BUDGET PROPOSALS AND ECONOMIC SURVEY

HC Deb 07 April 1948 vol 449 cc176-289

3.53 p.m.

Captain Crookshank (Gainsborough)

All great events in this country, whether the Cup Tie or the Derby or the Budget or whatever it may be, go through three phases. There is the anticipation, the time when people have a guess as to what horse will win or which side will be victorious or what taxes the Chancellor will put on; then there is the event, the great day itself which everybody is awaiting; and then there is the retrospect. This is the beginning of the retrospect. As the right hon. and learned Gentleman will know, the retrospect lasts quite a long time. At the first opportunity, obviously, the comments which I can make are bound to be somewhat sketchy. After all, the right hon. and learned Gentleman has had as many weeks to prepare his Budget as I have had hours to think of what I want to say about it.

Moreover, for the first time we are having a combined Debate—the economic situation and the budgetary situation. It will be a useful experiment. We shall have to see whether it really works another year, but certainly last year we suffered from the fact that the then Chancellor refrained from addressing us on any economic topics before the Budget, saying that he could not anticipate what his statement might be; but when the Budget came he forgot about the economics and we got very little guidance from him of his general view on the whole subject. In view of his dual position, the present Chancellor has been able to overcome that, and consequently some part of this Debate will be concentrated more on the economic side and some part more on the budgetary side. I shall speak on only a few of the Budget points today.

I remember saying on the Second Reading of the Finance Bill last year that the surplus upon which the then Chancellor prided himself so much was in fact bogus. Well, according to his calculations it appears that that bogus surplus is twice as big. Perhaps it is therefore twice as bogus. In any event, the right hon. and learned Gentleman himself has helped us considerably by giving us two alternative versions in the financial statement of what the surplus might be. They vary from £636 million to £338 million. Indeed, it would be possible by making other calculations to show that the surplus of last year was not even as big as that.

What the Chancellor said in his speech yesterday was that the size of the surplus was the measure of the inflation. That seems to me to make a rather poor show of his predecessor's boasts of the largeness of his surplus. "Not bad for Labour, eh?" I remember his saying in connection with that surplus, and the more he boasts of the size of it, the more obviously he must eat his words about the inflationary situation. However, I do not want to go into last year's Budget. Last year's Budget is dead. Last year's Chancellor is dead. "Let the dead bury their dead," and if anybody says he is not dead, let them ask him. He is going round suggesting the building of a statue for himself. Surely that is the normal sign of deadness.

This Budget is staggering in its size. It may be that a brief review of the Press shows that many of the financial and economic pundits say that, within its limitations, it is a wise one, but the ordinary folk are appalled at the size of the tax revenue which the right hon. and learned Gentleman is going to exact in the coming year. Let us look at the last page of the statement where it says that the Chancellor's estimated total receipts from taxes this year is £3,512 million, an absolutely staggering sum remembering, mark you, that last year the corresponding estimate for total receipts from taxes was just under £3,000 million and the year before £2,918 million. In these three Budgets we see an increase in the estimated receipts from tax of close on £600 million, and that is three years after the war. It seems to me an intolerable burden to put on the taxpayers of this country.

The right hon. and learned Gentleman and many others take the point that we must work up in our budgetary plan for a genuine surplus—a genuine surplus to get out the poison—but if things had been properly managed it would not have been necessary. There would not have been any poison, and there might not even have been a snake. If expenditure had been watched and pruned at the proper time, I still think that the Chancellor could have got his large genuine surplus, which is admitted to be economically desirable, without having all these additional taxes. When all is said and done, high taxes and a big surplus are really one other form of saying "compulsory savings" or, to use the Chancellor's own phrase, "abstention from spending."

The damage is done by having too high a tax total. Of course it may be mitigated for some people by altering the actual shape of the taxes, but that mitigation may itself be unfair as between one section and another section of the taxpayers because, according to his Economic Survey, the national income is estimated somewhere in the region of £9,000 million and he is taking out of it under taxation £3,500 million, which is very nearly 40 per cent. of the national income and, on top of that, most of the taxpayers have to pay rates. In addition, during this year there will be coming out of their pockets the increased contributions for the new insurance social service system so that the burden is obviously very heavy. On all that has hitherto been accepted as economically possible, a burden of over 40 per cent. in rates, taxes and compulsory payments, is something which it is impossible to continue for very long. The fact is that the whole thing is at too high a level.

Perhaps I can put it in this way. A genuine surplus is like the roof of a house, and it is necessary in this case. However, one can have a roof on a two-storeyed, a four-storeyed, a six-storeyed house, or a skyscraper, and the Chancellor is putting his roof on the skyscraper. The more steps—that is, the more taxes—which we have to climb to reach the roof, the more we are under a strain, and the more we pant and puff and the more unendurable it is; in fact, we might even die in climbing to the top floor. So, if one wants to keep the situation healthy, 'the thing to do is to reduce the steps and not have quite such a high building, although the roof—the genuine surplus—is still necessary.

How should that have been achieved? Surely, by the reduction of public expenditure. The right hon. and learned Gentleman has had, even from his good friend "The Times," no less than two reminders upon that subject. Two or three days ago it pointed out—or shall I say, alleged, out of deference to the right hon. and learned Gentleman—that nothing but a reduction of expenditure could restore to the Chancellor liberty of action, and that it is on this, above all, that any constructive Budget policy must concentrate. Yesterday, the Chancellor gave us a description of the three claims upon national resources. There was the public consumption expenditure, the capital development—public and private —and the private and personal consumption. Those are the three headings of the claims upon the national economy, but he spoke as if the first two—the claim of public consumption expenditure, that is, Government expenditure, and capital development, public and private—were fixed and immutable and could not be touched; they were the laws of the Medes and Socialists, nothing could be done about them. It was only on the third claim—the private and personal consumption—that limitation should fall.

I do not know why it has not been possible further to reduce public expenditure. The right hon. and learned Gentleman asked yesterday, where? All I can do is to refer him to the speeches made more than once by my right hon. Friend the Member for North Leeds (Mr. Peake) who has indicated frequently the kind of cuts which could, be made in public expenditure. He has shown that there has been, and that there still is, wasteful expenditure, bad housekeeping, and that much of the money we spend is unwisely spent. The right hon. and learned Gentleman in his speech yesterday said that he had no intention of cutting down the social services—nor, indeed, have we—[HON. MEMBERS: "Oh."]—for whose creation we are largely responsible—[HON. MEMBERS: "Oh."] Certainly, all the improvements which have been passed during this Parliament are largely the result of the cogitations—and the right hon. and learned Gentleman was party to them—when we worked out these plans together. There is no denying that fact, and we have not suggested cutting them down.

Mr. Alpass (Thornbury)

But hon. Members opposite said they were introduced too soon.

Captain Crookshank

We were concerned with their introduction. Then the right hon. and learned Gentleman touched on, but did not amplify, the question of the food subsidies. We on this side have never considered them as a social service, nor has anybody else until just lately. We were all parties to their introduction. We know all about the reasons why they were brought in. They were brought in for quite a different purpose than what is now called social services, and the right hon. and learned Gentleman knows that perfectly well from his experience at the Treasury. I note, incidentally, that he said yesterday that they would be about £400 million. That is an increase on the previous figure given, for my recollection was that they were to be stabilised at £390 million.

The Chancellor of the Exchequer (Sir Stafford Cripps)

Last year.

Captain Crookshank

But I understood that that would be the general level for the future. Certainly that was the impression I had from the speeches of his predecessor. I will not quarrel about it, but it is a change, like all these other £5 million, £8 million, £10 million—just let it go, it all piles up the expenditure. The Chancellor claimed that they represented 12S. to 14s. on every family. That was what he said yesterday. It is that word "every" which we think ought to be looked at again. Is there really a completely good and valid reason to subsidise every family irrespective of what their earnings or incomes might be?

When we come to the extra taxation, we are extremely dissatisfied at the increases which the right hon. and learned Gentleman has put upon whisky, beer and tobacco, particularly whisky which, after all, his colleague the Minister of Food only yesterday told us is to be very much reduced in quantity anyhow.

Sir S. Cripps

It will help.

Captain Crookshank

I do not know what the right hon. and learned Gentleman means by "It will help." It will not give him as much revenue as if there was as much whisky in consumption, but for the more humble people with the smaller incomes who enjoy an occasional drink of whisky—this possibly applies more North of the Border than South—it is becoming quite prohibitive, particularly if there is very little to get.

With regard to tobacco, I was astonished at what I heard the right hon. and learned Gentleman say in his broadcast last night. He said that he was putting up the duty on tobacco in order to remind smokers that we cannot afford to import so much. I can think of many ways of reminding people of that somewhat gloomy fact without putting up the price. When he comes to look at the general inflationary position, and when in his other capacity he has to deal with the problems of increased demands for wages, he will find that every increase in the price of tobacco has its reflection there, because it is not only the goods which come within the technical cost-of-living index that people have in mind when they consider that the cost of living is going up, and to pile up more and more the duty on tobacco seems to me to be unwise in the general economic situation today.

On the other hand, the way he handled the Purchase Tax will win general approval—not that one has had a chance of studying all the schedules. Amongst other reasons, he makes it less complicated by abolishing the steps which were introduced just the other day. I have always held about the Purchase Tax that we ought to be a good deal more scientific in applying it than we have been so far, and I hope that under the right hon. and learned Gentleman's regime this may come about. I fancy it will. I cannot imagine him coming down, like his predecessor, and throwing£20 million on the table and letting us all have a scramble, first come first served, which is more reminiscent of the Shrove Tuesday pancake in the other Westminster than of the dignity of this House.

I wish to ask why he has determined to abolish Schedule B and put all farmers on Schedule D. The reason he gave was almost as odd as his reason about tobacco. The tax on tobacco is increased in order that we should know we cannot afford to import as much, but the reason for changing these farmers, who may be anything between 100,000 to 150,000—perhaps he can tell us—.and who are all small people, mostly the family farmer working with his wife and son, is that he believes the alteration in the method of taxation will help him to produce accounts. Apparently this is the way to teach them to keep accounts.

Mr. Alpass

And they need it.

Captain Crookshank

It is all there in the OFFICIAL REPORT.

Sir S. Cripps

Will the right hon. and gallant Member read the other part?

Captain Crookshank

Does the right hon. and learned Gentleman want it all?

Sir S. Cripps

I do not want the right hon. and gallant Gentleman to read it all, but to read the reason, not the other part.

Captain Crookshank

The effect is apparently that £2,500,000 more is taken from this section of the community under this change in the basis of taxation. I want to know what the Minister of Agriculture thinks about that, in view of the fact that we have only just concluded a price review in which taxation and everything else was taken into account—

Mr. Alpass rose—

Captain Crookshank

No, I cannot give way. If this is to help farmers to learn to keep accounts, the right hon. and learned Gentleman should set about it in another way, and not invite them to exchange the pen for the plough.

As regards limitation of dividends, we on this side of the Committee are very glad that the right hon. and learned Gentleman is accepting the advice of my right hon. Friend the Member for Aldershot (Mr. Lyttelton), who told him in an earlier Debate that a voluntary appeal would get a great response. From what the right hon. and learned Gentleman said yesterday he feels he is getting that response. Having now mounted the voluntary horse, it seems obviously right to let it have a run, and not to try to change over on to the compulsory horse. From that we come to the changes in the allowances which have been devised, the right hon. and learned Gentleman told us, in order to try to improve incentives to greater production. Of course there was an alternative. The choice the right hon. and learned Gentleman had to make was between so altering the allowances as to hope to bring about the effect he had in mind, and changing the standard rate of Income Tax. It is arguable, and probably a good many people would think that one way was better than the other. I do not propose to argue it at the moment, but I think it is quite clear that while the plan which the Chancellor has accepted and put forward does give an incentive, or is framed to give an incentive, to workers in industry, it does not necessarily give the same incentive to industry as industry, and does not seem to give any great incentive at the top level.

Accepting on balance that the right hon. and learned Gentleman thought the change in the allowances was the better way of improving the possibilities of greater production, we are very glad to see what changes he has made, because I believe all of them were points we put forward in the last two or three Budget Debates, which his predecessor said he would be glad to consider if and when opportunity arose. We are glad that the time has come to put them into effect. It remains to be seen how far this results in greater production, but it is quite certain that alleviation will be given to a number of retired folk, pensioners and the like, long past the age of bothering about incentives. It will give alleviation to them in these times, which are difficult for everyone.

Generally speaking, although we will argue points later on, that part of the plan seems good. So also does the outline—again one does not know the details—of the Chancellor's intention to deal with expense accounts. We are entirely with him there. It is monstrous that anyone should be able to "wangle"—that was the word he used; it is a colloquial word which he may have heard—the expenses. We would like an assurance that whatever arrangements are made will apply to the heads and employees of public corporations.

Another big budgetary point is the capital levy which the right hon. and learned Gentleman has proposed. In the framework of a general anti-inflationary Budget, it seems to me bad and out of place, because it can only be paid for by liquefying capital and can only really be a disincentive to savings. The Chancellor really is rather a strange person, because, in the beginning of his speech, when talking about savings and abstension from spending, he said: … money saved should be invested safely and kept unspent until it is wise to use it." —[OFFICIAL REPORT, 6th April, 1948: Vol. 449, c. 47.] Yet, by the end of his speech he is going to force a whole lot of people who have saved to sell out to the tune of £105 million. These two propositions do not seem exactly to tally. Moreover, just as those who are having to pay the capital levy will have to sell out, some will have to buy, and the buyers will be the savers. Does it make sense? It does not seem to do so because the proposal has very little relevance to the problem. If there are many who, under the penal taxation, found they were able to save at all, they are represented by the careful man who, during all these years, has followed the lead given by all the Chancellors of the Exchequer who held office since the beginning of the war. They have deliberately saved and invested their money instead of keeping it fluid. They have deliberately followed the advice of the Government and tied it up and invested it in War Loans. These are the very people who are to be penalised, while the financial spiv, if I may use the word, who has kept his money liquid all the time, and has no invested income comparable to what the good saver has, is to get away with it.

That seems to me to be a very poor line for the Chancellor to follow. He said in his broadcast last night that this form of capital levy would help against inflation, but in these days I do not see that it will do anything of the kind. I should have thought that it would have exactly the contrary result. In any case, it is a grievous discrimination between one class of saver and another. We shall no doubt have' to explore the details of this proposal very carefully. There are all sorts of complications, and I could think of many questions which I should like to put, but this is not the day upon which to do that.

It seems to me that there are two difficult points which it might be as well to mention at once. The first, although I have not had time to be fully advised upon this subject, is that I am nervous about the effect of this particular form of levy at this particular moment on the agricultural industry, at the very moment when, under the recent Act, a lot of capital expenditure is needed. The owners are now partners in the industry, as the Minister of Agriculture has told us so often. I should like to know what the effect of this proposal is to be upon the agricultural problem. The second point, which does really amaze me, coming from a right hon. and learned Gentleman, is the Chancellor's proposal that trusts will be empowered to pay out capital, and for trusts to be broken. It was said long ago that what is morally wrong cannot be politically right, and it seems to me that to take powers to break a trust for this sort of purpose is something which should not be done, as the right hon. and learned Gentleman yesterday forecast it would be.

I think that we on this side of the Committee would say that the right hon. and learned Gentleman has framed his Budget at far too high a level of public expenditure; that because of that he has far too high a level of estimated receipts from taxes; that he should have brought down the whole thing to a lower step; although we would agree that in the inflationary situation in which we find ourselves he should work, as he has worked, to get a real genuine surplus out of the national income this year. We agree about that. The trouble is that it is all too high.

It is difficult for anyone who is not an absolute wizard to keep track, at short notice, of all the masses of information with which we have been supplied in the last few weeks. The right hon. and learned Gentleman yesterday so skilfully, so persuasively, and indeed so brilliantly marshalled his facts and figures, that he carried us all along. We have had White Papers, black papers, economic surveys, some for the calendar year, some for the financial year, so that the figures never tally. For that reason it will be some time before we can do much more than give a preliminary glance at this problem. I am sure the right hon. and learned Gentleman will acquit me of not having gone deeply into all these figures, although possibly by the end of the Debate we shall be able to deal more critically, or more agreeably, with some of the things he said yesterday.

After all, the whole of this structure is built up, as the various papers point out, on a series of assumptions. Unfortunately, from the calculations the Government made for the previous year, we found that most of the assumptions then were wrong. It may be that a lot of these assumptions are wrong. Assuming, however, that the Chancellor's analysis is right, then I think he is right to budget for a genuine surplus—a genuine surplus, yes, but with lower figures en both sides. To add £250 million to our taxes this year is something which could, I am certain, have been avoided by wise housekeeping. To work on a basis of tax receipts of £3,500 million in the third year after the war is a terrible psychological error. It may be that the country will get over it, but on the other hand, it may be that the country will never adequately recover from such a staggering blow. Of course, as good and loyal citizens we hope and pray that the country will get out of its difficulties, in spite of the Chancellor of the Exchequer. We think that on this occasion he has to a large extent chosen the wrong weapon. He has been using the rod of increased taxation when it should have been the axe of reduction.

4.25 p.m.

Mr. Dalton (Bishop Auckland)

I listened yesterday with great pleasure to the speech of my right hon. and learned Friend the Chancellor. I thought it was a most masterly performance. I thought it showed a complete grasp of a great deal of very complicated material, and it seemed to me to show in a new field, my right hon. and learned Friend's gift, which we have often observed in other fields, of grappling, as he did yesterday, with great mastery and brilliance with matters which are to him relatively novel. I would like to congratulate him. I hope that even hon. Gentlemen opposite agree with what I have said, though they do not agree with all the conclusions at which my right hon. and learned Friend arrived.

Subject to one or two minor points, which I will indicate as I go along, I feel that the broad lines of the Budget statement yesterday are right and should be supported. I have the same feeling in regard to the principal proposals for change which have been made by the Chancellor. There are some minor points, indeed a great many minor points, which, when we reach the no doubt lengthy Committee stage of the Finance Bill will fall to be considered in more detail. In spite of the effort of the right hon. and gallant Member for Gains-borough (Captain Crookshank) to draw a sharp distinction between my right hon. and learned Friend's approach and my own, one reason why my feeling is friendly and favourable to this Budget is that I seem to detect here and there a certain continuity of ideas between the Budget of my right hon. and learned Friend yesterday and the four Budgets which preceded it.

It may suit the dialectics—I will not say the dialectical materialism—of the Opposition to seek to draw a distinction between the approach of my right hon. and learned Friend and myself. They are entitled to what intellectual exercise they can get out of that, but undoubtedly I seem to detect that my right hon. and learned Friend has hatched certain eggs which were perhaps left behind in the Treasury before his arrival, in addition to others which may have been more lately supplied by other friends and advisers. A number of the practical proposals made by my right hon. and learned Friend are in a straight line of continuation from the proposals initiated by me, as I shall illustrate. I am obliged to the right hon. and gallant Member for Gainsborough for his kindly personal reference. I hope gradually to demonstrate to him that I am still alive. As to his suggestion, (that will perhaps come in due course. It was a hint for later action in a certain part of this Metropolis.

The right hon. and gallant Gentleman said that although this occasion gave a very wide field of discussion, he would limit himself to what he called a few Budget points, and he did so. I should like to make an observation on the nature of this discussion, and to express a doubt whether it will be convenient, as a regular practice, to have some five days of roving and uncompartmentalised discussion upon the whole state of the nation, including not merely these Budget proposals, but all the many internal and external aspects of the economic life of this country. This is admittedly an experiment. It is interesting that it should be made, but I am inclined to the view that we should do better to break things up a little more. We are now to have a five-day Debate in which there is no organised separation of topics at all. I venture to anticipate that, when we get on to next week and the last two days out of the five, there will be a thin House, thinner than today, largely consisting of hon. Members wishing to speak. There will be a general air of boredom and the end of the whole affair will be a rather blurred general picture with no sharp edges.

The suggestion which I made when I was a Member of the Government, and these matters were being discussed, was that we should separate rather more sharply in time the Budget statement from the Economic Survey for the year. They should be separated by some months. The suggestion I again make to the Government is that they should try to get out an Economic Survey for any given calendar year towards the end of the preceding calendar year; that is to say, they should aim to get out by next November the Economic Survey for the calendar year 1949 and have a Debate on that before Christmas, well in advance of the Budget proposals, and cover the whole field then. The Budget proposals would come along later, and it would be proper to take a relatively wide field of debate then, but this would not place the House in such a difficult position as it is placed in under this new procedure. The Government will largely take their decision in the light of the way in which this Debate goes, and if my anticipations regarding next week are right, that will be a very good argument for the course I am suggesting.

If I may seek to summarise and bring together the three principal proposals of my right hon. and learned Friend they are, first to maintain all socially necessary expenditure but to make reductions in expenditure in other directions; secondly, to build up a substantial surplus, over and above capital expenditure as well as the current expenditure of the Government, with the object of reducing, and perhaps even entirely removing, the inflationary pressure of which we are conscious; and thirdly, to re-arrange taxation so as 'to ensure, on the one hand, that such a substantial surplus is obtained and, on the other hand, to increase incentive and to share the inevitable burden more equitably among the different sections of the community. I think those are three admirable aims.

The right hon. and gallant Member for Gainsborough (Captain Crookshank) was very anxious to assure us that the Conservative Party were responsible for all the social expenditure which is now being made. As I understand it, he would not wish to diminish social expenditure at all. That is ruled out by the Conservative Party. It has been said by the Opposition that much of the social expenditure had a Coalition Government origin, but they have also said that it has been introduced too speedily—and that, I dare say, is still the view of the Opposition. They would not have introduced so quickly the social service developments that we have introduced. Later on, they would have done as much as we have done; but when that date would arrive, they have not made clear. We, on the other hand, acted speedily with regard to social service legislation, and I am quite sure that we were right. I had the responsibility, financially speaking, for that policy. In my Budget speech in April of last year, I said: We have mounted, without halt or hesitation, the great social programme which the electors voted for when our majority was returned. … We are entitled to say that the new Britain, represented by this House of Commons, has taken the cost of social security proudly in its stride."—[OFFICIAL REPORT, 15th April, 1947; Vol. 436, c. 38.] And so we have. If I have not misunderstood the right hon. and gallant Gentleman, the Opposition propose no change whatever in any of our social expenditure. If that is so, it is as well it should be stated. But they distinguish food subsidies from other forms of social service expenditure. The right hon. Member for the Scottish Universities (Sir J. Anderson) will no doubt speak in this Debate. On a previous occasion he said that, in his view, the food subsidies should be reduced to negligible proportions. It would be interesting to know whether the Opposition still stick to that line. The right hon. and gallant Member for Gainsborough was rather careful not to commit himself on this point. He made a complaint about £400 million having been indicated as the figure for this year, as against £392 million, and he suggested that it was from my Budget speech that he was quoting. He had not a copy and I have not a copy, but I remember that what I said was that £392 million was to be the figure for the financial year just concluded, and that it would not be justifiable, in the view of the Government, for that figure either to be increased or diminished in that year.

I went on to say, speaking in November, that it was too soon yet to say what the figure should be in the next financial year. Therefore, there was no agreement to hold this figure at £392 million this year. On the other hand, I think it is wise to hold it at round about £400 million. I think that can be argued on the dual ground that, if food subsidies were reduced, inflationary forces would be set in motion. It would put up the cost of living and encourage inflationary developments. That is the argument against reduction. But I should think there is no case at this stage for any large increase in the food subsidies, because it would endanger the achievement of a substantial surplus, which is the purpose of my right hon. and learned Friend. So about £400 million is, I think, right, although I would hope that in the expenditure of that sum there will still be flexibility of method and perhaps further concentration on a smaller number of more essential foodstuffs. That would also be slightly cheaper administratively.

With regard to other expenditure, there is a useful reduction shown in the details of expenditure for the year, and the Committee will no doubt note the reduction shown in the war terminals in Table VIII (d) on page 15 of the Financial Statement. I am particularly glad to see the large reduction of £55 million in the Foreign Office German Section. It was my view, when I was a Member of the Government—and I sought to give effect to it in discussion with my colleagues—that we were spending too much upon the Germans. I am not here talking only of keeping them alive by supplying them with free food, but of the very complicated and elaborate machinery of control and the large staffs in London and in Germany trying to control the Germans in all sorts of ways which are not essential from the point of view of our national interest, which is solely that of our own security, and making sure that no war machine springs up again without our knowledge, or indeed at all. It seemed to me that there was a great deal of pettifogging interference in their affairs which was not necessary, and I am glad to find there is this big cut this year. It will mean £55 million less expenditure and substantially fewer officials engaged on this job. I welcome that very much.

With regard to other reductions in expenditure, my right hon. and learned Friend invited suggestions. I must say that the right hon. and gallant Gentleman today has not given very much response to that. He quoted the right hon. Gentleman the Member for North Leeds (Mr. Peake) and said that he had often made suggestions. I do not quite know what they are. I think they were very vague and general in character. Perhaps we shall be told later on. The right hon. and gallant Gentleman has not really come up to the challenge at all. He has talked a great deal about the need for cutting down expenditure. He has veered away from the social service expenditure, with great political apprehension, and nothing else has been presented to us. I hope that the Opposition will do their duty, in this respect at least, and put up practical and detailed proposals as to how this alleged enormously excessive expenditure is to be reduced.

I would make a suggestion of my own as to an expenditure—which I think is very excessive. I think that the annual cost of the National Debt is very excessive. It amounts to £500 million a year for interest alone. I say that we really cannot afford to carry that indefinitely through the future. It is a large and intractable total. I add that it would be higher than it is but for the cheap money policy which has been pursued. Indeed, in regard to the floating debt alone, we have saved over £30 million a year from this vast charge by the steps taken to cut the short-term interest rates in the first few months of the life of this Government. But even so, it is very dangerous to be thinking of carrying forward a debt of this magnitude into the future. If the rate of interest were to rise higher, it would mean gradually, as debts fall due for replacement, that the rising rate of interest would force up the total cost of the debt. If prices were to fall, it would mean that the real cost of the debt would most seriously increase in terms of the goods and services required to meet the interest charges. This is a dangerous situation. Economy in the cost of the National Debt is the first and the strongest of all the arguments in favour of the cheap money policy. There are other arguments in favour of it, of course. It would be of great assistance to the local authorities in regard to housing, and it would be of great assistance also not only to public Boards but to private industry at large.

I had hoped—evidently vainly—that it would be possible to keep the question of the national credit out of acute political controversy. I had hoped that it would be generally accepted by all political parties and by all sections in the City of London and industry and elsewhere, that it was a national duty to keep the rate of interest down to the lowest possible figure, and that all would have cooperated to that end. That turned out not to be the case. At a certain stage, every effort was made to create a situation most unfavourable to the continuance of the cheap money policy and low interest rates. This is not the occasion to develop this theme in detail, though I have taken care to keep a certain amount of material at hand. But at a certain stage there did develop what was nothing less than a conspiracy in certain quarters to frustrate this policy, particularly in view of the forthcoming nationalisation of transport and electricity stocks. This was something which can correctly be described as a conspiracy to try to force down prices on the gilt-edged market so as to screw 3 per cent. rather than 2½ per cent. for those entitled to compensation money.

Mr. Nigel Birch (Flint) rose—

Mr. Dalton

I would rather not give way at this moment. I would rather develop my argument. There is plenty of evidence in the columns of the financial Press to substantiate what I have said. The conclusion which I draw from it—I reach it in a word because I want to speak on other matters and I do not want to stay too long on this point, important though it is and responsible though some hon. Members on the other side may be, in part, for what took place—

Mr. Peter Thorneycroft (Monmouth)

On a point of Order. The right hon. Gentleman has made two allegations. In the first place, he has made a broad allegation of a general conspiracy on the part of some person. I could not understand. I do not know whether it was the nationalised Bank of England or not. He did not give way on that question. He is now making allegations of conspiracy on the part of hon. Members on this side of the Committee. In those circumstances, would it not be right either that he should justify those charges or else withdraw them?

The Deputy-Chairman (Mr. Hubert Beaumont)

Right hon. and hon. Members are themselves responsible for statements they make in their speeches. It is, however, a general rule that imputations should not be made.

Mr. Dalton

I think that perhaps there has been a misunderstanding rather than any serious difference of view as to the line of argument which I was following. I will, therefore, restate what I said in a manner which I think will not give offence to the hon. Gentleman but, nevertheless, will still be true. Gradually there developed a campaign in the Press, particularly in the financial columns of certain newspapers, designed to force down prices on the gilt-edged market and to force up the rate of interest, particularly in the period preceding the coming into operation of the transport and electricity stock nationalisation. The result of this was that 3 per cent. at par rather than 2½ per cent. at par, as had been contemplated at an earlier stage, became the basis of compensation. In a broad sense, it is perfectly correct to say that there was a conspiracy in the Press and in other circles to bring about that state of affairs. I think that that is perfectly true and, I would hope, not a statement to which the hon. Member for Monmouth (Mr. P. Thorneycroft) would take exception. I do not remember his taking any particular part in these Debates.

On the other hand, the hon. Member for Flint (Mr. Birch) was most active and, at sittings both by day and night, be constantly used arguments of the kind to which I am referring. Evidently, therefore, he and certain others are a party to this; and that is what I said.

Mr. Butcher (Holland with Boston)

On a point of Order. Is the right hon. Gentleman entitled to refer to hon. Gentlemen on this side of the Committee who put proper arguments in Debate which are permitted by the Chair, and to suggest that those arguments are part of a conspiracy?

The Deputy-Chairman

It would be most undesirable to curtail in any way the cut and thrust of debate. Any hon. Gentleman who wishes to reply, no doubt will have an opportunity later.

Mr. Dalton

If skins are tender, shall I say that a number of hon. Members co-operated with a view to lowering the national credit and raising the rate of interest which the Government would have to pay for new loans?

The conclusion which I draw from this —and I have stated this elsewhere—is that the powers at present possessed by the Government over the gilt-edged market are not sufficient and that my right hon. and learned Friend at sane stage will be well advised to take powers of direction over capital. The form which such powers should take would be, in my view, that in the case of large holders—I am not concerned here with small holders—any large holders such as insurance companies, investment trusts, large industrial reserve funds, and so on, where there is, say, more than £1000,000, to take a rough figure, of investible funds outside any particular business, it should be made a requirement that a certain prescribed percentage of that amount should be invested in gilt-edged securities. All large holders should be required to conform to this essentially national duty of maintaining the national credit. In due course, I hope my right hon. and learned Friend will give consideration to this point.

I do not myself think that even such a measure will be sufficient for reducing within a reasonable time this enormous burden of the cost of the National Debt interest. In my view, there is only one straightforward and satisfactory way of dealing with the matter, and that is by means of a capital levy on a substantial scale. That will involve a large repayment of debt in a relatively short time, but I have never been shaken in my view that this is the most just and effective way of dealing with the debt when we are carrying a burden of this magnitude in time of peace. I feel sure that we shall have to come to this, and possibly at no very distant date. I do not blame the Chancellor for not introducing such a measure this year, particularly after the introduction of the Special Contribution, on which I shall have something to say shortly, but I noted with great satisfaction the terms of the statement which my right hon. and learned Friend made on the matter. He said: Various attractive suggestions have been put forward for a capital levy, but from the administrative point of view, a capital levy —in the ordinary sense of those words—is impracticable at the present time. It would be impossible to effect the valuation of all the capital assets in this country without a very large increase in the staff of valuers: and that staff is already very short for the jobs that it has got to do."—[OFFICIAL REPORT, 6th April, 1948; Vol. 449, C. 71.] I entirely accept that, and I feel that the labour involved in the valuation of the capital assets in question would be excessive at the present time. I note with satisfaction that my right hon. and learned Friend limits his rejection of this plan to the present time, and I also note with satisfaction the introduction of the Special Contribution; but I ask him to keep the idea of a larger capital levy on his list of possibles, as I did, when I was at the Treasury, and to reconsider it when the circumstances make it appropriate.

So much for the question of expenditure. Turning to the surplus which the Chancellor wishes to build up to cover the capital as well as the current expenditure of the Government, I think that, in principle, that is right. Indeed, I myself frequently said, when I was Chancellor of the Exchequer, that we must vary our attitude to the surplus or deficit according to the danger of inflation or deflation, as the case might be. In an inflationary period, it is quite right to aim at a surplus over and above capital as well as current expenditure. In a normal year—I am not going into the details of the accounts, which can be discussed later—it would be reasonable to say that we should meet from revenue our current expenditure and borrow for capital expenditure, for such things as houses, industrial equipment in the nationalised industries and so on. It would be natural to borrow for these capital purposes and cover current expenditure from revenue, but, in an inflationary year, we should go further and cover capital as well as current expenditure. In a deflationary period, we should move in the opposite direction and be prepared to cover by borrowing all capital and some current expenditure as well.

I am glad to note that my right hon. and learned Friend yesterday made it clear that he is not bemused by the present inflationary pressure, and, indeed, recognises that things might so turn out that he might have to change both his tactics and direction in this matter. I was pleased to hear my right hon. and learned Friend say: … but we must watch the situation carefully, and be ready to detect the moment when the inflationary pressure vanishes and gives place to deflationary tendencies; if such a thing should happen, we must then make a rapid readjustment of our economic and financial policies."—[OFFICIAL REPORT, 6th April. 1948; Vol. 449, c. 49.] It might have to be very rapid, because of some trade depression starting in some other part of the world, in order to avoid very unfortunate results to our employment and our trading activity. That is all I want to say about the surplus. I now want to say something about the proposals in the field of taxation.

My right hon. and learned Friend claims, and I think reasonably, that the considerable number of tax changes which he proposes should be looked at as a whole and not taken in isolation. If they are looked at as a whole, first of all, it will be noticed that they very nearly balance. The Special Contribution is expected to bring in £5O million this year. All the other taxes taken together are expected to show a loss of £39 million this year and £56 million in a full year, and, therefore, broadly, the Chancellor's changes balance one another. But, if we have regard, on the one hand, to the stimulation of incentives, and, on the other, to a more fair division of the burden, I think the re-arrangement is good on both counts.

My right hon. and learned Friend imposes another penny a pint on beer. I took steps to inquire what was the reaction to the extra penny a pint when it was put on in the autumn Budget last November. I was told that people who do not drink beer knew nothing about it, and that people who do talked much less about a penny on the pint than about the quantity and quality. That, I think, is fairly good information. People are very much more concerned about the quantity and the quality of the beer than about whether they have to pay another penny a pint for it, and if the Chancellor at a later stage, were able to arrange for more and better beer, I am quite sure that the extra penny a pint would be readily forgiven. This penny on a pint is trivial in relation to larger issues.

As to tobacco I cannot find it in me to blame my right hon. and learned Friend for extravagant tax changes, because, after all, I was responsible for the proposal to increase the price of 20 cigarettes from 25. 4d. to 3s. 4d., in spite of which it appears that almost as many cigarettes are being smoked now as before. I should have been interested—and perhaps we shall be told—to know exactly what are the latest figures of the reduction in consumption.

Sir S. Cripps

Twenty per cent.

Mr. Dalton

I am much obliged. That reduction is too small. We were asking for 25 per cent. and that is very small in relation to the total amount of smoking which is still going on, in spite of the taxation. The raising of the price to 3s. 6d. cannot be expected to excite great passion in the heart of one who was responsible for raising the price from 2S. 4d. to 35. 4d. without causing, apparently, any real disturbance in the country. Therefore, I cannot regard the beer and tobacco taxes as anything but mild changes on which it may be possible to generate a little political feeling but which bring in some useful revenue.

With regard to the Purchase Tax, I always took the view that it ought to be gradually, but not very rapidly, reduced. The right hon. and gallant Member for Gainsborough was very shocked because we had Debates here, at the end of which representatives of the Government, having listened to the various arguments advanced, endeavoured to recommend to the Committee those changes which were most in accordance with the general wish of the House as well as with the national interest. The right hon. and gallant Gentleman, however, wanted the thing settled behind the scenes and in a bole-and-corner way, whereas I was prepared to wait to the end of the day and then announce what the Government were prepared to do. Except in the November Budget, when the rate of tax was put up to gather revenue quickly, in each of the three previous Budgets for which I was responsible, reductions of the tax have been made and revenue has been given away on each occasion. My right hon. and learned Friend is doing the same thing here; he is proposing a net reduction in the Purchase Tax revenue.

This is essentially the field of Committee points, and I am not going into detail. I have one or two doubts in my mind on a quick reading of his proposals, but, on the whole, I think his re-arrangement is certainly good. It simplifies the scheme of things, and, on balance, I think the burden of the tax is shifted away from some of the more essential articles on to some of the less essential. Broadly that is right. I have doubts about the wisdom of taxing children's non-utility clothing and other utility articles. I have always held rather firmly the view that utility as such should be exempt from Purchase Tax. That ought to be a principle. I am a little doubtful, therefore, even about' the fully fashioned stockings and the increase in tax on utility fur coats from 33⅓ per cent. to 66⅔ per cent. And I am a little doubtful about kitchen cupboards. I took a lot of interest in that matter. I was trying to get an exemption on built-in furniture to assist local authorities and the Ministry of Health, but I was told that it was not possible to define built-in furniture on the schedule, although I could exempt kitchen cupboards. There is not much money involved in these points, but think there are one or two matters here which should be re-studied.

On balance, the shift is in the right direction. It is from the more essential to the less essential, and the Purchase Tax is gradually evolving into what I have always considered it ought to be—a substantial revenue yielder not to be swept away in a hurry, yielding revenue from luxury articles and from things which lie between the field of semi-essentials and luxuries. That is the direction in which it is now moving. I would like to refer to some interesting calculations which have been made by the National Co-operative Authority which were quoted in the "Cooperative News" on 13th March. The National Co-operative Authority collected information from the various societies as to the incidence of the Purchase Tax as it then was, on their sales, and it is very interesting indeed. It strengthens the view which I have often expressed, that those who object to the Purchase Tax un- conditionally have not really studied the facts of its incidence. What the National Co-operative Authority has discovered is that the Purchase Tax approximates to only 2 per cent. of the total sales of the retail societies. That was before the changes proposed by my right hon. and learned Friend in this Budget. The Purchase Tax causes a reduction in the gross profit in the dry goods department of about 2½d. to 3d. per £sales. That is very small. The Purchase Tax affects the rates of dividend by about only ½d. per £ on the total sales of the societies.

The conclusion—and the Co-operative movement has always made a propagandist point about this—in the leading article in the "Co-operative News" is: It must be admitted that the evidence collected by the National Authority tends to prove that the overall effect of the tax on co-operative turnover and dividend is less than was previously assumed. The reason for that state of affairs is the width of the free list, and I am glad that my right hon. and learned Friend is not yielding to some of those who may have advised him to narrow the free list in regard to Purchase Tax. There are on the free list all foodstuffs, all utility products with the exception of one or two that I have been mentioning this afternoon, and a further number of articles which have been added during the past two and a half years such as pots and pans, crockery and much else. It is because the free list covers so large a part of the current expenditure of the working class family that the burden of the Purchase Tax is so very much less than is apt to be imagined by persons who have not studied the details. By the changes which my right hon. and learned Friend is now making, on balance he will have reduced the burden of Purchase Tax on the average working class family, but he will have still retained its very important revenue raising capacity. So much for the Purchase Tax.

I welcome the Entertainments Duty changes. I would like to know how a rural area will be defined for the purposes of total exemption. It will be interesting to see the technique; I am sure it can be done, and it ought to be done. We should do all we can to make the country relatively more attractive than these vast overgrown towns into which so many of our people have flocked. With regard to the Betting Duty, I foresaw, though I did not bluntly say so, that once we started on this road we would go on. I thought it would be well to begin on a narrow front and on a small scale. That is the English mode of making progress. I am not at all surprised that the dog bookies have caught it now, and in due course, no doubt, other developments will follow. In view of the state of some sections of public opinion on this matter, tactically it has been very wise to proceed by stages as my right hon. and learned Friend has done.

I will say a word about the Profits Tax. I was responsible for recommending that it should be put up twice last year. It will be remembered that the tax on distributed profits was put up from 5 per cent. to 12½ per cent. last April, and then up to 25 per cent. last November, with a tax on non-distributed profits of 1o per cent. On the whole I think—though this is debatable, and, no doubt, will be debated —having regard particularly to the introduction of the Special Contribution, my right hon. and learned Friend is justified in leaving it there for the moment, but I do not think we can be quite satisfied with the response that has been made to the request that dividends should not be increased. No doubt, my right hon. and learned Friend will watch this.

It is always a pleasure, though a rare one, for me to be able to quote the "Economist" with wholehearted agreement. I quote from the "Economist" of 20th March under the heading "Inviting trouble." The range of dividend increases announced this week "— and this is as recently as 20th March- is disturbing to say the least of it. Then a number of details are given. I will not read them out, but seven or eight firms are mentioned as having increased their dividends. A few days later other cases arose, including H.P. Sauce, which was commented on at the time. The "Economist" goes on: It must not be forgotten that Sir Stafford has shown a genuine desire to gain the cooperation of industry in his assault on inflation and that he is at present watching 'with the keenest and most hopeful anticipation the actual results which can be achieved in the stabilisation and reduction of prices and in the reduction of profits and stabilisation of dividends.' Obviously the actions of industry are being watched—and not only by Sir Stafford. Less conciliatory Labour members would prefer dictation to compromise, and if a section of industry prefers in its turn to act without regard to its responsibilities, Sir Stafford might well be pressed to adopt a sterner approach. As the "Economist" says, it is inviting trouble, that these industrialists should completely ignore both the requests of two successive Chancellors of the Exchequer and the proposals of the Federation of British Industries.

Sir Peter Bennett (Birmingham, Edgbaston)

Surely, the right hon. Gentleman realises that that statement in the "Economist" was made less than a week after we presented our report to the Chancellor of the Exchequer. Therefore, the decisions had already been made. I do not think it is quite fair to quote that as evidence of the way in which industry has reacted to the suggestions which were made to them. There are companies representing over £3,000 million which have already agreed to freeze their dividends as soon as they can consult the people concerned and come to a decision.

Mr. Dalton

I am not really on that point. I am only quoting the "Economist" upon these particular cases. I am perfectly well aware that it is not very long since my right hon. and learned Friend and the Federation of British Industries were in consultation about this, and we shall see, as the months go by, how the dividend declarations go. But it was not a very good start, for this upward rush to take place. It was not only the bunch quoted in the "Economist" of 20th March, for the following week there were a lot more, and I am merely sounding a warning note within quotation marks and we must see what happens. Perhaps the rest of industry will pay more heed than this group; it is a thing to look at. At any rate, up to the moment I think my right hon. and learned Friend is right to leave the Profits Tax as it is, and not to introduce any other special tax such as has been suggested, on profits in excess of some new datum line. I hope, and I am sure, he is being watchful of what is going on.

I come now to the Special Contribution and I sense from what the right hon. and gallant Member for Gainsborough said that on this there will be a good deal of discussion. It does not seem that this will go through by unanimous acclaim and gradually, no doubt, many points will be elucidated in discussion. We are both, this afternoon, dealing with it in a preliminary way. I give it an especially warm welcome. In all practical problems of taxation, as the right hon. and gallant Gentleman knows from his experience at the Treasury, one has to strike a balance between what may be called theoretical perfection on the one hand and practical administration on the other. One of the things which is very attractive about the Special Contribution is that it is beautifully simple in administration. We need no new valuation, but simply refer to the Income Tax declaration already made. It is perfectly simple and no new officials need be employed for valuation.

It is limited in its incidence. The right hon. and gallant Gentleman spoke as though all the small savers, or a large number of them, were going to be affected by it, but it is of course limited in the first instance to Surtax payers. This is, indeed, a growing army. We have had many official documents issued and one of the best—issued a few days ago—was the latest annual report of the Inland Revenue Commissioners, which I always read with great attention. From it we find that the number of Surtax payers have been steadily increasing, in spite of all the burdens, to about 136,000 at a recent date from 100,000 before the war. I would like to know what is the rough preliminary estimate of the number of persons who will be liable to this Special Contribution.

Sir S. Cripps

One hundred and forty thousand.

Mr. Dalton

I am puzzled by that. Somebody must be wrong, because the Inland Revenue figures give 136,000. There is only one condition in which it can be understood—a very rapid increase in the number of Surtax payers since last year, because the latest figure here is 136,000 as the total number. The figure just given by the Chancellor of persons liable to the Special Contribution is larger than the latest number of Surtax payers and, as I was going on to point out, it is not all Surtax payers who will pay the Special Contribution, but only people who are not only Surtax payers but who also have an investment income of £250 a year or more. I should have thought many Surtax payers did not have that investment income. They might be earning relatively high salaries without having investment capital, and I would ask that the figures should be explained to us in due course so that we may know just how many people will be liable. Personally, at a very rough guess, and I would not have thought much more than half of the total number of Surtax payers would have that income.

Sir Arthur Salter (Oxford University)

When the right hon. Gentleman is comparing the number of Surtax payers with the number before the war, will he appreciate that the main explanation of the increase is the depreciation of the purchasing power of money? The sum of £2,000 a year now is roughly equivalent to £1,000 a year before the war, and this is the obvious explanation of the increased number.

Mr. Dalton

Maybe. I was only quoting the figures, and asking how many of these are now liable to this contribution.

In Table 49 of the Inland Revenue Report there is a very interesting analysis showing what proportion of income is earned income and investment income respectively at different levels within the Surtax paying section of the community. What is brought out very clearly—it is not perhaps surprising—is that the higher the income, the higher in proportion is the amount derived from investment income and, therefore, it would appear that this Special Contribution is going to fall primarily upon persons who, within the Surtax field, are getting a relatively small amount of income from earnings and a relatively large amount from investments. That is as it should be, from the point of view of ability to pay. This levy, this Special Contribution, is in some measure, of course, an additional levy upon profits and this is another reason why my right hon. and learned Friend can justify the postponement of any further Profits Tax legislation.

One word about the Income Tax reliefs. I am very glad that these reliefs have been brought in, but I hope my right hon. and learned Friend is not going to regard this as the end of the road for this particular form of Income Tax reduction. I have often expressed the view, and I re-state it now, that one of the most effective and beneficial ways of reducing taxation is to reduce it upon earned income as distinct from investment income and upon smaller incomes, whether earned or unearned, as distinct from larger incomes. I am very glad that the earned income relief has gone up and I hope that in future years the earned income relief fraction may even go higher than one-fifth, to which it has been raised now, although that was the pre-war figure.

Turning to the exemption limit, I would like information on one point here. We were told that raising the earned income relief would exempt half a million taxpayers from Income Tax, but we were not told how many more were exempted by raising the exemption limit from £120- £135. I would like to know that, and also what is the separate cost of this concession on the exemption limit. It is, of course, very much cheaper than raising the personal allowance all along the line and this is not being proposed in this Budget, but I hope it may be possible on a future occasion.

I hope that my right hon. and learned Friend will see that the increased married women's relief is publicised, particularly in Lancashire. I am sure he will. The whole purpose of it is to persuade married women, particularly in Lancashire, to go back to industry, and I have a feeling that these Income Tax arrangements, even if they are frequently explained, are not always understood. I think pictorial representations should be used in order to emphasise the deliberately £avourable position which married women in industry now occupy in regard to Income Tax liability.

The proposal of my right hon. and learned Friend to widen the band of taxable income taxed at less than the standard rate, is, I am quite sure, right. Indeed, he will know from conversations we have had that this was one of my thoughts some while ago when we were discussing how to try to meet the claim, that would be clumsy and unadministratable, for the exemption of overtime earnings from Income Tax. As the Chancellor explained yesterday, one cannot do that. One cannot exempt overtime earnings in that way. We cannot have separate fiscal treatment for overtime earnings as such. However, we can do what is desired to be done by this sort of adjustment, which is the practical way.

I hope that, here again, we have not reached the limit of what is contemplated, and that there may be yet a further widening of this provision, and, possibly, even the introduction of one or more additional intermediate rates between the standard rate and complete tax exemption. On the Income Tax proposals generally, I say that I welcome them very warmly. I am sure they will do the best that can be done for the price —the price is about £1oo million a year in tax remissions—in stimulating incentive, and they will also mean a fairer distribution as between different sections of taxpayers.

A number of things take place on 5th July, for which, no doubt, the Opposition will claim all the credit—but the country will not believe them. On 5th July not only is this large scheme of tax remission coming into effect, but also the new social security scheme is coming into effect. I regard it as very good timing indeed, that these tax reliefs, which will operate with cumulative effect as re-P.A.Y.E., on 5th July will coincide with the increase in the insurance contributions. Indeed, in many cases, I hope, these new weekly tax reliefs will more than offset the increased contribution. Were it not that the Government consists of scrupulous and high-minded men, they might have been tempted, in view of this combination of circumstances, to arrange as part of the national plan a General Election that summer, with polling day in the first part of July.

5.22 p.m.

Viscount Hinchingbrooke (Dorset, Southern)

While lying in hospital in New Zealand commiserating with myself, I found it possible to feel some sympathy for the right hon. Member for Bishop Auckland (Mr. Dalton) on the news that he had relinquished the office of Chancellor of the Exchequer. Having returned here, and having heard him in his somewhat ugly mood today—at any rate in the middle part of his speech—I rejoice that the change has taken place, and I congratulate the country on having been spared a national calamity.

Mr. Gallacher (Fife, West)

To the noble Lord's gang.

Viscount Hinchingbrooke

Had the right hon. Gentleman still been Chancellor of the Exchequer the City of London and the financial institutions embraced in it would have been required by now to support the national credit, compelled to do so altogether apart from their general and natural wish. If he had remained in office he would by now have imposed a capital levy far surpassing in size and scope that now introduced by the Chancellor of the Exchequer, to which I shall refer in a moment as one of the unpleasant features of this Budget. The right hon. Gentleman found it necessary to fling charges across the Floor of the House of conspiracy on the part of some of my hon. Friends, and I am happy to inform him that my hon. Friend the Member for Flint (Mr. Birch) will reply to him in detail tomorrow night. I hope that the right hon. Gentleman will be in his place to hear him. I could not find anything, I think, in which to agree with what the right hon. Gentleman said, except possibly when he asked for an economic debate to be held in December or January. That was a useful contribution. The Lord President himself was very anxious that that should happen when he gave evidence before the Select Committee on Procedure some time ago. He appears to have forgotten what he then said.

The right hon. Gentleman talked about the maintenance of subsidies as a deflationary weapon. I could not follow his argument there. It seemed to me that if a policy of subsidising was a policy of deflation, it would have been carried out by this and previous Governments to its extreme limits, and we should have had very high taxation and very high subsidies to obviate inflation. But it has not taken place, and I do not think that, if he examines that line of thought, the right hon. Gentleman will find it a very satisfactory one. He referred to the reduction in expenditure in Germany at which we all rejoice, but I would like to point out to him that we have merely transferred the existing situation to the Americans. They have too easily assumed the mantle of Socialist planned economy in Germany. The horde of officials is still there, and the policy still is to manage German affairs and so very largely to prevent the Germans from reviving their own economy. However, that is a Foreign Office matter, and I do not now propose to follow it up.

The right hon. Gentleman said he would economise in the case of the National Debt, and that he would do it by reintroducing the cheap money policy which proved such a disaster a year ago, and from which we have, fortunately, emerged. Incidentally he would make National Savings and the National Savings Movement all the more unattractive by returning to lower interest rates. I would remind him that the actual burden on the community of the National Debt is not as great as he seemed to imagine. The service charge on the National Debt, expressed as a percentage of total private income, has risen only from 4.3 per cent. in 1939 to 5.5 per cent. in 1947. Although that amount looks very large in the estimate of expenditure, in fact the extra burden on the community is not very great.

My right hon. and gallant Friend the Member for Gainsborough (Captain Crookshank) has pitched our general criticism of the Budget in, I believe, exactly the right form. He has complained of the excessive level of Government expenditure. It is that expenditure which, I believe, the Committee ought to tackle before anything else. I would draw the attention of the Committee to pages 14 and 15 of the White Paper, where are set out in detail the main items of Government expenditure. Wherever we look at those two pages we see substantial sums which could have been reduced. I am inclined to be more adventurous—or, as some might say, more irresponsible—than my right hon. and gallant Friend, and I would definitely apply economies to the social services. I regard inflation as a worse danger than the temporary putting off of increased educational and social service expenditure.

If we look at the education and physical training items, as set out on page 14 we find an increase there of some £30 million. We find also a new item for fire services which could be cut down. Then there is the enormous new item of £143 million for the National Health Service. I think that in this particular year of great finan- cial stress and difficulty it is quite wrong, particularly as the medical profession itself is not happy and satisfied, that we should introduce this scheme. There are also comparable amounts in the National Insurance Fund, and the National Assistance and Supplementary Pensions. I believe that the inflationary situation and the distorted economy of the country are so serious as to warrant a temporary percentage reduction in these services.

Mr. Shurmer (Birmingham, Sparkbrook)

The same old story.

Viscount Hinchingbrooke

It is very difficult to single out definite items of Government expenditure and say that they should be eliminated. I would rather put it upon an emergency 10 per cent. or 15 per cent. basis, and say that whereas France and Belgium and other countries in Europe have found it necessary, in order to avert inflation, to make percentage cuts, and whereas Britain in 1931 also found it necessary and healthy to make percentage cuts, now is the time to act in a similar manner.

Mr. Shurmer

Now the cat is getting out of the bag.

Viscount Hinchingbrooke

There are various items which could be reduced very considerably. The Ministry of Works wants £11 million more this year. What on earth is that for? When examined closely, it includes a mobile labour force, of all extraordinary devices; yet we all know that throughout the country there are or could be ample private building organisations. The Central Office of Information is pressing for increases. When I was in the United States of America I saw some of their handiwork, and, believe me, it does not accurately reflect the state of British opinion; it is far too party in its bias, and in that sense most unfortunate, and calulated to be immediately rejected by the Americans. The Ministry of Fuel and Power ask for £2 million more this year. The Ministry of Transport Estimate is enormous. The National Coal Board has been formed, and the British Transport Commission has been formed. Are not these the organisations to take hold of the ancillary services throughout the country? Why is there not a corresponding reduction in the Estimates for the Ministry of Fuel and Power and the Ministry of Transport, taking into account how the work has been concentrated in the new Boards and Commissions? There is the British Council Estimate, but in these days we cannot possibly afford to allow to continue expensive propaganda of the type now being put out by the British Council. Those are some of the items which I would ruthlessly attack.

The Government make an appeal to the saving community to make a special contribution to national recovery, yet the Government alone press on with profligate expenditure. There are unfortunate signs that that expenditure is reaching a sort of finality. On page 11 of the White Paper we find set out the figures of national expenditure for the last few years: 1945–46, £5,648 million; 1946–47, £3,910 million, a reduction of £1,738 million; 1947–48, £3,209 million, a reduction of £700 million; now, in 1948–49, an estimate of £2,975 million, a still narrower reduction. There are clear signs that this Government regard national expenditure as beginning to stabilise itself—a view which we on this side of the Committee utterly reject, we consider that further drastic reduction should he undertaken. My suggestion of a 10 per cent. cut produces, on the present estimate, a reduction of a further £300 million, making a total, with the present calculated surplus, of £600 million, out of which I believe we could afford to dispense with the new Customs and Excise Duties, totalling £47 million, which will be regarded, in present circumstances, as inappropriate to the times, and will be resented by our constituents up and down the country.

Is a surplus—any surplus—necessarily deflationary? I do not believe it is. For a long time we have heard about this £7,000 million of expenditure chasing L6,000 million of goods. It is quite clear that in order to remove all fears of inflation we ought to suppress £1,000 million of purchasing power. With the Chancellor's calculated surplus—even if he uses it the right way, to which I will come in a minute—he is suppressing only one-third of the excess purchasing power in the country, and to that extent the Budget is not deflationary. The Committee should realise that a surplus is not per sedeflationary. It depends how the surplus is used. The reduction in the floating debt last year of £413 million has to be set against a surplus of £658 million. In other words, the balance between the two was used in a manner which might have been inflationary, for example, as ordinary Government expenditure. It is only by a reduction of the floating debt that deflation can be guaranteed to be taking place. I should like to exact a pledge from the Financial Secretary that the calculated surplus this year will be used to reduce the floating debt. In that way we can have a positive guarantee that it is being employed as a genuine deflationary weapon.

In passing, I should like to comment on the Chancellor's proposal to "screen" the allowances now given to business executives and directors. I do not think any hon. Member would be disposed to disagree that something must be done; but let me point out where we have got to and what will happen. First of all, we get penal, direct taxation, instituted; then businessmen come along and offer special inducements by way of allowances in order to retain their valuable executives; the Chancellor then chases those allowances, and tries to close the loophole. What is the result? He takes us straight away into a world of inducements in kind; tied houses, furnished flats, farms, cars, cigars, champagne and furs—in fact, into the kind of world in which some of the heads of national boards, and some Members of the Government, are now residing. The right remedy for this situation is, not to chase the allowances but to reduce the Surtax. That is what should be done.

Finally, I would like to refer to the piece of party spite and rancour known as the Special Contribution. Of course, this "once for all" business is pure nonsense. [HON. MEMBERS: "Hear, hear."] I am delighted to have the agreement of hon. Members opposite, because from it we see that they desire to make this a permanent tax. I need not, therefore, waste time on the point. Just as Income Tax began as a means of paying for the Napoleonic Wars, so we shall now see this penal tax imposed year by year in order to satisfy Socialist spite and prejudice. I ask the Committee to consider the effect this will have upon the young men of this country. If they see that all avenues to permanent investment, to putting away a sum for the future, to setting aside something to spend one day upon a house, a farm, or a collection of valuables are closed, what will they do? Many of them are now thinking whether they should go to free countries. I have a close friend who has made up his mind to go. There must be many who are trying to make up their minds whether to stay in Britain or whether to leave. It is no easy decision.

Mrs. Florence Paton (Rushcliffe)

Poor things!

Viscount Hinchingbrooke

This tax will undoubtedly add to the forces which persuade them to go. I urge the Chancellor to reconsider this tax, and to withdraw it. He is a just and humane man; in many ways his Budget is correctly framed, but at the end it carries this most unfortunate device. I hope that on reflection, after the opinion widely expressed in the Press today, and again, as it will be, over the weekend, he will see that this is a mistaken tax, and will withdraw it. Apart from the survey which the Chancellor gave I find little to praise in the proposals except the Income Tax and Purchase Tax reductions. It is a Budget which by no means will stop inflation. Let that be absolutely clear. And I regret that the measured phraseology of the Chancellor was marred by a piece of virulent prejudice at the close of his speech.

5.41 p.m.

Mr. Shackleton (Preston)

I am very glad that I have been called at this stage, because I particularly desired to reply to some of the statements which we have had from the noble Lord the Member for South Dorset (Viscount Hinchingbrooke). He mentioned that when he first heard of the misfortune which overtook the previous Chancellor of the Exchequer, he felt disposed to be charitable, but it is quite obvious to Members on this side that charity does not reside in the heart of the noble Lord. He made a number of observations and proposals with regard to cutting Government expenditure, and particularly the social services. He also suggested that some cut should be made in the case of the Central Office of Information, and he cited the example of the British Information Services in America, which, I would point out, do not come under the Central Office of Information. I think it should be known by the Committee that had we not got these American information services, they would be necessary if only to undo the evil which the noble Lord did when he was in America. That opinion was expressed to me by practically every British official I met in America, as well as by many good friends of Britain who do not subscribe to the views represented by those of us on this side of the Committee, but who are concerned for the welfare of Britain and the Marshall Plan. The noble Lord's actions in America were in marked contrast to those of some of his colleagues, who were particularly anxious not to sell their country down the river in America.

Having been stimulated to make this attack, may I make a further comment on some of the proposals of the noble Lord with regard to the Budget? He showed quite clearly the attitude of mind of the Conservative Party, if, in fact his proposals do represent the views of his party. It is important that we should know—incidentally the noble Lord's references to savings were a rash intervention on his part, bearing in mind-his previous record in this connection—whether the Conservative Party do, in fact, stand for a return to the policies of 1931. It is important that we should know whether the Conservative Party stand for large-scale cuts in social services and old age pensions, against which we as a party can take credit for having fought.

Viscount Hinchingbrooke

The hon. Member is ignoring the substantial remissions of taxation which would accompany the cuts.

Mr. Shackleton

I should like to know what substantial remissions are possible. The noble Lord has suggested a 1o or 15 per cent. cut in national expenditure, but he admitted that he was unable to suggest in detail where these cuts should be made. It is quite clear to Members on this side of the Committee what is the purpose of his suggestions, and that these cuts will be at the expense of the workers and that the tax remissions will not benefit the people as a whole.

I should now like to deal with a few further points connected with the Budget, and particularly with the proposals in regard to the increased taxation on beer and tobacco. It is quite clear there is a general realisation throughout the country that we are in an inflationary situation, and I congratulate the Government on their success in having managed to get that across. We have argued from time to time about the size of the inflationary gap, and about the steps necessary progressively to reduce it. It must be apparent to most people now, and I am sure it is to the Chancellor of the Exchequer, that we are at a time when the inflationary pressure is beginning to decrease. In these circumstances, it is unfortunate, when the Chancellor is trying to provide incentives to the better paid workers and to the middle class, which we all welcome, that he should be providing disincentives at the same time for the poorer sections of the community. Those who have studied fiscal policy in the past will remember that we on this side have consistently urged an attack on what was called "regressive taxation," but that is the very effect of the Budget so far as the taxation on beer and tobacco is concerned.

If it is desirable to maintain this taxation, and I can see reasons for it, then I suggest that the Chancellor of the Exchequer should consider providing extra inducements by increasing certain food subsidies to make up for the loss of income which will be suffered by the poorer sections of the community who will definitely not benefit but will suffer as a result of this Budget. An increase in the food subsidies would provide a great stimulus to the people who are not benefiting from this Budget, and would make up for the loss they will suffer from the increased taxation on beer and tobacco. I think I can say quite safely that Members on this side, apart from this particular tax, welcome the Budget, and in particular the Special Contribution which is an ingenious scheme, and which, as my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) has said, is administratively a satisfactory arrangement. I hope that the Chancellor of the Exchequer will complete the good work he has done by sacrificing a small part of this overall surplus of £300 million, as a contribution to lowering prices. After all, it is a very arbitrary figure, and I am certain that we could afford to make up for the loss of incentive which the poorer people will suffer by granting some increases in the food subsidies.

5.49 P.m.

Mr. Lipson (Cheltenham)

The real test of this Budget will come later. With the objects the Chancellor of the Exchequer has in mind of checking inflation and providing incentives to increase production, we all agree, but whether he will be able by the Budget he has introduced to achieve these objects, time alone will show. After considering the proposals, I must agree that this Budget at least merits success, because it is an honest Budget and a realistic attempt to face up to the financial position of the country. What I value very much is that the Budget shows that Britain is prepared, as she always has been, to face up to difficult situations, and to make whatever sacrifices the circumstances demand.

Reference was made quite properly by the Chancellor of the Exchequer to our gratitude for what is proposal under the Marshall Plan. But this Budget is based on what Britain herself can do. There is no doubt that if we can obtain the benefit which we expect from the Marshall Plan it will help our recovey, and will mean that many of the sacrifices which people would otherwise have to make will not be necessary. The Budget is, in itself, a very valuable contribution which our people can offer to our financial recovery. I think it will have a good reception, not only in this country—as it has already had, for the most part—but throughout the world and, in particular, in the United States and countries such as Canada, which have a great interest in our financial future.

From information which reaches me, one of the difficulties we have to face in selling our goods in dollar countries is the very widespread belief there that, sooner or later, the pound is bound to be de valued so that would-be purchasers have a great deal to gain by postponing their purchases until that happens. I believe that this Budget has shown that that is not the intention of the Government, that, on the contrary, we intend, so far as lies within our power, to maintain the purchasing power of the pound. If that is driven home—and this Budget will help to do that—it ought to make a considerable contribution towards the efforts we are making in our export drive to bridge the dollar gap.

Expenditure, of course, is very high. The right hon. and gallant Member for Gainsborough (Captain Crookshank) said that it was an intolerable burden. I believe it is nothing to the burden which our people would have to bear if we failed to check inflation, and there was a runaway of the pound. That would indeed be something to which the adjective "intolerable" truly might be applied. Whatever sacrifices we are called upon to make financially I believe that we ought to be prepared to make, so as to avoid that terrible disaster befalling our people. Complaints have been made about the hardships of the Budget, about the extra penny a pint on beer, and so on, but they will be as nothing compared to what our people would have to suffer as a result of runaway inflation. Because the danger of that is very real, and the results would be so disastrous, I believe that, literally, no economic price is too high to pay to avoid it.

We should all like to see expenditure reduced. The Chancellor has thrown it back to his critics to suggest where reductions in expenditure should be made. That, I think, is not altogether fair. I should like the right hon. and learned Gentleman to assure us that the Treasury is still the watchdog of the public purse, and that he is still making every effort to ensure that the country is getting value for the money it is being called upon to spend. I have no illusions as to whether any great reductions in expenditure are possible in present conditions. I cannot agree with the noble Lord the Member for Southern Dorset (Viscount Hinchingbrooke), that there should be a reduction in the social services. From every point of view that would be a mistake, because I regard expenditure on those services, quite apart from its justice and humanitarianism—as a long-term policy of re-equipping the nation for the great tasks which lie ahead.

Many of us would like to see more money spent on the physical re-equipment of our industries, but that is not possible at present. We can, however, do certain things, such as improving the health of our people and fitting them educationally to face the problems of the times and the battle of life, and those things we ought to do and should do. Ultimately, they will bring us a very rich return. I believe it is our principal hope for the future that we can make a better use of our human material with which, in the past, we have been all too wasteful. We must eliminate the unpardonable sin of waste from our economic life, and I would like to have an assurance from the Chancellor that he is watching this question of wasteful expenditure. I will not say that it amounts to a great deal—

Sir William Darling (Edinburgh, South)

Why not?

Mr. Lipson

—although we hear stories of waste here and there, because of the unnecessary size of staffs and things of that kind, and small vexatious controls which should be swept away. The psychological effect of waste has, I believe, far more effect upon public morale than its mere economic importance. We ought to have an assurance from the Chancellor that he is taking pains to ensure that there is no waste. That is a duty which he ought to accept, in view of the heavy burdens of taxation which the people of this country have to carry.

As for the actual proposals in the Budget, I welcome them for the most part. I am glad that there is to be what is an equivalent to a 10 per cent. reduction in the Purchase Tax, but I think some of the details will need examination. For instance, we are told that refrigerators are once again to be subject to Purchase Tax on the ground that they consume electricity. But if they do that they also save food, and the Chancellor must decide which is the more urgent from the economic point of view. From the health point of view there is no doubt which is the more important.

I am also glad that in spite of the fact that the Chancellor has to impose such a heavy burden of taxation—£3,5oo million which is more than we paid during the peak of the war, and we ought to realise that—many people will have to pay less in taxation, through this Budget, than they paid before. I cannot help feeling pleased that many of my constituents will be in that position. In the constituency I have the honour to represent there are many retired people who have served their country well, perhaps in the Services, in education, or in other fields. Their pensions count as earned income, and they will benefit not only by the increased earned income allowance from one-sixth to one-fifth, but also from the new tax grading. It is right that we should think of these people, who are having a very hard financial struggle to make ends meet. They have served their country well, and it is fitting that at a time like this those who are unable to supplement their incomes, as many in work do from additional sources, should get this relief.

I would like to ask a question about the proposed capital levy. We were told by the Chancellor that powers are to be given to trustees to sell some of their holdings to meet this new obligation. Will charitable institutions be exempt from this levy? I hope the Chancellor will give sympathetic consideration to the suggestion that they should be. I do not think that it can be said that their expenditure is responsible for the inflationary tendency. He said that one of the reasons for imposing this capital levy was that the people who are expected for the most part to contribute towards the levy were among those who were spending in a way which helped to bring about inflation.

I welcome the proposals for the relief of the living theatre, and, in particular, the imaginative one for the remission of Entertainments Duty on shows in country districts. I think that the Chancellor might be more generous over matters of numbers, but that is a question to be settled at a later time. I think that to limit the concession to an audience of 200 is rather on the small side, and that something better could be done. In the main, I welcome the Budget, because I believe that it is an honest attempt by the Chancellor to face the economic problems of the times and to try to bring forward a realistic solution; and that it will not only give confidence and hope to the people of this country, but also strengthen Britain's credit throughout the world. To the extent it does that, we can all give the Budget very hearty support.

6.2 p.m.

Mr. Ellis Smith (Stoke)

It was not in 1948 that some of us began to take an interest in inflation. It was in 1939 and 1940, when some highly-placed people were slow to make up their minds where they were on the war. At that time, a few hon. Members concentrated on this issue. The then Chancellor of the Exchequer, Sir Kingsley Wood, was having difficulty with some of his own people, and in a fine letter he thanked a few of us for the part we played in pointing out the dangers of inflation. Probably the reason I was so interested and concerned about the effect of it was that I happened to be in the Army of Occupation in Germany, when the German people were suffering as a result of very terrible inflation. May I stress the fact that resolute action was taken then in order to deal with the danger?

The trade union movement of this country took a responsible line with regard to it. Part of the policy to be adopted was that they would restrain themselves in regard to applications for increased wages, and the engineers, miners and others who could have taken advantage of the situation, refrained from doing so because of the policy of stabilising the cost of living by putting on the food subsidies. Now that so many are advocating the taking off of the food subsidies the Chancellor of the Exchequer and the Government ought to remember that the food subsidies were put on in order to prevent a difficult situation arising during the war, and it was as a consequence of that undertaking and policy that the trade union movement limited their application for increased wages to the small amounts that were received.

It was because of that background, and because of what we knew took place in Germany, that a few of us, when the White Paper was issued, placed a Motion on the Order Paper asking the House to reject it, or the Government to withdraw it, because it perpetuated the serious anomalies that existed in industry, it contained fallacious economic ideas, and did not propose any resolute solution for dealing with the situation that might arise, namely, inflation. At the conference of trade union executives, according to Press reports, the letter of the Minister of Labour to wage councils and tribunals caused great concern. It was on representation made by representatives of the Trades Union Congress that the letter was withdrawn. In view of the concern expressed at that conference, could we be told something about this circular, who suggested it, and who framed the terms of it; and could we be given a report on this when the Minister replies?

May I place this on record because of the idea that is prevalent? The present Foreign Secretary served on the Macmillan Commission. We always looked upon that with pride. He said in September, 1931: I am against inflation, but I am also opposed to deflation. Seeing that the National Debt was £6,500 million in 1931, and is now £25,000 million, I would like to know what is suggested for dealing with this problem. I happened to be present at the conference of trade union executives, and may I make it clear that the decision by five votes to two was not a decision in favour of, or of endorsing, the Government White Paper? That decision was a confirmation of the General Council's report after consideration of the White Paper, and many qualifications were placed upon even the acceptance of that T.U.C. report.

I have before me cuttings from the "Christian Science Monitor," published in the United States. For years, thoughtful people in the United States have been very concerned about the danger of inflation there. President Truman, even in 1947, said that no resolute action was being taken for dealing with inflation. He placed on record his concern at the action of Congress in the way they had dealt with proposals of his, and I suggest that the action which failed in the United States would equally fail here. Appealing, appealing, and appealing will not deal with a situation of this kind. It is resolute action that is required and that will have to be taken. The Government are trying to bridge a very serious gap by Victorian, orthodox ideas. It is 20th century steel that is required, with science and modern tools, something to give people vision and hope, something to work for. Although these ideas may not be accepted in this House now, I do not mind. It is only a matter of time before they will be accepted.

While I do not accept the conclusions, the facts are to be found in a book entitled "Britain in Wonderland," written by an hon. Member of this House. Britain could be on the eve of a new industrial revolution if the Government would plan, organise and harness democracy in this country in the way it was harnessed to win the war. Thanks to our scientists and engineers, we lead the world in the development and production of gas turbines, jet engines, new types of tyres, oil refining and in the production of the most beautiful pottery in the world. These should be given super-priority in materials, manpower and factory expansions. This is the constructive economic road to greater wealth and production. This is the road to Britain's economic recovery, and that road should have been taken 12 months ago. We have now still a short time available. If this is not treated as a matter of urgency, it will be criminal neglect.

The only firm that is in the race with British firms is Brown-Boveri's of Switzerland. We head the world with our national gas turbine establishments of Metropolitan Vickers, Parsons, John Brown, or the B.T.H. John Brown are manufacturing a gas turbine set for the generation of electricity in Scotland. Metropolitan Vickers will soon erect the first in Britain for the Trafford power station. Fifteen gas turbine locomotives are being designed in Britain. The United States, Switzerland and France are also in the race in the production of this new motive power, with Britain well advanced in this new development. The responsible authority should be receiving more encouragement from the Government than is the case. Metropolitan Vickers have designed, built and fitted the first gas turbine ever to propel a ship on the seas. They are now making a 2,500 horse power gas turbine locomotive for the Southern Region of British Railways.

Have our ideas been given to others? Have we passed them on to others as we did to the Germans? I believe in world co-operation, but in the difficult economic situation in which we find ourselves, it wants to be real world co-operation or we ought not to hand over our ideas to others. For all the products I have mentioned, the world could be Britain's market. There should be two or three shifts working day and night on the production of these new, modern products. A Stoke firm have recently perfected a new type of rubber tyre. They are ahead of the world with it. The United States are working hard to catch up. We could have flooded the world with the new tyre had the firm received the encouragement they should have done. They have pleaded and pleaded, while others have marked time, vacillated and discouraged.

Our pottery is the best in the world: so say the United States, Canada, Austra- lia and New Zealand. It is true that our own people do not see it, but we could be exporting twice as much if the Government would plan and provide for the export of this pottery on the scale on which it should be produced. If we had an enterprising Minister with drive, initiative and understanding he would have a plan for this policy based upon the new economic ideas that themselves lead towards economic recovery and toward great wealth and increasing world trade. It was coal and cotton last century; in this one it could be gas turbines, jet engines and the other modern ideas which I have mentioned. Mountains of wealth could be had from modern, scientific, engineering and chemical industries. Before the war I spent years in this House advocating certain processes. By reading American literature and the report of the Nuremberg trials, I have been given the answer why the processes were not adopted in this country.

Now we are to be allowed to develop a large-scale oil refining industry. It should be twice as large as is proposed and should be built more quickly. At Trafford Park and Partington, Manchester, the finest plants in the world are being erected. The Government should say to those concerned, "Build your plant twice the size. We will give you super-priority and settle the capital charges later."

Mr. E. P. Smith (Ashford)

On a point of Order. Might I suggest that the Chamber is now adequately aired?

The Deputy-Chairman

This is an instance of intelligent anticipation, for I have forestalled the hon. Member and given instructions for the windows to be closed.

Mr. Ellis Smith

These facts arise out of our economic situation, but those closely in touch with industrial affairs are very much concerned about them. The same thing applies with regard to the replacement of machine tools. "The Times" of 27th December stated that this was one of the most serious problems with which British industry is confronted and that great concern was being expressed throughout industry with regard to it. The planning of machinery, and the staff responsible for planning in this country are far from satisfactory. In my view the present system is a device to prevent real democratic planning. There is the Central Planning Staff, the staff of the former office of the Minister of Economic Affairs, the Economic Section of the Cabinet Office, and the Central Office of Information. How can we have a really centralised drive with so many responsible authorities? Further, how many of the people responsible, including members of those staffs, have ever been engaged in industry? We urgently require a Ministry of Economic Affairs with full authority to set in force the policy that I am outlining.

A number of hon. Members a few weeks ago placed a Motion on the Order Paper dealing with the Economic Survey. In that Motion they set out certain principles. First of all they recorded their keen satisfaction at the response made by all engaged in industry. Often hon. Members, on the other side in particular, have not given the credit that is due to industry and to the people engaged in industry for the magnificent effort made during the past two and a half years in order to increase output, which was so urgently required. Now, fortunately, it is on record and can be examined in official Government publications where it will be seen that our efforts in 1946 brought far better results than the efforts in the United States, and that our efforts in 1947 are getting far better results relatively than those of the United States. I have not the time to quote the details for this, but if anyone doubts what I say he should examine the Government's Interim Index of Industrial Production and compare it with the Federal Reserve Board Index of American Production. Therefore, it is with justifiable pride that we point out that, in spite of the fact that we strained ourselves to win the war, and in spite of the fact that our people are having to carry on in industries with worn-out machines, the efforts that have been made during the past two and a half years are such that we have obtained better results than those great people in the United States.

We go on in this Motion to say that the time has arrived when the Government should prepare a four-year plan. The Government do not agree with that. I do not mind that, because it is only a matter of time until economic conditions force this Government or any Government in power to adopt such a course if they want to save the country. Then we said that it should be real democratic planning and that these plans should be made in consultation with industry and not superimposed on industry by others, and that the representatives of all grades in industry should make their contribution towards the plans which should be fitted into a national plan.

Then we say that there should be, together with what I have mentioned, a policy of modernisation and development and the encouragement of joint production councils, which played such a great part in securing our output during the war. Those councils should be representative of all grades of organised industry. On 24th April, a number of enthusiastic people will come to London. On that day we shall see two great teams composed of the finest working class characters that it has ever been my privilege to meet. If we had a policy, a plan and an organisation with working class leadership, we might get the same dynamic liveliness into this country, and it might produce the same results that we shall see at Wembley on that day. We organised to fight the Fascist menace. We must, and we shall, organise to deal with the economic menace. Our Motion is a constructive one, suggesting a road forward. It is based upon a large State loan to finance a four-year plan and I believe it would draw into activity all the democratic organisations. It would fix targets for saving, in order to finance that development and there would be a compulsory loan for modernisation.

We suggest also a British Commonwealth loan for the development of the Commonwealth. Why have we not called a British Commonwealth conference to organise economic development and cooperation, based upon these ideas? If anybody in industry had made the underestimate of manpower that was made in the White Paper of 1947, that person would have been discharged at a few moments' notice. Who was responsible for the miscalculation? We were told that the manpower available would be 278,000, whereas the figure was 611,000. Now we are told that labour is to be brought from the Continent. We are also told that unemployment will increase in certain areas from 300,000 to 450,000. Why are those people being brought from the Continent? Can we be told how many more are to come? The White Paper states that we have now enough manpower and that there will be an increase in unemployment. I have heard it said that we may be bringing more than 100,000 people from Europe. The workers will rightly ask, "What's the game?" Are we to have increased unemployment in certain areas while thousands of people are to be brought from the Continent to start work in industry in this country?

This is my final point. There is a department for Economic Affairs, with several assistants. There is the Steel Federation and the Iron and Steel Board. There are hundreds of regional representatives of the Ministry of Supply. There is the Central Planning Board, with its office staff. Superimposed upon all that, another committee has been appointed by the Minister of Supply in order to devise special measures for securing increased supplies of scrap. Is there no scrap left from all the steel we exported between the two wars to Germany and Japan? Is there not ample scrap in Germany? We have seen advertisements in the "Financial Times" from groups of firms in this country, covering hundreds of other firms who are responsible for gathering scrap.

Last December the Minister of Supply said that he doubted whether we could secure more than one million tons of scrap from Germany. On the other hand, on the authority of a special investigation carried out by the United States, there are between 5,000,000 and 10,000,000 tons of excellent quality scrap metal lying in German industrial centres at the present time, but the German industrialists will not release it. In addition, the German steel concerns have six months' supply of steel. Our supply here is getting short, and the industry in the United States may also be held up for scrap, yet the yards of German dealers are full of scrap and there is a large amount of scrap among the rubble. The German industrialists have said that they will not part with that scrap.

According to the "New York Times" of 7th March, 1948, these facts are on record in the report of an investigation carried out in the United States. If they are facts, this is a shocking revelation. We need to ask, "Who won the war?" When are the Government—I see the Economic Secretary to the Treasury laughing. Is he laughing at what I have said? If so, let me remind him to take that laugh off his face because thousands of the cream of our country gave their lives in order to save this country and to save democracy. Some of us played our part in past wars and we are refusing to forget, no matter what it may mean to us, what we owe to the people who have given their lives to save us.

If the facts to which I have referred are true, they are a revelation that our country is in a serious economic situation, and an indication of the need for planning and for an investigation to be made. It is time that the Germans were make to part with that scrap, which ought to come over in the form of reparations, in order that it may contribute towards the economic recovery of our country.

6.29 p.m.

Sir Ian Fraser (Lonsdale)

The Chancellor of the Exchequer was right to express in the terms he employed the appreciation of this country for the help which is promised under the Marshall plan. That plan is indeed a remarkable gesture, comparable only with the aid which came from America during the war under Lend-Lease. Ought we to look only to that quarter across the Atlantic for aid and co-operation? Cannot we find aid in large measure, and given with the greatest good will, within our own Commonwealth and Empire? I have just returned from South Africa. I was glad indeed that the Chancellor devoted a particular paragraph in his Budget speech to the importance of that country at the present time. I would remind the Committee that South Africa has recently lent us £85 million of gold. That sum of money does not actually compare in magnitude with the kind of credits which we have had from across the Atlantic, but I calculate that it represents a relative contribution from the population of South Africa between two and five times any loan which we have received from the United States.

I am not suggesting that sums of this magnitude can replace aid from the United States or fill the gap, but it seems to me that greater appreciation should be shown from this country of the efforts made by a country like South Africa than has been shown—

Sir S. Cripps

We showed great appreciation when it was announced.

Sir I. Fraser

The Chancellor tells me that it was shown. Maybe I was travelling at the time and missed the statements that were made. I do not want to go on record as doing more than calling attention to the importance of this contribution. Similar messages come from Australia, New Zealand and Canada, ant it seems to me that we may find ourselves shortly considering aid from the United States which will embarrass us in some ways. I want before I finish to make one or two observations about that. It is linked up with my view on South Africa.

The Chancellor said that this was one of the few ways left to us by which we can strengthen our reserves. He was referring to the obtaining of more gold from South Africa, and he very wisely said that it would be good policy for us to open wider a particular export to South Africa than it has been opened in the past. There has been a demand from South Africa to regard it as a No. 1 country for export purposes almost in the dollar area. I am glad that in his capacity as Economic Minister, the Chancellor is indicating a policy on those lines. The Committee will be interested to realise that owing to the fact that South Africa is such a big producer of gold and that the United States is its ultimate customer, they are bound to keep a very open frontier to American goods, and although they conform to the broad general rules of the sterling area, to a great extent they behave in some ways as if they were in the dollar area. There is hardly any dollar restriction in South Africa, and almost any goods from the United States can be found there.

Not long ago the Board of Trade reduced the extent of the exportation of some goods to South Africa, arguing that they must go to dollar countries. The effect was to cause very considerable feeling in South Africa, and, incidentally, one of the effects was that a good many of the goods sold to the United States found their way to South Africa from the United States, so that, either directly or indirectly, the dollars were not saved. I have no doubt that the Chancellor and his economic advisers have this in mind. What I want to stress is that here is a country from which more gold can be had provided that a policy is initiated which will draw it forward. What is that policy? Maybe we can learn something from the Canadians. They were suffering from a dollar shortage because they had been buying too much from the United States and selling too little. That is the situation all over the world.

I have two proposals to make, both of which may be controversial and to both of which there may be extremely good answers at the present time, but, nevertheless, I think the proposals should be made and the Government's answers to them should be given. My first proposal is that we should raise the price of gold. Let me say in passing that I have no interest in gold myself but I am interested in the trade in South Africa where I have an old family business which has been trading there for the last 8o years; however, I have no interest in gold and do not hold a single gold share. I suggest that we should raise the price of gold because we are the biggest producers of it. There is hardly anything we can sell to the United States so freely and easily as gold, and if we were to raise the price of gold, we would clearly get more dollars into the sterling area.

There may be disadvantages in this course because it is logical to argue that if we raise the price of gold, we are at the same time devaluing the paper pound. Some people would say that we are causing inflation. I would argue that that is not the case at all. I read what the Chancellor said about the French adjustment. He said that he did not object to a realistic value in relation to gold being found for the franc. What he objected to, and flew to France to avert, was some unilateral action which might have had the effect of upsetting the sterling control. He did not object, or did not object so strongly, to the finding of a realistic value. I hold that the realistic value of the pound is not 4.08 dollars: it is probably three or something like that. If the effect of raising the price of gold and of bringing more gold forward was at the same time to devalue the pound in terms of dollars, I would not mind that because that is the second proposal I am going to advocate on its own merits.

What is wrong with the world is that we are all buying too much from the United States and are unable to sell enough to her, and we are consequently put in a position in which, more and more, we shall be unable to sell the goods that we make and, more and more, we shall not be able to buy the things we need. How is that balance to be put right? The Chancellor and those who follow the Keynes' view think that this can be organised and that for long enough they can go on putting off the day of reckoning until the adjustment that requires to be made is so much less. I earnestly hope that will prove to be so, but I do not think so. It seems to me that the most effective way to get things right in the world is to make the law of supply and demand work for us, instead of trying to stand up against it. If hardships follow, they will be infinitely less, I foreshadow, than the inevitable crash which will come when Marshall Aid runs out.

Judging by the Government's use of the first dose of American aid during the last two years, and judging by the way in which it was spent in two years when it should have lasted for four or five, I cannot but fear that any further aid that comes from the United States will be similarly used up and will leave us high and dry after a year or two. I do not know what the detailed proposals are and whether the Americans will make conditions spreading it over, but I am quite sure that great adjustments are needed, and we alone can make them. The way to make them is to make the law of supply and demand work for us. If we have not the courage to cut off the supplies from the States which we cannot afford, let the law of supply and demand help us, because that will be the quickest way and will in the end cause less dislocation, unemployment and hardship. I do not deny that it will cause some or all of these things but I maintain that will be the quickest way.

I should be very pleased if the Chancellor would in due course answer these questions because they are in many people's minds and they deserve an answer. To promote recovery this country should follow the good, sensible line which every prudent man follows in his own life. First, do not buy what we cannot afford to pay for, secondly, do not borrow what we cannot pay back, and, thirdly, if we are in a bad way and cannot get all the things we want, set out to work hard for them, because that is really the only way in which they can be obtained.

6.40 p.m.

Mr. Piratin (Mile End)

The hon. Member for Lonsdale (Sir I. Fraser) will forgive me if I do not follow the points he has made, however interesting they are. I am sure the Chancellor will know how to deal with them. A lot could be said for what the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) said earlier about the difficulties we are meeting in trying to conduct this Debate. I know that I was in support of the idea a few weeks ago when we agreed to have a five days joint Debate, but it now appears clear that we are wandering from point to point. So far as each hon. Member is concerned, we are confronted with the problem of trying to deal with two subjects in one contribution, and none of us wants to take longer than is convenient for all concerned.

I want to deal, first, with the Economic Survey part of the Chancellor's statement yesterday. I do not want to go into any detail, for the Chancellor himself, in spite of two and a quarter hours of meaty contribution, did not deal at length with that part of his statement, but I want to make one or two points. The first and most important relates to the Chancellor's problem, which neither he nor any one else has yet solved, of how to balance the drain on our reserves. We are given the figure of £220 million drain in the course of six months, which will mean a drain of £440 million in the course of a year. The problem is how to balance this, and the Chancellor had no solution. It is true that we have a Budget which is very well balanced, with an adequate surplus in the estimation of the Chancellor, but that Budget, as we now recognise, is not really the budget of the nation; it is the financial expression of certain expenditure of which the Government approve, and the real budget of the nation relates to the balancing of our resources, producing for the needs of the nation, and being able to produce sufficient to meet our imports.

In this respect the Chancellor was not as optimistic as he was on the financial side, for whereas it is quite easy to dabble with peoples' money, so that he finds himself with a £300 million surplus, and then dabbles with a couple of hundred million one way or the other in order to relieve a little here and add a little burden there, it is another matter in solving how to produce more and how to put the country, on its feet. That means planning, and the Chancellor has no plan. He goes further and tries to justify the absence of a plan by suggesting that any plan in operation would be in conflict with democracy. Now, whose conception of democracy is the Chancellor concerned about in this matter?

Sir S. Cripps

Not the hon. Member's.

Mr. Piratin

That of the Federation of British Industries or that of the Labour Party? I heard the Chancellor's interjection, and I hope he will be just as smart at answering all my questions. I do not think he will. This is what he said yesterday: Since we are, and propose to remain, a democracy, we must remember that the economic plan is not something of which any Government can guarantee the execution The plan lays down the necessities of the situation In fact there is a plan, but it is not meant to be carried out, for he says he does not expect to see the achievement of the plan and, for that matter, he does not con-template attempting its achievement. What a perspective this is. What would have happened during the war if those responsible for the military side of the Goverment's efforts had plans but did not expect them to be carried out? Where now, may I ask, is the Socialist planning of which we heard so much. Where now is the planned democracy that we heard about in 1945 from the Chancellor and his colleagues? I hope that Labour Members, at least, and for that matter all Members of the Committee—for this is a matter of grave national importance—will realise that this is not a Socialist approach but a capitalist policy which is being carried out by one who assumes the title of Socialist Chancellor, and who brings in a new interpretation of the word "democracy" in order to confuse the working class while toadying to big capital and industry. The strategy of the Government's plan was outlined likewise in the Chancellor's statement yesterday, when he said: The strategy of the Government's plan for bringing about a better balance of payments between ourselves and the Western Hemisphere is set out in … the Economic Survey And he went on to give a resumé. He said: The elements of those plans are, the diversion of exports to the dollar areas; the building up of alternative sources of imports in non-dollar countries; close co-operation with the sterling area, and with the countries of Western Europe and their dependencies; and the restoration of conditions of multilateral trade.…"— [OFFICIAL REPORT, 6th April, 1948; Vol. 449, c. 38, 42 and 43.] Why was there no mention of the Soviet Union and the Eastern European countries? At least the Chancellor might have thrown them in for overweight, as he threw in the expression "the sterling area." Nowhere does the Chancellor specify even the Commonwealth or the Dominions. With regard to the sterling area, let me quote from the "Daily Express" of 20th March. This is what an American writer says of "Britain's clutch on the sterling area": The political and economic implications of this shift"— that is, how the U.S.A. can take over the responsibilities of the sterling area— are so great that the experts have given up trying to figure them out. None of them believe the United States is well equipped for the job, but they agree that there is a basic inconsistency between Britain's participation in the Marshall Plan and her position as banker for the sterling area. At the end, he says: The United States cannot allow Marshall dollars to be used to finance the sterling area instead of Europe. Britain must be prepared to grant credits to Marshall countries at the expense, if necessary, of the sterling area. Yet the Chancellor talked glibly about the sterling area and what our commercial relations are likely to be there. Why no mention of the Soviet Union?

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

It is not in the sterling area.

Mr. Piratin

I know that, but why no mention of it and of the other Eastern European countries? The Chancellor, who spoke for two and a quarter hours, could have added just a few brief words in order to give some satisfaction to certain hon. Members on these Benches. Perhaps the Chancellor did not mention the Soviet Union because instructions were given by Mr. Marshall not to mention the Soviet Union. Who knows? Mr. Marshall gives so many instructions these days, which we take. Here may I make a few remarks, in passing, about Marshall aid, to which the Chancellor referred in such glowing terms. I do not wish to be personal, but the Chancellor is not given to sentiment, and when he uses an expression such as that is which he said of Marshall aid: it comes as a light and hope to the freedom-loving peoples of the world."—[OFFICIAL REPORT, 6th April, 1948; Vol. 449, c. 41.]

Hon. Members

Hear, hear.

Mr. Piratin

Hon. Members do not really mean that. When the Chancellor uses such an expression, we must wonder what is this "light and hope"? He admitted later in the statement that Marshall aid will not solve our problems, nor those of Europe, and we have to ask these questions. What payment are we making for the Marshall aid which we are likely to get? The details we do not yet know, but what payment are we making? I think the Chancellor has a duty to the Committee to let the Committee know the payment. No one in his senses really believes that we are getting it free and gratis. It does not work out like that. Hon. Members were under no illusion over the extension of Lease-Lend during the war; we were rendering services for it.

What is the position now? What services do we have to render now? I will suggest some things which are happening before our eyes. Any conception of a Socialist plan goes by the board. America would not be likely to give help to a Socialist Government in this country. They are not giving help to Socialist governments elsewhere. Why then should they give help to us? Secondly, such aid will be given provided we dissociate ourselves completely from the working class and Socialists of other countries. Thirdly, provided we maintain a large military force at a ruinous cost. I hope the Financial Secretary to the Treasury will take notes, for the public would like to know the answer to these questions. Why is it that in the popular edition of the Economic Survey there is no mention of military expenditure? Is that an acci- dent, or is it published in that way on purpose? I am sure the public would like to know why they cannot be informed of the expenditure of £700 million of their hard-earned money. Fourthly, Marshall aid will be granted on the basis that this little country takes orders from Washington. In this connection I invite the Committee to look at column 39 of the OFFICIAL REPORT, where they will see that the Chancellor made this very interesting revelation in his statement: Our net shipping earnings were only £17 million. As we are importing less than before the war, if we had as large a shipping tonnage as pre-war we could have earned a net income several times the pre-war level of £20 million, but owing to our shipping losses, the amount of tonnage available for the profitable cross-trade routes is less than before the war."— [OFFICIAL REPORT, 6th April, 1948: Vol. 449, c. 39.] Why then are we cutting down our steel allocations for shipping? The Chancellor has been asked this several times, but he has never answered properly. Shipyard workers on the Clyde, the North-East coast and Merseyside would like to have the answer, for no one denies the coincidence of the action taken by the Government in reducing allocations, which took place only a week or two after statements were made in America about our shipping output. I submit that these things do not reflect "light and hope," but, on the contrary, bankruptcy and despair.

It is against this background that we have the Budget. The Labour movement, and, in particular, the trade union movement, were waiting anxiously to hear of taxation on profits, and of moves to keep prices down; for these things were promised, but now the Chancellor has said, and deserves to be quoted: We have appealed to the directors of companies not to increase the distribution of profits this year, and to that appeal there has already been a wide response. I hope he will tell that to the workers in factories who have been told to refrain from increased wage demands, and who read the newspapers and know something about the financial columns. I would like to hear the comment they would make. He then says: I propose to leave the matter there until next year."—[OFFICIAL, REPORT, 6th April, 1948; Vol. 440, c. 61.] I am very glad to have followed the speech of the right hon. Member for Bishop Auckland. He criticised the Chancellor and his faith in the capitalists, and therefore I shall not go into detail. But I would like to mention one case because of the hypocrisy revealed. No one can call me hypocritical, even though they do not agree with my politics. Hon. Members know who I am, and what I am. The hon. Member for Moseley (Sir P. Hannon), who I am sorry is not present now, happens to be the President of the National Union of Manufacturers. He sets an example through the company of H.P. Sauce Ltd., of which he is chairman, by increasing their dividend from 35 to 40 per cent. But the Chancellor is satisfied that steps are being taken in this direction. One could quote dozens and scores of such examples. That hon. Member, with certain others, negotiated with the Chancellor on this matter, and that is the way in which their promises are maintained. Yet the Chancellor believes them.

Let us look into the matter of profits a little and see why the workers thought that profits would be tackled. I have some figures taken from the White Paper on Income and Expenditure. The figures in Tables 11 and 14 are very revealing. Table 11 deals with rent, interest and profits and Table 14 with Profits Tax and Excess Profits Tax. I ask the Committee to compare one set of figures with another. In 1944 rent, interest and profits amounted to £2,248 million and the taxes of both kinds amounted to £517 million, equal to 23 per cent. of those profits taken in taxes. In 1945 the profits were £2,390 million and £475 million were taken, which is 20 per cent. In 1946, profits were £2,594 million and £391 million were taken —16 per cent. It will be noticed that the profits kept increasing while the tax kept decreasing and simultaneously the percentage of taxes against profits also decreased. In 1947, profits were £2,884 million and the taxes £286 million—the percentage of tax had gone down to 10 per cent. The Chancellor says that he estimates £250 million this year from Profits Tax and Excess Profits Tax as against £286 million for the past year, a reduction of £36 million income from this source. No one knows what profits will be in the coming year, but even if they are stable at £2,884 million, the percentage will be 8½.

That is the relation of the Profits Tax and Excess Profits Tax to profits in the past years according to the figures given in the White Paper. Is there not scope for further profits taxation? Someone has been misleading someone. The question is, who has been misleading whom? At the meeting of the Trade Union executives on 25th March, to which reference has already ben made, the secretary of the T.U.C. General Council, Mr. Tewson, said: Prices are coming down, I give you my word. Of course, many rather simple-minded Executive members accepted that he, Mr. Tewson, knew that prices were coming down, that they would surely come down and, with prices, profits. At that meeting five million votes were cast for, and two million against, the T.U.C. resolution which gave support to the Government's wage-freezing policy. Does the Chancellor think, in view of his statement yesterday, that if that conference were to be held today, he would get that vote? [An HON. MEMBER: "Certainly."] Someone on the Front Bench says "Certainly." In that case he must think that they are a lot of stooges. But they are not all stooges. The working class would certainly not support that policy.

There has recently been much talk, in the Press and elsewhere, and much expectation, of a capital levy. Many of us were led to believe that the Chancellor would take some steps along those lines, as the right hon. Member for Bishop Auckland hinted earlier. Now we have a Special Contribution to raise £105 million. The Chancellor was very careful to impress upon hon. Gentlemen opposite—there are very few on this side of the Committee who are personally concerned—that this would be a once-and-for-all-tax. Of course, the right hon. Member for Woodford (Mr. Churchill) was quite right yesterday in asking what guarantee there was that it is once-and-for-all—a Chancellor's word has been broken in the past and it can happen again. In October we were told that there was to be an advertisement tax. The Chancellor broke his word at the request of those represented by the party opposite, and it can happen again. I am sorry to have to upset hon. Gentlemen opposite. It can happen, but not with this Minister; hon. Gentlemen are quite safe. Why is it that the only point in his contribution yester- day when he did something, however slight, along the lines of Labour Party policy—for the capital levy has been Labour Party policy since before the Communist Party was established—was brought forward by the Chancellor so timidly, so nervously, so discreetly? That is a sufficient indication of his attitude to Labour's policy.

Turning to the other aspects of the Budget, I think that the whole Committee, as is evident from all sections of the Press, welcome the Income Tax reliefs which will, although only in a slight degree, provide incentives. They are in the main relevant to the higher-paid wage earner and the salary earner. It is time that some of those people got relief. I am speaking particularly of salary earners. They are hard hit. Their salaries have not gone up proportionately to the cost of living or in proportion to the increase in wages which wage earners, through their trade union organisations, have been able to secure. Therefore, the Chancellor has done some justice in this respect.

What relief, however, is there for the working class? The average earnings of a working man are less than £6 a week—those are official figures. If we take a round figure of £6 a week as being the average earnings, the man with a wife and two children does not, on that amount, pay Income Tax, but he pays indirect taxation. The man who does not pay Income Tax should be relieved of some of this indirect taxation. That has been Labour Party policy. What is the effect of this Budget and of other financial impositions which exist at present on such working people? One cannot be dissociated from the other. Take beer; if one allows a working man a pint a day, he will be called upon to pay 7d. a week extra. There may be some on these benches, including the Chancellor, who may say, "Let him not have it." But the Chancellor has never worked in a steelworks or down a pit. [An HON. MEMBER: "Has the hon. Member?"] I have done many things which some hon. Members ought to do.

I turn to tobacco and I hope that on this occasion the Chancellor will not do what his predecessor did when I raised this matter on a previous Budget, when he gave me a lecture about smoking less, although I had not smoked for 20 years. If one allows a man a packet of 20 a day, the extra cost to him will be 1s. 2d. a week, that is, provided he smokes a medium brand.

I wish to add some further figures which the Chancellor cannot disclaim; they are part of his policy. Food subsidies are to be stabilised at £400 million for the year. The "Economist," in its issue of 28th February, gave figures to show that to maintain prices on subsidised foods at the level at which they stood last year, would cost £525 million. Therefore, there is a gap of £125 million. This sum will have to be paid by the people who buy the food, and is, on the average family basis which I am taking, 4s. a week. In the case of clothing, with which I include leather, etc., the additional cost, as the prices gradually show themselves in retail distribution, will be 1s. 1½d. a week for the average family man.

The total of these figures for beer, tobacco, food and clothing is 6s. 10½d. a week. I calculate that the amount to be deducted from that sum in respect of Purchase Tax reductions will be about 10d. a week. That leaves an increased cost of living of about 6s. per week at this period for the working man, and there is no relief for him, because he does not pay Income Tax on £6 a week, if he has a wife and two children. I am sorry that the hon. Member for Lonsdale did not say a word, as I had expected him to do, about the pensioners, for we all know the position he holds in the British Legion. There are people such as old age pensioners and Army pensioners who do not remotely approach paying Income Tax, and it is upon them, who are receiving no relief whatever in direct taxation, that indirect taxation will bear hardly. I hope that hon. Members on both sides of the Committee will say something on this matter, because interest has always been manifested towards these hard-hit sections of the population.

How the Chancellor can really justify this policy I do not understand. I heard him say yesterday afternoon that we must look at the policy as a whole, but one cannot tell a working man earning £6 a week to look at the policy as a whole because he is receiving no benefit from the reduction of direct taxation. All he knows is the indirect taxation increases which he and his wife must bear. Can the Chancellor explain the beer tax? There is no reason why this should be imposed. One can think of personal reasons, but no one is suggesting personal reasons on this occasion. What did the Chancellor say with regard to tobacco? It is necessary to bring to smokers' attention once again the need for economising in tobacco, and I therefore propose to raise the Duties."—[OFFICIAL REPORT, 6th April, 1948: Vol. 449, C. 65.] There is no necessity to bring attention to the need for economising in tobacco. It is a very harsh and brutal way of doing it. Let us be frank. I am a non-smoker, but I know the attitude of people on this question. If a man will pay 3s. 4d., he will pay 3s. 6d. It will not prevent him from smoking. He may buy a cheaper brand at 2s. 7d.—that is what he is likely to do—but whether that means less tobacco, I do not know. But all in all, is not this a discrimination between those to whom the extra 2d. is a factor, and those to whom it does not mean anything at all? Of course, it is. The Chancellor of the Exchequer ought to have explained whether that is what he wants, and if it is, then it is good to know where he stands, and we can deal with the matter accordingly. I submit that these taxes on beer and tobacco should be withdrawn.

I wish to say something about the betting tax with which I agree wholeheartedly. There is one thing I cannot understand. When the Chancellor's predecessor introduced his Budget, he said it was difficult to deal with bookmakers, and he gave that as one of the main reasons why he could not introduce taxation on racecourses. Our present Chancellor has, in my opinion, devised a very good method of dealing with bookmakers. If we can deal with bookmakers on the greyhound track why not deal with bookmakers on precisely the same basis on the racecourse—

Mr. Glenvil Hall

They are enclosed.

Mr. Piratin

Surely we have a way of breaking through those enclosures by legal means. There must be some method of doing these things. Surely, the Chancellor is not incapable of devising some method. He has shown himself so ingenious in so many other things.

With regard to the Purchase Tax proposals, many of those I will deal with in Committee when I hope to submit Amendments which, I hope, will receive the sup- port of other hon. Members. There are, however, one or two anomalies which strike the eye of everyone the moment they look at the items. The Chancellor proposes that children's non-utility clothing shall be subject to a Purchase Tax of 33⅓ per cent., whereas formerly it was exempted. He also proposes that silk garments, formerly at 50 per cent., shall be reduced to 33⅓ per cent. Therefore, children's non-utility clothing is now in the same category as silk garments. I think it is true to say that many parents who would like to buy utility clothing for their children cannot find it in the shops, and have to buy non-utility. I do not think that any hon. Member would say that silk is a necessity of life. I see no reason why the tax on it should not go up to 66 per cent. rather than down to 33. Those are some of the anomalies with which we can deal at a later stage.

The economic situation calls for a change in direction of our external economy. It calls for trade relations with the Socialist countries and the Commonwealth. I am sure that hon. Members on this side of the Committee will be pleased if I recall to their minds what the Leader of the Labour Party said in a book which he wrote in 1937. The Prime Minister then said: If the Labour Party were in power in this country, it could, with France and the U.S.S.R. and the smaller States which are largely governed under Socialist inspiration, pursue a policy of international economic operations based upon the utilisation of abundance instead of restriction. The Prime Minister wrote that in 1937 in his book, "The Labour Party in Perspective." I quote from page 225. It may be argued by some that conditions have changed, but principles should not have changed. What endeavour is being made to develop trade with those countries in line with the principles enunciated by the Prime Minister—or Mr. Attlee, as he then was?

What we want is a planned economy in this country. A Budget today should include no additional taxation on the working class, but rather increased taxes on profits. It should include an increased tax on income from investments, and a tax on the disposal of capital shares. There ought to be a reduced rate of interest, and not the higher rate which is now operating. Though this Budget may appear to give some relief in certain directions, the Chancellor himself says we have to see it from an overall point of view, and I would say that from an overall point of view it is disappointing—particularly for the Labour movement, which had been led to believe for the last two months that something was going to be done in the Budget to balance the sacrifices they had been called upon to make. This Budget does not fulfil the promise in Labour's programme.

I would remind the Committee of a further quotation from the Prime Minister's book. On page 130 he says: I have stated that Socialism cannot make capitalism work. The 1929 experiment demonstrated this. No really effective steps could be taken to deal with the economic crisis because any attempt to deal with fundamentals brought opposition from the Liberals. The Conservatives are completely out of the picture naturally. Labour men who saw clearly the need for dealing with causes had to try to deal with results. The amount that could be extracted for the workers from a capitalistic system was limited. When this limit had been reached, failure was bound to ensue I admit that the experiment was not made under fair conditions. The Party was handicapped by the conditions of the time, which demanded drastic measures, and by its leading personnel, who had surrendered their minds to capitalism long before they sold their bodies. I take it that the Committee are clear that I am quoting what the Prime Minister said in his book in 1937. The Prime Minister may not recognise in himself and the Chancellor the description I have just read out. That is how he described Ramsay MacDonald and others. However, the Prime Minister should recognise that he and others among his colleagues are now treading the same path. If he cannot recognise it, I would point out that the working class are beginning to recognise it and that their attitude to the Budget will be shown in no uncertain terms.

7.20 p.m.

Mr. Vane (Westmorland)

I intend to set a different example from that of the hon. Member for Mile End (Mr. Piratin). I am going to be brief and I hope that I am going to be less confused. I must say that I had great difficulty in following his argument. He started by asking the question, "When is a plan not a plan?" and went on to explain that it was when it was expounded by a Socialist Chancellor trying to deceive the working class. That was approximately the gist of his argument. Nor have I brought books written by the Prime Minister with me, interesting though the extracts were and interesting though I feel that other extracts would be if one had the time to read them.

I want to refer briefly to one point only. When my right hon. and gallant Friend the Member for Gainsborough (Captain Crookshank) asked the Chancellor this afternoon what effect on agriculture this Special Contribution, as it is called, would have, the Chancellor shook his head. I do not think that that is a complete answer. He appeared to give the impression that it would have no effect at all.

Sir S. Cripps

I intended to give the impression that he would be given an answer.

Mr. Vane

The right hon. and learned Gentleman shook his head in a different way from that in which a person generally nods his head when he is indicating that he will give an answer. I would like to ask one or two further questions. May we be told how much of the £105 million which the Chancellor expects to get from this Special Contribution will be drawn from agricultural sources? That is very important. May we also be told why agriculture alone among industries should be singled out to bear some part of this charge? Presumably the object is to take a levy from income from investments and not from industry direct. I understood that from his words. He said: Investment income for this purpose will include all rents, dividends, interest, and other such payments."—[OFFICIAL REPORT, 6th April, 1948; Vol. 449, c. 71.] I know that the word "rents" acts something like a red rag to a bull to some hon. Members opposite, but I am sure that it does not act in that way to the right hon. and learned Gentleman who, I believe, is himself the lucky possessor of some agricultural land. I hope that he will understand that what I am saying is very close to the truth. The Minister of Agriculture has told us very frequently that agriculture under his guidance has taken on a new shape in the form of a partnership between the farmer and the land owner, each having his particular responsibilities. His recent Act of Parliament has put very special commitments on the shoulders of the providers of the fixed equipment without which British agriculture cannot carry on at its present level, far less expand as we understand that it is the policy of the Government that it should expand.

Therefore, I would like to ask the Chancellor how he reconciles this new charge with the policy of the Minister of Agriculture—although it may not appear to be a very large sum in millions compared with some of his other taxes. As far as I can see, it will act as a complete deterrent to the flow of fresh capital for agricultural equipment which I understood that hon. Members on both sides of the Committee wanted to see. Also, it comes particularly badly just after the announcement of the Minister of Agriculture that he is at last in a position to offer to the industry the mass production of some form of farm building to help meet the very real need. At the same time, the Minister's county agricultural committees up and down the country are trying to encourage further investment in agricultural equipment. This is a very important point and I hope that the right hon. and learned Gentleman will give a full answer. This matter is bound to cause great anxiety throughout the agricultural industry.

It is no answer to say that this will affect only comparatively few people and that it only begins when a man is in receipt of an income of £2,000 a year. It is always easy to pretend that somebody who may be rather better off than oneself can afford anything which the Government may happen to put on them. Maybe, but this will cause an immediate slowing up of all investment in fixed capital. I ask hon. Members, too, to consider the anomalies. It is possible that there may be a large farmer who is also, perhaps, a small land owner living at one end of a village, who may come within this category and may have to pay. At the other end of the village one may find, living in a small house, a successful bookmaker with an income infinitely larger than that of the man at the other end of the village. The first will be expected to pay a large contribution and the other, whose services to the community are negligible, will not be called upon to contribute one penny. In its present form I am certain that this proposal will have a very serious effect entirely different from that which the right hon. and learned Gentleman expects. I hope that at least he will be able to tell us that it is hedged about with some conditions which will make it fairer than appears at first sight.

7.26 p.m.

Mr. Asterley Jones (Hitchin)

The object of the hon. Member for Mile End (Mr. Piratin) was to show that the Chancellor was a wicked capitalist grinding the faces of the poor, and that all our troubles were due to the fact that we were accepting Marshall Aid. His anxiety to prove those two points rather tended to blind his eyes, and no doubt those of other hon. Members, to the fact that there was considerable substance in some of the points he made. I hope that the Chancellor will not overlook the fact that there are certain results of the proposals he has made in his Budget which will not be altogether beneficial. One thing of which the Chancellor cannot be accused in this Budget is spite against the middle class. There is no doubt that very real benefits are given to persons in the middle income groups by certain of these proposals, but to exaggerate these benefits would be a grave disservice.

Yesterday evening when I left the House I got on a bus and I heard the conductor remark to another person, "They will always find some way of soaking the working man." He implied that the only thing in the Budget in which he took any interest was that he would have to pay a penny more for beer and two-pence more for cigarettes. I notice that the "Daily Worker" headlines today stress that the middle class benefit to a considerable extent. The hon. Member for Mile End referred in somewhat scathing terms to the appeal which had been made to the Federation of British Industries, and he said that some members had apparently not responded. I should like to point out that an appeal—nothing more than an appeal—has also been made to other sides of industry and so far there appears to be very little to complain about. If one side or the other does not respond to the appeal, further action will have to be taken.

I would also point out to the hon. Member for Mile End that he said that somebody has been misleading somebody else. I think that he has been somewhat misled. He pointed out that Item 2 of Table 10 in the White Paper on National Income shows that interest and profits rose from £2,465 million to £2,785 million, but he did not, as in fairness he should have done, point out that Item 4 shows that wages rose from £3,095 million to £3,530 million. That is a rather large rate of increase. The hon. Member for Mile End also failed to point out that Item 2 in Table 10 not only includes unearned increment but also farming profits and professional earnings, and, in this connection, I would like to say that it would be very convenient if, in future White Papers, professional earnings and farming profits were separated from the interest on shares. Part of my income comes from professional earnings, and I do not like to see them linked in the same category as unearned increments.

Let us look at this matter on rather broader lines. We have, in the last few years, narrowed the gap between the lower-paid and the higher-paid very considerably. That is certainly so in terms of actual "take-home" money, as the Americans call it, but we must not overlook the fact that the lower-paid people get a correspondingly greater benefit from the social services than do the higher paid. All of us, when assessing our incomes, are compelled not only to look at what we get in actual cash, but what we collect from the Post Office every so often for family allowances. That is certainly a welcome addition to our incomes. We must also look at the concealed income in the form of food subsidies, whatever level of income we have, and we must also have regard to the fact that many people in this country are paying rents substantially less than the economic rents of their houses, the remainder being financed out of taxation. We must also look at the fact that a very large number of people in this country are being paid increased old age pensions, the increase also being paid for out of taxation. By no means all of it is paid for out of contributions.

We have also to look at the fact that, from 5th July next, we shall have finished with the parish doctor and shall be providing a National Health Service for everyone. We must also look at the fact that many people are getting for their children a higher standard of education. All these items represent income, though they may be income in kind, rather than cash, but they are paid for proportionately to a far greater extent by the people in the higher income groups. Therefore, the hon. Member for Mile End is completely wide of the mark when he tries to show that the Chancellor of the Exchequer is attacking, as he says, the working classes. The real answer to this statement is that the term "working classes," as was said by a judge of the High Court some months ago, is now completely out of date. The old idea that we could divide the nation into two rigid parts has gone. Certainly, there are the more wealthy and the less wealthy, but the step from the one to the other is far less perceptible than it used to be.

In these circumstances, we have to see what steps can be taken to meet these enormous bills for social services, and I am very glad that a very large number of people seem to be breaking away from the old ideas that were once current as to the relative merits of direct and indirect taxation. My right hon. Friend the Member for Bishop Auckland (Mr. Dalton), in a remark which I do not think has received sufficient publicity, last year said that there are various ways of paying taxes. One could pay tax in accordance with the amount of beer one drinks, one could pay taxes in accordance with the amount of tobacco one smoked, or one could pay taxes in accordance with the amount of work one did, and that the easiest of the three to give up was work. That, to my mind, is one of my right hon. Friend's profoundest observations, because the ease with which taxes can be collected by indirect means is a very great argument in favour of using them scientifically, hut, up to now, they have not been used very scientifically. The state of the Purchase Tax, as it was up to yesterday, was a grotesque distortion of the state in which it should have been had it been properly planned. I have not yet had an opportunity of going through the myriads of schedules concerning it, but, whether or not it is more scientific than it was before, it certainly is the case that some things seem to be better treated than they were while some others are not. For instance, I cannot understand why non-utility furniture should be subject to two-thirds Purchase Tax. Utility furniture is completely free but, if people cannot obtain it—and it is impossible for anyone who has not got units to obtain utility furniture—they are forced to pay an extra two-thirds on the wholesale value when buying non-utility furniture.

However, the great merit of this Budget is that it does provide for more "take-home" money, even though it does throw rather more on to indirect taxation. There will be no great objection to that, because when there is more "take-home money," it means that there is a greater direct incentive. We have to be very careful not to provide too much benefit in kind which is not immediately perceptible as a result of labour, and also not to make the rewards of labour so small that people will not labour. On the other hand, we must also be careful that, when giving reliefs of direct taxes, we are not in fact placing a burden on the backs of people who are unable to bear it. The Chancellor, as I understood him, used this argument. He says that, by giving direct taxation relief, we are able to provide more "take-home money." By putting increased taxes on beer and tobacco, we are, in fact, making some people worse off, though they are in the position of choosing, if they so wish, whether to pay the taxes or not. In fact, we are making some people worse off, and here is some support for what the hon. Member for Mile End was saying. There is a certain number of people in this country today who are not subject to Income Tax, and therefore, they are gaining no relief at all from the proposals which the Chancellor has made. On the other hand, many of their simple pleasures are being additionally taxed, and, in particular, I think it is very difficult to justify the increased duty on beer and tobacco.

I know that the argument against this is to give an increased incentive to workers to work overtime, so that the increased earnings for overtime will more than offset the extra 2d. on cigarettes or the penny on beer. That is the economic argument, but we must remember that a large number of people, and in particular many of those in the lower income groups, are not in a position at any time of the year to earn very much from overtime. Take the case of the agricultural worker. His possibilities of doing overtime during the winter are very small. His wages are, in fact, effectively frozen. At certain times in the summer he can do quite a lot, although certain categories of agri- cultural workers, for instance, a cowman, have very little possibility of working overtime on cows. The responsibility there appears to me to lie with the cows rather than with the cowman.

That is a somewhat absurd illustration of the fact that many peoples' possibilities of working overtime are very limited. Nevertheless, these people, who receive no relief from the direct taxation changes, are being asked to pay a little more on their beer and on their tobacco. The Chancellor may say to them that they should drink less beer and that would make them all square, but I think he tends to overlook the fact that so many of these people are working at hard physical work all day in the open air. Of course, one might say that they should drink cold water, but I do not believe in pushing Government interference to that extent. Let them drink beer if they want to, keeping their demands within reasonable limits. Therefore, I hope the Chancellor will reconsider this matter and will look again at the incidence of this indirect taxation on those people who in this Budget gain no benefit from the direct tax relief.

It seems that if we are not careful we shall be getting a false picture of our economy. We still tend to think too much in terms of money wages, and not enough in terms of the various other benefits which come to all of us in greater or smaller proportions. I would not for a moment deprecate the practice. For one thing, it enables us to keep down our costs of production and, at the same time, to maintain a reasonable standard of living for the producers in industry. When competition becomes very strong that may be a very useful advantage to have. On the other hand, we must remember the psychological question which is this: to have more money in their pockets as a result of overtime is a very good thing and all right so far as it goes, but when the possibilities of earning that money do not exist and when, in addition, there is indirect taxation which takes the money out of their pockets, then, as the hon. Member for Mile End said among the other welter of information which was rather off the point, there is a definite and genuine grievance.

It is not sufficient merely to say, "We dislike parts of the Budget and, therefore, we express disapproval of them, whereas there are other parts which we like very much." I believe that if we say we do not like the Beer and Tobacco Duty we have to say more than, "Let us, therefore, tie our economy to the British Commonwealth and the Soviet Union and let us cut off Marshall aid." That is no answer at all. We have to make some sort of constructive suggestion as to how this could be put right. May I make two small suggestions? The Chancellor has given very considerable reliefs in his Budget to the middle income groups. I suggest that they go a little bit too far. He proposes that one-fifth of all earned income up to a maximum of £400 shall be free of tax. That means that one has to earn £2,000 before obtaining the full benefit of that £400. The Chancellor would have done well to have left the limit as it was pre-war at £300 instead of increasing it to £400. After all, people who earn from £1,500 to £2,000 are fairly well off. They are not as badly off as the agricultural worker, and I think that the Chancellor might easily have found something to put into the kitty.

Again I think he has gone a little too far in making £200 payable at the lower rate of tax of 6s. When one looks at the figures one sees that he could have achieved the object which he set out to achieve by making the figure £150, and he could thereby have brought in a little more money. However, I would not like to go on record as being concerned mainly with carping criticisms. The main objects have been achieved by the Chancellor with a minimum of discomfort and with a maximum of result. While there are certain uneasinesses in the minds of all of us, particularly with regard to this question of profits about which I think most of us on this side of the Committee are uneasy, I think the Chancellor has done a magnificent job in almost reconciling the irreconcilable.

7.45 p.m.

Mr. Hollis (Devizes)

Whatever complaints anybody makes against the Chancellor of the Exchequer, nobody can complain that he has been backward in warning the country of the dangers of inflation. In the Economic Survey there was no attempt made to conceal the anxiety that was felt by those in authority about those dangers. Certain conditions to avoid inflation were frankly stated, and no pretence was made that there was not still a grave danger that those conditions would not be fulfilled. Among those conditions, one of the most important that was stressed, and one which it was emphasised would be most difficult to fulfil, was that of maintaining private savings. When we look at the history of private savings over the past year, that anxiety is surely justified. On page 5o of the Economic Survey, we read: When allowance is made for these factors, which did not prevail to any like extent in 1938, it is unlikely that, without a radical change in the willingness of individuals to save, the total of net saving in 1948 in the absence of inflation will reach the necessary figure. On the next page, we read: All these counter-inflationary methods"— of which this private saving is one of the most important— will have to be maintained, and many intensified. That being so, it would be idle for any hon. Member in any part of the Committee to try to conceal from himself the fact that there was a situation which must he viewed with great anxiety. Therefore, it is our duty to look at the measures of this Budget and see whether they are likely to be of assistance or a hindrance to private saving.

It is from that point of view that I very strongly join with my right hon. and gallant Friend the Member for Gains-borough (Captain Crookshank) in expressing alarm at the Special Contribution and fear that the Special Contribution may turn out to have an inflationary effect and one damaging to confidence. It would give cause for alarm if we had merely to deal with the present Chancellor with his assurence that this contribution was to be levied once for all, and then finished with. But, as the Leader of the Opposition said yesterday, there are not many instances of financial devices being resorted to once and never being resorted to again. The words of my right hon. Friend were only too fully justified by what I can only regard as the most dangerous and sinister speech of the right hon. Member for Bishop Auckland (Mr. Dalton), who, instead of speaking of the Special Contribution as being levied once for all, changed it to the ominous phrase of "levied in the first instance." Apparently, this is only the beginning of a full capital levy for which the right hon. Gentleman is working, in contradiction to the Chancellor's statement that a capital levy could not possibly solve the problem of dealing with this immediate crisis with which we are faced.

With complete lucidity the Chancellor showed us yesterday the dilemma with which any statesman dealing with our financial problem today must necessarily be faced, and that dilemma, as he showed, is that the country badly needs two things which are, to some extent, in inevitable contradiction to one another. On the one hand, it is necessary to have a surplus in order to mop up purchasing power and to prevent inflation. On the other hand, it is necessary to have incentives, and it is difficult to think how we can have incentives unless we have some deduction of taxation. That is the dilemma—how we can have incentives and at the same time have a surplus, and that being so, while I associate myself with all that my right hon. and gallant Friend said about the necessity for economy and reducing Government expenditure, I think it is also very important that we should apply our minds to see whether we can find any way in which the sum of money which has to be collected can be collected in such a fashion as to act as less of a disincentive than it is at present.

This volume of taxation, and the Income Tax that has to be collected, is bound to be a disincentive to a very considerable extent, but I would ask the Financial Secretary to bring to the Chancellor's attention, if not for the present Budget at any rate for the future, whether there can be some reconsideration of the whole method of assessment of Income Tax which, I think, could be greatly improved without any lessening of the amount which the Government are to receive out of it. I entirely agree with the Chancellor—and I hope everybody who has considered the matter for a second will agree—that there is no possible line of solution in letting people off Income Tax altogether for their overtime work. That scheme is an impossibility, and it is not necessary to go into del ail about it.

I think we could say this: Income Tax is bound to have a disincentive effect, any way, but it has an unnecessarily large disincentive effect now because the disincentive comes not so much from the absolute rate as from the marginal rate on which it is collected. Anybody who increases his income at all by a little extra work has to pay his largest rate on the increase in the money. A man with an income of £300 a year and one child pays—or, at any rate, until yesterday he paid—£1 a year in Income Tax, which is not a very large sum. If, with a little bit of extra effort, he raises his income from £300 per year to £301, on that extra one pound he has to pay not at the rate of a penny in the pound but at the rate of 2s. 6d. in the pound. Although there will be welcome reliefs granted in the new Budget, the same principle remains.

I will quote an instance given in "The Times" this morning. If a man is married with one child and, for instance, gets £500 a year, he will have to pay £40 a year Income Tax at present. If he chooses to earn another £100, he has to pay £25 more Income Tax as a result of earning that £100, and so on. This marginal rate is the real problem to which we have to apply our minds. We soon reach the stage—£500 or £600—where people who earn any extra money at all have to pay on that extra money a sum which used to be 7s. 6d. in the pound and is now 7s. 2d. in the pound. Of the 12s. 10d. which they receive in each pound, in all probability they pay to the Government a very substantial proportion in addition, in the various forms of indirect taxes on the things on which they spend their money. As a result, a man is asked to do one pound's worth of work and really he gets a personal benefit out of it which may be 6s. or some very tiny amount, and that in a community—I am not complaining about it, for it is rightly so—where the necessities of life are guaranteed to a much greater extent than they have ever been before. That is where, I think, the problem of disincentive is a very serious problem.

Every now and again somebody quotes a remark made by one of our great statesmen of the past—Sir Robert Peel, Mr. Gladstone, Mr. Asquith and so on—when Income Tax was 2d. or 1s. and they prophesied national disaster if it were raised. Those quotations are usually met with laughter, suggesting that the dis- tinguished statesmen were idiots and were proved absolutely wrong. I think that laughter is very foolish. The disincentive effect of heavy taxation is not perhaps so immediately catastrophic as some people have prophesied it would be, but it gradually gets people down, like water dropping on to a stone, and it is far more foolish to say it has no disincentive effect at all than even to exaggerate the disincentive effect.

That being so, the question is whether there is any solution to this problem of the marginal rate, which is a new problem today, at any rate in the psychological form in which it now presents itself, because up to 1940 people paid Income Tax not on the income they were earning at that time, but on the income of the previous year. In 1940, although there began the system of having the tax deducted immediately from income, the taxation was even then not based on earnings then made but on earnings that had been made in the previous year. Therefore, this marginal effect, in a psychological way, presents itself in a way which is new. Since 1943 we have had Pay-As-You-Earn and people have paid on the current income of the moment. There are some people who would solve the problem by abolishing Pay-As-You-Earn altogether.

Sir W. Darling

indicated assent.

Mr. Hollis

My hon. Friend is apparently one, but I do not altogether agree with that. I think there are great advantages in Pay-As-You-Earn—three major advantages. The first is that it means that a person has to pay less tax when he earns less money, and no tax in the weeks when he earns nothing, through some misfortune or sickness, and that is a great advantage. Secondly, it is a system through which it is much easier to collect the tax, and thirdly, if wide changes in the national income take place, it has automatically an anti-inflationary effect, which is a good thing, because the yield of the tax automatically goes up with the rise of the national income. That is a good thing. I would not abolish it altogether myself, but I would commend an article to the notice of the Financial Secretary. I do not know whether he has read a very interesting article by Mr. Chambers in the "Lloyds Bank Review." I know the right hon. Gentleman is a very keen reader and from time to time I have presented him with books of my own, and I am very glad to know he reads other authors as well.

Mr. Glenvil Hall

And I read the hon. Member's books.

Mr. Hollis

The article pointed out what is a great anomaly in our present tax system. I will mention it for the benefit of hon. Members who are less well read than the right hon. Gentleman, and it is that we now have two sorts of family allowances. No one is more keen than I am that parents should have an adequate allowance for their offspring, and there is nothing against it, but it is illogical that there should be two sorts of family allowance. Payments are made, on the one hand, directly for the children—the Children's Allowance—and on the other hand there are allowances for Income Tax. This is an historical anomaly which dates back to a time when one class of person was expected to pay Income Tax—the better-to-do person— and another class of person was thought to benefit from Children's Allowances—the poorer people who were not expected to pay Income Tax. Now it is illogical, and a typically English thing, rather like the tariff system before the time of Walpole.

What I would suggest, therefore, is that it would be very much better for all people with incomes, say, up to £700 a year—all those who might be graded as the lower income groups—that all the allowances should be cut out altogether in the first instance, and that then there should be levied a flat rate on all their incomes which would be very much less than the present flat rate. Mr. Chambers suggested that we levy a rate of 3s. in the £ on everybody's income of incomes up to £500 a year. That could probably be conveniently deducted by the employer, and save a large amount of Inland Revenue book-keeping, because of the 19 million people who fill in Income Tax forms 16,500,000 have incomes of under £500 a year. This proposal would save a good deal of that book-keeping. Then we could pay back to those people their allowances. In some cases people would not pay Income Tax at all and would receive back in full allowances more than they paid. In other cases they would have so much repaid to them out of what was deducted. But the great virtue of the scheme would be that nobody would pay a higher rate on the extra money that they earned.

It is not a question of whether we can reduce taxation altogether, for I am not discussing that at the moment, but under this system a man would have more incentives even though the same amount of taxation would be collected though it would, we hope, be collected out of a larger national income, because there would be a larger volume of goods because of the reintroduction of incentives. The only people who would be worse off would presumably be those people without any dependants at all—young men and young women who, on the whole, probably are somewhat unfairly well off at present. If anyone has to be worse off it should not be the family people, and I do not think that there can be many hon. Members who would think that inequitable. I would beg the Financial Secretary to give an assurance that he will meditate upon this, and that he will ask his right hon. and learned Friend to meditate on this question of the revision of the whole incentive system, because I do not think anybody can seriously deny that the system at present is unnecessarily disincentive.

8.3 p.m.

Mrs. Jean Mann (Coatbridge)

I should like to deal with one or two points in the Budget speech concerning the concessions to, and inflictions on, the housewife. I believe that the Chancellor has congratulated himself on certain concessions given to the housewife, namely, the reduction of the Purchase Tax from 50 per cent. to 33⅓ per cent. I do not think that that reduction is nearly big enough. I have stated, and I must say again, that I think it is a niggardly peck—like a stepmother's kiss: it will be scarcely noticeable. The chief concern of housewives today is to get curtains for the windows and sheets for the beds. I do not think that that tiny reduction will mean that they can get either of those necessities. A mere is. 8d. in a yard of material costing £1 or the equivalent of 30s. will not make accessible these things—these needful things—which are at present necessary in the home.

Again, I feel rather angry that there should he a 33⅓ per cent. new tax on utility fully-fashioned stockings. Does not the Chancellor like to see neat stockings? Does he like the tight, corrugated-iron-ankle type of stocking? At present we have to pay three coupons instead of one and a half coupons for the fully-fashioned stockings; and that, surely, ought to deter most women from buying them. But, in addition to that, I am afraid it is evident that the Chancellor really wants money out of women. He asks for a 33⅓ per cent. tax. I think that the housewives will not at all be pleased with the 33⅓ per cent. new tax on children's clothing. Children's clothing outwith the utility ranges is to be subject to this new tax. Therefore, I do think that these new taxes are going to deprive the housewives of the little bit of benefit that they are getting in the reduction from 50 per cent. to 33⅓ per cent. One or two things in the Budget make me wish we had a strong trade union of housewives.

Sir W. Darlinģ

There is the Housewives League.

Mrs. Mann

The Housewives League is not a union—neither does it represent the housewives. It represents the innocent dupes of the Tory Party, and they are merely Tory Party stooges. If the housewives heard the Debates in this Chamber, or knew anything at all of what they themselves suffered from Budgets proposed by the party opposite, they would never be anywhere else but inside the Labour Party.

Sir W. Darlinģ

They could at least get stockings.

Captain Crookshank

Nor did they have to pay Purchase Tax on them.

Mrs. Mann

If the Budget had been prepared by the Leaders of the Opposition I tremble to think what the housewives would have thought of it. But we can criticise some of the parts of the Budget which we think are unfair. I notice that protective boots designed for use by miners or quarrymen or moulders are exempt, but it appears that the protective boots that the mother puts on when she goes shopping—the cosy, sensible, little furlined ankle boots, are subject to tax. They are subject to tax because they are furlined. But a miner or a quarryman or a moulder can have protective boots which are exempt.

I also notice that there are a good many of the housewife, the No. 1 modern in-but not the housewives' tools of trade. They still bear one-third Purchase Tax. Yet there is all this talk about our tine women, and what a grand job of work they have done, and so on. We are getting just a little tired of listening to it, and we want a little practical consideration for the women going about their household duties.

Why is the tax retained on the vacuum cleaner? That is the chief tool in trade of the tools of trade that are exempt—vention which has helped her, as I am sure every housewife would agree. Why is that, the housewife's chief tool in trade, still subject to 33⅓ per cent. tax? Is the market flooded with vacuum cleaners? In my constituency there have been deputations from a firm manufacturing vacuum cleaners, who say that the market is flooded with them because of the Purchase Tax. Consequently, last week workers were paid off, some were paid off the week before, and I was told at the weekend that in the coming week an even greater number is to be paid off. The firm say that the market is flooded with vacuum cleaners, that they have over-produced. If that is so, then I, as a housewife, am bound to say that in Britain there are thousands of homes in which the housewives could well do with vacuum cleaners. When my right hon. Friend replies I hope he will tell us if the home market is flooded. Otherwise, what is the reason for retaining the tax?

Last year, when the tax on vacuum cleaners was introduced, we were told that the intention was to discourage the housewife from using too much electricity. I know that other home electrical appliances use a great deal of electricity, while the vacuum cleaner uses very little. I have constantly watched my electricity meter and tested the amount used for my radiator, my immerser and my vacuum cleaner, and, having watched the meter wheel go round, I know that of the three the vacuum cleaner uses the least. Surely the housewife is not to be so treated that she cannot get a vacuum cleaner, her chief tool in trade? I believe that a number of trades unions are urging that tools should be supplied free. I urge that every housewife should be supplied with a vacuum cleaner free. I could just imagine the success of the Housewives League with the Tories if they went to those lengths. As a matter of fact, the alliance is getting pretty thin as it is. Surely, it is not too much to ask that in the case of vacuum cleaners, particularly if it is found that the home market is glutted, the tax should be considered again.

I am sure that every housewife in the country will welcome the Budget, in that it retains the subsidies on necessary food items. Never before have we had a Government willing to spend £400 million in order to keep sugar, butter, lard, potatoes and bread at their present modest prices. I shall not join with those who scold the Chancellor about the 1d. on beer or the 2d. on the packet of cigarettes. Remembering the days when I suffered from Budgets introduced by the Tory Party, when the tax was on tea and sugar, I am sure it is much better to have the position reversed, and to see a Chancellor actually stretching out his hands to take the tax from the beer drinker and the smoker in order to give it to the housewife. This is an exceedingly imaginative Budget; a very good Budget, and one which we all welcome—apart from those items I have detailed, at which I hope my right hon. and learned Friend will look again.

8.15 p.m.

Mr. Sidney Shephard (Newark)

Although I sit on the Opposition benches, I should not be honest with myself were I to disagree with all the measures in the Budget Statement. Indeed, with a good many of them I am in complete agreement. But I am sure that no hon. Member opposite, nor, for that matter, any of my right hon. Friends, would expect me to agree with the Special Contribution. We on this side of the Committee believe in the virtue of thrift. I have always practised thrift, and I claim that a man who has been thrifty all his life should have the benefit of it. I am utterly opposed to the idea that because a man has saved throughout his life he should be taxed, while the man who has been profligate should go free. If the Chancellor continues with this tax—and I am convinced it will be repeated—he will destroy that very virtue of thrift which has made this country great. [HON. MEMBERS: "No."] Oh, yes; although hon. Members opposite may not agree.

Mr. Shurmer (Birmingham, Sparkbrook)

Has that man got it all by saving?

Mr. Shephard

Yes, most of it.

Mr. Shurmer

Most of it, may be.

Mr. Shephard

Well, I have mine, and I object to being robbed of it. This Budget will be proved to be good or bad by three considerations: Will it stimulate savings? Will it induce people to work harder, particularly by way of overtime? Will it halt or reverse the inflationary pressure? I do not think any hon. Member can answer those questions at the moment. We must wait and see whether the Budget proves itself to be a good one. First, will it increase or induce savings? I was rather surprised that in his statement the Chancellor did not fix a target for this year. Was that because he saw that the target for last year was so far off achievement? The rich people are living on capital, so we cannot look to them for any savings. The middle class people have all their work cut out in balancing their family budgets, so we cannot look for savings from them. That leaves only the working class to whom we can look for increased savings. The working class has had a diet of war savings appeals for nine years, and, you know, it is becoming less appetising every year. The people see the shops full of goods; they want radios, furniture, and so on: can we wonder at it when they withdraw their savings and buy something they have badly wanted for years?

There are only two ways whereby to stimulate the Savings Movement. The first is a negative method: have less goods in the shops, so that there is nothing for people to buy. The second method is to give an inducement to make people save Take housing as an example. There are in this country tens of thousands of people, working class people, who would gladly save in order to be able to build houses for themselves. Unfortunately, they do not know, and have been given no assurance for the present or the future, what will happen if they do save. If the Chancellor were to float a great housing loan, with a promise that in, say, ten years, people could build their own houses, I believe he would get all the savings he wants. Last July the Minister of Health said that there would be no housing problem for the working class people of this country by the next Election. If that is so, is there any reason why people should not be allowed to build a private house in five or ten years' time? I ask the Government to look at the psychological aspect of the savings problem, to see whether they cannot produce a scheme likely to appeal to our people.

From my experience—and I have had a good deal to do with working people—I am convinced that the earned income allowance, and other reliefs in this Budget, will go a long way to increase production. I have spoken to dozens of working men and I have asked them why they are not prepared to work overtime. Always they have one objection. I look forward to seeing a great upsurge in production as a result of these tax concessions, and also a greater willingness on the part of our people to work overtime.

I want to turn to the main item which I shall raise tonight. The Chancellor of the Exchequer in his speech said that he did not think it was over-optimistic to build our exports up to 150 per cent. above the 1939 figure by the end of this year. He argued that that would mean an average of 130 per cent. for the year, and he quoted the January figure of 128 per cent. and the February figure of 121 per cent. as a sort of justification for his optimism. Frankly, I do not share that optimism. Wherever we look we see markets closing down, and the only markets which are really open are the hard currency ones which do not want our goods. One would have to be a super-optimist to assume that we are going to reach 150 per cent. over 1938 by the end of this year. Even with Marshall Aid, we are still going to have a deficit with the hard currency countries.

We should consider any means whereby we can close that gap. A few months ago a group of gentlemen in this country, including my hon. Friend the Member for Ashford (Mr. E. P. Smith) produced a scheme for an international State lottery. It was discussed in the papers, and letters were written to the Press while a pamphlet was produced entitled, "Two million pounds British international State lottery." The object of that lottery was to help us in our balance of payments, particularly with the hard currency countries, and also to remove the excess purchasing power which exists in this country. An international lottery sponsored by the State is bound to arouse considerable controversy in this country, and there are bound to be strong objections from various sections of the public. However, that is no reason at all why we should not look into the scheme and examine it very carefully. This idea of a State lottery has already been submitted to public opinion. That was as far back as May, 1945, when the "Daily Express" organised a ballot and the question asked was, "Would you favour or disfavour a State lottery if the profits from it were applied to the reduction of the National Debt?" Of those interviewed 71 per cent. were in favour, 22 per cent. opposed, and 7 per cent. did not know. That same paper organised another ballot early this year after the publication of the scheme I have mentioned. The result of that ballot was that 89.6 per cent. were in favour, 10.2 per cent. were against and 0.2 per cent. gave no answer. The "News Chronicle" also organised a similar ballot only last month and that resulted in 69 per cent. being in favour.

From this it is fair to assume that there is a large body of public opinion which is in favour of a State lottery if it has as a definite object the helping of our nation with our foreign exchange position. The scheme briefly is that the British Government would hold this lottery every year for a given number of years, provided it was sanctioned each year by Parliament, and the lottery would have a total amount not exceeding £2,000 million in any one year.

Mr. Shurmer

It is a lot of money.

Mr. Shephard

Yes, it is a lot of money. The organisers of this scheme estimate that the expenses would be roughly £50 million, the prize money to be £1,000 million and the balance of £950 million would be profit. Tickets would be sold all over the world and undoubtedly would attract considerable support from hard currency countries and, in fact, from every corner of the earth. I have no wish to elaborate this scheme. It is sufficient to say that there are precedents. Both Westminster Bridge and the British Museum were built out of the proceeds of a lottery, and a lottery was even resorted to on one occasion to pay the debts of the British Navy. We know that other countries organise these lotteries to their great benefit. Look at the Irish Hospitals Sweepstake, for instance. It enabled their hospitals to be reorganised from money sent in the main from this country. If our position is so desperate we should consider what means we should take to right it. I know there are objections, but the whole scheme should be carefully considered. It is worthy of being considered on its merits, weighing up the pros and cons and bearing in mind that it is an expedient designed only for a particular purpose and for a given number of years.

8.27 p.m.

Mr. Ronald Chamberlain (Norwood)

I do not want to follow the hon. Member for Newark (Mr. Shephard) on the merits of a State lottery, because perhaps I am prejudiced against such things. I have been a good deal in South America, where these things are recognised and are extremely widespread. Actually, I got very sick of having State lottery tickets pressed into my hands as I walked down the streets. I should not like the Government to rely on gambling on a grand scale like that.

We on this side of the House welcome the qualified support for the Budget from the hon. Member for Newark. He did not go all the way with us and, indeed, perhaps he did not go very far. He made references to inflation and savings, and I shall have something to say on those subjects in a few minutes. In this Debate we have been trying to cover too wide a field, as hon. Members in all parts of the House have recognised. I am going to confine what I have to say to the actual Budget proposals, although I should have liked to deal with some aspects of the economic position.

The Budget proposals, in my view, are very much like the traditional curate's egg—good in parts. They are good as far as they bring us further along the road towards the Socialist aim, as indeed they do in a number of ways, particularly with regard to relieving the burdens from those least able to bear them. The Budget proposals also bring us very clearly in the direction of economic recovery, and are good in that way; they provide real incentives, as hon. Members on all sides of the House have agreed. They also have a deflationary aim, but, as I shall show in a moment, I do not think they succeed very well in that respect—but at least they have that declared aim.

The Budget has, at the same time, very real and surprising defects. It aims at the right target, but with the wrong kind of instruments and the wrong kind of ammunition. To be quite frank, I think the Budget is a queer mixture of bold and courageous proposals and extremely inept and timorous proposals. The good features have been referred to a great deal. The Income Tax concessions and the Purchase Tax rearrangements, subject to certain adjustments, are all to the good; and so are the Entertainments Duty concessions, the retention of the food subsidies, and the measures taken in regard to expenses allowances. I stress those things because I shall have to criticise rather severely some other parts of the Budget.

In that critical attitude I reiterate what other hon. Members have said about the penny on beer. This is one of the wrong and inept proposals; I see no reason or excuse of any kind for it. If I am told that it is necessary for the raising of revenue, I can suggest to the Chancellor many preferable and more productive means of raising the necessary finance. It does not save dollars. In other worth, there is nothing whatever good in it, and it is of an inflationary nature because it raises the cost of living. The Chancellor told us that one of the mainsprings and objects of the Budget was to attack inflation. In the matter of beer and tobacco, the Budget has an inflationary tendency and, therefore, those proposals are thoroughly bad.

In regard to the additional tax upon tobacco, the Chancellor suggested that one of its main objects was that we should be made to smoke less. That is a thoroughly bad principle and is unfair discrimination. To suggest that in order to decrease consumption we should raise, the cost is quite wrong. If decrease of consumption is necessary, let us have a rationing scheme and face the matter properly. I think the position would have been satisfactory if left as it was. The idea of rationing by high price is bad. We heard the same suggestion made about petrol—we were told that one way to ration petrol was to put up the price to 6s. or 8s. a gallon, because that would reduce consumption. That is a thoroughly wrong principle, and is discrimination in favour of the wealthier classes.

I cannot agree with my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) that these increases in taxation are neither here nor there, that they are negligible and that we need not be bothered about a penny or twopence. They are extremely important psychologically and in the matter of incentive. I am sure that they will be very unwelcome in all working-class circles. The same is true of the tax upon pools. There, again, workers are called upon to pay more. The dog tote tax remains and dog bookies are to be licensed, while nothing apparently is to be done about horse-racing. That appears to be unfair discrimination, and is quite illogical. It is not enough to say that the process is gradual and that we shall do the thing bit by bit—it is not good enough to tax the sports of the workers and to leave untouched the sports of the upper classes and of the rich. That, again, is wrong and is unfair discrimination.

The worst feature of all in this Budget—the Chancellor of the Exchequer will recall that I have raised this matter before—is the entire failure to tackle profits. We have heard from various hon. Members on this side of the Committee how profits, in spite of all requests and entreaties, are running at an unprecedentedly high level, but the Chancellor calmly says, "Leave it this year, and let us see what happens." The present Chancellor, his predecessor, the Prime Minister, and others who have spoken with authority, have said very clearly during the last 12 months that of all the inflationary tendencies the high range of profits was the worst and most serious—yet this thing, which is the worst form of inflation, the tremendously high run of profits, is to be left until next year.

Certainly, something has been given to us; I do not know whether it is a capital levy, or an investment levy or tax. I think it is part of one and part of the other. For 25 years I have been advocating a capital levy and I still think it would be good, but not at this time, not at a time of inflation. It can be demonstrated that a capital levy is an inflationary measure; it should not be brought in at this time. In so far as this is imposed as a capital levy, I do not think it is good at the present moment. In regard to its being an investment levy or tax, there again I think it misses the mark. It will be in the nature of a capital levy, as the Chancellor said quite clearly yesterday, and in the main will be paid out of capital, if only because it is in respect of investment profits which were declared in the last financial year. From that, it arises that capital will have to be uprooted and transferred, either as capital or as cash, to the Government. In that respect, it will very definitely have an inflationary tendency.

Furthermore, I think the Chancellor was very wrong in saying that this thing, which is supposed to deal with the matter of profits, will not be brought in again, and that he will not do it on any future occasion. If the Chancellor had made a tax arising from investment he would not have had to add that very dangerous proviso, a very wrong proviso, that it will not be done again. The proposal is in respect of 1947–48. It therefore allows the run of profits in the present financial year to go on as high as ever. For all those reasons this proposal is a misdirected measure. It is probably right in basic intention, but it is put into operation very badly.

With regard to profits, my right hon. Friend the Member for Bishop Auckland has said that they are the strongest inflationary elements in our national life, but nothing particular has been done in regard to them. I want to call the attention of the Committee to what was said by the White Paper upon National Income and Expenditure for 1947, in regard to profits and interest. There we were told, on page 8, that in the calendar year 1947 those items represented £3,242 million, more than double the profit and interest for 1938. Indeed, it has to be noted that the figure has gone up by £300 million since 1946 and that it is nearly as much as the total wages bill for the country. It is a most significant and wrong thing that with a Socialist Government we should allow these things to continue and that the total out-turn of profits and interest in 1947 should be nearly as much as the total wages bill. When rent is added, those items together make up 41 per cent. of the total private income of the country, compared with only 40 per cent. for wages. I commend that to the Chancellor of the Exchequer. It is entirely wrong and out of focus.

I begged the Chancellor several times last year to do something in regard to the matter of the high run of distributed profits. The Chancellor appealed to the Federation of British Industries and associated organisations to do something about this. He did not ask them to reduce the run of profits; he merely asked them to take measures to stabilise this tremendously and unprecedentedly high run of profits. They have given a reply that they will try to do something about it, but they make that reply subject to various conditions. They say that they look for special concessions for new businesses and those affected by the war, for stabilisation of wages and for a reduction in Government expenditure. In other words, they qualify their agreement and hedge it about with various conditions, and it is virtually a negative answer. It is, therefore, quite wrong and useless to approach the problem from that angle.

The Chancellor of the Exchequer has mistaken what I have suggested on previous occasions. My suggestion is that the proper course is a ceiling on distributed profits. The Chancellor has suggested that I have asked for further taxation on distributed profits, but I have done nothing of the sort. To say that there should be a ceiling on the rate of distributed profits is not to suggest any further impost on distributed profits. I suggest a ceiling of say, 10 per cent. on distributed profits in relation to paid-up capital. That will mean a great increase in profits put to reserve, and there should then be a reasonable increase of the Profits Tax on undistributed profits—I suggest, up to 25 per cent. In that way we could more than cover any advantages accruing from the tobacco, beer and pools increases, so that if it is a matter of needing further revenue, it can be found quite simply in the measures I have suggested.

I appeal to the Chancellor of the Exchequer to reconsider this matter. He says that he wants to turn off the inflationary tap, and yet this profits tap is pouring all the time at a tremendously high rate into the inflationary bath, and all he suggests doing is baling out a mere £300 million, while he leaves the tap full on. That is the wrong way to go about it, and even at this late hour he must do something about distributed profits. If he does not want to bring in any further taxation proposals, there is still my proposal that a ceiling should be put on the amount which he allows to be distributed, with a view to combating the present very virulent tendency to inflation.

8.45 p.m.

Mr. E. P. Smith (Ashford)

It would be ungraceful and ungrateful of me if I did not tender my thanks to the Chancellor of the Exchequer for the way in which he has relieved the living theatre of parts of the burdens which it: carries. He knows that it is at best a risky and a precarious calling for those who engage in it, and I can assure him that the thanks of those who do engage in it, will be his for what he has done.

I had not intended to intervene in the Debate tonight, and I should not have done so had it not been for the forthright and courageous speech of my hon. Friend the Member for Newark (Mr. Shephard) in which he introduced my name. The hon. Member for Newark is well known on all sides of the House as a broadminded and moderate hon. Member, as a capable, far-sighted and progressive industrialist and as a zealous and diligent member of the Church of England, to none of which qualities I can lay claim. He mentioned in the course of his speech the question of a British-sponsored International Lottery. Our economic plight is admittedly desperately serious. The writing is on the wall for anyone who cares to read. It leaps out of the Chancellor's own speech. If we cannot close the gap in our balance of payments we shall face semi-starvation in respect of food, and, what is perhaps even worse than that, starvation in raw materials for our industries, which may bring upon us some of the horrors of mass unemployment.

While I give the Chancellor every credit for sincerity of purpose and determination, there seems to be an air of unreality hanging heavily over our economic situation. We appear at home to be boundingly prosperous, with a huge Budget surplus, and yet abroad we are virtually bankrupt. How are we to close that ghastly gap? First of all, by hard work. There must be extra endeavour, and we must increase our exports by every possible means. That is the first and overriding consideration, but we must remember that however hard and harder we may work, however much we may deny ourselves and however much we may increase our production and our exports, we know that our optimum target is beyond our achievement unless we can ensure for this country a flow of hard currencies without the necessary corollary of exports. The scheme mentioned by the hon. Member for Newark for a British-sponsored International Lottery was advocated by me and was circulated by me to every hon. Member of this House, but I do not want the Committee to think of it as a project which has been conceived in the brain of an obscure back bencher. It is a bankers' scheme, formulated by a well-known and much respected international banker and backed by well-known and much respected international bankers—

Dr. Morgan (Rochdale)

We would rather have it from the hon. Member.

Mr. E. P. Smith

I trust the hon. Member for Rochdale (Dr. Morgan) will keep his well-known irrelevancies for his own oration. These bankers have had access to data, to information and, above all, to foreign contacts which, of course, are denied to me. Roughly, the scheme is this, that the British Government should sponsor an international lottery of £2,000 million to be held annually for three, and possibly for four years; that £1,000 million should be devoted as prizes, and that the balance, less £50 million for running expenses, that is to say, £950 million, should accrue to the British Treasury; that the tickets should be available to the nationals of any country in the currency of that country.

In passing, I might say that a prominent United States citizen who happens to control 1,500 chain stores in the United States, has undertaken to sell £20 million worth of tickets in dollars. He is certainly a citizen of no mean city. The bankers who are associated with this scheme estimate that the total of £2,000 million would be achieved in this manner; that £800 million would be subscribed by the nationals of Great Britain and the British Empire, that £400 million would be subscribed by nationals of the self-governing Dominions, and that £800 million would be subscribed in hard and soft currencies, of which £500 million would be in hard currencies. I will not weary the Committee with the details of the safeguards to be imposed to prevent an outgoing of more of one particular currency than might come in, or to prevent—which is most important—any undermining of our own National Savings movement, but I do say that these safeguards are implicit in the scheme and that the right hon. and learned Gentleman knows all about them.

I would remind the Committee too, that there have been undertaken by two very different newspapers reader-research and Gallup polls which show an altogether overwhelming majority in favour of the scheme; and, incidentally, my own mail increased to such an extent that I had to make special arrangements for dealing with it. Out of the thousands of letters I received, only two expressed disapproval. That is a rather remarkable thing because, in general, people are only too prone to write when they disapprove of anything you do, and are far less willing to give you their approbation. So we have on one side of the balance sheet a definite majority of opinion and, on the other, a minority opinion including the Archbishop of Canterbury, the Moderator of the Free Churches, and the Rev. J. Clark Gibson.

I have no wish to be ill-natured or provocative, I am not a good enough Christian for that, but I would like to point out that at the last drawing of a British lottery which took place about 125 years ago, the Archbishop of Canterbury was present in his official capacity and, for all I know to the contrary he may have been accompanied by the Lord High Commissioner of the Church of Scotland. The leaders of the Christian churches are quite entitled to take their own view as to what may or may not be moral, but they are not entitled to lay down the law for, everybody else in this respect, or to assume, as they do, that those who happen to differ from them in this matter are in any degree less high-minded than they are. The Chancellor of the Exchequer can throw no little moral stones at me from the recesses of his own greenhouse because he is content to tax gambling and betting wherever practicable, and to draw what revenue he can from it, and from courses which I should regard as far worse forms of gambling than a harmless well-conducted lottery. It is, however, an open question whether moderate hazard or wagering or gambling is, even in the smallest degree, immoral. The keyword, of course, is "moderate." But, if the bankers are even approximately correct in the estimates which they have given me, it would mean an annual accession to this country of from £200 million to £250 million in hard currencies and without the corollary of exports. And I am quite sure we should all be comforted, and even the Chancellor might find a little comfort if he knew that there was a substantial possibility of our receiving from £200 million to £250 million a year in hard currencies without having to export to procure it.

Mr. Cobb (Elland)

Would the hon. Gentleman answer one question? Would he tell us what would happen if every other country in the world decided to enter this Tom Tiddler's ground afterwards?

Mr. Smith

You would have to be in first. That is the point. That, combined with harder work and extra production and an increase in exports would, in my judgment, well-nigh close the gap in our balance of payments. We are in this position: if our exports and our higher production have to be our main crutch, as we must admit they must be, such a scheme as this, if brought in, would be a good stick, and a limping economy may well have need of both.

I should like to tender my thanks to the right hon. Gentleman the Financial Secretary to the Treasury for the kindness, courtesy and consideration which he showed me, and those associated with me, in the two long and exhaustive interviews which we had with him at the Treasury. He was good enough to summon in to aid us in our discussions his experts who deal with this side of Treasury business, and they were particularly nice and charming. I noticed, too, that they were all quite remarkably young. When I went to the Treasury on this mission I felt rather like the Roman general Titus after the fall of Jerusalem, when he insisted upon penetrating into the Holy of Holies in King Solomon's temple.

Dr. Morģan

Write a play about it.

Mr. Smith

He expected to find there the image of a golden ass which, according to the legend of the time, had led the forbears of the Israelites out of the desert. Instead, he found an absolute and an awe-inspiring emptiness. I did not expect to find a golden ass at the Treasury—that animal had been kicked out of the stable in 1931 and was last seen wandering somewhere in the neighbourhood of Fort Knox—but I did find an emptiness which may have been absolute but certainly was not at all awe-inspiring. In fact, all the arguments which the Treasury put forward against this scheme were so empty that they did not even rattle. We all sympathise with the Chancellor in his arduous task, and I am sure no man envies him. Even we who disagree with him violently politically must appreciate the determination with which he is trying to tackle his odious job. I know perfectly well that he disapproves of me strongly in this matter, but I bear him no ill-will at all. I am only concerned at the plight of our country, and, had there been one overriding argument against this scheme, which has not been advanced, then nobody knows better than the Chancellor that I would have abandoned it straight away. If the right hon. and learned Gentleman desists from considering it anew, he will not deter me from continuing to advocate it until he meets me with some really convincing opposing argument. I will conclude by reminding the right hon. and learned Gentleman of the motto attached to a certain famous sundial: It is later than you know.

9.0 p.m.

Mr. Eric Fletcher (Islington, East)

I only desire to intervene in this Debate for a very few minutes, and I hope therefore the hon. Member for Ashford (Mr. E. P. Smith) will not mind if I do not pursue the special topic on which he has been making such entertaining remarks. I believe I am speaking for all back benchers on this side of the Committee in saying that we congratulate the Chancellor of the Exchequer on the Budget he introduced yesterday. I am sure it will be generally welcomed throughout the country as a sound, well-balanced and, as "The Times" says today, a very brave and courageous Budget.

The Chancellor has once again with scrupulous honesty laid bare the grim realities of our financial and economic position. He has set before us fairly and squarely the two outstanding economic problems of the moment, the need to correct the inflationary tendency, and the need to provide incentives to enable all those engaged in industry to increase production. I believe that by the tax adjustments and other methods contained in the Budget the Chancellor has probably adopted the best methods which could be devised to secure both those objects. He has provided relief where it will have the maximum effect in stimulating effort. I would, however, urge him to lend an ear to the representations made from both sides of the Committee with regard to the high level of Government expenditure. I believe that now the Chancellor is at the Treasury he will be able, if he is willing, to give a lead in that direction, and I believe that by giving a lead in that direction he can do something further to give an additional incentive to the productive efforts of the country.

Broadly, in so far as criticism has been levelled against the Budget proposals, it has come from two extremes; either from the very rich, or from the very poor. I think it is true to say that the Budget has conferred benefits on the majority of the people of the country. It has certainly conferred benefits on all Income Tax payers, irrespective of whether they are Surtax payers, or taxpayers in any other category. I am not concerned with the criticism which has been voiced—and I have no doubt will be repeated—from the benches opposite, about the Special Contribution, or as I prefer to call it, the capital levy, which hits only the very rich. I regard that as a method fully justified in our present financial situation for attracting a contribution from those who can best afford it, and in a manner administratively simple. In my opinion, no Socialist Chancellor of the Exchequer need ever be ashamed of using the Budget to the full as an instrument, and in many ways the ideal instrument, for carrying us further on the road to implementing our Socialist programme.

I wish to say a word about criticisms I have heard in my constituency from the poorest class of the community. They are not taxpayers, and they say, "We are not concerned with matters of high finance and the niceties of the Profits Tax. We are not concerned with problems of a capital levy; we are not concerned with the particular methods by which the Income Tax adjustments and reliefs produce benefits of one kind or another." I am referring to the 6 million odd members of the community who are not Income Tax payers. That class of people, and it is an increasing class, thanks to Income Tax benefits already conferred, ask, "What has the Budget done for us?" In a negative sense, of course, one recognises that the food subsidies have been retained to the full, and for that we are all grateful. The people to whom I am referring are not so much concerned even with the increases in beer and tobacco taxation. There are many working-class families who cannot afford beer and tobacco. Their concern is only with the prices of food and necessaries. I want to remind the Chancellor of what he said yesterday about the housewife. I think his sentiments were admirable, but I doubt whether he has done enough to give effect to his intentions. He said: I am … most anxious to make some contribution to a lowering of prices, and, what is more important still, to provide some relief for the hard-pressed housewife, who feels the incidence of this tax"— the Purchase Tax— very keenly."—[OFFICIAL REPORT, 6th April, 1948; Vol. 449, C. 67.] I think the Committee will agree that it is only by a further revision of the Purchase Tax that any relief can be conferred on this very long-suffering class of the community, the housewife, and particularly the housewife in the poorest section of the community. They have for a long time borne the heat and burden of the day. I hope that on the Committee stage the Chancellor will consider whether he has gone far enough in carrying out his desire to give relief to the hard-pressed housewife. There are numerous revisions suggested in the Purchase Tax, but are they substantial enough?

Dr. Morgan

What would the hon. Member do?

Mr. Fletcher

I ask the Chancellor why, in the range of household goods, the Purchase Tax cannot be further reduced. I do not know whether there is any absolute virtue in reducing the number of categories, or why the Purchase Tax on many of the household goods, now running at 50 per cent., should not be reduced, not merely to 33⅓ per cent., but to 25 per cent. if they cannot be abolished altogether. A great many people in the category of the six million non-taxpayers are families living on budgets of a very marginal order—and they feel acutely the burden of Purchase Tax.

These are people who have just enough, families who, after providing for their rent, food, and absolute essentials, have nothing left over either for doctor's bills or emergencies. To them the price of beer and cigarettes and the rate of Entertainments Duty are almost irrelevant. Their problem is to save what they can for clothes, household replacements and unforeseen liabilities. They are concerned at the price they have to pay for clothing and household goods, knives, spoons, carpets, mattresses, bedroom furniture, all furniture whether utility or non-utility furniture, because they cannot always get utility furniture, and children's clothing. I would ask the Chancellor if it is really necessary to increase Purchase Tax on children's non-utility clothing. I voice these matters because of the protests I have received during the day from constituents of mine in Islington who point out that the Budget does not do enough to help them in meeting their family budgets.

I would also remind the Committee that at the same time reductions in Purchase Tax are proposed in a range of luxury goods which are far beyond the purse of the working classes. In so far as the Purchase Tax applies to articles which are articles of necessity for the working classes, many of whom are living on small margins, I hope that between now and consideration of the Finance Bill these matters will be sympathetically considered by the Chancellor.

9. 11 p.m.

Mr. Gerald Williams (Tonbridge)

I was horrified to hear the hon. Member for East Islington (Mr. E. Fletcher) rejoice in the fact that the special levy has been proposed. It is not only completely unsound, but the money is not required by the Chancellor at the present time. There is no reason whatever for it, and people who take the trouble to think about the disastrous effect it will have on the country take a very different view from the one which the hon. Member has expressed.

I want to make what I hope will be a helpful suggestion to the Chancellor. Apart from the view I hold about this special levy, I like a good many of the points in his Budget, but I am very disappointed to see that he has not decreased the standard rate of Income Tax. I am quite certain that the present high taxation in this country is seeping the lifeblood out of the people, and is in fact the cause of nearly all our troubles. On several occasions I have advocated a decrease in the rate of Income Tax and also that there should be no tax on overtime. The Chancellor tells us that the latter is impossible, which is disappointing, but I will take his word for it, and congratulate him on having taken a step in the right direction by freeing many working people from tax.

Let us consider what are our chief troubles. First and foremost there is our trade balance, which is hanging round our necks like a millstone. The second trouble is the shortage of goods at home. Our third trouble is the shortage of raw materials. I believe that all these three troubles would be greatly alleviated by a decrease in the standard rate of Income Tax. Most hon. Members will agree that at the moment people in the country are extremely depressed, that initiative and enterprise has been killed by this high rate of taxation, which saps away the vital urge to work. The Chancellor would perhaps be taking a risk by lowering Income Tax, but I wish to try to prove to him that he would eventually be rewarded for it by an increase in the production of industry for the home and export markets with more revenue as the result. Everyone would work harder with a little more incentive. At the moment the rich man, whose brains have helped industry and have brought about the success of our great industrial companies, is simply not encouraged to make any more money. Everyone knows that in many cases his brains, which meant so much in the past, are being lost to the future. In the same way the labourer, as has been pointed out in this Debate, is not prepared to work overtime. Under the proposals of this Budget many labourers will be released from liability to Income Tax, and that is a step forward. But those labourers earning bigger money, that is, the best men, will still have to pay Income Tax if they work harder. As an hon. Friend of mine pointed out earlier, it is the Income Tax on marginal earnings which really counts.

The stimulus to industry would be so great by having Income Tax reduced that the Chancellor would be amply rewarded in a very few months. Incentives mean that more would go abroad, that is we would produce more and better goods for export, and that would enable us to buy more raw materials, which would indeed be turning the vicious circle the other way round. More incentives would produce more goods for the home market, which, in turn, would be another incentive, because there would be something in the shops to work for. More incentives would give more contentment, better morale, better work, there would be less queueing, and consequently there would be time saved. We would then be able to have less restrictions, which would ultimately lead to more money saved, in that we could get rid of many of the civil servants employed to carry them out.

I think hon. Members on all sides would agree that a reduction in Income Tax would be definitely an incentive, but many hon. Members will say that inflation would thereby be increased. I wish to make a suggestion to the Chancellor. I believe that this inflation would be partly covered because more goods would be produced, there would be more goods in the shops and there would be "more money chasing more goods," which is a step in the right direction. It would be partly corrected, because everyone would work harder, and would not have so much time to spend their money on entertainments, and so on. How are we to overcome the remaining part of the inflation caused by the lowering of Income Tax? The answer, of course, is in savings.

How then are we to get this money into savings? We may intensify the National Savings campaign, but that has already been intensified, probably to the last degree. We might introduce compulsory savings, but that, to a Conservative would be extremely obnoxious. We might have a scheme like that of post-war credits, but post-war credits, unfortunately, already have got into bad odour with many people in the country. Could not we, therefore, make saving more attractive? Suppose at the end of the year the Chancellor said, "To give more incentive, we will reduce your Income Tax by 20 per cent." But instead of paying cash for that 20 per cent., could he not give Government Bonds, yielding, say, 4 per cent? That is a very attractive proposition. But they would only yield 4 per cent. so long as the Income Tax payers held the Bonds. If they did not wish to hold the Bonds they could have the cash instead, but would many people be disposed to give up the equivalent of a 33 per cent, capital bonus by taking cash, instead of leaving their money in Government Bonds, yielding 4 per cent.?

I am glad the Chancellor does not shake his head at my suggestion, and I hope he will talk this over with his technical experts when he gets back to his office tomorrow morning. My suggestion would be equivalent to reducing Income Tax by, say, 1s. 9d., with the probability that the money would not be spent, so that we should have the incentive on the one side and most of the money saved on the other side. This would be a great attraction for the rich man. He would like his Government loan at 4 per cent. to be paid for as long as possible. Also it would attract the salaried man. The working man might well be given this bonus in the form of national savings certificates. That is a handy form. The sum might be only £5, £10 or £15 a year, but it would all be savings. There would be no capital loss to the Income Tax payer and he would get a good return for his money. All that it would cost the Chancellor would be 1 per cent. extra on the Tax which was paid back. The Chancellor may perhaps think that this is a worth while scheme. I hope he will tell me if it is, or discuss it when he replies. I firmly believe that it would be an economic proposition. It would cause the extra production that he wants, and it would also cover the point in the Economic Survey for 1948 where it says: .… it is unlikely that, without a radical change in the willingness of individuals to save, the total of net saving in 1948 in the absence of inflation will reach the necessary figure. Here is an encouragement to saving, an incentive for everyone to make more for export and to fill the shops at home with goods. The only possible loser would be the Treasury, but, as I have explained, the difference would be made up by increased production in industry and increased revenue. I hope that it will work; I think it will. I hope that the Chancellor will consider it very seriously.

9.22 p.m.

Mr. Lever (Manchester, Exchange)

As usual, I came prepared to address the Committee for a considerable period of time, and I find that I have only a few moments at my disposal. I shall not follow the hon. Member for Tonbridge (Mr. G. Williams), beyond saying that he has at any rate "got something" in suggesting that livelier ideas might be found to encourage national savings than the rather pedestrian methods still employed, which date from the time of Horatio Bottomley, or even the Boer War. I shall have to content myself with merely a partial economic salvation, because I cannot cover the entire field in the time at my disposal. Much to my amazement, I have to welcome the Chancellor's Budget. I find that, in spite of one or two minor criticisms, it is far and away the best Budget which this Committee has had. I say that as an admirer and as one who has great personal affection for the right hon. and learned Gentleman's predecessor.

The first point about this Budget is that the whole approach is right. It is right that, for the first time, we have abandoned the notion of a Budget as a mere method of raising x million pounds to pay for the Armed Forces, the sewerage system and so forth of the country, and realised that we have to use it as a means of furthering the economic plan. That is a Socialist approach which would he unthinkable from a Tory Government. I welcome it. I will not allow the extra halfpenny on a glass of beer or twopence on a packet of cigarettes—two imposts which I would not have placed on the community—to spoil my welcome for a Budget which is so fundamentally beneficial to the working people, by hand and brain, in this country.

I will not take up the time of the Committee in answering the political escapists opposite whose mutterings are to be heard from time to time. In the absence of reasoned arguments they have suggested all sorts of impracticable schemes to save the country, such as a reduction of Surtax, the abolition of food subsidies, and the cutting of social services. They have reached such a lamentable state of bankruptcy that a crackpot scheme for a national lottery amounts almost to a constructive proposal when it comes from hon. Gentlemen opposite. Therefore, I propose to devote myself to some of the criticisms which have been voiced by hon. Members on this side of the Committee. It has been suggested that the poorer people of the country will not get any benefit from this Budget. That suggestion is quite unfounded.

The whole purpose of this Budget is deflationary. The key benefit to ordinary people which overrides all the other benefits, which directly flow from the Budget will be that the purchasing power of the wages and salaries of ordinary people will start to reverse the tendency which has been present during the last few years. In other words, money in the hands of ordinary people and the social services of the country are steadily going to be worth more as the deflationary effects of this Budget make themselves felt, as they will. That is the real benefit that the ordinary person will get out of it.

I now want to deal with an objection made by hon. Members on the other side about profits. Profits are taking too high a percentage of the national income. If the Chancellor of the Exchequer had suggested very high Income Tax and Surtax amounting, on higher incomes, to 29s. 6d. in the £, I am sure that there would have been delighted whoops from my hon. Friends on this side of the Committee and cries of "Bolshevism" from the other side, but that is precisely what the Chancellor has done in respect of inflated dividends and profits over the last 12 months. The Chancellor said that the Special Contribution was "once and for all time," but I am sure that hon. Members on the other side will join with me in saying that we will defend to the last the right not to be committed for all time by any Chancellor of the Exchequer. I have no doubt that hon. Members opposite will be in the forefront of the fray when this battle is joined.

The other point I wish to make concerns the City—and it is rather queer for me, in the space of a few minutes, to have to adopt the rôle of a defender of the City. The ex-Chancellor suggested that there has been some sort of conspiracy in the City to destroy his cheap money policy. The reason I deny that—in fact, there is no evidence of it—is that it is rather important that none of our Ministers should have any excuses about conspiracies in the City, bankers' ramps or sabotaging civil servants, should they have to be called to account, not by hon. Members opposite, but by hon. Members on this side. If we do not get a Socialist success it will only be through our own maladministration. I am not going to admit that that failure was brought about by some obscure conspiracy in Throgmorton Street. Indeed I am bound to tell the ex-Chancellor, that, in Throgmorton Street, when he departed, there was many an eye unused to flow on his behalf that was drowned as he departed. I can assure the present occupant of his office that the Cripps era has not entirely commended itself to gentlemen in the City, as the ex-Chancellor seems to suppose.

I am glad that there has been no attempt to boost up gilt-edged and no attempt to continue the inflationary effects of the cheap money policy. There seems to be an erroneous idea among some of my colleagues that we should always have a cheap money policy for all persons at all times. I would, however, say to the Chancellor that he should make quite sure that the state of affairs whereby local authorities have to depend for money for their housing programmes upon the rates in the money market at any time should be abandoned once and for all. Local authorities should go to the Treasury and get their loans from the Treasury at 2½ per cent., and there is no reason why the Treasury should not provide them out of the Budget surplus or by subsidising their borrowing.

One final word on this question of expense accounts and tax evasion. It is quite apparent that tax evasion, legal and illegal, is prevalent, and that something stronger is needed than the statement made by the Chancellor in his Budget speech yesterday. Undoubtedly, there is a great deal of inflationary expenditure going on at the present time which is not covered by the provisions made in the Budget statement. All sorts of people are buying luxury cars which are, allegedly, reasonably wanted for the purposes of their businesses. I should like the Chancellor or his representative, when he replies, to express the Treasury view as to whether £6,000 Rolls Royces or Rolls Bentleys are really "wholly necessary and reasonable" for business purposes. In spite of bleatings of hon. Members opposite of "jobs for the boys," or "cars for the boys," apparently £6,000 cars are quite in order if bought through the firm for wealthy merchants. I doubt whether there is any real need of these cars, when it is resented that public servants should use the ordinary means of transport.

I urge the Treasury really to get down to the question of tax evasion and expense accounts which assume very great importance and I urge that something should be done now in the way of instruction to the Treasury and Inland Revenue officials. After all, they have had the light relief of the hon. Member for Ashford (Mr. E. P. Smith) and the scheme for an international lottery, and they might profitably now turn their attention to the closest scrutiny of all forms of tax evasion, legal or illegal, and all forms of expense accounts.

I will go no further because I promised to give my hon. Friend time to reply, but I welcome the Budget; it is a Socialist Budget and is obviously inspired by a Socialist approach. There are one or two matters about which I quarrel, such as this or that item of Purchase Tax or the liquor tax or the tobacco tax, but they are minor incidents in a very wisely conceived Budget, inspired by profound Socialist understanding and an understanding of the technique of Parliamentary Socialism.

9.33 p.m.

The Economic Secretary to the Treasury (Mr. Douglas Jay)

The hon. Member for Exchange Division of Manchester (Mr. Lever), if I understood him right, like the majority of speakers today, gave general support to the present Budget, and, therefore, I shall not enter into controversy with him. The hon. Member for Tonbridge (Mr. G. Williams), who spoke immediately before him, as I understand his speech, painted rather a gloomy picture of British industry holding back and suffering from inertia and lack of incentive, and I think he wanted the Government to make a large reduction in the standard rate of Income Tax in order to encourage those rather lackadaisical industrialists.

In reply to him, I would say that his description of British industrialists does not altogether agree with my experience. I believe that they are pretty active at present and that they do not require a large reduction in Income Tax in order to urge them on to public-spirited efforts. In the second place, he hardly seemed to notice that one of the most important features of this Budget has been the large reduction in the effective rate of Income Tax on a very large number of productive workers, so I think we have gone a long way already to meet the point.

In his opening speech, the right hon. and gallant Member for Gainsborough (Captain Crookshank) spoke, if I may say so, very agreeably, but he did not seem to me to make a very forcible indictment of the present Budget. His main point was, I think—indeed, it seemed to me to be his only substantial point—that the Government had not sufficiently reduced expenditure. I would like to make two comments on that straight away, Major Milner. The first comment is that we have, in fact, reduced ordinary expenditure, quite apart from the below-the-line items, by £700 million in the past year as against the previous year, and we are reducing it by a further £233 million in this present year as compared with the year just passed; and if you add those two together, so as to allow for the switch, as it were, of the Argentine food expenditure, that is a saving of £933 million over two years. As that is a sum virtually equal to the total expenditure in the Budget before the war, I do not think it is a bad record to have made that saving in only two years. That, of course, is after we have provided for the whole increase of expenditure this year on account of social services and the National Health scheme.

My second comment is, that it surely is a remarkable tribute to the care with which the Treasury does, in fact, husband our national finances these days that the actual expenditure in the past year was only a fifth of r per cent, above the estimates. The hon. Member for Cheltenham (Mr. Lipson), who is not with us at the moment, asked for an assurance that we propose to continue in the tradition of what he called "wise housekeeping" and acting as the "watchdog" of the public purse. I can give that assurance; and I can also give as proof of our sincerity in that, the fact that we did achieve that record in the past year.

I wonder how many private households and how many private businesses succeeded in the past year in not exceeding the total expenses which at the beginning of the year they expected to incur. I must say that I think that is a considerable tribute to the financial adminis- tration of both the present Chancellor and of his predecessor. It seems to me, surveying the whole of this Debate, that there has really been no serious challenge to the main principles of the Budget which the Chancellor enunciated yesterday. The hon. Member for Cheltenham called it an honest and realistic Budget, in the very interesting speech which he made. I think that probably that is really the general verdict on it.

As I understand it, there are three main principles on which this Budget is founded. First, I think we all agree that the present situation demands, as a prime national necessity in the interests of the whole population, further vigorous anti-inflationary measures. The hon. Member for Cheltenham gave as one reason for vigorous measures of that kind that we want to strengthen the purchasing power of the pound and the confidence felt in the pound abroad. I should like to assure him that we entirely agree, and we believe that the measures we have taken will, in fact, contribute to that end. The hon. Member for Lonsdale (Sir I. Fraser) made a suggestion on which I ought, I think, to comment, and which is relevant to this particular point. It was that we should try to get out of cur difficulties by raising the sterling price of gold. A rise in the sterling price of gold would, of course, be equivalent to a devaluation of the pound. I think I should say that we have no intention of taking that step. We do not believe that it is either desirable or necessary.

We believe the solution is rather on the lines of what the hon. Member for Cheltenham suggested, that is to say, counter-inflationary measures to help maintain the true value of the pound. We take our stand on the arguments of Chapter IV, on the national income, in the Economic Survey, which, as hon. Members may remember, suggested—and I think that this only confirms the evidence of the naked eye—that the nation's savings were not running at that time at a sufficiently high level to check the inflationary pressure. That is the first principle, as I see it, of this Budget.

Our second principle is that a bigger Budget surplus must be one indispensable further weapon in our effort to increase total saving and to fight inflation. I believe that the overwhelming weight of independent opinion endorses this. Hon. Members will have read, for instance, the letter by Professor Lionel Robbins in "The Times" last Thursday, in which he suggested that, The Chancellor should cling to his surplus and seek to enlarge it by all legitimate means at his disposal. "The Economist"—which is not always uncritical of the present Government—said virtually the same thing last weekend.

Our third principle, I would say, is that this Budget surplus must be obtained in such a way as to increase rather than diminish the reward and incentive for the productive section of the community.

Now, it would have been extremely odd had the Opposition seriously challenged any of those propositions this evening. For the past 12 months their main complaint against the Government, so far as I have understood it, has been that inadequate anti-inflationary measures were being taken. If there is any policy which Opposition speakers and writers have advocated over these months, it has been the policy of a bigger and better Budget surplus. We have heard this constantly, in particular from the hon. Member for Chippenham (Mr. Eccles)—whom I see present tonight—who told us a year ago, in the Debate on the Economic Survey, that it was the duty of the Government by all means in their power to check the growth of the vast mass of purchasing power left behind by the war, and overhanging us at the present time. The right hon. and gallant Member for Gains-borough said the same thing, as also did the right hon. Member for West Bristol (Mr. Stanley) on several occasions. Again and again we have been advised to introduce a bigger Budget surplus, a more counter-inflationary Budget: that is exactly what we are doing at the present time. In fact, it seems to me that the only difference between us and the Opposition on this point is that, whereas they are anxious to will the end, we are prepared to will the means as well.

I was rather surprised that this evening more has not been said about the balance of payments problem, which, after all, stands at the back of the whole of this Debate, and is one, if not the main, reason for the counter-inflationary policy which the Government are following. It is true that the hon. Member for Newark (Mr. S. Shephard) and the hon. Member for Ashford (Mr. E. P. Smith) did mention the balance of payments; but that was only as a sort of prelude to their suggestion for an international lottery, on which I do not propose to comment at any length now. The hon. Member for Mile End (Mr. Piratin) also introduced the subject of the balance of payments; but in his case that was only in order to make a number of fantastic allegations about the conditions of Marshall Aid which he thought were being imposed upon us. I can only say, briefly, that all those allegations were untrue, and that no such obligations or conditions are being imposed upon us.

In particular, the hon. Member for Mile End mentioned the old story—although I notice that he has not stayed to hear the answer—that the Government made a cut in the allocation of steel for shipbuilding—apparently at the behest of Wall Street. As a matter of fact, we did not make a cut in the allocation of steel for shipbuilding: we made an increase—actually two increases—and the opinion of the Americans had absolutely nothing to do with it one way or the other. That has already been conveyed to people in the shipbuilding industry, for which the hon. Member was professing to speak. There is rather less shipbuilding in Mile End than there is on the Clyde, but apparently he was professing to speak for the workers on the Clyde. If the hon. Member were still here, I would assure him that we also mean to stick to our policy of democratic planning, and not to adopt the sort of method for which, as he frankly told us, he stands.

It has been argued that there is some inconsistency between, on the one hand, our policy of holding down prices by subsidies, by the White Paper on Personal Incomes, Costs and Prices and other measures, and, on the other hand, maintaining our surplus by indirect taxes. That is a natural criticism which has been made both inside and outside the Committee, but I believe it is founded on a misconception. It ignores a fundamental distinction on which we base our price policy. We distinguish between two sorts of commodities. On the one hand, there are those commodities, in effect, necessities, where a rise in price would inevitably and justifiably provoke demands for higher wages and pensions, and on the other hand, those commodities, luxuries and semi-luxuries, where it would not do so.

In our opinion an all-round rise in the cost of food and other absolute necessities would provoke a demand for higher wages and other higher incomes, whereas a rise in the price of, say, jewellery or motor cars would not. Therefore, the policy of keeping the prices of necessities down is a truly anti-inflationary policy, and at the same time a policy of higher taxes on luxuries, because it draws away purchasing power into the Exchequer and does not, in fact, provoke claims for higher wages or salaries, is also an anti-inflationary policy. That, very briefly, is the logical basis of our policy on food subsidies and price controls as laid down in the White Paper on Personal Incomes, Costs and Prices, and it is also the basis of the changes in indirect taxation which we have introduced in the present Budget. Viewed in that light hon. Members will see on reflection that all these measures form part of a coherent anti-inflationary policy.

Some hon. Members, particularly the hon. Member for Norwood (Mr. Chamberlain), have questioned whether we have not applied these principles in the case of beer and tobacco, which they have pointed out are natural commodities of ordinary consumption. It is perfectly true that these are commodities of ordinary consumption, though I must say they cannot be put in the category of absolute necessities, like milk, bread, fats, or meat. We regret very much the necessity for raising the tax on beer and tobacco. We recognise it will cause inconvenience and disappointment to a very large number of people, but I would ask hon. Members who have criticised this to reflect on these points. The Budget must be regarded as a whole and in the light of our balance of payments situation. Quite frankly this is not a Budget under which it is intended that everybody should in some way or another be better off. It is intended to check inflation and thereby to hold down the prices of real necessities, enabling those who earn more by work to keep more, whether they save it or spend it. We do not pretend that this Budget will enable everybody to be better off, whether they are working or not.

In the case of tobacco, I am afraid that we cannot accept the argument that everyone is entitled to go on smoking as much as before without paying any more for it. The fact is that, as a nation, we cannot afford the rate of smoking of American tobacco in which we have been indulging for the last two years, and the sooner we recognise that the better. I would also point out that the vast majority of those who are going to pay more for their beer and their tobacco will, at the same time, be benefiting by the food subsidies which we are maintaining and on a very much greater scale this summer by the large increase in social security payments.

Mr. Assheton (City of London)

And paying the contributions.

Mr. Jay

Yes, they will pay the contributions, and it is perfectly right and just that they should do so. I hope hon. Members will remind their constituents of the facts which I have given.

We accordingly believe that all these anti-inflationary measures are necessary. We believe that a big Budget surplus is necessary as well. The view of the Opposition, so far as I have understood today's Debate, is that they agree that the surplus is necessary, but, having willed the end, they do not seem to be willing to will the means. After all, if we are to have a large Budget surplus, we must have either higher taxes or lower expenditure. If the Opposition think that the right solution is higher taxes, they ought to tell us which taxes should go up. As I understood the speech of the right hon. and gallant Member for Gainsborough this afternoon, he was opposed to the increased taxation upon beer, whisky and tobacco. If he cuts those out, he makes a very large hole in the revenue. I did not notice how he proposed that we should make up the difference. If, on the other hand, his solution and that of the Opposition is that the gap should be close d by cutting expenditure, they should tell us which expenditure they want to cut.

I cannot accept the view that there is no obligation upon the Opposition to tell us those things. Is it expenditure upon defence that the Opposition wish to cut first? I find that difficult to believe, particularly in view of the speech which the Leader of the Opposition made upon the Naval Estimates the other day. Do they propose that expenditure upon the debt interest, which now totals £500 million, should be reduced? I do not believe that either, because the Opposition have been vociferously attacking our cheap-money policy for the last two years. If we had abandoned that policy and let interest rates go up to the level of 1920, the bill would not be £500 million but more like £1,000 million. Is it the social services on which the Opposition want to economise? Some of us were rash enough to think a year ago, following the celebrated speech of the right hon. Member for the Scottish Universities (Sir J. Anderson) about our having improved old age pensions and introduced family allowances too hastily, that that was what the Opposition really want to do. In by-elections the Opposition have been explaining away that speech ever since, and I think that the right hon. and gallant Member said today that that was not the intention of the Opposition.

If that is so, we are very glad of it. We are very glad to have their support for the whole of our social service expenditure. I believe that the noble Lord the Member for South Dorset (Viscount Hinching-brooke) takes a different view. I was not here during his speech, but I think he wanted to make a cut in the social services; so we are still left in slight doubt on this point, as on so many others, as to just what the Opposition's policy is. If we may take an indication from their Front Bench, apparently they do not propose economies in the social services, so no contribution to the Budget surplus will come, in their view, from that source either.

Finally, would they economise on food subsidies alone? Again, many of us inferred from the speech of the right hon. Member for the Scottish Universities about reducing those subsidies to negligible proportions that that was the Opposition's one contribution to a solution. But, frankly, I was left a little vague about the Opposition's attitude upon that matter, after the speech of the right hon. and gallant Member in opening the Debate. I believe they would advocate some reduction in the subsidies, coupled with a handing back of benefits to certain selected classes. I do not know how far the handing back of benefits would go. If it would not allow for increases in wages to many of the lowest-paid wage earners, the result would only be to impose harsh burdens upon some of the hardest-pressed housewives in the whole community. On the other hand, if it would involve extra benefits on a wide scale, the surplus to the Budget which would come from that source also would be almost negligible. So far as I can understand it, the truth is that the Opposition want a Budget surplus in theory, but they are not yet prepared to tell us either which taxes they would raise or which expenditure they would cut.

I gathered in particular from the right hon. and gallant Gentleman and from other Members of the Opposition that they specially disliked the Special Contribution, as we call it, on large unearned incomes. This contribution has been described on both sides of the Committee as a capital levy. We do not greatly object to that description, but we did not call it that ourselves because it is not assessed on capital. The Leader of the Opposition yesterday, in his very short speech, impugned our intention to make this a once-for-all levy. I would like emphatically to repeat that it is our intention that this should be a once-for-all levy, and I do not think it is very wise of hon. Members opposite to put ideas to the contrary into the heads of my hon. Friends behind me—

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

And right hon. Friends.

Mr. Jay

My right hon. Friends have active minds as well. I was asked by the right hon. Member for Bishop Auckland (Mr. Dalton) how many persons will pay this levy. The answer is 125,000 persons. I was asked by the right hon. Member for Gainsborough whether farmers' profits are liable to this tax. The answer is that farmers' profits are not liable: they do not count as investment income for this purpose. The hon. Member for Cheltenham asked whether charitable institutions would be exempted from this contribution, and the answer is that they will. Briefly, there are three good arguments for this Special Contribution—

Sir W. Darling:

Will the hon. Gentleman deal with the matter of children's clothing, to which hon. Members have referred?

Mr. Jay

I cannot deal with that in the middle of the Special Contribution.

Mr. Vane

Will the hon. Gentleman answer my question?

Mr. Jay

There are three arguments in favour of the Special Contribution. In the first place, I believe that, on balance, it will be counter-inflationary in its effect. It may not be entirely paid out of income, but in so far as it is paid out of capital, it will make the payers feel rather less rich than they were before, and to that extent it will tend to reduce their expenditure. Secondly, one great merit of this tax is that it will make a contribution to a more democratic and equal ownership of property in this country. That is another objective to which hon. Members opposite have in the past professed to adhere but about which they have never done anything very practical. Thirdly, it has this merit. As hon. Members behind me have pointed out, there have been some very large profits and some very large capital gains in this country in the last few years. It is not very easy to catch those capital gains directly for various technical reasons, but we believe that this contribution will very largely fall on the same people who have benefited by these hitherto untaxed capital gains.

Finally, for all those reasons we believe that this Budget is both economically right and socially just. You can call it an incentive Budget if you like because it transfers burdens away from active producers on to the property owners, or you can call it a housewives' Budget because it transfers the burden from women on to men and lightens the cost of household necessities. For all these reasons, I submit to the Committee that this is a wise and sane Budget.

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

Committee report Progress; to sit again Tomorrow.