whether that will come to his assistance in time, so that there will be no need for the austerity which has been referred to by the right hon. and learned Gentleman the Minister for Economic Affairs; or whether, in truth and in fact, it is something much worse than that—that he is preparing the way for a greater and greater shackling of the freedom of the people of this country. It is in his power so to direct finance and handle it that there would be greater freedom, greater prosperity, and a higher standard of living for all.

5.24 p.m.

Major Bruce (Portsmouth, North)

I have listened to many speeches by the right hon. and learned Gentleman the Member for Montgomery (Mr. C. Davies), but I have never heard him make such a dismally, irrelevant speech as that which he has just addressed to the Committee. There is one thing I will concede to him, and that is his utter, complete sincerity, which is quite widely appreciated on this side of the Committee. We do understand from him, at any rate, that he realises the seriousness of the position. On the other hand, when the right hon. Gentleman the Member for West Bristol (Mr. Stanley) ended his speech with a homily about the seriousness of the position, I am afraid I could not believe in him, because of the levity with which he treated the Committee from the commencement of his speech to the end.

There has been much talk during the last few weeks about the inflationary gap. Various newspapers have made assessments of what the inflationary gap is alleged to be. Some people have mentioned £500 million. I see "The Times" mentioned £600 million. I was rather hoping today that the right hon. Gentleman the Member for West Bristol would make some assessment also. It has been implicit, as my hon. Friends on this side of the Committee will know, in practically the entire propaganda campaign which has been carried on by the Opposition Members ever since the announcement by the Chancellor of the Exchequer in August last of the suspension of convertibility, that there has been that danger of inflation. I myself would not in any way wish to minimise the danger either. I did hope, however, that today, with all the rhetoric at the command of the Conservative Party, we should have their views as to what it constituted. But we got nothing at all. When the right hon. Member for West Bristol came to the word "remedies," I put a question mark on my note paper, in the same way as I did when the right hon. and learned Member for Montgomery was, I thought, about to make some constructive suggestions. I was preparing to make a note of their contributions. But neither gave any constructive suggestion. I hope that in the later stages of this Debate, possibly from the back benches opposite, we may have some positive ideas.

The inflationary gap has been talked of many times, but nobody seems to have any idea as to where the inflationary gap or the inflation lies. There have been many statements made about too much money chasing too few goods, but it has not been specified where amongst the electorate and the general community is that money, and where this surplus purchasing power is. The Conservative Party's propaganda during the last months has been directed against the food subsidies, and one would gather from that that the inflationary pressure was in the hands of the working community. I recollect some remarks that the hon. Member for. Monmouth (Mr. P. Thorneycroft) made shortly before the Recess, when discussing this very question. He was talking about the price mechanism, and the whole inference was that the working people of the country at this time, owing to the wage negotiations carried out, and the general social reforms that have taken place, had surplus spending power in their pockets.

The Conservative Party always talks with two voices on this matter. It talks with one voice in private and with another in public. I have here an example of the literature—I should like to say the word as though it were in quotation marks—which from time to time is issued by the Conservative Party for the beguilement of the electorate whom they wish to educate in their theories. This document says: The Socialists in two years have given you"— and then there follows a list of what it is said the Socialists have given. It includes "Higher Railway Fares," "Higher Bus Fares," "Higher Cost of Living," "Higher Rates," "Higher Cost of Wireless Licences," "The Highest Taxation in Europe." Then it states: Who pays? You do. Yet in this House right hon. and hon. Members opposite have the audacity to say, as they often do, that any increases in taxation which are necessary to reduce the inflationary gap, or reduction of any social services that may be necessary for that purpose, should be borne by the working class. This is the type of political dishonesty which this country has been having in the last two years from the party opposite.

I venture to think that the time is coming when right hon. and hon. Members opposite are going to be rumbled. For that is not what the Conservative Party say in private. I have here a monthly market letter of a firm of stockbrokers who support the cause of the party opposite. They send the letter to their various clients in the City of Portsmouth. The letter is dated—no, it has not a date. [Interruption.] It was delivered in the month of August, I can assure the right hon. Gentleman the Member for Bournemouth (Mr. Bracken). He should not laugh so much. He may find that his own words have inspired the words of the letter, or that the words of this letter may have been inspired by contributions in the journals for which he is responsible. It says, reviewing "For's and Against"—that is, for or against an autumn Budget: We feel that a disinflationary Budget will help to bring home to the people a sense of personal crisis. The bulk of the people have, as yet, no personal crisis. High wages, priority food and shorter hours not unnaturally give the working man a false impression of the true state of affairs, and he cannot realise that he will suffer the greatest hardship in the event of an economic collapse. That is the kind of language with which hon. Gentlemen opposite deal with these affairs in private. In public their whole propaganda is directed to showing the working people of the country that they are much worse off.

Mr. Brendan Bracken (Bournemouth)

Could the hon. and gallant Member tell us the name of this Conservative, and what connection he has with the Conservative Party?

Mr. S. Silverman

Does not the right hon. Member agree with it?

Major Bruce

This is a monthly market letter compiled by Messrs. J. A. Brierley & Sons, stockbrokers, of 4, Lamport Terrace, Portsmouth.

Mr. Bracken

What connection has he with the Conservative Party?

Major Bruce

Does the right hon. Member disagree with the contents of this letter?

Mr. Bracken

I did not follow them. I do not think a stockbroker should always be regarded as being a member of the Conservative Party, because the Chancellor has appointed to the National Investment Council a stockbroker who is a very good Socialist.

Major Bruce

The only reason why I assume this particular letter emanated from a firm of Conservative persuasion was because in reading the first two pages I had never come across so much compressed inanity in all my life; naturally, I assumed it came from the Conservative Party.

There are other explanations which have been given by the Conservative Party for the inflationary gap, and I should like to draw the attention of hon. Members to this—and particularly of Members of the Opposition—because it was firmly endorsed this afternoon by the right hon. Member for West Bristol. The hon. Member for Chippenham (Mr. Eccles), speaking in the Committee on 16th April last—and we all very much regret that, despite the advice of his noble Friend the Member for Horsham (Earl Winterton), he is absent in the United States at the present time—referring to the Chancellor's policy said: Long-term investors have been deliberately turned into short-term speculators. The Chancellor has been the chief tipster on the Stock Exchange. He has incited Tom, Dick and Harry to join him on the merry-go-round of rising capital values."—[OFFICIAL REPORT, 16th April, 1947; Vol. 436," c. 268.] I very much appreciated the support which came this afternoon from the right hon. Member for West Bristol, who referred to the inflation of capital values which resulted in profit being made, which were used in consumption expenditure. I should like very much to pay my personal tribute to that penetrating analysis of the position, because if the position be analysed—and one is talking here in terms only of tendencies; one cannot talk in terms of anything precise—a very considerable inflationary pressure is, as the right hon. Member now appears to have apprehended at last, given to the community by those people who operate in the stock markets and have, in fact, cashed in on very high capital values. And it will be no good the hon. Member for Monmouth apprehending that he can avoid that argument, or even follow it to its own logical conclusion, by referring to interest rates, because I think we shall have an answer for him in due course.

As a result of that, it can be agreed, I think, that there was at any rate some substance—indeed, many hon. Members on this side of the Committee paid tribute to it at the time—in the remarks of the right hon. Member for the Scottish Universities (Sir J. Anderson) when he spoke on 16th April, and asked for a policy of controlled disinflation. Many hon. Members on this side of the Committee were a little amused by the use of the word "controlled," which came very oddly from a member of the Conservative Party. But as it was only "controlled disinflation" we assume no harm could come from it. I think there is a very good case to be made for a controlled disinflation. The important thing is to decide just how this controlled disinflation shall be carried out, and that is the problem to which the Committee should address itself. Right hon. Members opposite always have a very ready answer to this point. They say—and it has been said again quite recently—that there must be cuts in capital expenditure.

On this matter the Conservative Front Bench gets very expansive indeed. The Conservative Front Bench always says that for the last two years it has shown very great foresight, and has warned the Government. The right hon. Member for Warwick and Leamington (Mr. Eden), speaking at Edgehill on 7th October last, said: The Conservative charge against the Government is, first, that they have completely failed to foresee the perilous situation with which the country is now faced. They have ignored or snubbed those who did foresee and warn them. We shall now see how far some of these things were foreseen. What do we find in the literary masterpiece entitled "The Industrial Charter," which, prior to its repudiation by the right hon. Member for Woodford (Mr. Churchill) earlier in this Session, was the official Conservative Party policy? In May it was launched upon an unsuspecting world by the right hon. Member for Saffron Walden (Mr. R. A. Butler) on a Sunday afternoon, and it says: The estimate of £1,700 million for capital expenditure mentioned in the Economic Survey for 1947 is inadequate as a total and gives no indication of how this sum is to be divided in an immensely growing volume of present claims. Is this foresight? The gentlemen who foresaw the extent of this crisis so well that they knew exactly what the remedies would be, and who now say—and quite rightly—that there must be cuts in capital expenditure, in May last had foreseen it so well that they were advocating an expansion of capital expenditure.

The other source of disinflation in which we should consider cuts is, surely, the Armed Forces. When we come to consider cuts in expenditure involving the Armed Forces we always find right hon. Gentlemen opposite a little tepid. They always have to be carried along in the van. If they think it unpopular at the time, and if there are any by-elections in the offing, they become a little ambiguous on the subject, but they are always a little tepid. The next item to be tackled on the expenditure side, to which right hon. Gentlemen opposite are always very careful to refer, is the social services. In April last, when we were discussing the Budget, the right hon. Member for the Scottish Universities advocated a direct cut in the social services. For example, he advocated that the food subsidies should be reduced to an irreducible minimum. I suppose what the right hon. Gentleman did not realise at the time was that a food subsidy is, in fact, a social service. Let us see what the right hon. Member for Aldershot (Mr. Lyttelton) had to say about that more recently—bearing in mind that his right hon. Friend the Member for the Scottish Universities wants to cut down, at any rate one social service. The right hon. Member for Aldershot said on 29th October last: If there is to be a reversal, and a reduction of inflationary pressure, it is our thought that it may be necessary not only to reduce taxation of the lower income groups, but also to increase the social services."—[OFFICIAL REPORT, 29th October, 1947; Vol. 443, c. 982.] I think we on this side of the Committee are entitled to demand that the Committee be treated a little more seriously by the party opposite, because they do not seem to know what they want to do.

Mr. John Lewis (Bolton)

Oh, yes, they do.

Major Bruce

If they know, they are very careful not to say it. Is that the kind of performance we are to expect from hon. Members opposite—that they will initiate one solution one day, and on another day denounce and contradict it? Are they going to keep up this procedure indefinitely? If so, I suggest to the right hon. Gentleman the Member for Warwick and Leamington that he and his friends should swap over with the Liberal Party and let them become the Official Opposition in this Committee. I might point out that the average attendance of the party opposite at some of the housing Debates is such that the public would not know, numerically, the difference if that were done.

There is always one item the party opposite never refer to when talking about cutting down expenditure. There is always one blind spot, whenever they look at the Financial Statement published for the year by the Chancellor of the Ex- chequer, and that is the interest on the National Debt, which at the beginning of this year was £490 million a year. I should have thought that those who profess to have such a vital concern for the country's financial wellbeing, would have given serious examination to this question of the crippling burden of the National Debt. The only thing we get from the party opposite, when we get anything at all, is the suggestion that the interest rates should be raised, and that in fact the State's burden in relation to the National Debt should be far greater than it is. The National Debt stood, in March, at the figure of £25,612 million, which is an average of £545 per head. The interest charge is very considerable for the whole of the population. It is high time that this particular portion of our national expenditure received rather more attention than it has in the past. If we were able substantially to cut the expenditure for servicing and interest charge on the National Debt, there is no doubt that we could make a really substantial contribution to the narrowing of the gap which has been referred to this afternoon—a far more substantial contribution than is made by the £33 million which accrues under the provisions of this Budget.

I have a constructive proposal to make to the Chancellor of the Exchequer. I think that he ought seriously to consider the question of a capital levy, and prepare for it now, so that it can be introduced when he next brings forward his Budget. If there is a large surplus of purchasing power seeking consumer goods, I think that it lies in the hands of those who have large properties and possessions at the present time. I am fortified in that by the remarks which fell earlier from the lips of the right hon. Member for West Bristol. Some Members may be misled by the figures of income ranges which appear on Table 36 of the "National Income and Expenditure of the United Kingdom," Cmd. 7099, in which it says that there are only 45 people, for the year 1946, earning over £6,000 a year. From that, the deduction might be made that a vast amount of equalisation of incomes has taken place. I would draw the attention of the Committee to what is said on the previous page. The table classifies individuals by range of income after tax, i.e., aggregate income assessed to tax, less Income Tax and Surtax payable thereon. It relates solely to income assessed to tax. When I had the honour of addressing this Committee on the April Budget, I pointed out, and there were no serious contentions raised against it in any quarter, that there were large incomes being made today which are not assessed for taxation at all. They are not reflected in these tables, and are responsible for a large amount of the inflationary pressure the Chancellor of the Exchequer is having to endure at the present time. The hon. Gentleman for Monmouth will argue—and the hon. Member for Chippenham, and the hon. Member for Altrincham (Mr. Erroll) and the hon. and gallant Gentleman the Member for New Forest and Christchurch (Colonel Crosthwaite-Eyre) would also argue it, although I do not see the last three here this afternoon—that all this arises from the interest rates; but he will agree that some step had to be taken by the Government to mop it up.

I think that the Government should quickly institute a capital levy on the following lines. It should be a special payment by all individuals owning more than a certain amount of wealth. The payment should be graduated according to the individual's ability to pay. It should not be an annual tax, but should be a single imposition. There would have to be suitable guarantees that it would, in fact, be a single imposition. Payments should, if necessary, be made by instalments over a number of years, and the proceeds should be earmarked for the reduction of debt. I do not want to embarrass the Chancellor of the Exchequer by quoting too extensively from his own works, which I have read with great interest, but this scheme would yield, as he anticipated in those days, a sum of £3,000 million—at any rate, payments could be graduated to produce that amount. He could then, either by sinking fund arrangements, or by direct redemption, make a very substantial reduction in the amount we have to pay at the present time on interest and servicing of the National Debt.

Moreover, the introduction of this scheme would be deflationary. It would not be the kind of deflation that would affect the working community of the country, but would be a controlled deflation which would mainly affect those large owners of securities and the like. Lord Bradbury, when giving evidence before the Colwyn Committee on this subject in 1924, said that the position would be as follows: The operation of collecting the levy and the liquidation necessary to enable it to be paid would, while the process was going on, involve a considerable absorption of banking credit, which, in the absence of special action by the Bank of England, would lead to the calling in of bank loans to industry, and to price deflation as a consequence. This could, however, and ought to be counteracted by ad hoc creation of credit by the Bank of England. I thought that that was what hon. Members opposite wanted. I thought that they wanted a contraction of credit which could be controlled by suitable Government action.

I should like to give some constructive details to the Committee. The basis of assessment should be the present money value of the individual's total net wealth, after deducting all mortgages, bank overdrafts and other debts. It should be for individuals only, and should exclude banks, insurance companies, educational organisations, charitable organisations, the Co-ops, trade unions, and so on. I am fortified on this point by the Colwyn Committee, namely, that there is no objection by the Board of Inland Revenue on grounds of practicability. I am relieved to say that they think that the institution of a capital levy and its basis of assessment would not present the Board of Inland Revenue with any insuperable problem, since the machinery already largely exists for the assessment and collection of Estate Duty.

I think that the limit should be set at £5,000, below which no one should be required to pay the levy. It should be scaled; an appropriate scale could be drawn up, and a return called for initally, requiring a provisional valuation which could be acted upon, in the interim, in the same way as an ordinary Estate Duty affidavit is acted upon. There should be heavy penalties for any gross understatements, undervaluations, or inaccurate returns, and a small discount to encourage prompt payment and interest running on it if it went over a year, following the Chancellor's precedent in relation to the payment of Income Tax. Payments by instalments should be decided by a tribunal, if necessary, or a board of referees. I do not think that at present there is any practicable alternative for the purpose of reducing the pressure which we all know to exist. I, therefore, invite the Chancellor very seriously to consider that portion of his policy which, in the past, he has put over with such great eloquence.

As for the remainder of my right hon. Friend's Budget, I can only say, and I do so with the greatest possible respect, that I do not think that the £33 million he wishes to raise by it, will be adequate enough in all the circumstances. He must know the facts more extensively than any of us on either side of the Committee, but I, personally, do not believe that it is enough. One thing I am convinced of, however, is that it is an honest and genuine endeavour by the first real Chancellor this country has ever had to take action to meet the situation as he sees it. It would be far better if the right hon. and gallant Gentleman the Member for Gainsborough (Capt. Crookshank) and his kind, whose comic and irrelevant interruptions periodically seek to discredit the Chancellor, were to have the decency towards the country, and respect for this House, to present an alternative if they do not like what the Chancellor is doing. The only thing we have had from them in two years is "gas," and the only thing we are likely to get from them in the next three years is more "gas." I think it is high time that they assumed a sense of greater public responsibility. We shall get through this period of the very great hardships which must be faced, and which right hon. and hon. Members opposite do nothing to relieve, and to them, and others like them, I would say, in the words of Shakespeare's King Henry V: He which hath no stomach to this fight, Let him depart;

5.54 p.m.

Colonel J. R. H. Hutchison (Glasgow, Central)

I did not think that my rising in my place could have had so desirable a result quite so quickly as to drive the Chancellor from his seat. I would like to refer to the speech which has just been made by the hon. and gallant Member for North Portsmouth (Major Bruce), which was about one-eighth constructive, seven-eighths mere petty criticism and all party bias. The hon. and gallant Gentleman tried to discount the speech of my right hon. Friend the Member for West Bristol (Mr. Stanley) by criticising him on the ground of levity, and thereby indicated that nobody could be sincere if he showed the flashes of humour which my right hon. Friend has at his command. Well, if a grim, humourless, diatribe is the hallmark of sincerity, I have never met anyone more sincere than the hon. and gallant Member for North Portsmouth. He unconsciously relieved his own lack of humour a little, however, by picking up a circular which had come into his hands from a firm of stockbrokers, with whose aid he was trying to enter the ranks of those against whom he fulminated later, and thought that out of that he could pick the policy of the Conservative Party. Well, if he thinks the Conservative Party's policy is to be found in a stockbroker's circular it is not surprising that the hon. and gallant Member was able to produce the series of warped ideas with which he entertained us.

It might not be inappropriate to refer to this interim Budget as "The Doctor's Dilemma," for the Chancellor finds himself up against the dilemma of having to try to close the inflationary gap by further taxes on an already overtaxed people, virtually without trying to reduce expenditure. It is not surprising that, faced with this dilemma, the Chancellor has lost some of that boisterous ebullience to which we have been accustomed on previous occasions. There flashed occasionally out of the sombre background little patches of pleasure as the right hon. Gentleman led the Committee up the garden path of believing that something would be taxed which he did not tax, or letting us think that things would not be taxed and then finally imposing taxes upon them. But it is perfectly clear that the happy days, when this House first met, of the singing of the "Red Flag" by the party oposite have long since gone. The Chancellor and many of his supporters spend most of their time waving a red flag to show the dangers and perils along the path we have been treading.

The hon. Member for Chesterfield (Mr. Benson) said that every dog was entitled to have one bite. That may be the ration allowed to Members opposite, but we on this side feel that we are entitled to a little more ration than that, and there is One bite I would like particularly to direct to the Chancellor. I ask the attention of the Committee in following the question of the dollar leakage which took place during June and July. As the Committee is aware, and as has been emphasised in nearly every speech of any moment which has been made recently, both by the Minister for Economic Affairs and the Chancellor, our dollar position, our American Loan, our inflationary gap, and our home finances are inextricably interwoven. That was emphasised today by the Leader of the Liberal Party. So, it is all-important that we should understand, and have an explanation from the Chancellor of the curious happenings which took place to our dollar loan, or what was left of it during these six momentous weeks. Up to the beginning of July, the run-out of dollars had been at the rate of 75 million dollars per week. That sum was being used by members of the sterling area to finance their current trade requirements. That was one of the essential conditions of the loan. The loan was intended in that way to set members of the sterling area countries on their feet.

There was also attached to this loan the famous or infamous convertibility clause, whereby we undertook to make sterling convertible freely into dollars within one, year of the time of the loan coming into operation. That momentous date turned out to be 15th July this year. The Chancellor said in his speech on the Address that, anticipating the considerable strain and drain that would come about at that time, he had, starting in October, concluded a series of agreements with various countries—the Argentine was one—whereby that strain would be lessened. So that, he went on to say, by the time convertibility came into force, it would no longer have any overwhelming significance. But there were still certain countries with whom we had made no agreements, and so, when this dead-line date of 15th July was reached, the Chancellor applied to the American Government for a moratorium in respect of convertibility with all those countries with whom we had no agreement.

It is important to notice that the countries to whom we were supplying credit facilities after 15th July were the same as those to whom we had been supplying credit facilities in dollars up to that time. In view of all this, some very curious and inexplicable things happened during July and August, because, whereas up to 15th July, 75 million dollars weekly had been sufficient for those countries' current trading needs, after that date it mounted to 150 million dollars a week and finally to 237 million dollars a week outgoing. So the words, "No longer have any overwhelming significance," seem to have been gravely belied by the facts. This enormous increase in dollar outflow happened in about six weeks, and it finally caused us to abandon the convertibility clause of the American agreement, in reply to which the American Government promptly blocked all that was left of our dollar loan.

How could this overwhelming strain have come about? It must have come about in one of two ways: either the sterling countries and those foreign countries with whom we had made agreements, were in fact using this opportunity to reduce their block sterling balances or the current trading needs of those countries with whom we had agreements had become suddenly fantastically swollen. It does not look like the first reason, because the Chancellor told us that for 14 months to the beginning of July, the total reduction of block sterling balances came to £230 million, and very little of that had been translated into dollars.

The Chancellor also told us a day or so ago that between 30th June and 30th September, £115 million had been the reduction in block sterling balances, and so this loan, which was never intended for use in connection with blocked sterling balances, was apparently, for there is no other explanation, used to reduce blocked sterling balances between the 1st July and the middle of August. That does not entirely account for the enormously increased drain on our dollars, and, therefore, one can only assume that the sterling countries and the other countries with whom we had agreements were in fact making dollar hay while the convertibility sun shone. What satisfied these countries as ordinary current trading needs up to 1st July became fantastically swollen. That means that the Treasury were not, in my view, properly checking the use of these dollars for the purposes for which they had been intended.

So I ask, and I think that the country is entitled to have, from the Chancellor an explanation as to how the Treasury allowed this to get out of hand. It is perfectly clear that the words "No overwhelming significance" were a grave miscalculation of what was going to take place, because it had in fact the overwhelming significance of our having to abandon convertibility, close the remainder of our dollar loan and start drawing on our gold reserves. That looks like an example of negligent stewardship, and the country is anxious that there should be no loophole in the future of a similar type that will allow the same thing to happen again. I beg the Chancellor to give us a straightforward answer as to how this drain on dollars, in fact, took place, and assure us and the country that a similar happening will not be allowed again. We feel, and the country feels, that this has been yet one other example of that fumbling indecisiveness which has characterised so much of the Government's actions. They seem to pursue a system of trial and error. The country has the trial, and the Government make the error.

6.8 p.m.

Mrs. Castle (Blackburn)

The hon. and gallant Member for Central Glasgow (Colonel Hutchison) has triumphantly maintained the tradition of his party in this Debate, by a speech of total irrelevance to the issue which we are discussing. We can hardly blame him for that, because the example set this afternoon by his own Front Bench is not of the kind to lead him to do otherwise. I am sorry that the right hon. Member for West Bristol (Mr. Stanley) is not in his place, because I wanted to pay him a compliment. He is, apart from that other Oliver, my favourite comedian, and I always enjoy the badinage to which he treats us, the humour which he brings to bear on our proceedings, and the glorious way in which he leads us from the hard facts of life into a little pleasantry.

I doubt, however, whether we ought to have had an afternoon off in Music Hall today. It really is a remarkable indication which I think the country should take seriously, particularly at this time, when hon. Gentlemen opposite are pinning all their hopes on a Tory resurrection from Gravesend, of the lack of policy of the Conservative Party. After all the tremendous emphasis which has been placed in the Conservative Press and in the speeches of hon. Members opposite on the need for the Government to be precise, to be urgent, to be realistic, it is significant that we should have had, as the main contribution from the Opposition Front Bench to the discussion of our economic situation today, a speech of the frivolity of that made by the right hon. Member for West Bristol.

We should examine for a little while the contradictions of the case put up to us, in all seriousness, as the star performance of His Majesty's Opposition on this issue, because there is indeed such a welter of confusion and political cowardice in the arguments put forward that I think that it will lead any critics of the Government who may exist outside this House to think again seriously on the matter. In the first place, we were told by the right hon. Gentleman who spoke, with crocodile tear's, about the hardships that were to be placed yet again on the people of this country by this Budget, how greatly the Opposition deprecated this hardship, and he had tears in his voice as he spoke about linoleum and the increase of Purchase Tax on such things as, say, mincing machines or chilren's toys. Yet, in another breath, we were told that the real indictment against this Government is that they are failing to do the job of imposing the hardships that should be imposed. We had a revealing statement in "The Times" leader today which said: When Mr. Dalton expresses the belief that his proposals 'impose no serious hardship on any citizen' at once it seems that something must be wrong. Therefore, the second argument to which we are treated is that, in fact, we are not being harsh enough at all.

I can well appreciate the right hon. Gentleman telling the Committee that he listened to the Budget with disappointment. He watched the faces of hon. Gentlemen opposite when the Budget details were being announced, and saw how gloomy they became at that stage when it was stated that the Chancellor did not find it necessary to place any more burdens on the working classes and the great mass of the ordinary people in this country. We know that they are always ready to encourage us to incur a little more of that unpopularity, out of which they will contract as soon as it has been incurred, and we cannot be expected to believe that there is any element of sincerity whatsoever in their appeals. I was watching hon. Gentlemen opposite very carefully as the various items of the Budget were dealt with by the Chancellor, and I was a little interested to note that when he told the Committee of his regret and of our regret that national savings were falling away, a smile broke like the dawn on their faces—a smile of ill-concealed joy at what will be an increased peril to our national economy. But when the Chancellor told us that, despite the extension of State planning, steps had successfully been taken to cut the number of civil servants not a cheer broke from the ranks of hon. Gentlemen opposite who are supposed to have this issue so close to their hearts.

It has been said and I believe quite rightly—and I think we should bring our minds to this major issue this afternoon—that what we should be doing in this Budget is analysing what are the existing causes of our economic disequilibrium, and, in trying to get a solution, go to the root of the problem. If we do that we come to the great dividing line between ourselves and hon. Gentlemen opposite. If we ask what is the trouble which we face today, why we are in an inflationary situation and how are we to get out of it, we learn inescapably two things. The first is that the major peril of inflation which faces us arises from the inadequacy of the rate of production and the imperative need to direct all our efforts in this and other measures which we have to take to increasing the productive output of the mass of the workers of this country. That does one thing. It places in a position of supreme importance the great mass of the productive workers of this country.

But another corollary to that discovery is this. If we try to find out where the inflationary pressure is coming from, we shall find that it is not coming from the great mass of the productive workers at all. If, therefore, those two facts are borne in mind we find how startlingly irresponsible are the kind of remedies which hon. Gentlemen opposite are proposing for this situation, remedies which are directed, as they have always been directed in the history of the Conservative Party in this country, against the working classes on the basis of the assumption that if anything goes wrong, it is the workers' fault, and if any burdens are to be borne nationally the main part must fall on their shoulders.

I suggest that one of the dangers to our productive drive in this country at the moment lies in the fact that the great mass of the workers today feel that they are being inadequately rewarded for the jobs they are being expected to do. They feel they are receiving inadequate recognition of their key position in our community, and that there is not reflected either in their wage packets or in their standard of life, the extent to which the whole of our economy depends on them, and how the standard of life of the rest of us will come to the ground, whatever we may do, unless that productive effort is kept going in our basic industries. It is not a question of being antagonistic to the middle classes or the professional classes, but the stark economic facts of this country are that none of us can survive, either with our professional services or middle class standards of life, unless the great productive mainsprings of our national life are flourishing, healthy and adequately maintained. Anybody who does not like that has got a simple remedy. If there are doctors, dentists, teachers, civil servants or Members of Parliament who do not think they are getting as comfortable a standard of life as the miner or the mill worker, they can become miners and mill workers; for after all those are the major jobs that have got to be done.

Mr. W. J. Brown (Rugby)

I hope the hon. Lady will forgive me for interrupting her. It is an extremely interesting argument which she is putting forward and with a great deal of it I agree, but how can she possibly reconcile what she says with the complete absence of any considered wages policy on the part of the Government?

Mrs. Castle

I deny that. I am just coming to that. The financial policy which the Chancellor has outlined is a very vital part of the wages policy of this Government, and that wages policy is being strongly attacked by hon. Members opposite. In fact, that is the case we are arguing, that this Budget has a great deal to do with a wages policy and shows what we mean by a wages policy and how we should adequately maintain the rewards which we think should be given.

If I may resume my main argument I will come back to that more fully in a moment or so. Those of us who represent industrial constituencies and the great centres of productive activity, to which the country is looking for salvation at the moment, know perfectly well that there is profound discontent amongst the industrial workers at the inadequacy of the standard of life which they are expected to accept, and all the pictures which we are painted by hon. Gentlemen opposite about the vast surplus of purchasing power in the hands of the workers acting as a kind of padding, a cotton-wool barrier to keep them from economic reality, is all wrong. Hon. Members are wrong in demanding that under existing circumstances the worker should be deprived of many things which he has a right to consider to be necessities or near necessities.

The only thing holding the workers within the confines of loyalty, which they are observing not only to this Government but to the country as a whole, is a far greater political maturity than has been shown by any other section or class in the community—a recognition that there must be a waiting period, a recognition that they must sow before they can reap, a recognition, too, which is beaten into every mind in the working class movement that people cannot spend what they do not earn. They have learned that lesson so well in their own lives which have known so much hard economic necessity. They know by instinct the nature of the problem which faces our country as a whole in the economic sphere. It is the same sort of problem nationally, as the one they have been facing personally all their lives.

If we examine the statistics of this thing, they bear out the point which I am arguing from personal and direct experience. The man who earns £5 a week or less is in the income group in the community which is receiving a smaller share of the national income than it was receiving before the war. That group of incomes in 1938 was receiving 60 per cent. of the national income. In 1945–6, from 60 per cent. its share had gone down to 46 per cent. It is impossible to argue from that figure that this surplus billion of money which is chasing goods around the country is in the hands of those workers. The contrary is the case.

Mr. Spearman (Scarborough and Whitby)

May I ask the hon. Lady how she reconciles those figures with the statement made on page 10 of the White Paper where she will see that the net income of people in the £250 per annum category amounted to £2,616 million in 1938, and to £3,449 million in 1945?

Mrs. Castle

It is perfectly simple. The reason is that the national income has practically doubled in that period. What I am talking about is the percentage share of the national income going to the lower income groups. If the hon. Gentleman will go a little more carefully into those statistics, and tables which, I can assure the Committee, have been my bedside reading for many months, he will find that the percentage share of other higher income groups in the community has been increasing. Perhaps I can go into that matter with the hon. Gentleman afterwards.

I have taken the trouble during the Recess to go with some care into this point because I think it is vital to an understanding of our national problem and of its solution. I have tried to do it, in the closest personal contact with working-class families in the textile industry. I have gone with them through their budgets item by item. I have talked to working-class families with an income of less that £5 a week and have been analysing their budgets and their expenditure. I find that for an ordinary working-class family of four the expenditure on rent, rates, food, such things as clubs and union dues, which I do not suppose even hon. Gentlemen opposite would suggest should be sliced from their expenditure, bus fares and small items like the mending of children's shoes or paying for school meals, amounts to a total of something like £4 19s. a week. I admit that in one particular budget that I was analysing there was a highly extravagant item for 4s. for the child's music lessons. No doubt that is the cause of the inflationary pressure.

The working class are told by hon. Gentlemen opposite that the only way in which the Chancellor can tackle the inflationary menace is by eating right into their standard of life by slashing the food subsidies. What is the answer which they give back? They want to know this: according to the statistics and tables about the national income that are presented in the White Paper to which the hon. Member for Scarborough and Whitby (Mr. Spearman) referred, it would appear impossible for any member of the community in these days of high taxation to afford any very great and extravagant luxury; but what do we see on all sides? Somehow or other, someone is able to afford the expensive furs, someone is able to pay £20,000 for a house, somebody is able to buy jewels and cars. What is more important than that, from the point of view of proper production balance in our country, is that somebody is able to afford the expensive services which drain manpower away from our other vital productive industries. Somebody is able to afford repairs to their houses, extensive redecoration or even the building of a new garage. Someone is able to afford an expensive tailor who is able to attract workers away from essential industries by the payment of inflated wages, because the prices which are being paid for those services are usually inflated too.

I want to beg the Chancellor of the Exchequer this afternoon not to go hunting for microbes of inflation in working class budgets, but to tackle inflation where it really takes place. I want to tell him this too: the basic dividing line between us and hon. Gentlemen opposite comes on this question of food subsidies. It is absolutely vital to our whole Socialist case. We say to these working class allies of ours, when they have spoken of some of the disappointments they have had—and they have had as many disappointments as anybody—"The proof of the country's determination to see that you get a square deal to the utmost of our economic capacity lies in this policy of guaranteeing you a social minimum." Part of that policy of guaranteeing the social minimum, in addition to the social services, the National Insurance Act, the National Health scheme and all those other things, which are not luxuries, but part of a considered policy, lies in the determination to see that every family in the country shall be able to afford its fair ration of food, clothing and fuel.

It will be absolutely perilous to the whole case we have put over to the working class of this country if there is not only a reduction in food subsidies but—and I want to press this on the Chancellor this afternoon—any going back on the policy of maintaining stable the prices of basic essentials, whatever may happen to the external pressure raising those prices. I was disquieted at the suggestion that there should be any turning back from this fundamental attitude of ours, and I ask the Chancellor to resist the pressure of gentlemen opposite, and of the laissez faire economists. I say to him, "Do not be afraid of this figure of the food subsidies. That is not an extravagant expenditure. It is merely the giver of stability to our economic system." I am astonished that hon. Gentlemen opposite should talk so glibly at this stage, when our industrial and economic relationships are balanced so finely, of cutting the food subsidies and then adjusting money incomes in cases of hardship. That would be throwing the door open to the worst kind of disequilibrium in our industrial relationships, at the very time when we are being asked to produce a wages policy. That is my reply to the hon. Member for Rugby (Mr. W. J. Brown). Our wages policy consists of giving this guarantee to the workers and, on the strength of that guarantee, saying to them, "Now you can trust us when we ask you to hold back on your wages pressure."

If we are going to say, as hon Gentlemen opposite and the economists behind them have been saying week in and week out, month in and month out, "We shall never get our economy into a proper equilibrium so long as we interfere with the free play of the price mechanism and with the law of supply and demand," we must recognise one consequence. The corollary of that, you know, is something which hon. Gentlemen opposite have not quite considered, namely, that if we are to have a free play of the price mechanism, we shall have a free play of the wages mechanism too.

When we are asked to allow the law of supply and demand to operate, we should remember that the working-class movement today has a much stronger power to demand than they are at present exercising. Their power industrially at this moment is enormous, and the restraint with which it is being exercised is a matter of great credit to the trade union movement. That fact ought to be given more recognition. If hon. Gentlemen opposite want the law of supply and demand to operate, I tell them that by their organised industrial power the workers could wrench for themselves far greater and more onesided benefits than they have at present asked for or are seeking to exact. I therefore plead with the Chancellor of the Exchequer most earnestly, "Don't give way on any iota of this question of food subsidies. Let us maintain our Socialist economic approach." The alternative of hon. Gentlemen opposite is national suicide. We have to resist in every degree any inroads into our profound beliefs as to how human nature works and how we are able to guide and assist the working class movement, whose support is so vital to our productive effort.

There is one other point which I want to suggest to the Chancellor. That is the question of the Profits Tax. I ask him to consider very carefully between now and the next Budget, whether part of our Socialist planning does not consist in differentiating between types of profits and the extent to which we tax them. I quite agree with him that he can be as tough as he likes on the distributed profits of inessential industries, but it is a little hard at this time, that vital industries like the textile industry, which I have the privilege to help represent in this House, should not be given every kind of financial inducement and assistance to re-equip themselves. Heaven knows the cotton industry is years behind in its re-equipment. Every hour that re-equipment is delayed we have an increase in the burden put upon the manual worker who has to step into the breach and, with small thanks from hon. Gentlemen opposite, attempt to make up for the inefficiencies and inadequacies of the past. What we should do in regard to the Profits Tax is to classify the industries of this country. Some industries are clearly essential in this situation. The textile industry is obviously one, coal mining another, foundries another.

At the other end of the scale there are some industries which are clearly inessential, for instance, those which are contributing luxuries purely for the home market. Even if an industry were a luxury industry, provided it contributed largely to the export drive it could move up into the essential grade, but in so far as it did not do that, it should remain in the inessential grade and its profits should be subject to the most rigorous taxation of all. Between those extremes we should have the middle range—the rest—which could remain subject to Profits Tax at the rates the Chancellor is now proposing.

If we are to encourage, as I want to see us encourage, a diversion of effort away from the inessentials towards the essentials, we must bring a greater sense of urgency to bear on the position of our basic industries and recognise the tremendous straggle we are having to lift them out of the rut of depression in which they were handed over to us from hon. Gentlemen opposite. [HON. MEMBERS: "Oh."] Oh, yes. If we are to give them that encouragement, I suggest that the financial instrument should be used here and it should be used by mitigating to a considerable extent the pressure of Profits Tax. on the essential industries which plough back their profits into the industries in order to catch up with the re-equipment that has to be done. I ask that that should be considered before the next Budget. I repeat this as the cri de cœur with which I appeal to the Chancellor: Do not in this Budget or in the next Budget or in any Budget go back on our policy of the social minimum, or allow the economic policy of hon. Gentlemen opposite to bedevil the very careful and important progress towards social stability which we have been building up through the financial instruments of this country.

6.34 p.m.

Mr. Spearman (Scarborough and Whitby)

At the beginning of her speech the hon. Lady the Member for Blackburn (Mrs. Castle) attacked one of my hon. Friends who had previously spoken because his speech was irrelevant to the Debate. I thought that showed some lack of comprehension on her part of what we are discussing. I thought we were discussing a Budget whose prime purpose was to check the inflationary situation. What my hon. Friend said was that there had been a colossal leakage of sterling. I can think of few ways in which we could more quickly accelerate the inflationary tendency than by losing sterling or gold, and thereby lessening the amount of goods in the country. If there was in fact this great leakage—the Chancellor has so far given no full reply—an inquiry should be held so that the people shall know whether or not they are going to be deprived of goods owing to the negligence of the Chancellor. I understood the hon. Lady to say—I may have misunderstood her and perhaps she will correct me if I am wrong—that there was no inflation in consumer expenditure but rather in expenditure on capital goods.

Mrs. Castle

No, Sir. I said that the inflationary pressure was coming not from the great mass of the lower range of income, but from the great deal of income which was floating about, and which obviously could be so big only because it was untaxed.

Mr. Spearman

If the hon. Lady will examine the White Paper which she suggested we should examine together, she will see that the vast proportion of incomes are £1,000 a year and under, and if there is no inflation there, why do we have to control prices? Moreover, that inflation will be of a far greater magnitude in the future when we have the cuts in imports which have already been necessitated.

Mrs. Castle

My answer would be that the Tables in the White Paper refer to incomes subject to tax—

Mr. Shurmer

Assessed to tax.

Mrs. Castle

—assessed to tax. I am saying that there is a great deal of income which, legally or illegally, is not being taxed.

Mr. Spearman

The hon. Lady is then really attacking the White Paper issued by the Chancellor.

Mrs. Castle

No.

Mr. Spearman

Referring to the Budget presented yesterday, it seems to me that it was entirely trivial in comparison with the magnitude to the task ahead. As I want to be critical of the Chancellor, I would like to start by paying a tribute to the brilliant exposition which we always expect and obtain from him. In fact, as I listened to that remarkable lucidity yesterday, I thought that if only the Chancellor were one half as vigorous in his deeds as he is skilful in his choice of words, the state of the country today might be very different from what it is.

I want to touch on three points: the gravity of the present situation, the causes of it, as I understand them, and to suggest solutions. It may very well be said that as every hon. Member knows so well the gravity of the situation today, there is really no need to stress it further, but I am not sure that the country as a whole appreciates that. We can only expect the tremendous effort which is necessary from every section of the community if we can really bring the people to realise the urgency of the situation. It is one of the greatest indictments of the Government that they have failed to do that. In his Budget speech yesterday the Chancellor did not bring that home, either by what he said or by what he proposed, in fact, as I listened to him, I thought of another doctor, not a doctor of science but a doctor of medicine, treating a patient who was desperately ill through mistreatment. I thought of that doctor perhaps realising that the gravity of his patient's health was owing to a lack of foresight and planning on his part, but not wishing to disclose that, or to prescribe the drastic remedies that were necessary, for fear of upsetting the patient's relations on whose complacency depended the payment of his fee.

The present shortages are considerable, but they are nothing to what we are likely to have in months to come, when we may be regretting the splendours of 1947. After all, during the last year and a half we have been living, as to a considerable amount of our food and raw materials, on the American Loan. We have controlled prices by a system of controls comparable to a dam erected to deal with a certain flow of water. When we cut down the import of goods and export more, then that inflationary pressure will be far greater, and I doubt whether the dam can stand up to the great pressure which it will then have to resist. In fact, we may get a further escape into the black market. We have seen what can happen in Germany when a growing shortage of goods is exploited by black market operations. In the future we have to face not only grave shortages, but also grave unemployment.

The hon. Lady the Member for Blackburn referred to food subsidies, and the Chancellor spent a good deal of time yesterday on that subject. As I understood him, he guaranteed that during the current year he would spend £392 million on subsidising food, but he did not guarantee, as he did in the past, that by doing so he would maintain the cost of living at the present level. I think he calculated that the present expenditure was the equivalent of £8 a year a head. That might be a bad bargain for a citizen to receive if an expenditure of £392 million caused such inflationary pressure that prices of food doubled or trebled. I would also say that subsiding food might be a good way of curing unemployment at a time when the demand for goods was ineffective, as in certain inter-war years, but a cure that deals with one situation is not necessarily effective in dealing with a reverse situation, when there is too much purchasing power and not too little. After all, a cure for low blood pressure is not necessarily a good one to adopt when one is suffering from high blood pressure.

The Chancellor appears to me during all his term of office to have been most unduly preoccupied with the question of balancing Government revenue and Government expenditure, ignoring—as we have said time after time on these benches—that what matters is balancing total expenditure and total resources. Just as much as we spend more than we have, by that amount we are bound to have an adverse balance. I would ask the Financial Secretary, as the Chancellor has failed to do so, if he cannot tonight give us a clear calculation of what he has estimated are our total resources, and the total expenditure estimated by him for the Government, for capital reconstruction, and by consumers. I am reminded, in thinking of the Chancellor's performance yesterday, of the story of M. Clemenceau at a time when he was Prime Minister of France and that country went through a difficult financial period. M. Clemenceau was reported to have said, "Alas, that I should have appointed as Minister of Finance the only Jew in France who cannot add." It may be that our Prime Minister today is bewailing the fact that he appointed as Chancellor of the Exchequer the only economist who, apparently, has not read Keynes. I would not accuse the right hon. Gentleman of not being able to add, but I would say after yesterday that he does not appear to be prepared to add, and to face what are the actual facts.

I will ask him three questions. First, why is it he did not foresee that his policy would lead to the balance of payments crisis, when it was so clearly foreseen in many speeches in this House and articles written in the papers? Secondly, why it was, if he did foresee it, that he tolerated vast expenditure at home and abroad? This Government have spent in grants and loans, between coming into office and March, 1947—that is, before the events of the summer—£720 million in foreign countries? I would like some explanation of why that happened. If, however, the Chancellor can show that all this expenditure at home and abroad was absolutely necessary, then why is it that he did not cut down, however ruthless it would have had to be, expenditure at home by consumers, because those two expenditures had to balance except in so far as we borrow abroad. I would remind him of what was said by the President of the Board of Trade at the beginning of the year: Total resources and total needs must automatically balance. If they do not do so in accordance with some plan, then there will be deficiencies appearing perhaps in the very things of which there is the most vital need. I now come to what seems to me the causes of the present situation. We can all agree that we are not exporting enough because we are not producing enough. I suggest that the inadequate production is not due nearly so much to bad output as to maldistribution of men and materials. That, I know, will not be altogether agreed. The hon. Member for Devonport (Mr. Foot) said in the Debate on the Address: The people of this country are producing more goods today than they ever did in their lives."—[OFFICIAL REPORT, 28th October, 1947; Vol. 443, c. 806.] If that is so—and I suspect it is exaggeration—it is an even greater indictment of the Government because, while it is not altogether their responsibility how hard everybody works, under the present system of controls it is their responsibility, to a large extent, what is produced. If we are producing this vast quantity of goods and suffering from such shortages, it is quite clear that we are producing things people do not want.

Mr. H. Hynd

The reason surely is that the goods are being exported.

Mr. Spearman

No, the exports are not materially greater than they were before the war.

Mr. Lever (Manchester, Exchange)

Three times.

Mr. Spearman

If the hon. Member will refer to the "Digest," he will see that they are not. In an earlier speech this year I suggested there were two Ministers involved who could alter the distribution of men and materials. First, the Minister of Labour by direction of men; secondly, the Chancellor, by the use of the financial instrument. The real controversy today is whether the Minister of Labour can, in fact, move men where they are needed. I do not believe it can be done in this country—and I think hon. Members opposite, including the hon. Member for West-houghton (Mr. Rhys Davies) would certainly agree, without imposing brutal sanctions.

Mr. Lever

Does not the hon. Gentleman realise that we could have greater production at the present time and a lesser amount of consumer goods than before the war because of the simple fact that after six years of an exhausting war a much greater part of our effort has to go on repairs and rebuilding of a damaged economy? Secondly, we have had to export a greater volume than before the war. Thirdly, we share a lot more fairly, as in the case of milk, than we did before the war, when the shortages were concentrated in some small area, while there was plenty in other areas.

Mr. Spearman

The point I have tried to make is that our difficulties today are due to the fact that we have been producing the wrong goods and that there were bottlenecks and hold-ups, due to inadequate raw materials, that that was more to blame than the output per man. Returning to the point of whether we can get workers to the right places without using totalitarian sanctions, I believe we cannot do that, and we have to face the fact of a very nasty dose of economies or totalitarianism, or we shall not get production up as far as it has to go. There is, of course, the other solution, which is neither that of the Minister of Labour directing—which he is now trying to do by incredibly clumsy means—nor the financial instrument of the Chancellor of the Exchequer. The third solution is one which we would all deplore on every side of the Committee, mass unemployment, so that people in despair are pushed into jobs where they are most needed. If the Government come back to that—and however unintentionally I think they are going in that direction—it shows the complete bankruptcy of their policy.

I say, and in this I am in complete disagreement with the hon. Lady the Member for Blackburn that the only solution, other than the appalling one of mass unemployment, or authoritarian measures, is that of using the financial instrument. That is the only practical thing in a democracy. Of course, everyone cannot do exactly what he would wish. Everyone might wish to be an archbishop, but I am told that very few are needed. Price mechanism does adjust that matter, and not mass unemployment. Industries where the demand is greatest raise wages, and thereby attract labour; industries where they are not wanted lose labour, and thereby release it to more vital places. Under price mechanism there is no need for mass unemployment. It is not a question of people being driven because they have no other jobs, but that jobs are not offered in unessential industry, while higher incentives are offered in essential industries.

Wise planning recognises human limitations. I do not believe that any Government Department can foresee accurately exactly what the public want. They may know what they think they ought to want, which is something very different, but even if they saw what was wanted, there are incalculable factors which prevent accuracy in diagnosing the situation. For example, they cannot calculate on housing because they do not know how much wood, steel, or coal is going to be available, and because of miscalculations in that respect there has been enormous waste. In the last few months many houses have not been completed owing to the absence of vital component parts. Of course, I realise that in this time of scarcity the Government must have great influence, and make decisions as to what shall be produced. We cannot go back to complete laissez faire but, instead of depending entirely on controls, I think we should take the weight off the machine by decentralising and making use of markets and prices.

The fact that the present mixture of ineffective controls and very little price mechanism has not been a success, does not mean that there must be no mixture at all, but rather that the blend should be different. The fact that a man who is given a whiskey and soda does not like the proportions he is given, does not mean that he wants pure water, or pure soda—[Laughter.] I mean he does not want pure soda, or pure whisky. Inflation, considerable as it is at the present time, will be far greater in the months to come, because the present gap between the stream of incomes and the stream of goods will be much greater owing to the reduction in imports. For that reason I say there should be something far more drastic in anti-inflationary measures than we have yet been told about. The alternative to planning reductions in an orderly way is not that we should not have those reductions, but that they should be planned in a disorderly way, which will mean perhaps a maximum of suffering where it can least be borne.

I knew that in 1945 the Government inherited a very difficult situation, as the inevitable consequence of the war. In 1946 that position became even more difficult by the rise in American prices and failure of revival in Europe. But that does not seem to be any excuse for this. Government to have brought disaster on the country. Surely, they should have taken warning by those difficulties, and cut their coat according to their cloth, rather than going ahead with extravagant schemes. I will quote an old rhyme: In a torrent, if a drunkard sink, It is not the flood that drowns him, but the drink. Either the Government are just drifting, hoping that something may turn up, or they are dependent upon a massive loan from the United States. I wish to say two things about help from the United States. First, any help we get from there will not be given by them as a relief to their own economy. On the contrary, it will be a great sacrifice because they have inflation in their country due to the fact that they have been sending more goods to Europe than they can afford to send, and therefore it will be only as a sacrifice that we shall get help. Secondly, in the interest of stability, and of enlightened self-interest, they are willing to help us if they can, but they will not do it just in order to put off the day of reckoning. They will not give us help in order that we shall go down more comfortably, but only if they are satisfied that we are correcting mistakes in our own economy, so that we shall be able by their help during the difficult interim period to stand on our own legs.

6.59 p.m.

Mr. Piratin (Mile End)

Yesterday the Chancellor made a serious speech in a critical situation, and it is our responsibility to discuss whether or not the supplementary Budget helps towards resolving the problems we are now facing. The Chancellor of the Exchequer said: We must reduce the total expenditure, and we must increase the total revenue."—[OFFICIAL. REPORT, 12th November, 1947; Vol. 444, c. 396.] No one on either side of the Committee will disagree with that. The question before us, however, is, are the Chancellor's proposals going to help carry forward those principles into practice? These are wise principles, providing we accept the economic policy of the Government as correct. This is not the occasion to discuss the Government's over-all economic policy, or lack of it; but I claim that the present economic crisis could have been averted by a vigorous implementation at home and abroad of Labour's 1945 programme. Even now it is not too late to revise the policy from that of the F.B.I. to that of Labour. Without changing this policy, these measures cannot be effective in any sense.

I now come to the Chancellor's proposals. First, let us review the proposals with regard to reducing our expenditure. There are three aspects which he mentioned in his speech yesterday afternoon. The first is that the reduction in the Armed Forces would lead to a reduction in expenditure. That is incalculable at this stage. Secondly, he said with some satisfaction that the number of civil servants in the employ of the Government has been reduced by 32,000, and I am sure we welcome that on all sides, provided it does not mean that there is equally a decrease in efficiency. Thirdly, he made reference to the proposed cut of £200 million in capital expenditure, for which of course he is not primarily responsible, but which is part of the so-called plan introduced by the Minister for Economic Affairs two weeks ago. With regard to the last point, I think that a lot will depend upon what is involved in these cuts, and we have all been waiting to see the White Paper promised to us two weeks ago in order to know exactly what is involved. There have been rumours, but until we know definitely, we cannot comment. If, however, the capital expenditure cut will include a cut in capital equipment, and a cut in social services, then it will be along the classic Tory lines of policy in such circumstances, and will be a blow to the economic recovery and to our working classes.

What is the particular form of expenditure on which we could save the greatest amount of money? I would draw the Committee's attention to what was said here yesterday by an hon. Member on this side in reference to the £900 million which is being spent in this year on military expenditure. The Chancellor, it is true, referred to some saving in this item, but we must face the fact more seriously than the way in which it has been approached by the Government. I claim, and I think there are a good many hon. Members who would support this, that half of this amount of £900 could be saved, possibly not immediately, but very quickly. This sum would be saved to the advantage not only of our finances, but would likewise help to solve the manpower problem in the undermanned industries. The more men we bring out of the Forces, the less equipment will be required for them, the less expenditure will be involved, and at the same time several hundred thousand men, many of them skilled and a few certainly young, would be able to move into industries which require young men. I say quite firmly to the Chancellor that he has no right to call on the people to make sacrifices, as he is calling now and as he will be calling further, on the ground that we are facing what has been called "economic strangulation," when in fact we are lavishing £900 million on military expenditure which is not in the interests of this country.

What is the next main factor? "How to increase revenue," says the Chancellor, and there are several measures which we heard with great interest yesterday afternoon but which since then we have been able to absorb much more fully. I am certain that some hon. Members on this side who yesterday evening were congratulating the Chancellor, might be having second thoughts in their estimation of the proposals he was then introducing. His Budget aims at obtaining in a full year an increase of £208 million in revenue. There was, of course, relief on these benches when the Chancellor announced there would be no cut in food subsidies, and that it was not contemplated in the coming year to reduce the subsidies of £392 million. In this respect the Chancellor did not accept the very generous advice offered to him by the Tory spokesmen and the Tory newspapers, as did his colleague the Minister for Economic Affairs.

I, frankly, believe, however, that it was the Chancellor's intention to introduce cuts in the food subsidies. I have good reason to believe that from a number of sources of information; but the Chancellor was made aware of public feeling by representations of the Labour movement. No doubt, also, the results of the municipal elections had a bearing on the Supplementary Budget that we are now discussing. The Chancellor took note of the feeling of back benchers on this side, and I think that if there were closer contact between the Front Bench and the back benchers, we would see other results of this kind taking place. We are pleased to see that the Chancellor did respond to what was the mood of the public.

Though he did not introduce cuts in food subsidies, he has introduced the principle which the Tories have been advocating, namely, increasing indirect taxation. This policy is a blow to the working class; particularly to wage earners with large families. These people, while exempt from Income Tax, bear the greatest burden when indirect taxation such as this is imposed, for several children have to be fed, clothed and cared for; and more household equipment has to be purchased.

Mr. Walker (Rossendale)

There is relief for the children.

Mr. Piratin

The hon. Member for Rossendale (Mr. Walker) said there is relief for the children, that is 5s. family allowance for each child. This has been swallowed up long ago through increased prices. Indirect taxation also imposes a heavy burden on the low wage earner and the pensioner. I believe that the Labour Party here has to revise its policy of indirect taxation, as it is a burden on the workers.

Let us examine the estimate of £208 million in increased revenue in a full year. Fifty-seven million pounds from business, £151 million from the public. The public of course includes all sections, and while I imagine that there are few workers who will have the money to buy bottles of whisky this Christmas, or who had it even last Christmas, it does affect the public as a whole and I speak for the public in general. Now with regard to the figure of £151 million which comes from the public, this is what we find. Eighty million pounds is from Purchase Tax. That affects every one, but more particularly the men, women and children of the working classes more than any other section. Thirty-five million pounds on beer, £21 million on wines and spirits, £15 million from betting. As I said before, I do not think some hon. Members who spoke yesterday gave sufficient thought to what was involved here. What does this mean? It means in my calculations—and the Financial Secretary can correct me—an average of 4s. 6d. increased cost of living per family per week. We were told the other week by the Chancellor of the Exchequer that a reduction of food subsidies in toto—a thing not even contemplated by the Conservative Party—would have amounted to 12s. 6d. per family per week. That increase in the cost of living was not introduced but in fact there is an imposition of 4s. 6d. a week for the average family.

Let us now examine the other aspect about which very little has been said. I refer to the withdrawal of the subsidies of £33 million on cloth, leather and furs which make up our clothing. In this evening's paper we read that immediately the cost of a woman's utility top price coat has gone up by 22s. to 30s., and a man's suit has increased in price by 27s. to 36s. That is the immediate effect of this subsidy withdrawal. Hon. Members should understand that the figure is much more than £33 million. There is a reason for that, and the Chancellor gives no indication of what he intends to do about it. The reason is that when the subsidy is withdrawn, the price of the goods at the source goes up. Then one lot of profit is added, then another and, perhaps 10 lots of profit are added. By the time the goods reach the consumer the difference is not £33 million but probably well over £100 million.

Mr. Diamond (Manchester, Blackley)

I would like to draw the hon. Gentleman's attention to the fact that Purchase Tax is not calculated in this way on all utility goods on which profit controls exist and price calculations are made. The price is calculated in the normal way and the Purchase Tax is added quite separately. It is not allowed to add the profit on to the Purchase Tax.

Mr. Piratin

I am afraid my hon. Friend misheard me. I was not referring to the Purchase Tax. I quoted today's evening newspaper merely to show the immediate effect that this action has had on clothing. I was referring to the £33 million and showing how, ultimately, it will be a total increase in the cost of living of £33 million plus. My argument was that it will be £33 million plus much more because of the additional profits from stage to stage. Measures must be taken to control prices so that no profits are made in this way.

I now come to the question of the £57 million. All hon. Members on this side of the House support the increase of the Profits Tax and obtaining another £47 million. We would support much greater tax. In addition, we approve of the £10 million to be got from the tax in regard to advertisements. Let us examine the additional Profits Tax. First, I draw this conclusion: That in view of the fact that this £47 million derived from doubling the present tax is higher than the present amount of income from Profits Tax to the Revenue, the Chancellor of the Exchequer must estimate that profits next year will be much higher than they are. If the Chancellor is so confident that profits are to be higher, surely he has a splendid case for taxing profits really heavily. Instead of that, we are only tinkering with the problem. Hon. Members opposite would have read with some degree of satisfaction the announcement in the evening paper today in big headlines which said: Shares soar on the stock exchange. 'Budget not drastic enough,' says the City. Then there are quotations of shares which have gone up today. Frankly, whenever I see a report of that kind I am worried as to whether the Chancellor's policy is a good one, for if it is good for the City of London gamblers it is bad for the working class. The hon. and gallant Member for Holderness (Lieut.-Commander Braithwaite) who, I believe is in the stockbroking business laughs, but the working class will support this contention. I ask the Financial Secretary to the Treasury: Why not take the oppor- tunity of introducing a substantial increase in Profits Tax? I was very interested to hear the hon. Lady the Member for Blackburn (Mrs. Castle) make a reference to this. I, too, would support her in the proposal she made. I would like to suggest a graduated Profits Tax so that it would affect more steeply and sharply on the luxury trades. This would fit in with the general economic policy which is to take manpower away from the luxury and non-essential trades and to put manpower into the undermanned heavy and essential industries of the country.

No clearer case has been made out, in view of the urgency of the situation, than that for an increased taxation of unearned income. I wholeheartedly support the hon. and gallant Gentleman the Member for North Portsmouth (Major Bruce) and the hon. Lady the Member for Blackburn in their analysis of the White Paper, and their remarks about the amount of income which very often is not declared and not taxed. That income could be taxed and I suggest that steps should be taken accordingly. A new order is coming into operation by which people who make no contribution to the public service, to our economy and production, must register for work. We know that many will try to evade their responsibilities and, probably, many will be successful. Recently the Minister of Labour said: In these days anybody who wants to eat and live ought to perform some useful service."—[OFFICIAL REPORT, 11th November, 1947; Vol. 444, c. 182.] The Minister of Labour was quite right. At least one of the contributions these people could make—and many of them have never even lifted a hand to help their country in any practical way—is by way of increased contribution to revenue. They have the money and mostly do nothing for it, and did nothing to get it. Let us take the taxes from the unearned income section of the community.

Lastly, I would have liked to see the Chancellor introduce a tax on capital, a matter which has often been discussed in Labour circles. When I was a boy there was talk in the Labour movement of a capital levy. A much more practical proposition in these days would be an annual tax on capital. The hon. and gallant Member for Portsmouth proposed some points in that direction. I think that it could be worked out.

Mr. Walter Fletcher (Bury)

Would the hon. Gentleman explain what he means by an annual tax?

Mr. Piratin

I am sure that with the co-operation of those who own the capital, the Treasury would be able to discover exactly what the capital amounts to and how it is disposed. An annual tax on that capital could be imposed. It could be a small tax of 1 per cent. on small amounts up to 5 per per cent. on larger amounts. A tax of that kind would help the nation, and it would be a truly patriotic gesture on the part of these people. I think that the Chancellor of the Exchequer ought to give attention to it.

This supplementary Budget does not tackle the problem seriously or adequately. The Chancellor has not gone far enough, says one newspaper, and many others are going to say the same thing. We want to see him go far enough—as we are in a crisis—in taking money where it is to be found and where the inflationary possibilities lie. All the propaganda that has been carried on in the last few weeks about the Budget possibilities and the new austerities, has led many ordinary people to entertain a feeling of satisfaction and relief. They are satisfied that their tobacco and food prices have not been touched, and they are feeling satisfied about the general position. But I would give a warning that, within the next few weeks, when the new cuts will begin to be felt, they will be feeling differently about it. Therefore, it is necessary for hon. Members on this side to realise the consequences of this Budget.

The Government want wages to be pegged, and discussions are going on now—and I beg trade union hon. Members to realise this point—with the trade union movement in regard to the need of pegging wages. An appeal will be made to the union leaders that, as the Government have not touched food or tobacco prices, which have, it will be claimed, been stabilised, there should be no demand for higher wages. If that appeal is to be made, in that way, I think it will be misleading, because the fact is that the cost of living has been increased by this Budget, and it will be further in- creased by other measures to which the Chancellor referred yesterday. Therefore, I warn the Government that, though the working classes of this country are prepared to make sacrifices—and they always have made the sacrifices, and always have tightened their belts, while hon. Members on the other side have only spoken of it—they will not do it willingly if they know that the rich are not bearing their full share. This Budget is not effective in closing the inflationary gap. It is, in the main, only an added burden to the working class. For both these reasons I must express my opposition to it.

7.22 p.m.

Mr. Boothby (Aberdeen and Kincardine, Eastern)

I was very interested in the speech of the hon. Member for Mile End (Mr. Piratin), but he will not expect me to agree with everything he said—

Mr. Piratin

I should be disappointed if the hon. Gentleman did.

Mr. Boothby

—or with the violent but brilliant speech of the hon. Lady the Member for Blackburn (Mrs. Castle) who preceded him. Both of them dealt, from a somewhat partisan point of view, with the present economic position of the country; and both of them seemed to me to ignore the one basic fact of the situation, which is that the standard of living of the people of this country during the next few years will be exactly dependent on what we produce—no more and no less. That is the final answer, and there is no other answer to our economic problem. Our standard of living will depend upon what we produce.

I thought the hon. Member for Chesterfield (Mr. Benson) made a very important point when he drew attention to the disequilibrium in this country today between the essential production industries and the non-essential ones; and the importance of doing everything we possibly can to attract labour from useless activities, in which far too many young men are engaged in this country today, into the essential industries. I am not now talking of the direction of labour; that is another issue. I am disappointed with the Budget because no further constructive suggestion has been made by the Chancellor that will induce labour away from perfectly useless industries—in which I include the industry of gambling, one of the most prosperous and active in this country today, as a result of two years of a Socialist Government—and induce labour to go into those industries which are really vital to our future existence.

On the specific details of the Budget, I am, personally, most grateful that the Chancellor has not further increased the Tobacco Duty. I listened with some apprehension to his warning of a future shortage; and, on that, I would simply say that if he had shown a little more prescience in this matter, and, indeed, in many other matters, we might have already had a flourishing tobacco industry in Rhodesia, which could look after all our wants for tobacco for the next 20 years. The Financial Secretary might say that the Chancellor was hamstrung by the terms of the American Loan; but I would say, in answer, that it was not my fault.

I am also slightly regretful about the further increase in the duty on the exquisite spirit produced by my native country. The trouble about the perpetual increases in the duty on wines and spirits is that they are always imposed in cases of extreme emergency—a crisis, or a war or something of that kind—but when peacetime comes, they never seem to be taken off, or reduced in any way. If we examine the deplorable history of the whisky duty, we shall find that it was imposed savagely in the 1914–18 war, was increased b. Sir Austen Chamberlain in the crisis of 1919 or 1920, was further increased in 1926, increased again in the great crisis of 1930; and so on, through the last war, until here we are today, finding that it has always gone up and never come down. My only appeal to the Government is that when, as I do not think is likely during their tenure of power, better times come, a lenient eye will be cast on this duty on wines and spirits.

As for the rest of the Budget, it does not seem to me to be of very great consequence. I might even say that it is neither here nor there; and I wonder why it was introduced at all. There is a slight promise held out by a tax on betting; but why only the dogs? There is no doubt that, as the result of the policy of this Government, betting is our greatest and most prosperous industry; and I say that there is a great source of revenue there. Any Government which had the guts to pass legislation to legalise betting, and give up the hypocrisy under which we have laboured for the past 20 years, could levy a proper tax of ten per cent. or so, on betting, which would do a lot to close the inflationary gap in this country. To fiddle about with the tax in this way is not only unfair to the dogs, but also only playing with the problem. The Government ought to bring in legislation putting betting on a proper legal basis; and, having done so, should levy a ten per cent. tax on all forms of betting, which would be a great source of revenue to this country and one against which nobody could complain, because nobody need bet unless he wants to.

To turn to larger issues, it seems to me that the whole financial policy of the Chancellor of the Exchequer, ever since he took office, has been based on an inversion and misapprehension of the teaching of the late Lord Keynes. What the Chancellor has never got into his head is that the proposals which Lord Keynes put forward were made throughout a period of chronic under-employment and in a period of what we used to call glut. Lord Keynes's proposals implied that when we got a period of over-employment and scarcity of goods, when money was chasing goods, we should let prices rise, including the price of money; restrict rather than expand the creation of credit; and cut off subsidies, until a balance had been re-established. As I have said before in this House, the real essence of the Keynes doctrine is exactly similar to the famous case of Alice and the mushroom. One nibbles at one side of the mushroom if one is getting too small, and the other side of the mushroom if one is getting a bit too tall. The Chancellor has throughout, and particularly in respect of his insane cheap money policy, pursued one side of the Keynes doctrine, in conditions which have been the precise reverse of the conditions in which Lord Keynes put forward his proposals.

It seems to me that the answer to our basic economic problem is threefold. We ought, first, to plan our economy, and that the Government have never attempted to do. They claim to be a great Government of planners. I suggest to them that an essential feature of a planned economy is a plan. That is all.

Mr. Rankin (Glasgow, Tradeston)

I would like the hon. Gentleman to make one point clear to me. On the last occasion on which I heard him talk with distinction, as he always does, on this subject, he paralleled the period of chronic under-employment with the circumstances that operate today. He held that they were analogous; but tonight, he is saying that they are opposites.

Mr. Boothby

I suggest to the hon. Gentleman that he must have misunderstood me on the previous occasion; because in no circumstances would I draw a parallel between the conditions in this country today and those which prevailed in the period between the two wars, when we suffered from chronic underemployment. The position is entirely different at the present time, and I have always been very careful to draw that distinction: I am a great disciple of Lord Keynes, and I would not like the hon. Gentleman to think that I am going against my economic mentor. I think that he was one of the greatest economists that ever lived.

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

Which phase is the hon. Gentleman speaking about? Lord Keynes went through several.

Mr. Boothby

On the subject of the American Loan, I would only say it is an example of the tragedy which occurs when a great theoretical thinker turns his attention to practical action. No great theoretician has been a great man in action. When he turns to action, he is always obliged to justify things which he may feel impelled to do under the pressure of events in order to justify his theories in the past. That never works. I am a great devotee of Lord Keynes; and I would not like hon. Members opposite to think anything else.

My second point is that, in order to find a way out, we must have a much greater reduced expenditure than the Government have brought forward in this Budget. On this, I am perfectly prepared to take up the challenge put forward by the hon. Lady the Member for Blackburn. I say, quite frankly, that the food subsidies at the present time should be reduced. I think they are altogether out of proportion in our present national economic situation. I will deal with that in a little more detail in a moment. My third point is that the final way out, and much the most important, is increased production. As I said at the beginning of my speech tonight, I complain bitterly that there is absolutely nothing in these Budget proposals to give any incentive of any kind, at any level of the productive process, to increase production in this country. I think that is where it falls down, more than in any other respect.

On the question of trade, I want only to say one word, which is that it is really no use the right hon. Gentleman the Minister for Economic Affairs and the right hon. Gentleman the Foreign Secretary paying lipservice to the ideal of Empire trade—which, in my view, is by far our greatest hope, and, possibly our only hope—and then doing absolutely nothing about it. They had far better shut up if they are only going to lead people up the garden path. The Minister for Economic Affairs was at it again the other day. It is our main and only hope, and it is no use paying lipservice to it in brave speeches in the country, and then taking no practical action whatsoever, except to whittle away such Imperial Preferences as still exist.

I feel that the total absence of any constructive control over our imports, or constructive control over the direction of our exports to countries which are prepared to take our goods in exchange for goods which they send to us, is one of the greatest and most lamentable failures of the present Government. Do not let us be under any illusion about the United States of America. I am absolutely certain that they are going to be generous; and are going to give us, and Europe, some of the goods of which we stand in such desperate need. But if we think that for the next few years the United States are going to take large quantities of goods from this country, under any condition, then we are labouring under a fatal illusion. They are not. The Government should long ago have been looking for markets and making reciprocal trade agreements with countries which will take our goods in exchange for the goods we take from them.

I mentioned just now the question of food subsidies, and I would like to remind the House of one or two figures. In 1946, the public of this country spent £1,500 million, as near as may be, on alcohol, tobacco and entertainment; and, approximately, £500 million on cereals, sugar and potatoes. That was the total expenditure for the year. Nevertheless, the Government gave no less than £132 million by way of subsidies on the latter items. I say that this is a distortion; and that it is out of all proportion. It bears no relation to the economic problem confronting this country, and it certainly bears no relation to the cost of production of these foodstuffs, or to the realities of the present position. In effect, it deceives the public; and that is what the Chancellor is continuing to do. I am not a hard man, and I do not want to see anybody suffer. I am perfectly ready to concede that if we begin to cut, as I think we ought to cut, these food subsidies, we ought to take steps to see that the very poorest class in the community, and particularly those with large families, do not suffer on that account. But to slop out this vast sum of money—practically £400 million a year—to everyone, rich and poor alike, is a squandering of public money and a distortion of our economy which in my view cannot be justified.

Mr. J. Lewis

In view of the hon. Gentleman's argument, why did he not suggest that we should cut the expenditure on spirits and tobacco and maintain the subsidies on food? Would not that be a way out?

Mr. Boothby

Well, give us all a chance. I do not know how unpleasant the hon. Gentleman wants to make life for everybody; but it is clear that a lot of people in this country are keen on entertainment, smoking and drinking, and I do not want to deprive them of everything. I am only saying that they are sufficiently keen to spend £1,500 million on these things in a year; and that, therefore, the subsidies which are given on food are, in proportion, a little bit excessive.

Now I want to come to the question of capital expenditure where, again, I think, the right hon. Gentleman has greatly disappointed the House and the country. There should have been far more drastic cuts in capital expenditure than he has announced. I do not say that I go all the way with Mr. Harrod, who has been very active in this field and claim that the whole of our economic problem can be solved by a cut of £500 million in our capital expenditure. I do not think that is true. The Government should draw a sharp distinction between capital expenditure which is essential—by which I mean the renovation, reconstruction and modernisation of our industries, which is absolutely vital—and that which is not essential, such as the provision of new halls, civic buildings, houses, hospitals and schools. For the moment we must slow up on the latter; but far from slowing up on the renovation of industry, we ought to accelerate it. By and large, the industries of this country are obsolete; and, taking a long view, although it may hurt for the moment, we ought to put far greater capital expenditure into the renovation, reconstruction and modernisation of our industries than the Government propose to do. If we do that, we must face the corollary of it, which is that in the next two years we have got to reduce consumption lower than the Government now propose. I was delighted to hear my right hon. Friend the Member for West Bristol (Mr. Stanley) deploring the doubling of the Profits Tax on profits which are not distributed, and which are available to be ploughed back into industry. That seems to me to be savage lunacy. There is no point in it. Those profits should not be taxed; but should be devoted to the reconstruction of industry.

I would also ask—and I am glad to see the Financial Secretary is in his place—what real confidence we can have in a Treasury which has so consistently bungled everything during the past two years, and has prophesied all wrong from start to finish? The right hon. Gentleman will no doubt remember a rather engaging little Debate which we had in the middle of the night on 30th July last, about the sterling balances. In this Budget he is producing proposals to save a couple of hundred million pounds in a full year. At that time he got rid of much more than a couple of hundred millions in a full fortnight. When he docs that sort of thing, I wonder how he expects us to have any great confidence in anything he does.

I am now going to do a very deplorable thing, Major Milner, but I assure you that it will not last for more than three minutes. I am going to quote from one of my own speeches in this House. It is most unforgivable; but in this case it is irresistible. On 30th July last, just about midnight—the right hon. Gentleman replied on 31st July, just after midnight—I said, with regard to these sterling balances: Foreign countries, I suggest to the House, will be very strongly tempted to convert into dollars at once any sterling receipts that they get because their need for dollars is very great. It is almost as great as our own. Even if there is no genuine surplus on current trading accounts, this can be done if British payments for imports mature before foreign payments for our exports. Sometimes, owing to seasonal causes, we have to pay first and the foreigner pays later. The temptation if we have to convert our payments into dollars will, under present conditions of the world, be almost irresistible. Therefore, foreign countries concerned will be able from now on to use our very slender dollar resources in order to husband their own dollars, and the drain upon sterling will continue indefinitely and at ever increasing speed. I went on to say: We are now financing the world dollar deficit."—[OFFICIAL REPORT. 31st July, 1947; Vol. 441, cc. 767–768.] What did the right hon. Gentleman say, shortly after midnight, in reply to my speech? He said: Unless when convertibility came about—and we undertook to bring it about on 15th July—something had been done to deal with these sterling balances they would, as the hon. Member for East Aberdeen has said, have become unmanageable and out of hand. The hon. Member said, I believe, that they had already done so and I say they have not. He went on to say: The hon Gentleman the Member for East Aberdeen and other speakers indicated that in their view the drain on our dollar resources would be too much, that, in fact, many of these countries would immediately transfer their sterling into dollars and that they would not spend the sterling on goods from this country. That is the prophecy of the hon. Gentleman and some of his friends and whether that prophecy will come true or not we do not know but it is prophecy only and not certain and, in my view, I do not think it certain at all."—[OFFICIAL REPORT, 31st July, 1947; Vol. 441, c. 780–781.] That is what we got from the Government. I can only say that, for a horrifying fortnight, we found ourselves financing the entire world dollar deficit; and if the Government had not then immediately repudiated every single agreement into which they had entered, we should have been "in the soup"—down and out.

I ask, what confidence can any of us have in a Government that is so ludicrously out of line with any sort of fact or reality as the present Government? I honestly do not think that the present proposals of the Government bear much more relation to the facts of our economic situation than those idiotic sterling balance. agreements which they signed a few months ago. Our economic policy has been reduced to a few "pep" talks by the Minister for Economic Affairs about parlour games. When I listened to him, I could not help thinking that a great many of his audience would be able to tell him a great deal more about parlour games in the evening than he had ever thought of. I do not think we are likely to get through on this policy of "strength through misery." What this country wants is a creative and constructive economic policy, based not on misery and despair, but on determination, on realities and not illusions, which will encourage enterprise, faith and confidence; and, above all, hope in the community. That is what this Budget has not done, and that is why, if there is a vote on these Budget Resolutions, I will very gladly go into the Lobby and vote against them.

7.47 p.m.

Mr. Diamond (Manchester, Blackley)

The hon. Member for East Aberdeen (Mr. Boothby) started his speech by pointing out an essential factor in our situation which many people forget. He said that we can do one thing only—to live in the future on what we produce. That, of course, is exactly right, and it will be the central theme of the few remarks I wish to make. The hon. Gentleman finished his speech by saying that the Government were ludicrously out of touch with the real economic facts of the situation. I hope he will do me the courtesy of listening to me with only half the interest with which I listened to him, and decide at the end of my remarks whether it is the Government or himself who is ludicrously out of touch with the economic facts of the situation.

What is the main purpose of this Budget, which has been clamoured for by the Conservative Party and the Conservative Press for many months? They had. asked for it, and have pointed out the need for it. When it is presented, of course they criticise it. The whole purpose of introducing this Budget, and the need of the moment, is to prevent an inflationary situation which would be beyond the control of the Government. It is purely to carry out the undertaking given by the Chancellor of the Exchequer that our financial policy must walk hand in hand with our economic policy. This is not a Debate on our economic policy, although I appreciate that economic matters enter into it very largely. We have recently had many Debates on economic policy, and this is a Debate on the financial policy to follow up the economic policy and to give it full effect. As the hon. Member for East Aberdeen said, what we should do, first of all, is to produce as much as we can, and more than we are now producing, if possible. The second thing that we should do is to plan so that we know what we are trying to achieve. I gather the hon. Gentleman does not dissent from that. The third thing which we must do, but to which the hon. Gentleman has given no thought at all, is to see that the people on whom we are going to rely for our production, and for their good will and public spirit in working voluntarily under the Government's plans, are happy and satisfied, and feel that there are stable conditions of security surrounding them. Those are the things on which we have to concentrate.

Let me deal, first, with the question of inflation, because the whole of this Debate has taken place against the background that there is inflation which is completely beyond control and that we are in the middle of a crisis. The word "crisis" has been used many times, and the word "inflation" has been used many times. It has been assumed that the inflationary pressure is such that it is beyond our control. Many hon. Members opposite have said, "The Chancellor of the Exchequer knows all about this. He has got the whole of the information. Why does he not take us into his confidence?" The Chancellor is also very clear in his expositions, and I can only assume that hon. Members did not listen to what he said yesterday. He does know the position, and is better informed than any of us on the so-called inflationary gap. He has pointed out perfectly clearly what the position is. He said: The Measures which we have taken, including our controls, both physical and financial, have prevented a break-away inflation in this country."—[OFFICIAL REPORT, 12th November, 1947; Vol. 444, c. 395.] That is the position in which we stand at the moment. There is inflation in the sense that there is money pressure; but money pressure is just as necessary and vital to a healthy economy as blood pressure is necessary to a healthy man. We do not want too much blood pressure; we do not want too little. The Opposition concentrate the whole of their time in telling our doctor what remedies he ought to apply to reduce the blood pressure of the patient. I say our doctor has the credit for the greatest miracle cure of this century. He has the credit for curing the cancer of unemployment. I say he has the credit for that, which it has been beyond the ability of any previous Chancellor of the Exchequer or Government to cure.

Mr. I. J. Pitman (Bath)

What was the situation to which the Chancellor succeeded? Was it one of chronic unemployment, or was it one of high and stable employment?

Mr. Diamond

The hon. Member for Bath, of course, is a most open-minded Member, and I am surprised that he should put a question like that. The situation to which the Chancellor succeeded was the most difficult of all the situations to which any Chancellor has succeeded in this country. It was the situation, not of full employment nor of unemployment; it was the situation of being before the starting line, and having no idea where we were going, no idea of what the future was going to hold; and that in a country which was then still engaged in war, for we were still, in fact, at war with Japan. I am saying that if it had not been for the financial policy followed by the Chancellor of the Exchequer and this Government, the unemployment which started to creep in, would have set in, and that would have been the worst thing that could possibly have happened to us in any situation—mass unemployment, with all the consequences that follow from it.

Mr. Boothby

How can the hon. Member seriously imagine that there was any miracle? Where demand outran supply by millions and millions in every quarter of the globe, how could it ever have been conceivable in the last two years that there would have been unemployment, in this or any other country?

Mr. Diamond

I was not old enough to experience this at first hand after the first world war, but the inconceivable which the hon. Gentleman says could not happen, did happen in 1920 and 1921.

Mr. Pitman

Surely, the comparative time was the end of 1918 and the years 1919 and 1920, during which there was a similar situation of demand outrunning supply, and in which there was no unemployment.

Mr. Diamond

And which was followed by a complete breakaway inflation, which I hope we shall not see in this country, and which we are avoiding by the wise financial measures that are being taken. I deny absolutely that there was a financial situation—apart from the recent cuts, and immediately prior to the introduction of this Budget—with which the Government was unable to cope. Quite the contrary. I say that all the signs indicate that the greatest financial pressure came to an end several months ago. All the usual signs, not those of the learned economists we have on both sides of the House, to whom we are very much indebted, not those calculated statistically, but the facts as we know them—such things as the end of the theatre boom, the end of the cinema boom, the falling-off in the purchases of luxury goods in West End shops—all these well-known results of the end of inflation, happened. In the amount of pound notes out, as the Chancellor pointed out yesterday, we have again an indication that the amount of inflation is not by any means out of control.

This Budget follows the economic line—to limit the pressure which is still, at the moment, within control. What does that pressure amount to as a result of the cuts announced in our foreign balance of payments? In round figures, something between £250 million and £300 million. We are told we are going to reduce imports from dollar countries to the extent of about £330 million. I think that is the figure, but I am speaking from memory. We know that to a certain extent we are going to replace those purchases by goods bought in soft currency areas. Therefore, our imports are to be reduced, as a result of these cuts, by something well under £300 million.

If the Committee will be good enough to accept my contention that the present inflationary situation is not beyond control, then all we have to do is to deal with the additional pressure which will result from the stopping of imports to the extent of something between £250 million and £300 million. That is the task before the Government. How are we going to achieve that? We are not going to achieve it by the figure of £33 million which will result this year. All these cuts do not come into operation immediately. They grow; and we are concerned with a full year, the first being 1948–49. During that year, the reduction in pressure resulting from this Budget will be of the order of £250 million, approximately £200 million shown in the White Paper, plus a further sum resulting from the cutting of the clothing and leather subsidies. The Government are doing exactly the task expected of them. They are providing all means for taking up the slack which is being created by the further cuts necessary to enable us to balance our foreign payments. That is the task, and it is one we are achieving; and it is completely to ignore the situation to suggest that we have a financial situation which is out of control, or that we are in a crisis.

This word "crisis" is a very regularly-used newspaper word, an attractive word I dare say. It is a word which, in this Committee, we do not accept in its emotional context. We have to examine what the position really is. May I describe to the Committee the crisis in which we exist at the moment? It is a crisis in which we are producing more in this country than we have ever produced before; it is a crisis in which one out of every hundred of our able-bodied workpeople is out of work—only one in every 100. That is the sort of crisis from which we are suffering. It is accentuated by the fact that for the whole population at large, even at this minute, the standard of living is higher than it was in 1938. Those are the three elements in the crisis which exists today, and the criticism from hon. and right hon. Gentlemen opposite that the Chancellor does not paint this picture in the miserable colours in which they would like to see it painted is, of course, a sign not of the real position but of their own feelings because they cannot get support from the Chancellor for their lugubrious prognostications. What I have indicated is the function of the Budget, and I say it satisfies that function; and I say, furthermore, we should not use the word "crisis" without qualifying it and saying precisely what form the crisis takes.

I pass from those general remarks to one or two detailed remarks, of which we always have the habit of saying, "I am sure those on the Front Bench will take full note," but I suppose those on the Front Bench tonight will take as much note of them now as they always do. Before going into those details, I should like to say a little about savings, and I address these remarks to the Opposition Front Bench with a full sense of responsibility. Surely, it is common ground on every bench in this Committee that the need to mop up purchasing power arises only when people have not the self-discipline, the good sense and good self-interest to save that money and avoid spending it themselves? Surely, it is in the common interest that the Savings Movement should be encouraged in every way? Surely, it is evident to every hon. Member who was in the Committee yesterday that when the Savings Movement was mentioned, together with the unsatisfactory result of that movement, it was greeted—and I use these words with full responsibility—by jeers and laughter from the Opposition benches. I, therefore, make this appeal to the Opposition Front Bench. If they do not accept those jeers as representing official Conservative policy, will whoever is winding up for them tonight, ask the public, in the name of the Conservative Party as well as the Labour Party, to support the National Savings Movement?

It is appropriate to discuss one or two details of this Budget, now that the Financial Secretary is with us once more. I quite understand that he has many duties elsewhere, and I shall criticise his Parliamentary Private Secretary immediately I get outside for not being available to perform those duties in his stead. We are told there is to be an interest charge for outstanding tax arrears. That is a very good innovation indeed, and no doubt those who are concerned with tax collection will support it. Those who are familiar with the ways of the Inland Revenue will, however, ask that this should be a two-way traffic, and that there should be equally, in appropriate circumstances—and for amounts which are worth taking into account—interest paid by the Government on repayments due by the Inland Revenue to the taxpayer, but which are held up for an inordinate length of time. I do not make a criticism of that, because those of us who have examined the situation know full well that the Inland Revenue are badly understaffed, and badly housed—and very unfortunately so. But it would be only fair to the public that this should be a two-way traffic.

The other point to which I wish to draw attention is the question of advertising. We are told that one-half will now be allowable. I have given this matter some little thought between yesterday and today, but I find it very difficult to follow. I immediately think of the walls of the underground stations, and the delightfully charming negligé-clad ladies portrayed on those walls, advertising some article or other. One wonders what on earth will happen. Will those manufacturers who want to promote the sale of silk stockings have to show on the bottom half of the advertisement only those limbs which are appropriate to the occasion, so that the top half of the advertisement will have but a blank space saying, "Not allowable by order of the Chancellor of the Exchequer"? Or are we to have some other alternative, such as the top half being used by the Government for national advertising of the "Work or Want" variety, resulting, perhaps, in the combination, "Work or—Wear Wolsey"?

I do not quite follow what this reduction in the allowable advertisement expenditure is to be, because I am quite sure it is not seriously intended that the long adopted concepts of arriving at profits will be discarded completely for the one purpose of disallowing expenditure which is quite clearly, in many cases, against the public interest. In short, what I am saying is that this is a very good object, and indicates some brilliant thinking for dealing with the situation, but I am sure the method chosen is one Which will be seriously misunderstood. It would not receive support from any of those who have to deal with this sort of thing, on any side of the Committee, or from the Revenue or the taxpayer or, if I may say so, from the profession which helps the Revenue very substantially in the collection of taxes—the accountancy profession.

I apologise for keeping the Committee so long. I should, however, like to congratulate the Chancellor on having done the right things and omitted the wrong things; on having done the right thing particularly in terms of the Profits Tax. Of course, companies making substantial profits—as they do now—can well afford the extra 1s. in the £ on retained profits. Of course, they can; and it really is departing miles from reality for anybody to suggest that the doubling of the Profits Tax—in other words, charging an extra 1s., so that instead of having to pay 10s. in the £ they have to pay us. in the £—will prevent our industry from re-establishing itself. Surely, that is something which nobody can seriously suggest?

Mr. W. Fletcher

How does the hon. Gentleman get at his figure of 1s.? Surely, the Profits Tax has been increased from 12£½ per cent. to 25 per cent.?

Mr. Diamond

I am speaking of retained profits, because I have not yet heard the view expressed from either side of the Committee that the Profits Tax on distributed profits is too high. It was agreed on both sides, as I understand it, that in view of the inflationary pressure it was right to tax distributed profits. I am merely on the point raised by the hon. Lady for Blackburn (Mrs. Castle), who, surprisingly enough, raised this question on behalf of the textile industry which has a 25 per cent. free gift towards putting its house in order. Therefore, I say I do not think we can seriously complain about the Profits Tax. In fact, I say in all seriousness that if the position arose when we had to collect further revenue, surely this would be a very obvious source, without reducing in one degree the productivity of the country, which is the essential test at the moment.

On the things which the Chancellor has done I congratulate him; and I congratulate him further on the things which he has omitted. I am delighted to find that the Chancellor has not accepted the invitation to introduce either a capital Profits Tax or a capital levy. Both those things are, in my view—I will not go into details at the moment—not appropriate at any time; but today, when we are concerned with introducing measures to mop up the further £250 million worth of purchasing power, they are entirely out of the question. For those reasons, I congratulate my right hon. Friend, and have the greatest pleasure in supporting this Budget.

8.10 p.m.

Mr. Hollis (Devizes)

There is no Member to whose speeches I listen with greater pleasure than those of the hon. Member for Blackley (Mr. Diamond). I must confess, however, that the speech he has made was one of the most incredible I have ever heard. He advanced the entirely new thesis that there is not a crisis at all. I will refute him, not by my own words, but by the words of the Chancellor of the Exchequer, for whom he has such admiration. Only ten days ago, the Chancellor of the Exchequer told this House that our gold and dollar reserves were running down "at a ruinous rate." If that is not a crisis, then I really do not know what a crisis is. He told us that our reserves were running down at the rate of 70 million dollars a week, which means some 3,600 million-odd dollars a year, or £900 million a year. If that is not a crisis, I cannot understand what the hon. Member is thinking about.

Mr. Diamond

I made it clear at the start that the proposals were directed towards helping our internal financial policy. I was not, of course, dealing with the foreign balance of payments.

Mr. Hollis

I am even more mystified. If the hon. Member thinks that we can complacently deal with internal matters without any regard to complete instability abroad and foreign collapse, I am ever more mystified. It is true that the Minister for Economic Affairs has made his suggestions, but even after they have been carried through, by his own admission, our reserves will be down to £270 million at the end of next year. That is if all goes well, and things do not usually go well with this Government. At the time of the Washington negotiations, Lord Brand, who conducted the negotiations, said it was generally agreed that £250 million was the absolute minimum necessary for the safety of this country. Therefore, I cannot understand what the hon. Member is thinking about in drawing this distinction between things at home and things abroad.

We had an equally incredible thing happen earlier in the Debate. After my hon. and gallant Friend the Member for Central Glasgow (Colonel Hutchison) had made a most important and interesting speech about the stability of sterling, to my amazement the hon. Lady the Member for Blackburn (Mrs. Castle) got up and told him that he had made a completely irrelevant speech. I cannot understand what hon. Members opposite are imagining, if they think that the stability of sterling is completely irrelevant to the financial conditions of this country. I want, to ask the Financial Secretary one or two questions. I cannot understand why the Chancellor of the Exchequer did not deal with these matters in his speech. I want to elucidate whether the sterling situation is not even more serious than is commonly thought. We are given this figure of 70 million dollars a week. It is not quite certain, because apparently some newspapers thought he said "over" 70 million dollars, and HANSARD states he said "about" 70 million dollars. However, we are given the figure of 70 million dollars.

We do not know the figures for November, because the Government have refused to give the figures except month by month. We knew the figures for October. In October, £35 million of gold went to the United States. Twenty million pounds went on 8th October, £10 million on 15th October, and £5 million on 31st October. It is almost the only convenience left to us in an otherwise inconvenient world that dollars a week are roughly the same as pounds a month. That means that £35 million went to the United States. In addition, we drew out £30 million from the International Monetary Fund, which incidentally, we cannot go on doing, and we got £7½ million from the Canadian Loan, which is another thing we cannot go on doing. Therefore, £72½ million went from this country across the Atlantic, which seems roughly to correspond to the Chancellor's figure of 70 million dollars a week. But, was that all? No, it was not. Further gold was certainly sold to Switzerland and Sweden, and £3½ million was sold to Belgium, because, by the sterling balance agreements, if they have built up a certain amount of sterling balances, these countries have a right to demand further payment in gold.

It is very disturbing to realise that what we imagined were gross sales of gold were merely sales to New York, and that the real sales of gold from this country are considerably more. That is the reason why, in contradistinction to the hon. Member opposite, the "Economist" commented on the Chancellor's speech, not unfairly: He sounds like a man covering up uncertainties of his own mind with ever more dogmatic assertions of infallibility. The drain, if it is smaller at all, is hardly smaller than in April last, when we still had 2,000 million dollars of the loan to run out. I will give another quotation from a newspaper which is by no means favourable to my party—the "Manchester Guardian": Convertibility of sterling did not do much to conserve our remaining gold and dollar reserves. The conclusion is obvious. Through over-confidence we are heading for another debacle. I ask the Financial Secretary to give us the true figures of our drain in gold.

There is another point which is important, and about which it is impossible to get any information: What are our gold commitments against forward exchange contracts? Extremely ugly rumours are going about the City—I hope they are an exaggeration—that the whole of our gold reserves are, in fact, already committed. I hope the Financial Secretary can say that the picture is not as black as that, but the record of this Government and the Chancellor's administration, are such that we cannot expect any confidence at all so long as we have silence. Silence is always interpreted in the worst possible manner. I think the 4.04 of the Bretton Woods Agreement and the exchange control of the £ has entirely collapsed. According to the "Economist," in Italy it is possible to get 2¼ dollars to the £. In Greece the Americans themselves have set up an official cross rate by a certificate system, according to which it is possible to get 25,000 drachmae to the dollar, and 8,000 to the £, which makes the rate of exchange a little over three dollars. As I say, the whole of our exchange control system has entirely collapsed; the financial economy of this country is running to headlong ruin.

There are two solutions that the Government should adopt. First, a policy of true economy—and they have not a leg to stand on considering the Chancellors broadcast last night. The right hon. Gentleman apparently knows of the methods by which he can economise, but is not going to bother to put them into operation at such a moment as this. The Chancellor's broadcast was the most incredible speech ever delivered even counting in his Budget speech. The other remedy for the Government is the remedy of dearer money. It is absurd to abuse people for not lending money to the Government. Nobody will lend money to the Government unless he gets some security for it. I must say, without personal animus, what I have said before, and what I shall continue to repeat, that, basically, money is a matter of confidence. That confidence means that that is good money which people believe to be good money. Whatever is done now I do not think that the people of this country, or the world, will ever believe that British money is good money so long as the right hon. Gentleman is Chancellor of the Exchequer. I have not the least personal bias against him, but when he speaks about himself and the Government's mandate I would remind him of the words of G. K. Chesterton: Prince, Prince—Elective on the modern plan, Fulfilling such a lot of People's Wills, You take the Chiltern Hundreds while you can— A storm is coming on the Chiltern Hills.

8.20 p.m.

Mr. H. Hynd (Hackney, Central)

I am sure that many Members of the Committee will deplore the remarks which have just been made by the hon. Member for Devizes (Mr. Hollis) particularly when he said that, in effect, the exchange value of the £ had collapsed all over the world, and that it had no value—

Mr. Hollis

I did not say, "no value."

Mr. Hynd

In his closing remarks the hon. Gentleman said that nobody could have confidence in the £ sterling. That was a very damaging statement to go out to the world from this House. I think the House ought to deplore it.

Mr. Pitman

My hon. Friend said "While the present Chancellor holds his present office."

Mr. Hynd

These remarks are well understood in this House and are taken in the sense which the hon. Member for Bath has suggested, but when such remarks go out to the world through the Press, they have a calamitous effect on the prosperity of this country, and that is why the House must deplore them. I do not agree with anything that has been said by the hon. Member for Devizes—perhaps he would have been surprised it I did; I certainly should be—and I am sorry that the hon. Member for East Aberdeen (Mr. Boothby) is no longer in his place, because I cannot agree with his assertion that it is the duty of the Government to slow up even further the construction of houses and to go all out on the construction of factories. Everyone recognises the necessity for expansion of business, but I would suggest that the need for houses at present must be paramount.

Neither can I agree with the hon. Member for East Aberdeen when he said that our standard of living would depend entirely—he used the word "entirely"—on what we produced in the next few years. It is not only what we produce, but the way in which it is distributed that will govern our standard of living. Then again, we all know the long established views of the hon. Member for East Aberdeen with regard to whisky, but he surely cannot be serious in his opposition to the very modest increase that has been put on it. I would say that if anyone is foolish enough to spend 30s. or more on a bottle of whisky it serves him right. The same hon. Member said when talking about betting—and I took down the phrase—that no one needs to bet unless he wants to. I suggest that might also be applied to the drinking of whisky.

The hon. Member for Scarborough and Whitby (Mr. Spearman) gave an interesting thesis on what he called price mechanism. So far as I could follow him, it meant wiping out the subsidies and relying on the control of prices and of wages. I would go as far with him as to say that I believe that sooner or later and probably fairly soon something in the nature of a national wages policy is essential in this country, but I am suspicious as to how this is to be brought about when prices are likely to fluctuate severely, if we have to suffer at the same time a strict control on the movement of wages. It is a great feature of our trade union movement that it is flexible enough to enable it to adjust wages fairly rapidly to changes in the cost of living. If this idea of price mechanism is taken too far', I am afraid that it will have a very serious effect.

I wonder how the hon. Gentleman harmonises his theory of price mechanism with the further remark he made about cutting our coat according to our cloth, because I think the two things are liable to clash. Today, for example, the right hon. Member for West Bristol (Mr. Stanley), talking about subsidies on food, said that he would be prepared to face an increase in the social services if that was the necessary corollary of reducing the food subsidies. That may be all very well as regards the social services, but when I ventured to interrupt the right hon. Gentleman and asked him whether he extended that to cover adjustments of wages I noticed he appeared to be very evasive in his reply. Social services can be fairly easily adjusted, but I notice that improvements in the social services are usually opposed by the other side of the Chamber. Wages are not so easily adjusted, and when it comes to fixed incomes like pensions and that sort of thing how is it proposed to cover the needs and requirements of those people by this idea of price mechanism?

In general, so far as I can see by the Debate which has taken place, it appears that the Budget has been fairly well received by the general public. I have heard very few complaints. So far as I have read the Press comments today they seem to me to suggest that they are surprised that the Budget is not more severe than actually it is. There is a feeling of relief expressed in the Press comments. In this House on the other side of the Chamber the general feeling seems to be that the Budget is not drastic enough. Hon. Members opposite also complain that the Chancellor of the Exchequer is not pessimistic enough. My hon. Friend the Member for Blackley (Mr. Diamond) answered that point very well, so I need not dwell on it. May I come back to one remark of the hon. Member for Scarborough and Whitby, because here there seems to be a difference of opinion between him and myself on which I attempted to interrupt him in his speech. On the question of exports, he made the remark that we were not exporting more than we had done prewar, and when I ventured to interrupt him he seemed to think I was quite off the rails. I should like to explain that exports prewar included such things as coal which we are not exporting today, and in regard to things with which he was dealing at the time of my interruption, the export of them is very much higher today than was the case prewar.

I want to say a word about the food subsidies. The right hon. and learned Member for Montgomery (Mr. C. Davies) expressed the fear—I think he intended it as expressing a fear—that the Chancellor had at the back of his mind the possibility that the food subsidies may be reduced next April. The hon. Member for East Aberdeen went so far as to say that the food subsidies should be immediately reduced. Speaking for a completely working class constituency, I hope that the Chancellor will not listen to any remarks of that kind. I suggest that food subsidies are the very best form of social service in this country. It is because of the food subsidies that prices have not shot up this time as they did after the last war, and it is because of the food subsidies that the ordinary workers in this country are better fed than they have ever been and that they are able to get food they never had in their lives before.

Finally, may I deal with one criticism of the Budget, and this is a criticism which has been voiced from all parts of the House? It is the proposal to put a 10 per cent. tax only on the turnover of the tote on greyhound racing tracks. I believe it is a mistake, not because I think that revenue should not be got from this industry—if that is the right word—for I think it is legitimate to tax the tote, but because the Chancellor has laid himself wide open to the charge of class legislation.

I do not think that my right hon. Friend was at all convincing—I speak with the very greatest respect—in explaining why this proposal was applied to greyhounds and not to the totalisator on horse racing tracks. My right hon. Friend suggested that in connection with horse tracks—I speak without personal knowledge but after taking good advice—the totalisator deducts 10 per cent. which, it is claimed, goes partly towards the export of racehorses. The position on the dog tracks is that 6 per cent. is deducted by the proprietors of the totes. In face of this fact I think my right hon. Friend might have suggested that 6 per cent. should be deducted on the horse totes. That would have levelled up the position. It would have been very easy to levy that extra 6 per cent.

My right hon. Friend talked about possible damage to-the horse-breeding industry, but he must have overlooked the fact that any deduction imposed on the tote on horse-racing tracks would not be paid by the owners of the tracks but by anybody who was fortunate enough to get a winning ticket. Surely that is as plain as anything could be. The extra 10 per cent. on the greyhound totes will also be paid by the winners. Any tax levied on the horse tracks would therefore have had no effect at all upon the horse-breeding industry. I would add the remark that greyhounds also are exported, possibly not to the same extent as are horses, but there is a growing industry, I understand, in bred greyhounds. I would also remind the Chancellor that the greyhound racing people are already suffering pretty severely under the restrictions of having no midweek racing. Although that is not the subject before the Committee at the moment, it is relevant to remind hon. Members of that fact and that to put a special burden upon the greyhound tracks is loading one handicap after another upon them.

An hon. Member has suggested that as a result of this Budget my right hon. Friend might be described as the bookie's pal. There is no doubt that people who go to greyhound tracks and want to put something on the dogs will be faced with the choice of giving their money to a bookie or giving it to the tote, knowing that the bookie will pay winnings in full and that the tote will deduct 16 per cent. People will have the temptation, to put it no higher, to give the money to the bookie. At a time when the Ministry of Labour are trying to find work for people who are employed by bookies it is illogical to put further trade in their way as this Budget will do. I regret that these proposals have been framed in this way, because they will divert money to the bookies from the totes. I see no insuperable difficulty in imposing some kind of tax upon bookmakers. It is true that the Leader of the Opposition failed in an attempt to do so some years ago, but is the Chancellor of the Exchequer telling us today, as a result of that experience and in the light of subsequent knowledge, that it is entirely impossible to tax bookmakers? I do not believe it. Where there's a will there's a way. I believe something can be done in this direction and if it cannot be done by way of taxation in the ordinary sense, possibly it can be done in some other fashion.

For example, why cannot there be a licence for bookmakers for any sum the Chancellor may care to fix? Why cannot bookmakers be charged more for their present stands on the greyhound tracks? Section 13 of the Betting and Lotteries Act, 1934, lays it down that the maximum charge to a bookmaker for entering a greyhound track will be five times the admission price for that portion of the track—only five times. Would it not have been fairly simple for the Chancellor to increase that to, say, 15 times and to have collected the difference for the Exchequer? There are various ways in which the thing could have been done and it would have given satisfaction to the people who go to greyhound tracks not to have the differentiation there appears to be at present. I would agree with one thing the hon. Member for East Aberdeen said, and that was that, having gone so far as to collect tax from this part of the betting industry, the Chancellor might just as well go the rest of the way and let us have some more revenue from the gambling which exists. It is foolish to bury our heads in the sand and pretend that it does not exist. Why not have a national lottery as they have in other countries? A very substantial revenue-producing thing it is.

Finally, I regret that the Chancellor has departed from the usual custom of putting a little bit of sugar on the pill. This is the first Budget for a very long time, if it is not entirely a precedent, in which nothing at all has been given away. It would have been a little more palatable if something could have been given to even one section of the community, and if there is any section of the community which ought to be picked out for a small concession, there is no doubt that it should be the housewives. If I am asked for a practical suggestion as to what the Chancellor could have done for the housewives, I would say that he might have retained the 16⅔ per cent. range of Purchase Tax and left in that range such things as household articles. That would have been a real advantage to housewives, and it would have helped the country to accept what is, after all, a bitter pill to swallow

8.38 p.m.

Mr. W. J. Brown (Rugby)

I do not propose to discuss in detail the taxes whereby the Chancellor proposes to raise his £208 million. They excite no strong feeling in me at all. I do not in the least object to doubling the Profits Tax; I can stand with equanimity the extra penny a pint on beer; and I am all in favour of taxing betting. I may say, in response to the hon. Member for Central Hackney (Mr. H. Hynd), that if the House had listened 13 years ago to the hon. Member for Oxford University (Sir A. Herbert) we would have had all the bookmakers registered and ready to be preyed upon. The whole situation would have been adjusted years ago if we had listened to the hon. Member for Oxford University.

In this Debate we are concerned with something more than the minutiæ of the Chancellor's proposals. I go so far as to say that if the Chancellor has to raise £208 million, I do not care a great deal how he raises it. The issue before us is not meticulous arguments as to whether we should put a bit of tax on here or take it off there; the issue before us is: Is this Budget even remotely adequate to the needs of the situation that this country faces at the present time? That is the issue. If it is adequate, it will not matter to the fate of the country whether we have the taxes exactly right; if it is not adequate, it will not save the country if we have them all wrong. It is the big issue, and not the trivial issues, to which I shall devote my remarks.

This has been an amazing Debate. In the last half dozen speeches we have had opinions of the most varied and contradictory character as to what is the situation of the country. An astonishing variety! The hon. Member for Blackley (Mr. Diamond) said that this country was producing more than ever it did, that the standard of life was better than ever it was—and one wondered what we were doing here at all if that diagnosis was anywhere near accurate. Then there was the hon. Lady the Member for Blackburn (Mrs. Castle), who made a very able speech, if I may say so, that contained a lot with which I agree. Her view was that there was grave inflationary pressure, but that it was exercised, not by the poor, but by anti-social elements in the community who largely evaded tax altogether and, therefore, had untaxable incomes to spend which exerted the inflationary pressure.

Then there was the hon. and gallant Member for North Portsmouth (Major Bruce) who took the view that so grave was the inflationary pressure that nothing less than a sweeping capital levy was adequate to deal with the situation—a very different point of view. Finally, there was the speech of my hon. Friend the Member for Devizes (Mr. Hollis) who suggested that the pound sterling, if it had not collapsed, had fallen calamitously on the international market, and that generally we were heading for a financial debacle. I am not an economist—and I have never had sufficient exercise with money to be a' financier. But here am I, a back-bench Member of Parliament, called upon to judge between these diametrically opposed conceptions of the state of our country at the present time.

Mr. Kirkwood

Then the hon. Member need not have stood up.

Mr. Brown

It is true that I need not, and it is only pity for my suffering country that induces me to do so. If we get so many divergent views as we have heard today, somebody ought to give us an authoritative statement as to where we stand.

Mr. Kirkwood

You give it.

Mr. Brown

In default of the Chancellor, I will undertake the task myself. In all seriousness, I submit that this Debate ought to have been preceded by as clear, as comprehensive, and as authoritative an estimate of the present and the future as all the resources of Government could have commanded to put in front of the House. Without that, nobody knows whether £208 million is the right figure, or whether it is a frivolous irrelevance to the condition of the country.

The next thing I want to say—and I say it with great respect to our Rules of Order, which I know are designed for our good—is that it is almost true to say that one can discuss anything in this House of Commons except the things that matter. One can amend the Prayer Book, but one must not discuss the Thirty-nine Articles. One may discuss the detail, but not the whole, but as any man with right philosophical knowledge will know, one can only judge the detail in the light of the whole. Therefore, we have to ask ourselves today in the light of the whole set-up, as best we can judge it, is this figure of £208 million the appropriate figure, or anything like it?

Inflation may be defined as the pressure of too much money on too few goods. If there is too much money pressing on too few goods, there are only two solutions in principle, either to produce more goods, or have less money. With regard to producing more goods, we must assume that the Minister for Economic Affairs is doing his best, and I have no doubt he is. I have the feeling that if the Chancellor of the Exchequer had as much courage as the Minister for Economic Affairs the shape of this Budget would be very different. We must assume that the Government are doing their best to lift the level of production, and thereby to ease the inflationary pressure. But it is also common ground that that is the long-term job, and we are not sure of success, because we not only have to produce those goods, but sell them, which might be a more difficult problem than producing them. So we must look at the other solution.

We have had strong arguments that we ought to exempt from the area of cuts this, that or the other item of expenditure. In particular strong pleas have been made, with which I strongly sympathise, against cutting the food subsidies. I was strongly in favour of those subsidies when they were first applied. I thought them an immensely stabilising influence during the war, and I am very sure we have not reached the stage where we can start from scratch and ignore them. But with great respect to those who support the continuance of the the food subsidies, the more one supports the continuance of the food subsidies, the more willing one must be to look at the other items of expenditure that enter into the total picture. If everyone is to exempt his area—someone saying we must not touch the social services, someone else that we must not touch the food subsidies, a third that we must not reduce expenditure on the Army and Navy because of the effect on foreign policy, and someone saying we must not reduce something else—the total area of expenditure is not reduced, and we have not faced the problem.

What elements enter into this? First there are wages, next profits, third, Government expenditure, and fourth, the social services. Three and four can be bracketed together, if one wishes.

Mr. John R. Thomas (Dover)

What about capital profits?

Mr. Brown

I mentioned profits.

Mr. Thomas

What the hon. Member said was capital expenditure. I corrected him and asked what about capital profits, realised capital profits?

Mr. Brown

Do not let us lose the forest for the trees. I have no doubt that each of these sections could be sub-divided over and over again. We have a Government in this position—and I do not say this with the object of being unhelpful or destructive, but these are the things we have to face—that it has no wages policy. Indeed the trade unions have refused to agree to a wages policy. There is no agreement between the T.U.C. and the Government, and there is disagreement between one union and another in the T.U.C. on the question of a wages policy. We had Mr. Arthur Deakin—and I do not criticise him because he had to look after his members—pronouncing at the last meeting of the Trades Union Congress that if the miners were going to have a lot more, his men were going to be in the queue also. The point is that if we start by saying one area, wages, is to be completely outside the field of Government policy, then to that extent we have inhibited ourselves from dealing with the problem of inflation.

Mark you, there are other grounds on which we know that the hon. Member for Blackburn has spoken about wages policy. Compulsion will never get the right distribution of our manpower. The on3y thing that will get right distribution of our manpower is an adjusted system of wages. Let us look at this order which gives the Minister of Labour power to direct labour. If there is any substantial resistance to the order we cannot apply it, because we are not in a position to impose the penalties which are laid down by the order. The prison population is double what it was before the war. Prisoners are being accommodated three in a cell. Imprisonment no longer has even the advantage of privacy. And if there are already three prisoners in a cell, it is perfectly obvious, if any substantial number of men refuse to obey that order, one cannot send them to gaol.

There is no room for them, and I warn the Government—I think I know my fellow countrymen—there is a widespread, incipient, potential revolt against the idea of direction of labour in peace time. In the first few prosecutions, if you happen to run up against a few obstinate fellows. I believe that resistance would be very great. We should not rely upon compulsion, but on attraction, namely, that you must have an agreed system of wages, and that means a wages policy which we have not got. It is true the Government are saying to the unions, "Do not press us now—this is not the time—hold back." That is all right, but it does not constitute a positive wage policy, and so another of the elements which comprise the total problem of inflation is outside our scope.

Now we come to the second—governmental expenditure. We did not have a word from the Chancellor of the Exchequer yesterday which suggested that there had been any consideration of the effect, on the inflationary tendency, of the total size of Government expenditure. The only thing that he told us was that he might have something to say to us next April. Believe me, if this crisis is as serious as I think it is, you cannot wait until next April in connection with any of the elements. But here we have yet another element of tremendous scope in its consequences as regards inflation. But we cannot adequately discuss it in this Debate, because in this Debate we are narrowed to the particular £208 million that the Chancellor proposes to raise, and the particular methods by which he proposes to raise it. One could go on. The size of the Army both abroad and at home, the expenditure on our military and diplomatic commitments, also come into the picture. And we cannot deal with them today, except in an occasional and incidental reference, though they sharply affect the inflationary tendency. I was going to say that this Debate was like Hamlet without a ghost, but it is like Hamlet without a whole series of ghosts.

I believe that the root cause of the Government's failure to grapple adequately with this problem is that this is a divided Government. I believe that it is divided within itself. I believe that it is divided as regards those who are behind it. And I believe it is divided between the political and the industrial wings of the Labour movement. There are two obvious trends present in the Government today. One is more particularly represented by the Minister for Economic Affairs, who is obviously approaching this problem as a technocrat. His approach is—" What does the situation require?—let us do that." One may or may not agree with each suggestion that he makes, but this is his angle of approach. It is perfectly obvious that the angle of approach of, say, the Minister of Health, is quite different. He does not approach this as a problem which needs technical handling. He sees it against a vast background of political theory which leads in a very different direction.

So we have these two tendencies at work behind the Cabinet, and this very Budget we are discussing today is a reflection of that division and paralysis within the Cabinet at the present time. This is not the Budget of a brain: this is the blur of a committee. This does not express any considered philosophy. It is a haphazard job, hastily devised, unsupported by the evidence, and thrown to a House left without adequate guidance as to what is the real situation of the country. Similarly, there is division at the back, as between those in front who cry "Backwards," and those behind who cry, "Forward." The apprehensive look with which Ministers regard me is nothing to the positive terror with which they regard the men behind them. It is a pleasure for them to turn from the contemplation of those behind them, to the comparative benignancy, openness, and freshness of the countenance of the hon. Member for Rugby.

There is division there. And there is the further division as between the industrial and political sides of the movement. The Trades Union Congress is not talking the same language as that which the Government are talking. In that division, there are immense possibilities of evil, immense possibilities of social danger. But the only thing sure about that social danger is that the one way in which we never overcome it is to dodge it, and pretend that it does not exist. That is the one way in which that danger can never be overcome. It would be better that the Government should take their courage in both hands and run the risk of defeat, because if England goes down it does not matter very much whether the Government survive.

Mr. Rankin

There is Scotland left.

Mr. Brown

I am sure that, so far as Scotland is concerned, we shall never fail for want of loud, clear, vocal support. That will always be forthcoming.

We are drifting, and this time we cannot afford to drift. For two years after the end of the war we tried to dodge the problem of production. At the end of it, we were left in a situation where we could no longer shelter behind the American Loan, because it had gone, and we found ourselves confronted with a crisis—a crisis of production—from which we have not yet begun to extricate ourselves. We have a long and difficult road ahead. If we are going to have two years drift on this problem of inflation, the consequences may very well prove to be fatal. I have a feeling that exactly the same elements which made the Government slow and reluctant to face up to the problem of industrial production at an earlier stage may cause the Government to make exactly the same mistake in regard to this inflationary situation. If it does, our case, already desperate, may quite easily become mortal.

What I suggest is that the Government should withdraw this Budget. That is not much to ask. They should withdraw the Budget, and present us with an up-to-date survey based on the best evidence that they can get, the most authoritative evidence that they can get, covering not merely this £208 million, but the whole problem of how a slide-away inflation can be prevented, and what is required to achieve that end. Many of us have seen this problem of inflation in other countries. I remember Germany after the last war when one required a suitcase in which to carry away the change for a pound note. I was in Vienna when the kroner was 320,000 to the £. Currencies went to glory, and when currencies go to glory, the first effect is to wipe out the middle class.

All the fixed salary and wage-earners, all the people living on pensions from the State, all those elements which count so much for social stability, are wiped out if inflation comes, and, when it has wiped them out, we get the social back- ground against which Nazism or Communism can so easily develop. It is true of inflation that its process is not one of mathematical progression, but one of gathering impetus, and when that impetus passes a certain point, it is almost impossible to stop it. There comes a stage when the public fear of the decline of the value of money is such that every one rushes to turn their money into goods while the money can still buy something, and every time they do that, a further impetus is added to the inflationary flow until it becomes uncontained, and we get the kind of thing which we saw in Europe at the end of the first world war.

I do not want to go for the Government on this. The situation is too grave for us to try to score mere debating points out of it. [Laughter.] Oh, yes. Believe me, I have not made half the speech I could have made. I am suggesting that this is a grave situation which concerns all of us, that it cannot be dealt with in separate and watertight compartments, but must be dealt with as a whole. What the Government ought to do is to give us all the evidence, all the facts, which go to make up the full picture, so that we can judge the adequacy or otherwise of their proposals under defferent heads. If we merely pass this Budget today, I do not believe that it can save us. I do not believe that it will arrest the inflationary tendency. I believe we should lose six valuable months between now and next April, when the problem will be sharper and more difficult than now, and I have a dreadful fear that policy will lag behind need. And, when policy lags too far behind need, then the social consequences are apt to be very grave indeed.

9.3 p.m.

Mr. Walter Fletcher (Bury)

I must put an iron restraint on myself and not imitate the hon. Member for Rugby (Mr. W. J. Brown) as an artist in referring to my personal appearance, but I am grateful to him for replying to so many speeches made in this Debate and thus relieving me from the necessity of doing so in the brief time which I have at my disposal. This Budget must be judged, as to whether it is adequate or not, against the background of the crisis. I was astonished earlier to hear the hon. Member for Blackley (Mr. Diamond) reproving us for trying to suggest that there was a crisis. The fallacy on which he based all his arguments was to regard them only from the internal point of view, when the external point of view about the situation far overshadows the internal one. None of the schemes for social betterment, none of the ideas as to how the goods we hope for in the future should be distributed, can ever become realities if our position in the world is one in which sterling is no longer a currency of confidence, but a currency of doubt.

Let us start, therefore, by examining, so far as we can, with what we have at our disposal in the way of facts and figures, what our situation is. Last night, in his broadcast, the Chancellor of the Exchequer used the phrase: We cannot allow our gold reserves to fall below the safety level. What is the safety level? We should be told. That is exactly one of the prerequisite pieces of knowledge referred to just now by the hon. Member for Rugby. We had about £250 million, and we know that, a little while ago we also had £600 million in gold, not entirely at our disposal, but in a central fund for all the sterling area, and not entirely our own. We do not know to what figure that has been reduced now.

There may be a slight improvement in what we have managed to scrape from the international fund. We have been assisted—and we should acknowledge it generously—by gifts or loans from South Africa, Australia, and other parts of our Commonwealth of Nations. But, look at it how we may, there is not the slightest doubt in the minds of people who are trying to regard this crisis objectively, that we are very busy scraping the bottom of the can, and little bits of enamel are coming up with the gold at the present moment. When we are in that situation, it is a farce to pretend that there is not a crisis, and that it is not a crisis of the greatest gravity.

In my view, it is no cure for a crisis to say that production is the sole cure—it is one facet only—for one very outstanding reason, that, if one studies the economic, industrial and trade history of this country, one can never find a period where there has ever been a true and quick balance of imports and exports. We are, above all, a nation that has lived on credit, because we were worthy of credit and because we created credit. That, in many ways, has been the great difference between us and the United States of America. America has always been cash conscious. When an American bank examines the balance sheet of a firm, it looks to see how much there is in it. The British bank looks more at the worthiness of the people running the business and to their methods and objective. The Chancellor and his colleagues should take that very seriously to heart.

At the present moment, our credit standing throughout the world is excessively bad. I wonder if it is possible to bring it home with a simple example. Three days ago a question was addressed in this House to the Minister of Food about sardines in Portugal. He was asked whether he was going to be able to buy sardines in Portugal. From the reply, it was perfectly clear that he was not going to be able to do so because the Portuguese Government were entirely unwilling to accept sterling. We have heard a lot in this Debate today and previously about the evil being too much money chasing too few goods. But that is not quite true; that has to be extended. Sterling is chasing too few goods in too small an area because it is not acceptable in the great areas in which it used to be taken freely and willingly. That comes very near to the centre of the problem and of the crisis.

It is no use thinking that it is only a question of bolstering ourselves up for a short while longer by another American loan, or by another small borrowing here or there. Sooner or later the day is coming when the advisers of the Chancellor, the high officials of the Treasury, will go in to see him one morning, and will say to him, "Minister, there is nothing left in the safe. We have no gold. We have exhausted all our credits, and we have nothing in the way of quick assets. There is nothing with which we can pay Portugal for sardines; there is nothing with which we can pay India for jute with which to make our factories in Scotland work; there is nothing that we can pay to anybody outside the immediate sterling area in order to get the food and goods we want." It is an illusion to discuss how we can divide out the food, and whether the distribution is. fair or not, if there is a considerable danger that we shall not get the food at all. It is no use talking of "pepping up" the export drive if the manufacture of goods is going to be hampered by the simple fact that we shall not be able to import the raw materials.

At the present moment we are under an anaesthetic. That anaesthetic is that there are still arriving in our harbours ships containing food and raw materials which have been paid for under the previous loan and out of other assets. But when those ships stop coming or arrive half empty, or altogether empty, then we shall begin to feel the crisis which several hon. Members opposite think is just a fiction of the brain, and that the wicked Tories are trying to turn themselves into a band of "Woe Woe" Ansaldos. That is by no means so, and it will come home to them.

At this juncture it is wise to say something about credit, because I have said that, in my view, this crisis is almost entirely one of credit. Credit is a hot-house flower. It is very difficult to grow, but when it has grown, it is of the greatest value. If the hot-house door is left open during a frost, or if one fails to get the coal to keep the house hot, the credit will die and it will take a long time to build up again. Why do countries which hitherto have been willing to accept sterling, now show the utmost reluctance to have it? Why was the rush to convertibility so noticeable? It was simply a manifestation that those same countries saw this last golden opportunity which the Chancellor, through disbelief, carelessness, lack of knowledge and overweening and unjustified confidence, had given them to turn their sterling from which they were fleeing, into dollars. Those countries have a doubt as to whether we are coming out of this crisis exactly the same as we were before.

Nearly every Ministerial speech has a mass-produced ending: "We shall come through this crisis," etc. Every hon. Member knows it. But one can come through a crisis, as one can come through an illness, in a number of different ways. One can come through debilitated, largely crippled and not the man one was before. On the other hand, it is possible to come through completely restored to health, able to take one's place again and do one's job. But it is a great mistake to rely upon the fact that because we have always done this in the past, we shall eventually do it in the future.

We no longer enjoy the same certainty, for very good reasons. First of all, our financial position has been seriously impaired by the disappearance of our overseas assets. Then we certainly have not got the same high standard of production that we had before. In many ways this is not our own fault. It is largely the result of the war years, but the facts must be faced, whether they are due to the war or whether they are due, as they are in very considerable part, not to the years that the locusts have eaten but to the last two years which the doctor has dissipated. We must look at the facts of the case, disregarding as far as we can the causes, though not forgetting them for the future.

Throughout the world there has been a large change in the general situation. Countries which previously were exporters of primary products only, are now manufacturers themselves of high quality goods; and, as the Minister for Economic Affairs is always telling us, those markets are no longer open to us. Throughout the world this change is very great. When countries like Indonesia and many parts of Africa are straining towards self-government, we must not think that it will not have an economic effect on this country. There is no doubt that many of those countries will not export what we want in the way of raw materials and food to anything like the same extent to which they used. The average inhabitants of those countries can enjoy a satisfactory life on 50 per cent. of the entire production of those areas, many of which were working almost entirely for the benefit of other countries before the war.

It is no use pretending that we are living in the prewar economic era, and that we shall not be faced with the most appalling crisis once our cash assets have all gone and our credit standing has been seriously reduced. There was a time when we were about to pass the most dangerous point of all, and possibly start on the upgrade, to some extent, as regards our credit standing. That was when the Minister for Economic Affairs came to this House in the Debate on the Address and, for the first time, made a statement which gave us a complete picture of the situation, as far as he could, without an attempt to disguise its gravity, and giving to everybody in this country who took the trouble to study it, an idea of where we had got to, without going into the details of how we had got there.

This Budget must be judged as to whether it is a fitting complementary partner or corollary to that previous statement, and from that point of view it falls most lamentably short. It does not attempt with the same degree of honesty—because there is not the same degree of honesty in the Chancellor's mind that there is in his twin pillar of rectitude in the Government—either to show what the magnitude of our task is, or whether the financial steps that are being taken parallel in any way whatsoever the achievements and the targets put up by his colleague. There is the same attempt that we always have from the Chancellor to create prejudice, because he has this class vendetta consciousness developed to such an extent it is too much for him. There is no attempt in this Budget to make an honest picture of what the inflationary gap is. He slides round it with that neatness in debate for which he is famous.

Let me take one or two of the proposals which he made in the Budget. Let me take first of all the attempt to create prejudice, which I think is so much to be condemned at the present time. If ever there was a moment in our history, or since the end of the war, when we should try to regain the "Combined Op." spirit as between labour, capital, management, all classes of the nation responsible for our affairs; it is this particular moment. But how does the Chancellor go about it? Take the simple instance of the Profits Tax. He tries hard to make it appear that an undue distribution of dividends has been made which is against the general social interest; and I really think he is wrong in so doing.

I have taken some trouble to find out this morning what the truth of this matter is. These are the real facts. Taking 2,000 of the leading companies of this country, and taking the 1939 figure, with 100 as the index, I think we shall find that what they really received would be equal to a figure of 94. What they are receiving now this last year, after deduction of taxes—what, therefore, the recipient of the ordinary share, the man who takes a commercial risk has—has gone up from 94 in 1939 to 128 in 1946. On the other hand, the cost-of-living figures have gone up in the same period, as, I think, hon. Members know very well, from 96.8 in 1939 to 178 in 1946. Where does the inflationary pressure come on that basis? During the same period the wage rate has increased from 90 in 1939 to 190 in 1946. That is not quite a fair figure to take because it is subject to tax deduction. If, therefore, we take 10 per cent. off for taxes we still get a figure of 170. I am not going to turn round and say that this transfer of wealth which has been an excellent stabilising factor in this country, and which everybody is glad to see, has been grossly abused by labour. I do not think it has. It is not characteristic of the workmen to go out of their way to make money on the side and then not declare it. I think that the Chancellor has gone out of his way to create prejudice about the Profits Tax.

The next thing out of which he tries to create prejudice is the question of tax arrears. There is no nation in the world which stands up to and pays its taxes as well as this nation. Before the 1914–18 war I happened to be living in Paris, and a relative of mine showed me his own dossier which he had seen for the first time in his life. It started with these words: "An extraordinary citizen, pays his taxes." In this country we do not have exactly the same view, and I think that to try to create the impression that people are not in reality standing up to their taxation properly is utterly wrong, and, incidentally, entirely untrue. This was raised on the Budget earlier in the year, and I took the trouble to communicate with the chief of a leading firm of auditors in the City; their unanimous opinion was that there was no truth in this, and that the delay was due to overwork in the Inland Revenue Department, overwork in the audit departments, great difficulties due to books being destroyed during the war, and so on. If the Chancellor is right about it, let him come out with the figures. He has given us a figure of £780 million as being the total that is in arrear. But he qualified it afterwards and said that, in fact, that is largely not settled. That is his technique: he gives a figure which goes out to the country, in order to give the impression that there is a whole class of people not paying its taxes on time. If he can work out what he will get from the revenue—

Mr. Glenvil Hall

Perhaps I could deal with that point now. The figures which the Chancellor gave were not his figures; they were the figures of the Public Accounts Committee.

Mr. Fletcher

Well, he believes in using them. If he comes to this Committee and uses them as a basis for taxation he must place some reliance on those figures. Why will he not give a figure which is correct?

Mr. Glenvil Hall

He did.

Mr. Fletcher

No, he did not. He gave the figure which he expected to collect in the way of revenue, but he never gave a figure which he thought represented the arrears due to bad reasons which—and we all agree here—should be liable to this tax. I think we are entitled to have that figure.

Let me turn for one moment to the Betting Duty. It is customary for hon. Members to declare their interest in matters of this sort. I am very happy to feel that on this occasion I have no interest to declare in horse racing—not even as a jockey. I believe the Chancellor's second thought was better than his first, but I think he ought to have a third. He has been urged on all sides of the Committee to see if he cannot cast his net a little wider in the next Budget in order to catch a great many other people, and not merely one or two classes. One thing is quite certain; he must have earned the undying gratitude of the bookmakers. But the wheel of fortune turns, and the Chancellor of today may be the fodder for the direction of labour tomorrow. He ought to be made an honorary member of Tattersall's. I can think of no place better suited to his stentorian voice and his admirable figure than standing on the rails of Tattersall's shouting the odds; though, I must admit, I should warn the public that he would pinch the odds if nothing else. We shall all feel greater confidence if he takes his penciller with him.

To return to the serious side of the Budget, I do not think the right hon. Gentleman who is to reply will deny for one moment that there is a crisis. I do not think that those behind him, or anyone else, who have tried to persuade him that the financial problems of this country are only inside this island are helping him in any way at all. I do not think he will take the line that those who try to say, "This is your fault, our fault, or anybody else's fault" will get us very far. His task, and that of the Chancellor, is quite clearly to start a movement throughout the world that we are deserving of credit, and that the £ sterling is not something from which the country should flee. Portugal, our oldest ally, and one of those with whom we have no sort of quarrel, should be willing to accept sterling for the foodstuffs we want, and for one reason: though she may not be able to turn it into goods today, though she may have to wait some time through our period of difficulty while we are getting the export drive going, and getting this country really sorted out and on its feet again, in the long run that sterling will again be full value. I believe that if you go into the open market of the world, wrongly called the "black market," you will find not only a heavy discount on sterling, but in many cases an impossibility to deal with it. That is what the Government should have in mind when they are looking at this situation.

In the next six months, we may get welcome assistance again from America, although we may have to pay the price for it—no one ever gets rich from borrowing; the day of payment comes all too soon. We may continue to get assistance from inside the British Empire, but sooner or later, the sterling area will be more and more constricted, unless we manage our affairs better. Why should a country like Malaya be tied to sterling disadvantageously, when her economy is very different from ours, and she is the greatest exporter of dollar-producing materials in the British Empire? The sterling area, on which we may rely not only for materials and food for this country, but for exchanging them with other countries, may not long be at our disposal. These are factors against which this Budget must be judged. One can come to only one possible conclusion, and that is that while too much time has been devoted to thinking what the effect will be on sections of the community, not enough time has been spent on designing this Budget to create the impression throughout the world that we are really tackling our problems fundamentally, and not trying, with a strong dose of Micawberism on the part of the Chancellor of the Exchequer, to push them aside until something better turns up.

That is the true indictment of this Budget. It is inadequate, and it is not matched up to the strong lead given by the Minister for Economic Affairs. It will not, I regret to say, enhance our credit throughout the world. At a time when everyone in this country is willing to make sacrifices and not complain about taxation, I believe it is fatal from that point of view. Two years ago, I made my maiden speech in this House on the first interim Budget. I called it the "amber light" Budget, because I did not know which way the financial policy of the Government was going to turn. This Budget might be called the "wandering minstrel" Budget, knowing the Chancellor's well-known interest in music. A wandering minstrel I, A thing of shreds and patches. This is a Budget of shreds and patches. a You cannot cover truth with shreds and patches, and until the financial truth is told us in the same strains as the economic truth was told us by the Chancellor's colleague, I suggest that the right action he should" take is to wander out of office, and to do it quickly.

9.28 p.m.

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

We have now had a two-day Debate with more speeches than usual. Normally, on the first day of a Budget, the speeches are short, formal and not too critical, and the House rises somewhere about six o'clock. Last night, we went almost the full time. We had a large number of interesting speeches, mostly from benches behind me. All of these were critical of one proposal or another which my right hon. Friend had made earlier in the day. Today, we have had a continuation of the speeches and criticisms, this time mostly from the other side of the Committee. It is quite impossible for me, in the time at my disposal, to cover all the points that have been made, much as I should like to do so. I would remind the Committee, however, that we are to debate the Budget further on Monday, and that my right hon. Friend will be replying at the close of the Debate. I have not the slightest doubt that he will pick up and answer any criticisms of major importance which, through inadvertence or lack of time, I may not have dealt with.

What has been interesting, has been the order of speeches from the Front Opposition Bench. Members who were present, as most of us were, at the previous Budgets which my right hon. Friend has opened in this Parliament, will remember that it has been the custom for the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) to speak for the official Opposition. This time he has been superseded, although I understand that he is to speak on Monday. It would have been interesting to know, and possibly someone opposite will tell us on Monday, just why this change has been made. It is a change which has extended to the right hon. Gentleman being superseded at the microphone. It would be interesting to know from the right hon. Gentleman the Member for North Leeds (Mr. Peake), who is sitting opposite at the moment, whether this change has been made because of the views of his right hon. Friend the Member for the Scottish Universities on the subject of food subsidies.

It would appear that there is a definite and distinct cleavage of view on the opposite benches about food subsidies. The only Member who has had the courage to say outright, and distinctly, that he thought that subsidies should go was the hon. Member for East Aberdeen (Mr. Boothby). It would have been informative if we could have been told with some degree of exactitude what the real view of the Front Opposition Bench is on this matter, and whether they have completely thrown over the views previously expressed by the right hon. Gentleman the Member for the Scottish Universities.

The right hon. Gentleman the Member for West Bristol (Mr. Stanley), in a most amusing and light-hearted speech, which we all enjoyed, said he could not understand why the Chancellor had doubled the Profits Tax on undistributed profits. He took the view—and it sounds plausible, on the surface—that if profits are not distributed, if they are ploughed back and used in the business, it is unfair to increase taxation on them. But anybody who knows what is going on will agree that although money has been ploughed back and in many cases legitimately used to increase the efficiency of a business and equip it all the better for the export trade, quite a lot has not been ploughed back in the real sense of the term at all. It has been used, for example, for luxury furnishings of one kind and another. Where building permits can be obtained—and they are not as easy to get as they were—buildings are being altered, often in an unnecessary way, in spite of the scarcity of materials. If taxation is going up, and it is essential that profits, both distributed and undistributed, should be mopped up, I see no reason why a 10 per cent. tax should not be levied. I should like to make it clear that the doubling, in each case, of the Profits Tax applies to all concerns who were subject to this tax before. Building societies will, therefore, pay six per cent. instead of three; Co-operative societies will pay 10 per cent. instead of five.

Mr. Orr-Ewing (Weston-super-Mare)

Is not the right hon. Gentleman dealing with something quite different from undistributed profits? Surely, he is speaking about the way in which a company uses its surplus. Undistributed profit is the money that is not used but put aside for some purpose. How does his argument, therefore, hold good?

Mr. Glenvil Hall

In some cases a company does put it in reserve and it is not used to expand. One reason why a special dispensation has been given to companies which have not distributed their profits is because it was hoped that they would use them to make their businesses more efficient after the lean and wearing years of the war.

The hon. Member for Blackley (Mr. Diamond) had some very amusing things to say about the proposals dealing with advertising. He wanted to know whether the posters which at present appear on the hoardings would have to be divided in two and, if so, how the thing would work. Nothing of the sort is contemplated. What my right hon. Friend proposes—and we think it a commonsense suggestion—is that only half of any money expended on advertising should be allowed as a trading expense in computing profits. At the present time, the full expense, whatever it may be, is allowed. If the Committee will contemplate the situation for a moment, I think they will see that this sort of thing lends itself to a great deal of abuse, particularly when goods are in short supply. In normal times, no one would mind if a firm advertised in the usual way, even if it had not got the goods to sell. But I think that the Committee will agree that in these times it is grossly unfair that a firm should be able to use its funds purely to keep its name before the public and to treat this expenditure without limit as a trading expense.

Mr. Marlowe (Brighton)

Will the right hon. Gentleman explain how on earth it is anticipated that this proposal will check inflation?

Mr. Glenvil Hall

It will help to check inflation.

Mr. Marlowe

How?

Mr. Glenvil Hall

I will try to explain. This and other measures that are being taken will help to check inflation, because the State will gather up more by way of Income Tax and Profits Tax than it otherwise would.

Mr. W. Fletcher

It a company whose business is to sell goods retail, is not able to advertise its goods adequately, the profits of that firm may fall considerably, and the Chancellor will get less in taxation.

Mr. Glenvil Hall

I do not want to spend too much time on this, Major Milner, because it is a relatively small point. I think that it is self-evident that, at this time, when a firm is permitted to expend its money without limit on advertising, knowing that it can set this off as a trading expense and when Profits Tax and Income Tax is as high as it is, many firms will be tempted to spend more than they would in normal times. If we can help to curtail this, so much the better. My right hon. Friend is certainly going to try.

May I now mention one or two further points? The first is that the tax does not apply to expenditure on advertising abroad, nor does it apply to expenditure incurred on trade exhibitions for export. Many industries are now contemplating trade exhibitions in London and it may help them to know that, as these exhibitions are in aid of the export trade, anything spent on advertising on them can be counted in full and not only as 50 per cent. Moreover, the field covered by the reduction will be not only newspaper advertising, as some hon. Members think, but advertising done, on the screens in cinemas, in periodicals, or on hoardings or in any other way, apart from trade and technical journals and periodicals of that kind.

Mr. John R. Thomas

Would my right hon. Friend say whether the professional fees of the advertising agents are included, or whether the professional fees of such agents will be allowed?

Mr. Glenvil Hall

As my right hon. Friend said yesterday, there are quite a number of points connected with this tax which have yet to be decided. It was thought that the Committee would like to know what the broad proposal was, and I am sorry that I cannot go beyond what I have already said. If hon. Members, or any interests which they represent, have any points to put in this matter, the Inland Revenue will be only too willing to discuss them with them or their friends.

May I say a few words about subsidies? Subsidies have loomed large and any heat that has been engendered in this Debate, both yesterday and today, has centred largely round the question whether the subsidies should remain, or whether they should some off. From what was said about subsidies by the right hon. Gentleman the Member for West Bristol, I take it that he, speaking for his party, does not like them, but is not in favour of their coming off yet. I believe, however, that he did feel that something should presently be done about them, provided that those in the lower income groups can be protected from the hardships which would undoubtedly fall upon them if the subsidies were removed. The aims of these subsidies are well known and I think generally accepted. They are to ensure that the purchasing power of money is kept stable, and that what rations there are, which are in short supply, should be adequately distributed.

Of course, in one sense, subsidies are inflationary in their effect. If they are concentrated, as they are going to be, on food, the purchasing power thus released -can be passed on to less essential things. In that sense, they provide an outlet which might be considered by some to be inflationary. On the other hand, I think it can be argued, and has been argued from these Benches with great force, that they can also be deflationary, because without them the pressure from some sec- tions of the community for increases in wage rates would be almost impossible to resist. If any attempt were made to repeal them, there would be grave discontent, production would go down and trouble would undoubtedly follow.

Quite a number of speakers from the other side of the Committee have given the impression that, not only are we in an inflationary situation, but that that inflation has in some way got out of hand. The hon. Member for Bury (Mr. W. Fletcher) nods his head. If that is generally felt on the Benches opposite, then the Opposition do not know what inflation really is. Those who remember what happened after the last war and those who have looked at the figures of what is happening elsewhere can have no doubt that, compared with other countries—I am sorry to depress hon. Gentlemen opposite about this—we are sitting pretty There is not the slightest doubt about that.

Lieut-Commander Gurney Braithwaite (Holderness)

If we are sitting pretty, why the interim Budget?

Mr. Glenvil Hall

That is a good debating point. I was going to show why I think that, compared with other countries, we in this country are, in this direction, sitting pretty.

Mr. W. Fletcher

The right hon. Gentleman has said, "compared with other countries." Is not the acid test which he must apply to this matter whether the standard of living in this country is to be maintained or not?

Mr. Glenvil Hall

I know that I interrupted the hon. Gentleman once, but that was only to give him information. I hope he will allow me now to make my own speech in my own way. If there is time, I will deal with the point which he has made.

References were made to the cost of living earlier today from the other side of the Committee, and somebody was foolhardy enough to say that we had never before been in such an inflationary situation as we are now. The hon. Member who made that remark could not possibly have recollected what happened after the last war, when the cost of living went up much higher than it has gone up this time. The cost-of-living index has been held stable this time because we have had a Labour Government in office which saw to it that controls were continued and the rationing was kept on. Those two things together, plus the subsidies which have been instituted, have helped to keep the cost of living steady in this country.

Let me give the figure as it was at the end of the last war. In November, 1918, the cost-of-living index figure was 225, whereas that for 1914, was, of course, 100. In November, 1920, it was 276. In June this year it was 203 and in June, 1945, believe it or not, it was 207. There is not the slightest doubt that the cost of living has been kept roughly steady since this Government came into office and that it is below, appreciably below, what it was at the end of the last war, when a Government with a big Conservative majority behind it was in control of the nation's destiny.

Mr. Joynson-Hicks (Chichester)

I interrupt the right hon. Gentleman only for the sake of clarity. Will the right hon. Gentleman say whether the cost-of-living index to which he refers is the one based upon the 1914 standard?

Mr. Glenvil Hall

Upon 1914? Yes. The new index did not come in until June this year. I am comparing like with like. It would be unfair not to do so. This will interest the Committee because it is a thing worth remembering; in the two years between 1919 and 1920, that is, from January, 1919 to December, 1920. there were 61 million days lost through disputes, largely because of pressure for increases in wages due to the rise in cost of living and the difficulty which -the working classes then had of making ends meet. Between July and June, 1945, to 1947, again a period of two years, and roughly the same period following this war, only 5.3 million days were lost. Those figures are worth remembering. I do not deny that the subsidies are enormous, as we all know, and are a very serious drain on the Revenue. Nevertheless it can be argued, I think, with great weight and cogency that, part from humanitarian considerations, they have helped the country considerably in the industrial field. I said a few minutes ago that I would give figures to indicate that this country was in this direction sitting pretty compared with other countries.

Lieut-Commander Braithwaite

Tell the housewives that.

Mr. Glenvil Hall

Taking basic foods—I am dealing only with basic foods—I will give the House some figures which have appeared in the United Nations Statistical Bulletin which deal with the proportionate increase in the price of basic foods since 1937 in a wide variety of countries. I cannot give them all to the Committee; because I have not the time. I will deal only with Europe and the United States. Taking 1937 as 100, the latest figure for basic foods in Great Britain stands at 116, for Spain 582, for Finland 734, Bulgaria 824, France 1,260, Italy 6,134, and Poland 16,245. Those are the proportionate increases in the price of basic foods in Europe at the present time, and the Committee' will see that the figure for Great Britain is very low. In the United States of America, which to many hon. Members opposite is the paradise of private enterprise, it is 183. I therefore think that my right hon. Friend's decision to keep the food subsidies going for this year and then, when he comes to open his Budget next year, to look "at them afresh and see what the situation then is, is a wise one.

May I now say something about the National Savings Movement? Before I do that, I would like to say that if anyone in this Committee or outside it is of the view that my right hon. Friend does not realise the gravity of the present situation, he has not read his speeches and he has not followed with any real understanding the financial provisions which the Chancellor has proposed. What is being done in this Budget, and what will be done in six months' time in the one that follows, will in our view—

Mr. Joynson-Hicks

Be too late.

Mr. Glenvil Hall

—go far to help to meet the situation; grave as it is, and will assist the country through this present crisis. Hon. and right hon. Gentlemen opposite must forget the speeches they have so often made. When proposals have been made from this Box by one Minister or another for changes which will save dollars or expenditure of one kind or another, invariably hon. and right hon. Gentlemen opposite have fought them. I do not object to that, but I do object to them taking one view then and another when my right hon. Friend comes to present a Budget such as this. The Government do realise the seriousness of the situation. It is our view that the proposals which my right hon. Friend is making are, considering all the difficulties and the need for incentives at the present time, the best that are possible in the circumstances. However, many of our troubles would be saved, and in one sense there might even have been no need for an interim Budget, if the National Savings Movement had been more successful during this last year than it has, unfortunately, been. Up to now, the National Savings Movement has been non-political. Until the middle of 1945, we have never had in this country a Labour Government with a majority. The National Savings Movement has been going on since the last war. Throughout the whole of that period the Labour movement has, on a non-political basis, supported the National Savings Movement. It has been left to this hour, when the country is in a critical situation—[An HON. MEMBER: "Sitting pretty."]—for hon. and right hon. Gentlemen opposite to turn this movement into a political one

Mr. W. Fletcher

Who said that?

Lieut.-Colonel Elliot (Scottish Universities)

The Financial Secretary to the Treasury has said that right hon. Gentlemen, that is to say, Privy Councillors, have turned this movement into a political one. He must substantiate that.

Mr. Fletcher

He said, "this hour."

Mr. Glenvil Hall

I will admit that in using the words "right hon. and hon. Gentlemen" I may have gone too far, because, at the present moment, I have not with me any quotation which would substantiate the fact that any right hon. Gentleman opposite had made any speech publicly—

Lieut.-Colonel Elliot

Withdraw it.

Mr. Glenvil Hall

I do withdraw it. The hon. Gentleman for Hornsey (Mr. Gammans)—

Lieut.-Colonel Elliot

On a point of Order, Major Milner, I ask for a formal withdrawal.

Mr. Glenvil Hall

I, of course, withdraw. If I used a phrase which I should not have done, and which at the moment I cannot substantiate, I withdraw wholeheartedly and completely. What I will say is that hon. Gentlemen opposite have in their speeches yesterday afternoon and today—[An HON. MEMBER: "Not for the first time."]—indicated that in their view this movement should not be supported. May I say in the few minutes that are left, as I think the right hon. Member for West Bristol said earlier, that if the proposals made by the Government in this Budget and elsewhere fail and this country goes down, then we all go down with it. [An HON. MEMBER: "Your fault."] That includes hon. and right hon. Gentlemen opposite. Therefore, I hope that hon. and right hon. Gentlemen opposite will assist the Government to do all it can to make the National Savings Movement a success in the months that lie ahead.

Mr. A. R. W. Low (Blackpool, North)

Look behind you.

Mr. Glenvil Hall

We want something more than lipservice. We want everyone in this House, if he will, with the prestige which surrounds any Member of Parliament, and particularly right hon. Gentlemen who adorn the Front Opposition Bench, to share with us this work of making the National Savings Movement a success.

Brigadier Prior-Palmer (Worthing)

I have spent hours.

Mr. Glenvil Hall

I am delighted to hear that some hon. Members have done so. What I am saying does not apply to all. The times are serious and we do not want, if we can help it, speeches which run down this country, such as we have just listened to from the hon. Member for Bury.

Mr. Fletcher

I am not running down the country I am pointing out facts.

Mr. Glenvil Hall

Therefore, I hope that hon. and right hon. Gentlemen opposite, while they often desire, in the heat of party warfare, to make party points will, when it comes to the prestige and credit of this country, realise the weight that may be placed elsewhere on their words.

It being Ten o'clock, The CHAIRMAN left the Chair to make his report to the House.

Committee report Progress; to sit again Tomorrow.