FINANCE (No. 2) BILL

HC Deb 25 June 1948 vol 452 cc1711-93

Order for Third Reading read.

11.19 a.m.

The Chancellor of the Exchequer (Sir Stafford Cripps)

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

This Bill, which incorporates our financial policies for the current year, now comes to the House for its Third Reading. It is not possible within the strict limits of a Third Reading Debate for me to make any general statement on this occasion on the finances of the country, and much less, of course, upon our economic situation. Nevertheless, I think I may be permitted to say a few words upon the problems with which this Bill deals, and upon the necessity for the provisions which it now contains in its amended form in the circumstances which exist today. I do this the more willingly because there has been some indication in the Press and elsewhere that circumstances have changed since the Budget which was introduced a little over two months ago, and that the policy which I then declared had been to some extent changed or modified in the course of the discussions through which this Bill has passed. Both of those assumptions are unjustified.

The Bill was and is designed to deal with our financial and economic situation in three main ways: first, to counter the inflationary tendencies by budgeting for a large surplus over the year which could be used for counter-inflationary purposes; second, to increase somewhat the incentive towards greater production so far as it is possible to do that within our limited means; and third, to redistribute to some extent the burden of taxation. All those objectives stand and they are all, I believe, still achieved under the terms of the Bill as it now comes before the House.

Certain changes have been made in the Bill since the Second Reading, but they are adjustments for particular reasons, and they do not make any large difference in the total results to be anticipated in the finances of the country. Indeed, the net result of all the changes is an estimated reduction of the surplus by £9 million this year; that is, to reduce the surplus of revenue over all forms of expenditure from the £330 million figure which I gave in the Budget speech, to £321 million. The surplus thus remains in the region of £300 million which I said to be necessary, in my view, to counter the inflationary tendencies. I will return a little later to that item, but first, before doing so, I will deal with the provisions of the Bill upon the other two objectives that I have mentioned.

The provision of such incentives as we could afford in order to increase production is certainly no less necessary now than it was when the Bill was introduced, for the production of every kind of material, commodity and service remains the vital necessity for our continued capacity to live and to produce in this country. These incentives include various adjustments in the Income Tax, the increased earned income relief, the raising of the exemption limit, the benefits for married women who are earning in industry or elsewhere, and the larger band of income at the reduced rate of taxation. Together those alterations in the law will benefit the taxpayer at the lower end of the Income Tax scale to the extent of something rather over £100 million a year. I believe it is generally felt in the country that these adjustments are the best that can be made within our limited resources. Those reliefs which, as the House knows, date back to the beginning of the financial year, will become effective on the first pay day after 6th July. Thereafter deductions under P.A.Y.E. will be reduced to the level appropriate to the new basis of taxation, and that change will, I hope, be appreciated in the pay packets especially where overtime has been worked.

In addition to those reliefs, as the House knows, in order to assist the housewife we have made a new classification of goods for the purposes of Purchase Tax, and introduced a new form of Schedule which will, I hope, clarify the situation and make it simpler to understand Despite the very large number of Amendments which were put down on the Committee stage to that Schedule I believe we have succeeded in dividing the more essential from the less essential commodities and adapted the level of taxation to each of those categories. I hope very much that in future Finance Bills we shall be able to preserve this main classification, making any alterations by moving up and down the general rate of tax upon each group of commodities rather than trying continually to change commodities over from one group to another, because that would obviously entail much less violent movements for individual taxes and less difference in treatment between those who make and sell different classes of commodities. Nevertheless, we must also retain the power to use this tax to assist us in our economic planning where and when that is necessary; but at the same time, trying to reduce as far as we can the extent and frequency of changes of classification for that purpose, so as to minimise the inevitable disturbance which they cause to trade.

According to the Budget proposals, the changes in Purchase Tax represented a net reduction of £24 million in the full year, made up of a gross reduction of £50 million and a gross increase in the case of those commodities that we put into a higher classification so far as tax is concerned of £26 million. As a result of the subsequent action at various stages of the Bill's passage through the Committee and the House, further adjustments have been made bringing a number of items down into lower categories than those in which they were placed in the original Schedule. A number of those changes were, in effect, a re-classification of the goods, some which had been dealt with as less essential being transferred into the more essential category. The restoration of the exemption for children's non-utility clothing, the reduction of tapes and ribbons and so on to the same rate as other kinds of haberdashery, the removal of the tax on oil lamps and certain portable baths and on paper towels, were all made for that purpose—that is to say, of getting the classification better—and incidentally they increased the net reduction to the rate of £28 million in a full year.

During the Committee stage there were shown to be special circumstances of an economic character developing as to some particular industries, in which it was suggested that a remission of Purchase Tax might be of assistance. Four manufactures were principally emphasised in that relation—wireless sets and valves, clocks and watches, certain categories of kitchen furniture and utility fur coats. All these industries affected particularly the Development Areas and in all there had been a marked change of demand which threatened rather serious consequences, particularly, in some cases, as regards production for export. It was, however, the special nature and location of the industries which was urged as the reason for dealing with their products by way of reduction of tax and, as the House knows, we have on the Report stage made adjustments in every one of those four cases.

The concessions then made will cost about £6 million this year and we believe that the action was justified, not because of any general change in the economic situation but because of the particular circumstances of those individual industries. The total reduction, therefore, in purchase tax is at the rate of £39 million in a full year, compared with what it would have been at pre-Budget rates, and this will, we hope, in itself be some inducement and also should help in the general drive to keep down and lower prices.

Mr. Edgar Granville (Eye)

Was £15 million the total of the concessions made during the passage of the Bill?

Sir S. Cripps

In a full year.

Passing to the second objective, the more equitable spreading of the load of taxation, I would like to make this observation. When direct taxation reaches very high rates and extends over a great part of the incomes of the community, the old arguments in favour of direct as against indirect taxation cease to have a great deal of their force. The higher and more general taxation becomes, the more good reason is there for a large measure of indirect taxation, because that gives the citizen the choice of how much and how he will pay his share of taxation. That principle, of course, applies to the present taxes on, for instance, tobacco, beers, wines and spirits. Anyone who wishes to do so can avoid paying any more tax through these commodities by a very small degree of abstinence.

Mr. John Paton (Norwich)

That does not apply to taxes on necessities.

Sir S. Cripps

I am dealing at the moment with taxes on beer, tobacco, spirits and wines.

Mr. Paton

I thought the right hon. and learned Gentleman made a general statement.

Sir S. Cripps

I made a general statement because today there is substantially no indirect taxation on necessities; that is the distinction which has been made. Necessities which used to be taxed very considerably are today substantially no longer taxed. When one is talking about such commodities as those I mentioned, a very Tall degree of abstinence can, if an individual wishes to do so, enable him to avoid payment of taxes on those articles, whereas, if it is a question of Income Tax, however much he likes to abstain, he cannot avoid paying the taxes.

Mr. Oliver Stanley (Bristol, West)

What happens if everybody abstains?

Sir S. Cripps

Fortunately, owing to the law of averages and human nature, that never happens, and that is one of the risks which every Chancellor of the Exchequer so far has taken with justification. It was necessary, if we were to maintain this large surplus required, and generally accepted as being required this year, and at the same time if we were to give the remissions and encouragement that I have mentioned—which also, I think, was generally agreed as being desirable—that we should impose new taxation. Although beer, wines, spirits and tobacco are used by all classes and sections of the community, it is, of course, right to recognise that the incidence of high taxation does, in these matters, fall harder comparatively on the less well-to-do.

In the consideration, therefore, of the fair distribution of taxation there was a very strong case, in those circumstances, for raising more money from those who could better afford to provide it, so as to obtain a better balance between all sections of society in their contributions. Here it was thought that the fairest and the easiest way was to ask those with very considerable capital resources to make a once-for-all contribution from their capital to help to deal with the exceptional circumstances of our finances this year. That, of course, was the provision in the original Bill, which still remains, of the Special Levy.

In the course of its passage in Committee and in this House, it has been adjusted on a number of matters in order to make it more equitable and less hard on particular individuals who might otherwise have suffered, but it is not thought, although it is difficult to estimate, that the receipts as a result of these adjustments and amendments will be reduced by more than one or two millions, at the most. Indeed, the fact that the payment of the Special Levy already amounts in advance to rather over £4,500,000 is, I think, a great tribute to the good sense and public spirit of those who—as they were asked to do—have made a payment on account. It is pleasant to think that they will be rewarded by the interest which they will get to assist them with that payment.

I think I need not mention specially any other part of the Bill, but I should like to return now for a moment to the first major point with which I dealt. I said that this Bill had, as its first objective, to create a disinflationary situation, so far as that was practical by financial measures, in view of the external forces which are playing upon our internal economy. As I stated, it has been questioned whether, since the Budget was introduced, circumstances may not have changed. Let me then, if I may, review for a moment the principal signs of inflation and deflation to see whether there has been any noticeable change in the matter.

The monetary situation certainly does not show any marked change since the Budget. The level of bank deposits was some £300 million higher in May this year than in May, 1947, and was very little less than in December, 1947. In the latter part of last year, as the House will remember, there was a big fall of £150 million in the note circulation, no doubt due to special factors, but recently that trend has turned slightly upwards again. So far as unemployment is concerned, the latest figures for the middle of May show that it is below 300,000, which certainly gives no indication at all of any general fall off in the demand for goods or services. There is, therefore, no general indication of any turn towards deflation, and nothing to show that we need have any fear of any sudden change.

We must remember that we are, after all, trying by this Finance Bill to bring about a disinflation, that is, to make some change; and if we see some hopeful signs of achieving our purpose we should not rush to the conclusion that we have gone too far, and that we are about, therefore, to embark on some deflationary crisis. It is and will be a sign of the success of our policy in countering inflation that the demands for some types of goods will fall off—for the less necessary goods, that is to say; and that is one of the things that we want to accomplish, so as to enable the more vital forms of production to have a greater draw on the available resources of labour and materials. There is still a very great amount of under-manning in some of our most essential industries, and until that state of affairs is cured we cannot say that we have disinflated our economy.

The sign of a generally high inflationary pressure is, of course, that there are apparent shortages everywhere; everyone is competing for labour and materials to make anything and everything. As inflation diminishes the shortages become more selective, and gradually surpluses are thrown up in the field of luxury or less necessary goods, and this gives the more vital industries the chance to get more material and labour, and so to increase their production and their exports. It is this process that we hoped to initiate by the Budget. But so far there are only the very smallest signs that we have accomplished anything at all—though there are signs.

That process has got to go much further, and, as I warned the House on an earlier occasion, it will create some degree of discomfort and hardship in the course of the necessary change over. It is our object to moderate that discomfort and hardship, but not by stopping the process. We must go through with our disinflation if we can. We can take steps, as we have done by some of the changes I mentioned in the Purchase Tax earlier, to meet special and particular cases, and to try to ease difficulties. But we must not make any changes which will change the general direction—or even the degree—of our action in this matter. As I have already told the House, we shall watch these developments with very close attention to see exactly when the moment comes to make some alteration in our policy. It is because I believe that this Finance Bill attains those three objectives which I have mentioned, all of which are still essential to our financial and economic stability, that I commend it to the House.

11.44 a.m.

Mr. Oliver Stanley (Bristol, West)

We arrive today at the final stage of our annual marathon. I trust that, as opposed to that of last year, it will be an annual and not a bi-annual event. I think all of us can congratulate the modern Dorando on having arrived at the winning post in such good shape. I shall follow his example, and deal only with the principal questions contained in this Bill. There is, however, one point which I should like to make first. We on this side have sat here for many hours during the Committee and Report stages of the Bill; and, with the exception of the usual Dutch auction on the Purchase Tax, which I must admit was conducted this year with more decorum than usual, I do not remember a Budget in which so little has been given to the Opposition.

Of course, no Opposition expects during the passage of a Finance Bill to change its main features—those main features in which not only party politics intrude but which involve large sums of money, and in which a change might wreck the whole financial provision. However, the big, broad questions of that kind occupy only a small part of every Finance Bill. There are many provisions, many Clauses, in which no party issue is involved, and on which no large sum of money depends; Clauses which are largely technical in their character and where the Opposition are able to put before the Chancellor and the Committee the views of people particularly affected, and can usually expect to receive satisfaction.

I think it has been the general experience of hon. Members on this side that that has not been accorded to us this year. Time after time we have moved Amendments in the certain knowledge that we should receive the inevitable negative reply, and the only interest left to us was to contrast the different styles in which the varying members of the team on the Treasury Bench said "No." Of course, the right hon. and learned Gentleman is best at saying "No," because for him to say "No" is not only a duty but a pleasure as well. I think the controlled satisfaction on his face when he turns down our Amendments must be very like the look on the faces of officials of the Inquisition when they advanced, with the utmost courtesy, to place just one more log on the burning fire. But we had other members of the old team, the Solicitor-General and the Financial Secretary to the Treasury, with the same technique that we have enjoyed in previous years—only, I think, this year more so. The Solicitor-General, as usual, has taken refuge in polysyllabic unintelligibility. This year he has been more polysyllabic and less intelligible. The Financial Secretary pins his faith on apologetic incoherence. I think this year he has been more incoherent and less apologetic than in previous years.

We have had newcomers to the team. There is the Economic Secretary to the Treasury. He was obviously consumed by indignation at the idea that anybody else should have thought of something he had not thought of first. He has treated those of us on this side who have dared to move Amendments with the same affronted superiority, with which, as he told us himself in his book, he would regard the mother in the back street who dared to argue household questions with the bachelor in the back room.

Finally, there has been the most mysterious member of the whole side—the Paymaster-General. I think I am right in including the Paymaster-General in the team, because he bears all the insignia. He has sat here consistently; his entrances have been busy and his exits have been bustling; and he has carried under his arm—and sometimes even over it—a bulging file of Treasury briefs, which is the insignia of the tribe at this moment. He has had everything and done everything, therefore, except take part in our discussions. All through the match he has sat in the pavilion with his pads on, but nobody has allowed him to bat. I can only regard him—I do not know whether rightly or wrongly—as in the position of a trainee, and, if the rumours with regard to the destination of the Financial Secretary are true, I can only suppose that we are to see the hon. Gentleman filling the only gap which now exists in the living rampart of theoretical economists which surrounds the Chancellor of the Exchequer.

There is one thing, however, that I do regret. Whatever the proposal framed, it was always met with the argument of administrative convenience—not that injustice did not exist or that there was no unfairness. All those things were either omitted or ignored, and the inevitable answer was that it was more convenient for the Treasury to do it in this way. I hope that we shall not get to the stage where the administrative convenience of the Treasury is always allowed to take the first place over justice and the first place over the citizen.

Like the right hon. Gentleman, I want to say a few words about the general position under this Bill. During the earliest stages of the Budget we on this side of the House expressed the view that with all its demerits it was at least a realistic attempt to deal with inflation. As such we welcome it. There are, of course, many points of difference. We would have preferred—and this I cannot discuss now—that the necessary Budget surplus should have been obtained rattier by the reduction of expenditure than by the increase of taxation, and to certain of the provisions for increased taxation we did and do take strong exception; but we supported the right hon. and learned Gentleman in the main objective with which he introduced this Finance Bill. That was nearly three months ago, and as the right hon. Gentleman said, much has happened since, but so far as I am concerned nothing that has happened has caused me to withdraw the support on general lines which we gave to the objects of this Budget in April.

I agree with the right hon. and learned Gentleman that although we have received reports of a changing position in certain industries and with regard to certain goods, nothing has yet arisen which it would be wise for us to assume indicated a complete reversal of the inflationary trend which was the great danger in past months, and which so easily may become a great danger again. As the right hon. and learned Gentleman quite truly said, if we are to succeed in stemming the inflationary tide, then the sort of changes on which we are receiving reports now were to be expected and, indeed, must have been intended. I agree with him that changes of that kind are not pleasant, but no one ever pretended that it was possible to stop inflation without unpleasantness.

I understand, although I speak without personal experience, that in the early stages of an attempt to cure the drug habit, the thing that causes the patient the most inconvenience is not the drug but the cure, and that, of course, is exactly the case when we are dealing with the opium of inflation. I agree further, that the symptoms of a decline in inflationary pressure are today scanty and that there is no reliable proof that the trend has been permanently and sufficiently reversed, and that the symptoms we see, may be the preliminary to a general deflationary movement.

As the right hon. Gentleman said, and as we all recognise, it would be just as dangerous to allow the new deflationary tendency to go too far as it has been during the last two years to allow the opposite inflationary pressure to get out of hand. The responsibility, of course, must rest on the Chancellor of the Exchequer. It is not an easy task for him. It requires considerable courage not to stop the deflationary trend too soon, and it will require considerable judgment not to leave it too late. Above all, it will require speed of decision and speed of action, and we on this side of the House hope that we shall not see in the Treasury and the Chancellor of the Exchequer the same obstinate crawl which we detected in the President of the Board of Trade when a similar problem arose in special circumstances over the textile trade.

There are two main blocks of taxation included in the Bill on which I want to say a few words. The first is Purchase Tax. There probably has been no fiscal subject on which there has been more controversy among people interested in this subject over the last few months than the Purchase Tax, and the real effect that the Purchase Tax has upon the inflationary situation. The Purchase Tax, of course, is a tax which nobody likes. I sometimes wonder whether there is anyone who likes any tax, except, of course, the hon. Member for West Ealing (Mr. J. Hudson) who approves of the beer tax. Of course, the Purchase Tax was introduced in an emergency, admittedly to meet that emergency, and it was only continued in the post-war years to meet equally critical conditions in our monetary situation. As a permanent feature in our tax law, everyone, I think, would admit that the Purchase Tax has many defects, and if it is necessary, as it may well be, to retain some form of indirect taxation of this character, the time will come when consideration must be given to the recasting of the whole scheme. That is, however, impossible at this stage, and no one suggests that it should be done in the present critical position.

I think that at one end of the scale, at any rate, the Chancellor of the Exchequer has drawn the right dividing line in cases covered by the Purchase Tax; that is to say, if we place Purchase Tax on necessities or semi-necessities, the Purchase Tax, to my mind, becomes inflationary in its character. It is only when it is confined to goods which, if they are not luxuries, are, at any rate, not necessities, that it can have a deflationary effect, and the rearrangement of the Schedule, to which we on this side have given our approval, has had, as its purpose largely the removal from Purchase Tax of those articles which are necessities or quasi-necessities in their character. When we deal with those categories which are still subject to Purchase Tax, there is one important point of principle to determine, and one on which, I think, we are entitled to know where the Government stand. We can regard the Purchase Tax as a purely fiscal instrument designed to mop up surplus purchasing power and obtain the necessary revenue. If we regard it in that light, then it is inevitable that the range of Purchase Tax must be such as to prevent the articles on which it is being imposed from being sold.

There is another use to which Purchase Tax can be put, and that is with regard to the redistribution of labour and materials, to which the right hon. and learned Gentleman has referred; in other words, by making particular articles so expensive that they cannot be sold, to force unemployed labour and unused material into other channels.

I believe that that way of forcing the redistribution of labour and materials is the most wasteful and the cruellest way of obtaining the desired result. Yet I must confess that there were some at any rate who thought that as this Finance Bill was introduced that was the purpose behind at least some of the Government's use of this tax. For example, I cannot really believe that the Treasury did not know previously the trend which was already occurring in the wireless industry, and it would appear that they started with the idea of using the Purchase Tax as a means of compulsory redistribution of men and resources. But in the course of debate, with the Amendments they have made, they have returned to the original view of treating this tax as a merely fiscal weapon. We are entitled to know whether the Government regard the use of the Purchase Tax as a means of redistribution as part of the functions of that tax.

There are only two other things I would say on the Purchase Tax. The first is—and here I think that something which the Chancellor said in his speech gives us some hope—that we must have an end of the see-saw which has been going on in the last two or three years in the imposition of the Purchase Tax. There are some industries in which the rate of Purchase Tax on the articles they produce has been changed no fewer than four times in the last two years. How can we expect efficient production if, at intervals of six months, the tax is lowered or raised, and not by 1, 2 or 5 per cent. but by big steps which reflect themselves in big variations of price? I hope that the Chancellor will, as he has now hinted, in future adhere to the movement of categories rather than of articles. I hope that we can regard this Budget as the high-water mark of the Purchase Tax, and that whatever changes we are to see in future in the incidence of that Purchase Tax, will be changes in a downward direction.

The only other point in regard to Purchase Tax is one which we have stressed on several occasions and which in future may become of very great importance indeed. I refer to the loss which is suffered by the retailer when the Purchase Tax is lowered. Now, of course, it is merely a case of isolated individuals or industries who have to bear what we consider to be a wholly unfair burden. That is hard on them, but it may not be disastrous to the national economy. But there might well come a time, and that before long, when, if there is a real deflationary trend which has to be arrested, it may be decided that the quickest and best way, or one of the quickest and best ways, is by a general reduction of the Purchase Tax.

Any general reduction of that kind would mean in each case immense and admitted losses. But the mere fact that that is inherent in any reduction of the Purchase Tax will cause retailers, if it becomes a possibility, to reduce their stocks, to cease purchasing from the manufacturers in order to avoid such a loss, and will, therefore increase the difficulties of the manufacturers which the deflationary trend will already have been causing. I beg the right hon. and learned Gentleman to make a great effort to see whether some machinery cannot be devised to do away with what is now unfair and what in future might become disastrous. I cannot believe that if he gives instructions to the Treasury that a way is to be found, that way will not be found. I beg him to do so before what is now a small grievance becomes, as it may well do, a large factor in an uncontrollable deflation.

We have already discussed the Special Contribution at considerable length during the various stages of the passage of this Bill. Many of the earlier arguments that we used about this new tax have now been rendered unnecessary. We began, of course, by discussing this on the serious basis that we regarded it as a genuine economic proposal, something which was really intended, if in a misguided way, to deal with the inflationary situation. We wasted our time discussing whether it did or did not affect inflation. I think that we were able to prove that it could have no effect whatever on the inflationary situation. Since then the Economic Secretary to the Treasury has informed us, with great candour, that we were wasting our time, that this was not an economic proposal at all, and had nothing to do with the fight against inflation. It was purely a political measure. It was merely designed, by "soaking the rich," to make more acceptable the real measures against inflation which had to be imposed upon the rest of the community.

In those circumstances argument becomes much easier. One need not argue whether it has anything to do with inflation, because it has nothing to do with it; one need not argue whether it is just or unjust because it is not meant to be just. All one has to argue is the political effect. There the hon. Gentleman produced the conclusive answer, from his point of view, that, after all, this injustice merely affected 125,000 people. What are 125,000 people? Two hundred voters a constituency—not worth tampering with the Representation of the People Bill for something like that. I believe that this political excursion, satisfactory as it may be for the right hon. and learned Gentleman and his friends at the moment, will in the long run be found to have been a very shortsighted measure.

Looming behind the shortage of material resources, which at present tends to obscure the problem, is the biggest problem which will face Chancellors of the Exchequer for the next ten years. I refer to the problem of national savings. How, in fact, are we to accumulate the savings for the immense scale of development and rehabilitation which everyone admits our industries need?

I believe that in this lighthearted political gesture the right hon. and learned Gentleman has struck a deadly blow at the desire, the willingness and the ability to save in the future. The Economic Secretary, I remember, said that this was a splendid thing because taking something out of a man's capital would make him feel poorer, and therefore he would not feel tempted to spend more out of his capital himself. That was extremely bad psychology. By taking something out of that man's capital, the Chancellor may be making him feel poorer, it is true, but other people have done that. What is being done here with purpose is nothing to what the right hon. and learned Gentleman's predecessor did by mistake when he issued his 2½ per cent. loan. This is making that man feel poorer, and above all it is making him feel insecure, and feel that it is not worth while accumulating capital merely for some subsequent Chancellor to have another whack at it.

To me nothing is more obnoxious in this Bill than the numerous Clauses which we have discussed at great length and which are for one purpose only, to enable the capital of trust funds, which may not under any circumstances be spent, to be taken by the Treasury and frittered away by them. I believe that the effect of this will be long felt. The right hon. and learned Gentleman recognises it himself. His pathetic bleat of "once for all" was an acknowledgement of the harm he knew it would do. We trust him on this matter, but he has colleagues—unfortunately, he has even one more colleague now than he had when he started this Finance Bill, and we regard that addition as sinister in the extreme.

One final word. I think everyone in this House on either side who has any imagination on these matters, or takes any thought about these financial affairs, must have had some sense of unreality in our discussion of this year's Finance Bill. Always previously we have been able to regard the Finance Bill of the year as the most important financial instrument of this country's economy largely deciding, by its inclusions and its omissions, the financial fate of the people of the country for the 12 months to come. I think many of us must have been conscious that, whatever we were discussing here, discussions far more important to our immediate economy were going on 3,000 miles away, and that a Finance Bill such as this could never have been introduced, and its provisions certainly could not prevail, without the decisions which were being taken in Washington.

Of course it would not only be out of Order but I would see no point in discussing today how we got into that position, a position of dependence which must be humiliating, however great the statesmanship, the generosity, and the tact with which this help is given. There may be two opinions—there are two opinions—as to how we got into it, but I am sure there is only one opinion common to all of us, the necessity of getting out of it as quickly as possible. We can promise to the right hon. and learned Gentleman the support, which I know he can count on from his own followers, for any measures and any sacrifices which are designed to relieve us of this humiliating dependency, and designed to restore to us once again the right to be masters in our own house.

We shall not divide against a Budget the main objects of which we approve, although many of its provisions we condemn, but we realise that all we do here is conditional on these grave questions being decided elsewhere, and it is our fervent hope, as it must be of all in this House, that before long we shall once again be able to discuss the Finance Bill of the year, dependent on our own resources, owing nothing to anyone, and able to make the decisions which seem good to us, and to us alone.

12.14 p.m.

Mr. Norman Smith (Nottingham, South)

I am afraid I shall have to disturb somewhat the harmony of these proceedings. I am much tempted to follow the right hon. Member for West Bristol (Mr. Stanley) along the path which he indicated in the closing part of his speech, but I am quite certain that if I did that, Sir, you would accord to me rather less toleration than you rightly accorded to him. I will proceed, therefore, so far as I am able, to interfere a little with this mutual admiration that has been going on across the table. When I see this kind of collusion between the two Front Benches, when I find the Chancellor of the Exchequer and a possible future Chancellor of the Exchequer—if he is privileged to live long enough, which I hope he may be—when I see these two agreeing on the fundamental assumption behind this Bill to which we are asked to give a Third Reading today, I feel there is something very much the matter with the Bill.

The speech of the right hon. Member for West Bristol was full of assumptions completely unproven. Most of them would have held good in the middle of the reign of Queen Victoria, and some of his assumptions which did not apply then, but which are equally unjustifiable, merely prove that, notwithstanding the generous amount of leisure which he has had in his life—I wish I had had half as much—he has confined his thinking and reading to the realm of pure orthodoxy. For instance, he pleaded hard with the Chancellor to discover ways and means whereby, if and when it is necessary to reduce Purchase Tax, there shall be no consequent hardship to retailers. It is all explained in a chapter of a book—I am sorry to have to say this—by the hon. Member for South Nottingham entitled "The Politics of Plenty." He can get it for about 3s. It is all explained there. I only wish I could induce the right hon. Gentleman to expand the scope of his reading and to admit to the crevices of his mind, that very admirable mind, ideas which have never yet been allowed to penetrate into the aristocratic circles where he has been in the habit of mixing.

Mr. Stanley

In view of the burden of the Special Contribution, could not the hon. Gentleman get in touch with the author and see whether I could not be provided with a copy free?

Mr. Smith

That is a charming invitation, which I shall have much pleasure in accepting at the earliest possible moment.

The cardinal assumption behind this Finance Bill—an assumption which was accepted unreservedly by the right hon. Gentleman—is that there is still a dangerous inflationary situation which it is urgently necessary to terminate. I think this Finance Bill makes history. I believe it is the first Budget in which a Chancellor of the Exchequer has set out deliberately and avowedly, concealing his intention not at all, to raise a large sum of money not for the purpose of spending but for the purpose of destroying, by cancelling it out of existence. I learned from the Chancellor's speech that the sum which it is proposed to destroy in this way is now £321 million in this financial year, and the right hon. Gentleman applauds that intention. The immediate consequence, of course, is a great burden on the taxpayer. Nor is there any consequent relief to the taxpayer from this transaction, because the destruction of the money will take the form of repaying floating debt, the interest on which is only about 10s. per cent. per annum, so that the subsequent saving to the taxpayer will be negligible.

But here we are. My right hon. and learned Friend stood up at that Box this morning and re-affirmed over and over again that the inflationary tendency was still there. Does he not look at all at any evidence that is going about? It is all very well for my right hon. and learned Friend to talk about bank deposits having gone up. One can make a statement, the truth of which, and the genuineness of which, depend largely on the context in which the statement is made. My right hon. and learned Friend asserted that bank deposits were going up and suggested that was a sign that there was no halting of the inflationary tendency. If one takes the Bank of England Report for the year ended February, 1948, which has only been in the hands of hon. Members about three weeks, the position is worded very differently from the way in which my right hon. and learned Friend deliberately chose to word it. This is how the Bank of England put it: The principal feature of the monthly statements of the London Clearing Bankers was a sharp check to the rate of growth in their deposit liabilities. That is saying the same thing in a very different way. My right hon. and learned Friend chose to emphasise the increase in the bank deposits. The people who run the Bank of England know, I suspect, rather more about it than one of the most brilliant barristers of our age, who is admirable at holding a brief but who has as little apprehension of the realities underlying the financial system as his predecessor, the late Viscount Snowden, had. I prefer the bankers' way of putting this matter: the principal feature of the monthly statement of the clearing bankers is a sharp neck to the rate of growth of deposits. I suggest that that check would have been sharper still, but for nationalisation payouts, including that of the Argentine. This same document tells me that in 12 months circulating currency was down by £144 million. Deflationists suggest that is due to the fears of the black market. Does any Member of this House seriously suggest that the black market does, or ever did, conduct its operations on the sort of scale that would enable it to pay out £150 million, and enable it to carry on? The suggestion that the black market entails £3 per annum per head of the population is fantastic; it is nothing but nonsense. The same statement says that the floating debt is down by £560 million in the period under review.

I turn to my constituency where, recently, I spent a long weekend. I do something there which the Chancellor of the Exchequer is temperamentally and in every other way incapable of doing—I mix with all classes of society, and I am glad to say that I get on equally well with all. I talk to hotelkeepers and shopkeepers, publicans and housewives, and everyone tells me the same story in Nottingham. Everyone tells me that money is tighter than it was. I am bound to come to this conclusion, because I have so much evidence of it. The right hon. Member for West Bristol mentioned accumulations of certain textile goods. In Nottingham, I have seen stocks of textile goods in the warehouses which were made originally for export and which, for various reasons, are incapable of being exported. The Government will not allow them to be sold on the home market. Yet the Chancellor says that we must counter inflation. If the Government would release that stuff for the home market, that would be one of the ways of doing it.

I want to look at the other side of the picture, because there are two sides to it—one, the quantity of money circulating, and the other the amount of goods in existence against the money. There is abundant evidence that the rhythm of production is mounting in such a way as to constitute a very formidable counter-inflationary factor. Look at the London and Cambridge Economic Survey, which is a fairly valuable index. They take as their datum 100 for 1935. The average of the four years, 1935 to 1938, was 109. What do we find? The average for 1946 was 100. Twelve months ago, last June, it was 107. Last December it was 114; in January, 118; and in February, 121. It does not go any further, but there is abundant and substantial evidence of a regularly mounting rhythm of production on the other side of the picture, which is no less counter-inflationary.

The Chancellor will, of course, get his Third Reading of this Bill. The King's Government must be carried on; the King's taxes must be raised if we are to accept the orthodox principles according to which the party on this side, no less than the party on the opposite side, must necessarily frame Budgets. The Chancellor will go on with this deflationary policy, added to the certain deflationary effects of Marshall Aid which, assuming we get it, and whatever the conditions with it, is inherently, essentially and ineluctably deflationary in its effects. From all the evidence I have, what is being done now by way of deflation is going rather far. I ask the Financial Secretary to keep the Chancellor up to the promise given by him in his Budget statement on 6th April, that the situation would be watched carefully and any tendency towards inflation would be reversed drastically.

Perhaps I may refer to one or two minor points in this Bill. I think there are blots on it; indeed, I think Clause 1 is a horrible blot. It is 22 years since I gave up smoking, which I think is a disgusting habit. But was it really necessary for the Chancellor to make a statement like this when presenting his Budget? It would not be advisable, I feel, to make another very large increase in duty; but it is necessary to bring to smokers' attention once again the need for economising in tobacco. …"[OFFICIAL REPORT, 6th April, 1948; Vol. 449, c. 65.) That is the sort of niggling, nagging statement which one would expect of an ill-tempered person who was willing to wound but afraid to strike.

Similarly, with Clause 2. I first started to drink beer about 1908, when a pint of mild ale cost 2d. in a saloon bar. Now, in the public houses or workmen's clubs which I visit where I live or in my constituency, I pay, not 2d., but 1s. 2d. for a pint of fluid, the principal ingredient of which, I am credibly informed, is, purely and simply, monoxide of hydrogen. I pay 1s. 2d. for a pint of mostly water, and no one knows where all this is going to end. Ever since I can remember, Chancellors have been adding gaily to the tax on beer. How often does it happen that they ever take any off? I want to put it to the Financial Secretary, whose external appearance, I am happy to say, is so much less forbidding than that of the Chancellor of the Exchequer, that these additional taxes on cigarettes—in which I am not interested, and on beer, in which I am—have done far more harm and caused far more irritation than any possible amount of good that might accrue. The trouble is that the Chancellor is incapable of mixing with ordinary people. The sort of people he mixes with are the wealthy people who can, and do, indulge in litigation. He knows all about them, but he does not know anything about the human nature of the mass of the people who put us where we are.

I want to refer to Clause 15, which deals with bookmakers' licence duty. Nobody could be of less use to the bookmakers than I. I never bet on the dogs, and apart from 5s. once a year on the Derby, with which I am generally lucky, I never bet on horses. I told some bookmakers whom I met socially in my constituency the other day that I did not think they were doing a socially useful job. Nobody outside a lunatic asylum would think that they were, but we must bear in mind the facts. It is not the bookmakers who are to blame; they are only the effect. The cause is their clients, who happen to be the people to whose efforts we have to look now to supply the industrial production without which the country cannot carry on. The Chancellor says, "If you intend to bet, you must contribute to the Exchequer just as the beer drinker and the smoker does," and I hold with that. I would like to see punters made to contribute to the revenue on horses as well as dogs, not merely punters on dogs which race on a Tote track.

This Clause is a bad Clause. The bookmakers say that it will benefit the owners of greyhound tracks where there happens to be a Tote, and I suppose it will. They put it to me last week that it was shady. I corrected them there. My right hon. and learned Friend has many failings. He is unapproachable, remote, aloof, and austere; but he is not shady. I made that plain to them. This tax is imposed on the wrong people. If we are going to put a tax on the people who bet on dogs, they will either bet underground or on the tote to avoid it. So this tax will come out of the pockets of the bookmakers. Though bookmakers may not be socially useful, they are only doing a job for which there is a demand. Would any Labour Government or any Tory Government go to the people and say, "Betting is all wrong, and we are going to stop it"? Any Government that suppressed bookmakers by special enactment would outrage the people's sense of fair play. Even at this late hour this Clause should be taken out of the Finance Bill and the Chancellor should instruct his officials to devise a sensible system based on the idea that betting should no longer be illegal. The Clause is a blot on the Finance Bill.

The right hon. Gentleman the Member for West Bristol referred to the Purchase Tax. I hope he will read that book, "The Politics of Plenty." I hope I can convert him to the idea that, if it is right in the circumstances of today to impose Purchase Tax for the purpose of destroying money, it is equally right in certain circumstances, such as those of the nineteen-thirties, to have an inverted Purchase Tax for the purpose of supplying a deficiency of money. If only I could get the Chancellor of the Exchequer, the Financial Secretary to the Treasury and the right hon. Gentleman for West Bristol to accept that principle—goodness knows it is logical enough—I feel this discussion today would have done some good.

One last word. Sometimes as I look at my right hon. and learned Friend an awful parallel suggests itself to me. It is the parallel of Snowden, whom he so much resembles in so many ways, not least of which is his obsession for deflation. I remember the political consequences that Snowden had in 1931. I beg my hon. Friends on this side of the House not to close their minds to the possibility that there are other principles that can underly a financial system beside orthodoxy, and I call for a little more tolerance and a little more curiosity on both sides of the House.

12.33 p.m.

Mr. Osborne (Louth)

Each time I am called upon to address the House, I feel more nervous, and having heard two such brilliant opening speeches I feel more nervous than ever, and think that I ought to ask for the indulgence of the House. There was only one point raised by the hon. Member for South Nottingham (Mr. Norman Smith) to which I wish to refer. He said that in his constituency he found great evidence of a shortage of money. I wonder whether he was in Nottingham when the Test Match was being played and whether at Trent Bridge he found any evidence of a shortage of money either at the turnstiles or in the bars of that great cricketing ground. I think not. I listened to the Chancellor of the Exchequer with great admiration and almost with envy. One thought went through my mind—what a great blessing it is that he is Chancellor and how lucky this country is to have such a Chancellor, instead of his predecessor.

I want to deal with one of the objectives of the Finance Bill that he mentioned. He mentioned three, the second being that it was necessary to provide increased incentives and thereby to get more production. It is on that objective that I should like to make a few remarks. The right hon. and learned Gentleman said that that objective was no less necessary today than it was when the Bill was introduced. He said if we were to live we must produce a good deal more. I call the attention of the Financial Secretary and the Economic Secretary to the evil effects of Clauses 24 and 25 of the Bill, which deal with the standard rate of Income Tax and Surtax. I know that this is not a popular vote-catching Clause with which to deal, but it is important that it should be looked at. I want to try to show the bad effect upon production that the high rate of direct taxation is having. I appreciate that those two Clauses cannot be changed in this Bill, but I hope that my observations will be remembered when the next Finance Bill is drawn up. The standard rate of Income Tax at 9s. in the £ is a great deterrent to industrial efficiency, and a rate of something like 6s. in the £ another year would do more for production, which is more vital than getting taxes, or anything else.

I should like to remind the House of the background against which the Finance Bill was drawn up. The chief difficulties, of course, are exports and foreign exchange difficulties. The Economic Survey this year said that there were three main difficulties which the Chancellor had to face. The first was an enormous overseas debt that had been accumulated because of the war and on which we had to pay interest and to repay the loans; the second was the loss in invisible income which in 1938 procured for us one-fourth of our imports free; and the third was the difference in world prices between manufactured goods and raw materials which caused us last year to have to pay over £250 million more than for foodstuffs.

Because of those three causes which really resulted from the war—and this is the real problem which faces the Chancellor of the Exchequer—we spent last year something like £675 million more than we earned. That is about the total amount that was spent by this country on bread, cereals, meat and bacon. If we were to pay our way and if we were not to sell the last of our reserves, then the nation would have to go without the equivalent bread, cereals, meat and bacon. It was against that grim background that this Budget had to be framed and it is useless trying to criticise the Bill without remembering those overriding conditions.

Last year the then Chancellor of the Exchequer on the Third Reading of the Finance Bill, said, Finally, I touch upon the overseas deficit. That is our greatest anxiety. … The contrast is most remarkable between the great difficulty of the overseas position … and the relative ease of the purely domestic financial position."—[OFFICIAL REPORT, 18th July, 1947; Vol. 440, C. 741.] The Economic Secretary will agree that that is as true today as it was a year ago; perhaps now the position is worse. The real danger with which the Treasury is faced is that the people in this country should be lulled into a position of false security by the favourable financial position at home, which would cause them to ignore the more important financial position abroad. It is because of that feeling of false security that I believe the standard rate of Income Tax and Surtax is putting a brake upon productive effort, and I want to give three reasons why I think something should be done in regard to the matters dealt with in Clauses 24 and 25.

My first objection to the standard rate of 9s. is that it makes it difficult, if not impossible, for new businesses to be started. Young, ambitious, energetic operatives can no longer hope to start new businesses—"no longer" is perhaps an exaggeration, but it is certainly much more difficult than in former days—because of the high rate of direct taxation. I believe it is very bad for the general productivity of the nation that the arrival of new entrants into business has been stopped by the heavy taxation. If 9s. in the £ is taken from industrial profits, the young man starting on his own cannot afford to buy machinery, equipment or buildings as he would have done formerly.

It is vitally important for us to get new entrants into industry, and to retain them. There is a tendency to forget how important small firms are to our economic wellbeing. The Ministry of Labour Gazette for April, 1948, gave what were to me astonishing figures. It stated that at the present time 15,600 firms were employing fewer than 25 people; 22,400 firms were employing between 25 and 100 people; more than 10,000 firms were employing between too and 500 people. A continued stream of new firms starting from 25 employees and going up to 100 or 500 employees is vital. This tax of 9s. in the £ makes it much more difficult for the young man to start. Therefore, I plead that something drastic should be done next year to enable ambitious, virile pushers and thrusters in industry to start on their own. They can do so only if they are allowed to plough back their profits into their businesses in the form of new machinery and equipment.

My second objection to the standard rate is that it tends to curtail and to restrict competition inside industry. If new entrants are not encouraged, the older firms tend to get slack. It is only the cold, biting wind of competition that keeps the old firms on their toes. If young men are prevented from coming into industry the older ones get slack. The one thing required is more competition. Hon. Members opposite have asked Ministers on many occasions to give figures of bankruptcies at the present time, as compared with bankruptcies following the first world war. The intention has been to show that things are much better than they were then. I believe that deduction to be wrong. I want to see more bankruptcies and not fewer.

If there are no new entrants into industry because of the operation of the tax, it means that the old, inefficient and even the drunken employer can make profits. I want that type of employer to be weeded out, for the good of the nation. Hon. Members opposite have applauded on many occasions when figures in regard to this matter have been given. An answer was given a few days ago showing that bankruptcies in 1921 in this country were 3,400 and in 1945 only 270. In 1922 they were 4,700 and in 1946 they were only 323. In 1923 they were more than 5,000 and last year they were only 626. It is because we are not getting new entrants into industry that we are getting fewer bankruptcies. We are getting less efficient production. I am sure that the Economic Secretary to the Treasury will readily admit that we are pricing ourselves out of the foreign market and that it is much more difficult for us to sell in foreign markets today than it has been, because our prices are now too high. That is due to the fact that there is not enough internal competition. The sooner we have encouragement to new men in industry to wake up the older producers the better for us. On this second ground I plead that the Clauses dealing with this matter should be looked at again.

My third objection to the tax of 9s. in the £ is that it makes it nearly impossible for us to modernise our equipment, whether of machinery or of buildings. If 9s. in the £ is taken away from all our profits, obviously less is left to buy what is required. I gratefully acknowledge that the present Government have given more generous allowances for obsolescence, but they should do more. It is much more important to reduce the standard rate of taxation. I should like to call the special attention of the Economic Secretary to a pamphlet issued by the Machinery and Allied Products Institute of Chicago. It is called "Technological Stagnation in Great Britain." It gives startling facts. It states that the average working week here is much longer than in America, but that the physical output per worker averages about 2.3 times more in America than in this country.

The pamphlet goes on to say that the average man-hour output for the same industry has been nearly three times as much in America as in this country. How can we hope to compete in the foreign market and pay for the foodstuffs and raw materials which we must have in order to live unless we get nearer to the American standard of efficiency? How can we do that unless we have better equipment, and how can we get it unless the heavy rate of direct taxation is removed? The pamphlet goes on to say: American man-hour output ranges from 131 per cent. to 597 per cent. of the British. That is a startling statement to make. I want to point out to the Economic Secretary that most of the information in the pamphlet is based upon reports by the working parties established by the Chancellor himself when he was President of the Board of Trade. If the House will forgive me, I would like to give one or two other figures of the physical output per worker and per man-hour in the United States in 1937, as a percentage of the output in Great Britain in 1935. In blast furnace products the Americans produced 447 per cent. of that in this country. In wire, cutlery, stoves, tools and implements it was 495 per cent. In motorcars it was 518 per cent., in radio sets 597 per cent., in rubber tyres 329 per cent., and in soap manufacturing 346 per cent. I will put a question to the Government. If we are to survive as an industrial nation and earn our bread and raw materials, should not that percentage difference be brought down? It can be brought down only if we have considerably more and much better equipment in our factories.

The pamphlet goes on to give reasons for our technological stagnation. When it comes to taxation, it says something which is apropos of what we are now discussing. It says: That some features of the British tax structure have contributed to technological decay hardly admits of doubt. Ever since World War I, taxation has fallen with extreme gravity on those sectors of the national income that supply the capital hinds of industry, especially its risk capital, namely, corporate earnings and the larger persona] incomes. That is what I am trying to deal with at the moment. It quotes "The Economist" in this way: It is common knowledge that the present cruelly high rates of direct taxation kill every incentive except that to tax evasion. I will give one other quotation from this pamphlet which I commend seriously to the attention of the Economic Secretary. This book is produced for the American manufacturers. It is saying to them that this is the mess into which the British have allowed themselves to get and they must see that they do not get into the same position. Finally, they say: We— that is, the American manufacturers— —must preserve by all means both the spirit and the practice of competitive enter prise. We must, by the same token, preserve the incentives that evoke and reward enterprise. For if we fail here, we shall inevitably retrace in this country the dismal course of industry in Britain, a course now grimly charted for our admonishment. If the high direct taxation which is embodied in this Bill is continued, I can see no hope of an improvement of the tragic position which that pamphlet so clearly sets out, and therefore I make my third plea to the Financial Secretary—to look again at the devastating effect upon our productive capacity of this high direct taxation. On the other hand, hon. Members opposite may say that that is all very well and that they regard Income Tax as an instrument of social justice and that because of that, they will retain it even in spite of the ill effects which I have tried to show result from it. They claim, with a great deal of truth, that direct taxation has re-distributed the national income and that it produces greater equality. I suggest to them that even that argument has today been carried too far. The nation as a whole and the party opposite are guilty of concentrating too much on cutting up the cake evenly and are not giving enough attention to producing a bigger cake. They do it through this direct taxation. On that, I should like to quote from an article—which I am sure the Economic Secretary has read, even if he did not write it—in "The Economist" of 5th June, headed, "Too Much Equality." It says: Socialism was born of the desire for economic equality, and there cannot be any doubt that the passion for equality is still by far the dominant psychological force that holds the Labour Party together and drives it along. We should all be agreed on that and there is no need to apologise for it. I think it is a very good thing. It goes on to say: That it has been possible for the British people, without very much open class conflict, to make such large strides towards greater equality is undoubtedly, from the moral and social point of view, a good thing. That all justifies the heavy direct taxation against which I am protesting. However, there is another point. "The Economist" goes on to say: The doctrine of 'fair shares for all' makes it worth nobody's while to try to enlarge the cake in order to get a larger slice for himself. I think that is now the greater danger, and it offsets to a much greater extent the laudable desire of hon. Members opposite to see that there is greater equality. "The Economist" goes on to say these two things: It is only necessary to read the backbench speeches"— that is, of hon. Members opposite— in favour of any nationalisation Bill to realise how large is the part played by the nasty desire to punish the successful and the fortunate. I think that expressed itself typically in the speeches of the late Chancellor of the Exchequer when he whipped up all kinds of class feeling in putting on these heavy taxes. Hon. Members opposite are using these heavy direct taxes to get what they conceive to be social justice irrespective of the effect upon our capacity to produce. Finally, "The Economist" says: A greater equality of economic welfare is certainly one of the three great aims of any economic policy; the other two are productive efficiency—which means maximum production at minimum real cost, not simply output at all costs—and stability, or freedom from the damaging ups and downs of boom and slump. I commend this last sentence to the Economic Secretary: The difficulty is that these aims are often contradictory; equality and efficiency often pull in opposite directions, as they are doing now. I feel that the desire for equality pushed to an extreme, like any virtue pushed to an extreme, becomes a vice. It has now become a vice. It is so reducing our capacity to produce that there will be less and less to divide equally, and instead of allowing a little more inequality and a bigger cake for us all, they are insisting upon keeping us on a dead level of poverty. To support that, I would remind hon. Members opposite that all the Government posters we see on the hoardings today stress the need for greater production. There is not one that stresses the need for greater equality. Therefore, I say that our greatest need is production and not more equal distribution. This heavy direct taxation ought to be looked at again, and, if possible, next year very drastically reduced.

I would like to make one other suggestion. In the past three years in this House we have heard a great deal of scorn poured upon private enterprise and especially upon the profit motive. It has been derided and called uncharitable, unchristian and all the names hon. Members could think of, but I would remind them that it is upon industry, commerce and trade that the whole of their welfare schemes depend. If industry and trade are not successful, we cannot have the old age pensions, schools, hospitals and other things which they so ardently desire for the poor. It is no use trying to impose on industry heavy direct taxation for social purposes if by so doing they take away from industry the ability to produce the very things upon which their social purposes must depend for their revenue.

I make a special plea to hon. Members opposite to stop jeering at the profit motive. After all, there is nothing more unworthy in trying to be successful in business than in hon. Members trying to be successful in politics. Why should it be unworthy if I try to earn, say, £10,000 a year in industry when hon. Members strive just as hard, and probably harder, to get the same £10,000 a year in politics, with even more perquisites and more privileges? Hon. Members are doing their own case a great deal of harm by continuing the old jeering at the profit motive.

I apologise for keeping the House for so long but I feel very deeply about this. I would like to quote the late Mr. Lloyd George as an ally in my plea for a reduction in direct taxation. I quote from his famous Budget speech of 1909 when he was in his most Radical days. No one would claim that he was then preaching ardent Toryism. He said: The second principle upon which I base my proposals is that the taxes should be of such a character as not to inflict any injury on that trade or commerce which constitutes the sources of our wealth."—[OFFICIAL REPORT, 29th April, 1909; Vol. c. 501."] I commend that to the Economic Secretary, and would like him to read the whole speech. Then Mr. Lloyd George, as he then was, said that he was putting up Income Tax only from 1s. to 1s. 2d. Now we are calmly accepting the tax of 9s. Mr. Lloyd George was putting on Surtax of 6d. in the £ on incomes of over £5,000 a year. Now we have Surtax at 10s. 6d. in the £.—[Interruption.]—Hon. Members opposite cheer as though it is good and clever in the interests of the nation to have a Surtax rate of 10s. 6d. in the £ Those two unreasonably heavy taxation levels are doing the country an immense amount of harm from a productive point of view and I want them altered.

Finally, as my last piece of evidence in support of my plea, I quote what was said last night at the London School of Economics. Many hon. Members on the Front Bench have been there often and will not deny the value of evidence from such a source. Lord Brand was speaking at the annual meeting of the Royal Economic Society. I noted his words very carefully, but I apologise if they are not perfectly correct. He said: Either a profit motive or direction of labour is necessary to make the economic machine function. I hate direction of labour and the industrial slavery that it entails. If the Economic Secretary, too, hates it, he must choose the profit motive. If the profit motive is to produce the best results, it must be given a fair chance. Therefore, I plead that Clauses 25 and 26 be looked at again and that direct taxation be reduced in order that we may get that maximum productivity by which alone we shall be able to meet our overseas commitments.

1.2 p.m.

Sir Frank Sanderson (Ealing, East)

I should like to take this opportunity to congratulate the Chancellor on the manner in which his case was presented. The marshalling of his facts and the rhythm of his speech were such as we have become accustomed to expect from him. My only regret is that I cannot agree with the whole of the contents of his Budget. In opening the Third Reading Debate the Chancellor stated that his Budget was designed to cause a deflationary effect. So far as the Budget does bring about that effect, the House and the country will be in agreement with him. I agree, too, that in a large measure it has that effect. I am, however, a little nervous that the effect may be to take deflation rather too far, and I am not at all sure that we do not today see deflation taking place at a rate which may become dangerous. Should it go too far, the result will be that action may have to be taken very speedily. To do what may be necessary will require not only foresight—which, I claim, the Chancellor certainly does not lack—but also great courage and speed of which he is fully capable should occasion arise.

The Chancellor referred this morning to the fact that the note circulation had very considerably decreased in recent months. He did, however, state that the note circulation now shows some increase. That is a point which had not escaped my notice and I was sorry that the Chancellor did not see his way to intimate why he believed the note circulation today was increasing. I claim that it is primarily because of the incidence of the Special Contribution, to which I propose to direct the main part of my remarks. I believe its effect is not merely to cause the extraction of capital from what is regarded as the rich or the capitalist, but that the man in the street, no matter what his position may be, sees in this the red light.

We must surely be aware that when the Income Tax was first introduced, it was brought in to pay for a war. From the speeches of the then Chancellor of the Exchequer there was reason to believe that special levy was a temporary exexpedient and would not recur. But the rate of Income Tax has gradually increased over the course of years until, finally, it has hit, and hit hard, what we term the working classes and the black-coated worker. Today any worker who earns a reasonable wage during the week finds that at the end there is a deduction of anything up to 9s. in the £ from his earnings. He knows, therefore, the effect of the incidence of this direct taxation I maintain that today the people are afraid that this Special Contribution may not be a temporary expedient, but may finally find its way into a place as one of the methods of raising money. I regard that as a very important factor, and an extremely dangerous one.

I referred to the increasing note circulation. It is for the very reasons which I have expressed that, in my opinion, the increase is taking place, because hoarding has again commenced. I wonder whether it will come as a surprise to the Financial Secretary when I say it is known that not merely the small men, but men with considerable financial resources, have resorted to the policy of putting money either in the bank or even in their own homes in the form of notes. The effect of this upon our economy is very dangerous.

The Chancellor this morning made reference to the surplus for which he has budgeted as one of the prime reasons for preventing inflation; in other words, to create a deflationary action. So far as it has a deflationary effect, we are in agreement with him on this side of the House. The adjustments which have been made in respect of Income Tax are generally accepted by the country as a whole. Then the right hon. and learned Gentleman went on to say that indirect taxation was a very important factor today, because it depended upon the individual just how much the individual should pay in indirect taxation. True, it depends entirely upon what he buys and how much he buys of those commodities which are heavily taxed.

I am afraid I am not in complete agreement with the Chancellor that this is the prime reason why he found it necessary to increase materially indirect taxation. I want, however, to make it perfectly clear that I am not in disagreement with him, indeed I am in agreement with him, in raising the money by indirect taxation, because I believe it is the correct method of raising money, rather than by the old method of direct taxation. But I want to suggest that the reason why the Chancellor is raising this increased amount by indirect taxation is none other than that which has been so fully and ably expressed by my hon. Friend for Louth (Mr. Osborne), namely, because direct taxation has reached saturation point. Indeed, it has passed saturation point. We have arrived at a point where the incidence of the 9s. in the £ Income Tax and the 10s. 6d. Surtax, making in all 19s. 6d. in the £ in direct taxation, will bring in a declining and not a increased revenue.

The main point which I would put to the House, however, is in relation to Part V of the Finance Bill. It is quite true that this has been discussed very fully both on Second Reading and in Committee, but I cannot but feel that this Special Contribution is not an economic tax, that it has not been introduced primarily in order to increase the Chancellor's Budget surplus, but for purely political reasons. It really is dangerous if we are to budget merely for political ends. It is understood in the country that in foreign affairs there is general agreement on all sides of the House that we should try to keep the political atmosphere away from foreign policy. Surely, it is equally important that the finances of this country, upon which our very existence depends, should, in the main be kept free from the cut and thrust of party politics.

I should like to make special reference to this Contribution, which is, in other words, a capital levy on investment income. All sorts of anomalies will arise and confusion will be created by the Special Contribution as companies and their accountants, and trustees responsible for their trusts, get to work in an attempt to ascertain what their respective liabilities are under this tax levy. I wish to present to the House an illustration designed to show how inequitable in its operation this Contribution is. Take a man who has invested, say, £100,000 in a business or speculative enterprise in which the possibilities of his losing all his capital are by no means remote—and this is the type of man who has built up the great industries of this country. The development of new and untried processes is essential to the economy of this country. If a man invested £100,000 in such an industry, and he received a dividend of 10 per cent. on his venture, he would receive a gross income on that investment of £10,000. Assuming that he was subject to 14s. in the £—and he may be subject to considerably more—in Income Tax and Surtax deductions, he would receive a net income of £3,000 but would be subject to a Special Contribution on the £10,000 gross income, so that he would be required to pay a sum of £4,125. That is to say, he would have to find an amount £1,125 in excess of the whole of the profits which his speculative enterprise had earned for him.

If, on the other hand, he invested his money in Government stocks at three per cent., he would receive a gross income of £3,000, and, with the deductions of Income Tax and Surtax at the same rate of 14s. in the £, he would be left with a net income of £900, and he would be required to pay £825 Special Contribution. Finally, if he was a very cautious-minded man and was prepared to take no risks whatever, but left his money lying in the bank without interest, or put away in his home, he would it is true receive no income, but he would have no Special Contribution to pay.

What an anomalous position! A man who risks all his capital in a new enterprise to develop a great industry finds that he has to pay a net sum of no less than £1,125, whereas the man who leaves his money at home or puts it in the bank where it lies dormant makes no contribution whatever. This example is clear evidence that the more enterprising the investor is, the greater he will be penalised under the Special Levy or Contribution. If a policy of the greater the yield the greater the tax were to be pursued, then the incentive to take risks, to develop new enterprises, to invest in ordinary shares or to invest in uncharted fields would quickly dry up. The principle of the greater the yield the greater the tax payment, would tend to favour forms of security in which the chances of capital loss and taking normal business risks and taxation together were at their lowest.

One thing the country cannot afford today is the development of a "safety first" mentality. The Savings Movement would dry up and would receive its death blow. Savings would find their way into other channels, as indeed they are doing to a minor degree even today. It would be disastrous to our country's economy. Our great industries and the wealth and prosperity of our country have been built up by the savings of an industrious people who were prepared to take risks in investing their savings on the chance of some ultimate return upon their money. Today under the effects of the Profits Tax and the limitation of dividends, the whole policy is in reverse. The ordinary shareholder, namely the investor, who shoulders the whole of the risk in the development of industry and breaking into new fields, is required to make the full sacrifice, whereas the debenture holder, the note holder and the preference shareholder make no sacrifice but go free.

If this policy were pursued as anything more than a temporary expedient, it would produce yet another serious effect on the method now being adopted in financing new enterprises. The Financial Secretary will be aware that during the past few years in particular, there has been developed a policy so far as practicable and expedient, for companies to pay off the debentures and to finance companies by the issue of preference or ordinary shares. With the incidence of this Special Contribution that will no longer be possible. We see even today a change in the mentality of those who have to raise money for the development of their industries. An ordinary share as such is really no longer an ordinary share, since it has a ceiling but it has no ground. The maximum dividend is fixed, but the minimum dividend can be reduced and it can even disappear. Therefore, today it is no longer possible for men to raise big capital by the issue of ordinary shares. It can only be done in some cases by the Chancellor penalising the company by taking a large rake-off. Therefore, it is no longer economic to raise money in that direction.

This means that we are again going to revert to the old policy and, in my opinion, an unwise policy of forcing industries to raise money in future by the issue of new debentures. That immediately weakens the security behind every preference and ordinary share, and it also means that it will become increasingly difficult to raise money by methods which are more to the advantage of the companies concerned. This levy is in every respect the most inequitable and unjust measure that has been imposed in British history. It is indiscriminate in its incidence and in the method and means of its imposition. It will discourage instead of encourage capital from taking risks, since it is a direct attack upon capital. If such a policy should continue to be pursued private capital could not indefinitely continue to exist. Confidence would be dispelled, and it would shatter all initiative and enterprise. It would be the certain way to financial chaos and to a social order in which all would belong to the State.

The great majority of British businesses commenced from the smallest beginnings, as my hon. Friend the Member for Louth (Mr. Osborne) stated. I am informed that if one were to go through the Directory of Directors and study them name by name one would find that 75 per cent. of the great industries of this country started from the humblest beginnings. That is the spirit which we want to see fostered. We cannot afford to lose that spirit among our people, but under the incidence of present day taxation I am afraid it is no longer possible to preserve that spirit. There is no chance of young men building up as they have done in the past. Direct taxation is too heavy today. It should be drastically reduced at the first possible opportunity. The weight of taxation is breaking the backs and the hearts of the controllers of British industry today—the men to whom the Chancellor of the Exchequer looks for his income and on whom he depends to achieve his production target.

The surplus to which my right hon. Friend referred, in my opinion will be in excess of the amount for which the Chancellor has budgeted. Last year I made the same remark in respect of the surplus then budgeted for, and I proved to be correct. At any rate, this surplus may give the taxpayer some ray of hope that it will not be necessary to repeat it in the Budget that will follow this one, and that we may look to the Chancellor of the Exchequer to give some considerable relief in direct taxation in his next Budget.

In respect of the rest of the taxes, there is little I wish to say. No Chancellor has increased some taxes and reduced others. What he has taken with one hand he has given with the other. The imposition of increases in tobacco, beer, wines and the betting tax is offset by very welcome Income Tax concessions. The increase in the earned Income Tax relief, the raising of the limits at which the full tax is payable and the concessions to married women are satisfactory incentives, so too is the reduction of Purchase Tax over a wide range of articles, which commends itself to the country, though I firmly believe that a reduction in the standard rate of Income Tax and Surtax would have given a greater stimulus to all taxpayers and would ultimately have paid the Chancellor a very handsome dividend.

Being a realist, as indeed he is, I cannot but feel that the Chancellor appreciates this and, as I have said, I hope that whoever is to wind up this Debate on the Third Reading of the Finance Bill will give industry and the people as a whole at least some encouragement to hope that in the not far distant future, we shall all see a general reduction in taxation, and in direct taxation in particular.

1.33 p.m.

Mr. James Hudson (Ealing, West)

The hon. Member for East Ealing (Sir F. Sanderson), who has just made a speech of very great interest, shares with me the representation of the borough of Ealing, and I am not particularly anxious to cross swords with him, especially as he so generously marked out, at the end of his speech, the points on which he agreed with the Budget—and they were important points. Indeed, I think he went further than hon. Members opposite usually go in commending the incidence of taxes like those on beer and tobacco. There is a note of courage in that. There was also his commendation of the fact that there had been a very real reduction for large classes of Income Tax payers.

The point on which I do disagree with him, of course, is his criticism of the Government for the Special Contribution and for what he calls the inequity of that Contribution, an inequity which he illustrated rather fancifully by referring to a man who had £100,000 to invest and, who at the end of it all, would find himself with very heavy additional taxation in comparison with the wealth left after paying Income Tax and Surtax. In order to drive this case home, however, the hon. Member then dropped on the notion of the man with £100,000 who wrapped it up in a stocking at home; he would pay nothing at all. People do not do that sort of thing with £100,000. [AN HON. MEMBER: "Some do."] The hon. Member knows more about this than I do, but in my experience I have come across no one with £100,000 who puts it away like the man in the Parable of the Talents and does not let it fructify where he could make it fructify.

Sir F. Sanderson

There certainly are such people.

Mr. Hudson

I am going on to say that the "poor" man with £100,000 has really to face up to the position in this community today. It is the business of the Chancellor to get at him, and I think the Chancellor has got at him, and I approve of that because of the difficulty of the times.

If I may refer to an earlier speech, made by the hon. Member for Louth (Mr. Osborne), I think he again was fanciful in his attempts to prove his case. He gave some figures for the encouragement of American manufacturers showing how efficiency had greatly increased in America, and comparative figures to show that we did not produce at anything like the same rate. He led to the conclusion that that was because of our taxation on capital and on income. It was the Income Tax to which he referred in particular—the 9s. in the £ standard rate. His case was not well founded, because it is not as if there is no direct taxation in America, where this efficiency which he described exists. Indeed, one of the causes of the great desire of the Republican Party in America to make a new drive against the present regime is their constant complaint—very similar to the complaint of the hon. Member for Louth—that taxation on income and on property, and other similar direct forms of taxation, is altogether too heavy in the United States. Yet, despite that, the efficiency which the hon. Member for Louth described, and accounted for in his figures, results in America.

I do not think he made a particularly good case to show what he wanted us to accept, but I was most of all astonished—and I should have thought his hon. Friends were astonished—to hear him say that a really good mark of progress might be an increase in the number of bankruptcies. He went on to complain with great detail that bankruptcies after the first war were about 10 times as numerous, in the various years for which he gave figures, as they have been recently, his assumption being that if we could have a lot more people going back into industry there would naturally be a lot more bankruptcies in the efforts to compete and to drive the bad ones to the wall.

Had the hon. Member been here—I do not complain that he is not here; it is a natural time for hon. Members to leave the Chamber—what I would have said to him is that bankruptcy is not only a disaster for the bankrupt, but it is a disaster for the nation. On the part of the bankrupt it represents the utilisation of good labour over a prolonged period and of good raw materials over a prolonged period, up to the point when they can be utilised no longer. With bankruptcy, they have been wasted when they have come into competition with other forces. We then realise the loss that has been suffered by the community, not only at the actual point of bankruptcy but for a considerable period prior to that. If by a process of control we can prevent waste of substance, not only of private substance but of the community's substance, and limit bankruptcies, we shall serve the interest of the community. I do not see why any Conservatives should wish to go back to the old state of things.

Sir F. Sanderson

As my hon. Friend the Member for Louth (Mr. Osborne) is not here, perhaps the hon. Member for West Ealing (Mr. Hudson) will allow me to say that the point my hon. Friend was making was that nothing should be done through the incidence of taxation to dispel initiative and enterprise. He was most anxious that nothing should be done which would stop the young men of today from building up great enterprises as their forefathers did.

Mr. Hudson

I know that the hon. Gentleman said that, but in his efforts to prove his case he went further, and poured out adulation of the process of bankruptcy as a good process associated with increased opportunities for competition. It is because such sorts of opportunities of competition lead to public waste—not merely private waste—that I say that we do well if we limit the number of bankruptcies.

Despite what my hon. Friend the Member for South Nottingham (Mr. N. Smith) said, I think the Chancellor has done very well with his Finance Bill. I have had to criticise him on account of some items under the Purchase Tax. I have asked for alleviations of the tax, some of which I have obtained and some of which I have not. Although I have criticised him, I have to say that he has lightened the burden of the Purchase Tax very considerably on those who were bearing a heavy burden. A Labour Chancellor of the Exchequer who does that deserves much warmer commendation than my hon. Friend was willing to give my right hon. and learned Friend. I was rather sorry my hon. Friend found it necessary to make a personal attack on the Chancellor of the Exchequer by making the references he did to a former Labour Chancellor, Philip Snowden, with whom I was closely associated and whose memory I honour for the services he did to the working class movement in financial as in other ways. I thought it unfortunate that Philip Snowden should have been held up as a black beast whom the present Chancellor should not be like. Philip Snowden wrote a good many books on finance which were extremely useful to the Labour movement and made a great contribution to the thought of the party, and to the development of the policies the Government are trying to carry out.

The right hon. Member for West Bristol (Mr. Stanley) said that I was the only Member of the House who liked taxes on beer. I do not like taxes of any sort. I agree that a tax upon beer does not achieve what I want to be done. I, of course, want to see a great diminution in the consumption of a commodity which I think is bad for the community as a whole. I think that the large amount which is consumed—I am not speaking now of small amounts, but the large over-all amount—indicates a definite defect in our social life. In saying that I am only voicing what Royal Commissions have said in their reports. When the Chancellor considers limiting the consumption of an article which is dangerous when taken in too large quantities, I think he is justified. I know, of course, that he does not limit consumption by taxation. I have found out by experience—and I am sorry to have found this out—that taxes upon liquor have not materially reduced the amount of liquor consumed. For that reason I am not in a state of enthusiasm about the tax on beer. I agree that those who spend money upon beer or upon tobacco or on betting ipso facto prove their capacity to spend money on better purposes, purposes the community as a whole requires. But I do not agree with, and I have never pressed for, any considerable increase in tax upon commodities like beer.

I have in mind my temperance enthusiasm. I know that the job of temperance has to be done by other means. However, I do say that, having decided what the level of the price of commodities of this sort should be, as we have now decided by the taxation imposed, it would be an extremely dangerous thing to increase the supply of raw materials for the manufacture of beer—and still more so to do that and at the same time to reduce the present level of taxation on beer. I agree with hon. Gentlemen opposite that we have arrived at a point in our financial affairs at which we ought to maintain anti-inflationary taxation. To increase the supplies of raw material for brewing and distilling or to reduce taxation on the products of brewing and distilling would increase what is already a deplorably large consumption of liquor.

I hope the Chancellor has realised—and I think he must by now—that the Purchase Tax is a worse imposition than most taxes; and that there will have to come a time—and before long—when even bigger modifications of the tax must be made. One thing I am glad about is that the babies can now have their baths free of tax. There is a whole series of things still waiting to be done. There are commodities upon which taxes are charged which can, in a sense, be classified as luxuries, but which enter into the ordinary comforts of the people, and because of the difficulty of classification, charges are imposed upon the ordinary people which are heavier than they ought to be. I hope that when the next Finance Bill is introduced a much bigger attack will be made upon this question.

If we are to deal with taxation effectively, I should like, despite what was said by the hon. Member for East Ealing, to see a definite return to direct taxation on a much larger scale to meet the needs of the community. Every tax that is imposed on an article today has the same evil as William Pitt saw more than a century ago. He said that one could tax the shirt off a man's back and the last bite out of his mouth so long as the Government were able to conceal from him that they were putting a tax on the price of the article which he needed. It is because Purchase Tax will fall on necessary articles and not merely on luxuries, and fall on the many rational comforts in the life of the people, that I feel it is a bad tax, and that the day ought soon to come when we can either remove it or very considerably limit its operation. Despite that little criticism, I still retain the view that the Budget was courageous, and I heartily approve of the Finance Bill.

1.52 p.m.

Lord Willoughby de Eresby (Rutland and Stamford)

When speaking on the Third Reading of the emergency Finance Bill last November, I was so bold as to prophesy that the measures which were then proposed to deal with inflation would prove quite inadequate and that more drastic and unpopular measures would have to be taken at a later date. I take no particular credit for the accuracy of my prophecy because that that was likely to be the case was obvious to every one in this House, except the present Chancellor of the Duchy of Lancaster and those who admired him on the benches opposite. In the present Finance Bill, we see the Chancellor of the Exchequer and the Government, belatedly, possibly, making a genuine but what I think will prove to be an effective attempt to put our finances on a sound basis and to counteract once and for all inflation. May I pay a tribute to the present Chancellor of the Exchequer for the political courage and financial wisdom which he has shown in this respect.

Any praise which I may give to this Bill is accompanied by two general reservations. The first is that I feel that much of the good, both from a psychological and economic point of view, which we might have expected to accrue from this Measure providing us with a large surplus has been mainly done away with, because effective measures have been taken too late—possibly six or 12 months too late. The other reservation is that I am sorry that the Chancellor of the Exchequer has not attempted to get a large part of his surplus by reducing Government expenditure rather than by increasing taxation.

May I deal with the first reservation. In spite of what the Chancellor has said today, I feel that there are many signs such as the piling up of goods in our shops and the fall in the note circulation which seem to show that the story of easy money, free spending and inflation which was a feature of the war and the immediate post-war years may be coming to an end. The Chancellor of the Exchequer today quoted imposing statistics to show that in point of fact that is not the case. I would ask the Chancellor of the Exchequer and the Government not to rely too much on statistics. Inflation and deflation are psychological as well as purely statistical. There is a frame of mind in which people feel that they will spend, and then, for some reason, all of a sudden, they get into another frame of mind and decide not to spend.

I think that inflation may have gone further already than can be shown by statistics. I agree with my Friend the right hon. Member for West Bristol (Mr. Stanley) that these signs should be viewed with the utmost caution. I do not suggest that the time has arrived when money and credit should be made easier and that the Government should go in for a series of deficit budgets, but I suggest that it would have been better if these large surpluses had been obtained by his predecessor last year. In this Finance Bill, we are merely marking time with a large surplus in reserve ready to throw in should unemployment become evident and a trade recession take place.

My second reservation is that the Government should have obtained a good deal of their surplus by reduced expenditure rather than by increased taxation. To my mind, there is something rather frightening in the calm assumption of the Government and their supporters that Government expenditure cannot be reduced except by seriously cutting or making inroads in our surplus. I was told when I was young that there was no such word as "can't" in the British language. I think that anyone who listened to the Debates on the Estimates, especially those relating to the Central Office of Information and the Ministry of Works, and who listened to the admirable speech of my right hon. Friend the Member for North Leeds (Mr. Peake) in the Second Reading Debate, and anyone who has come into contact with the working of our great bureaucracy up and down the country must realise that economy is not the second name of this Government. To my mind there is no question that, if the will were there, serious economies could be made. I frankly do not see how any form of democratic government can exist for long under the present high level of taxation and Government expenditure.

The hon. Member for Louth (Mr. Osborne) pointed out that the money incentive and the reward for thrift and enterprise, or skill and hard work have been largely negatived today, owing to high taxation. If we do away with the money incentive, some other incentive has to take its place if we are to have progress and an expanding standard of life for the people of this country. I think that we have learned that appeals and exhortations by the Government are no substitute for incentive in time of peace. If they are no substitute, the only other substitute is compulsion and force. I sincerely trust that the people of this country, if not the Government, will revolt before it is too late against this high level of Government expenditure and taxation which places on individuals and industries in this country an intolerable burden of taxation. It is a burden under which no economic system, be it that of free enterprise, democratic socialism, State capitalism, or whatever one cares to call it, can possibly work without resorting to force and compulsion.

Let me say a word or two about one or two of the specific proposals contained in this Finance Bill. Every one, has, I believe, said a word about the increased tax on tobacco and beer. I know how difficult it must be for the present Chancellor of the Exchequer, whose self-discipline is well known and admired by us all, to realise that tobacco and beer, although possibly not essentials of life, really cannot be considered as luxuries today. It may be a regrettable fact and one which the hon. Member for West Ealing (Mr. J. Hudson) may regret more than most of us, but the fact remains that many men and women in this country today cannot do their best work, in fact their health may be impaired, if suddenly they have to give up these two fairly inoffensive comforts and stimulants. When revenue has to be raised to meet Government expenditure and when we require a Budget surplus, it is obvious that the Chancellor has to distribute the increased burden of taxation as widely and fairly as possible throughout the whole community, and if one accepts the present level of Government expenditure and the surplus, it seems inevitable that an increased tax should be put on beer and tobacco.

I have no sympathy with hon. Gentlemen opposite who cheer high Government expenditure and then squeal when they find that some one else has to pay something extra in taxation. I detect however it some of the speeches from the Government Front Bench, including that of the Chancellor, an assumption that beer and tobacco are luxuries the consumption of which can be regulated by the individual according to how our adverse balance of trade stands or how serious is our internal financial position. That is a wholly wrong assumption, and I think that we should be honest about it and recognise that these increased taxes on beer and tobacco fall hardly and harshly on every one who consumes them, be they rich or poor. They are in quite a different category to the betting tax. Betting is an evil which has grown at an enormous rate during the past two years. It is a habit which can easily be given up without causing any great hardship or inconvenience to any one. Although a betting man myself, I welcome the efforts of the Chancellor to overcome the administrative difficulties of collecting a tax of this nature. I hope that his efforts, when carried out in practice, will meet with success.

The Special Contribution really has little to recommend it as a tax. I would only say to the hon. Member for West Ealing that if he feels that more money should be taken from the rich there are other and more equitable ways of doing it than by this Special Contribution. The Debates during the Committee and Report stages have shown that it is extremely unfair in its incidence as between one person and another. I should have thought that it was based on doubtful moral principles. The black marketeer, the spendthrift, the man who has put his money in racehorses or champagne, does not have to pay it, while the man who has invested or saved his money is to be punished or penalised. It seems to me to defy all the accepted canons of sound finance. It is a tax which will be extremely difficult of assessment. There will be argument for many years to come about the assessment.

It is admitted that payment will be out of capital, and will then be treated and spent by the Chancellor as income. I must in fairness admit to the Government and the Chancellor that, as my right hon. Friend the Member for West Bristol (Mr. Stanley) has said, very little attempt has been made to defend this tax on any other than political or party grounds. We are told today that it is necessary so as to reconcile wage earners to the increased taxes on tobacco and beer. We have also been told that it is necessary so as to get the trade unions to agree to co-operate with the Government in their policy for the voluntary limitation of prices, incomes and wages. One can only hope that these short-term objectives will be achieved, but there is a real danger that the long-term results from this tax may do great harm to the whole economy of this country.

There have been arguments as to whether this tax is inflationary or deflationary. I think that from the short-term point of view it is undoubtedly deflationary. Those people who have to find a large capital sum will obviously cut down their expenditure during the current year. From a long-term point of view, however, this tax is definitely inflationary. I am prepared to accept the assurance of the present Chancellor of the Exchequer that this particular tax will not be imposed again. Apart from the known integrity of the present Chancellor I believe that when it has to be collected and the assessment has to be made, it will be found to be quite impossible to assess this tax.

The fact remains that hon. Gentlemen opposite have now tasted blood. For the first time since Death Duties were imposed an attack has been made on capital and in my own view the majority of people do not feel that the appetite of hon. Gentlemen opposite will be so easily satisfied as by the imposition of this levy for just this year. Therefore, from a long-term point of view, it must be inflationary since every encouragement has been given to people to spend their capital or at any rate to speculate with it for capital appreciation rather than invest it for income. I am afraid that the bad effects of this tax will be felt for many years to come.

In conclusion, I would express the hope that now that the Government have started on a more realistic financial policy they will go one step further in the future and relate their financial policy to a greater extent than in the past to the economic needs of the country. I admit that at this particular moment the first duty of the Chancellor in this Budget was to clear up the harm which has been done by his predecessor in the past two years and to budget for a really substantial surplus. The needs of this country today, as everyone on both sides of the House is agreed, are capital development, the re-equipment of industry and greater production. With the high level of taxation, high Government expenditure, the tax on undistributed profits, the special levy, we shall never see capital flowing back to industry again. As my right hon. Friend the Member for West Bristol said, one of the big difficulties which we have to face in this country is that of getting enough capital into industry in the future so as to see it developed properly. I sincerely hope that next year we shall see a general reduction not only in Government expenditure but in taxation.

2.9 p.m.

Mr. Mellish (Rotherhithe)

I am one of those who entirely support the main principles of the Budget because I consider that the Chancellor designed it for two purposes. One was to deal with the inflationary problem, and the other was to give incentives to the people of this country who are employed in industry. I believe that both these objects have been achieved. Speaking from some experience of the matter so far as the workers are concerned, I am confident that the abolition of tax at the lower scale has made all the difference in my own area. So far as my own people are concerned, it has given them an incentive and in that direction I believe that this Budget has been very satisfactory indeed.

I could agree with quite a lot of the speech of the hon. Member for Rutland and Stamford (Lord Willoughby de Eresby), but not when he talked about the failure of this Government to curb increasing expenditure on the Civil Service, and so on. He did not mention the Armed Forces, but they come within that category, and I find it difficult to understand that argument because, if I remember aright in earlier Debates, it has been the other side which has stressed the need for a larger Army, a larger Navy and a larger Air Force than ever before. All this tends to bigger expenditure. I believe that in the Ministry of Food more people should be employed to cut out black market activities, for it is because we have not enough people doing this work that many of these complaints arise.

I do not think that my hon. Friend the Member for West Ealing (Mr. J. Hudson) was quite up to date with the news when he attacked the Chancellor for his tax on beer. Had he read the morning paper, he would know that the brewers are complaining bitterly that, owing to the increased tax on beer, the consumption has gone down considerably, and there is for the first time in many districts a surplus. Knowing my hon. Friend's sincere views on this matter, I should have thought he would have been delighted with that news.

I want to touch now on one tax which I feel is a deplorable one. I understand the principle, but I think its application is quite useless. Indeed, it has caused a great deal of frustration. I refer to Clause 15 dealing with the bookmaker's licence duty. It will be within the memory of this House that on the Committee stage something like 16 speeches were made on all sides of the House, all critical of it; not a single Member defended the tax. If I may say so, I thought the Front Bench themselves were completely bewildered; most of them did not know anything about the application of the tax, and had obviously been wrongly advised. I believe that gambling should be taxed because it is a moral menace, and if it were possible to wipe it out altogether by legislation, I would be the first to go into the Division Lobby in favour of doing so. However, I know, and everyone in this House and in the country knows, that such legislation could not be brought in.

The Chancellor talks about inflation. Last year, £1,000 million was gambled in this country. The Chancellor, like all previous Chancellors, has had his head in the sand. His predecessors said, "We must not do anything about this because we shall offend the Church interests and other people." I believe that when the present Chancellor took his head out of the sand and looked only at a small handful of dog-track bookmakers and then imposed this most vicious tax—that is the only way to describe it—he spoilt what is a wonderful reputation for being extremely fair. I have always said that the greatest possible compliment which could be paid to anyone is when hon. Members opposite say that, and I have heard that compliment paid to him again and again. They criticised his predecessor, but the present Chancellor has been complimented by them many times.

Mr. Stanley

Not on his fairness.

Mr. Mellish

On the Second Reading the Financial Secretary to the Treasury said: The duty is directed at the betting public and designed to ensure that bookmakers operating on greyhound courses 'shorten their odds' by 10 per cent., which has already been imposed on the tote "—[OFFICIAL REPORT, 6th May, 1948; Vol. 450, c. 1481.] Later on, he went on to say that he was not an expert in these matters— I had better confess that straight away. But from inquiries I have made, I am sure that it is possible to 'shorten the odds'. Everyone who spoke in this House then proved quite conclusively that it was impossible for the small bookmaker to do this. Later the right hon. Gentleman said: If bookmakers do not want to 'shorten the odds' in that way, it is quite possible for them to arrange that, when someone comes to them having won, they should pay out with a deduction of 10 per cent."—[OFFICIAL REPORT, 1st June, 1948; Vol. 451, c. 942.] Something must be said now as to the bookmaker's position in this matter. So far as the small bookmaker is concerned, the effect of the tax is that a £600 tax is imposed before he starts his business over a period of a year. He does not know how he can adjust that. He cannot do it by "shortening his odds," for he has not the money to play with. The big bookmaker may be able to do it, having larger sums of money. He can stand the tax, but the small bookmaker betting in 2s. and 4s. bets, cannot do it. I appeal to the Economic Secretary to make some statement that, in order to recoup themselves for the licence duty payable, they are empowered to make a deduction of 10 per cent. from their winnings—

Mr. Stanley

Not from their winnings.

Mr. Mellish

—from the winnings of the public, so that they may put up some notice to that effect. If a man goes to a dog track and puts a £1 bet on a five-to-one winner, goes to get £6, and is told that he is not to get 10 per cent. of his winnings, and there is no authority for that deduction, I would like the Economic Secretary to be on the greyhound track when that tax is collected.

Mr. Stanley

There would be a by-election.

Mr. Mellish

The whole thing has been badly mishandled and ill-advised. The Chancellor has already said that this is only the beginning and that in the future there will be proper taxation on this form of entertainment. I beg the Economic Secretary to contact the people in the industry to find out how this tax can be applied, if we want the bookmakers to collect it from the public—because that in effect is what is being asked—and tell them how to do it and give them some authority for doing it.

As I have said, I am in entire agreement with the main principles of the Bill which I firmly support.

2.18 p.m.

Viscount Hinchingbrooke (Dorset, Southern)

My hon. Friend the Member for Louth (Mr. Osborne) in, if he allow me to say so, a cogent and telling speech on equality, to which I will return later, referred to some words which fell from Lord Brand last night to the effect that the solutions for this country were either direction of labour or the profit motive. I do not think my hon. Friend or, indeed Lord Brand for that matter, need have any fears upon the subject. As I see it, the Socialist Party reacted from the precipice of the direction of labour last August with such force that they are now travelling extremely rapidly through social democracy to pure Gladstonian economics. There is evidence on all sides that members of the present Government have been reading and digesting the works of Mr. Adam Smith and the Liberal economists of the last century, and that they are now prepared, in defiance of Socialist doctrinaire principles, to bring about a grand classic deflation. That is the direction in which they are moving, and hon. Members in all parts of the House have referred in their speeches today to the incipient effects of this new economic theory.

My right hon. Friend the Member for West Bristol (Mr. Stanley) warned the Chancellor of what may take place in the course of the next few months, and told the Government to be on their guard with counter techniques. The hon. Member for South Nottingham (Mr. N. Smith) brought the news back from his constituency that this process was now gaining rapidly in the country, and I would like to rest my remarks this afternoon on the same theme, feeling as I do largely with the hon. Member that this thing is happening and that the Government must be prepared with their solutions to meet it.

A great deal has been said about Purchase Tax, and I want to make this tax the main burden of my speech because I see in it a possible remedy which the Government may employ if money becomes seriously short. There is the possibility that the Chancellor will try to keep the tax on because he believes it to be a weapon of deflation. He has told us this afternoon that we must not go back quickly on the new economic technique, with which we in this House are all agreed; but I, personally, am far from convinced that Purchase Tax, or any other tax for that matter, is deflationary in its effects. Inflation arises when the aggregate of public and private expenditure exceeds the total national productivity. Purchase Tax, or any other tax, merely transfers purchasing power from the private to the public sector of finance. What counts in inflation is the level of public expenditure.

It is true that a Budget surplus, for which this Bill provides, and which we all welcome, is deflationary, but only when it is used to redeem the floating debt, with the consequential effects that has on the contraction of credit. A Budget surplus can be obtained on any scale of taxation from £5,000 million down to £100 million. The actual scale of taxation is entirely irrelevant to the inflationary position. Purchase Tax, in my view, is much more likely to be inflationary than deflationary. First of all, there is the simple reason that it promotes high prices and a high cost of living which, in turn, lead to workers' demands for extra wages. The famous cycle of inflation can be promoted by Purchase Tax. Secondly, as has been referred to by my right hon. Friend the Member for West Bristol, it prevents goods already made from being sold. I can well imagine that in the next few months we shall find shops in the country filled with goods that are entirely unsuitable for export while the pockets of the people are lined with those few pennies which remain after war-time bonuses, overtime, gratuities, and the like, have been expended. Money chasing goods which are out of reach of the public is, by definition, inflationary.

Thirdly, Purchase Tax prevents goods from being manufactured. Industrialists will not continue to manufacture solely for stock. Their salesmen are quick weathercocks of the position, who go back to the factory and warn of what is impending. Small businesses making high-quality goods will quickly go into liquidation. My hon. and gallant Friend the Member for Perth (Colonel Gomme-Duncan), in the Debates on the Finance Bill last year, gave us a straight-from-his-constituency example of how Purchase Tax was stopping the manufacture of high quality linen and damask. A fine little business had been forced completely out of action. There was a situation where money was chasing goods which had not been made, and would never be made, and that I should have thought was the quintessence of inflation.

May I say a word or two on Purchase Tax on luxury articles? Here, I shall be largely against the sense of Members opposite. We all know that Socialism proposes to establish the equalitarian society, to which my hon. Friend the Member for Louth referred in his speech. Having failed to rise in the era of inequality and opportunity, having, as it were, floated to power upon rank prejudice, the Socialists employ their time hammering out of existence the things which make life really worth living—difference, variety, specialities, arts and crafts, superfine products, luxuries, pride of personal invention and devotion of personal labour towards higher objectives. Where they get the authority to do these things, I cannot imagine. It is not from the man in the street. Ask him what he thinks. He will tell you that his object is not equality, but to better himself and let others do the same. No man will say otherwise. Kill the good things of life and you produce a chain reaction right down from the man who owns a yacht to the man who smokes his pipe and bowls the wood upon the green turf. Must Britain become and remain a kind of potty Social democratic country, steeped in jealousy and introspection, afraid to look up and afraid to manufacture and sell the very best and most expensive that can be produced?

Let the House consider the effect of Purchase Tax on exports. I know that goods actually exported do not attract the tax as such; but if industry at home is stifled by the use of the Purchase Tax on its home products, it will not produce at the right price, if it produces quality goods at all, to sell overseas. There is a direct connection between the existence of the tax at home and the poor quality of our goods overseas. For instance, we are competing very badly with Belgium in high-quality household furnishings in Australia and New Zealand at this very moment, and that is entirely due to the provisions in the Eighth Schedule to the Bill. When Japan and the Far East generally, and Italy and some other countries, get on their feet again we shall feel the draught here very badly indeed. If the Chancellor thinks that Britain, as a high-cost country, can sell poor quality goods against better-quality goods produced by low-cost countries he is greatly mistaken. We shall need Marshall Aid multiplied by ten if we are to survive in these circumstances—

Mr. John Lewis (Bolton)

Why does the noble Lord assume, whatever may have been the position two years ago, that goods now being sold for export are of poor quality? We are out of the sellers' market into the buyers' market, where high quality is demanded.

Viscount Hinchingbrooke

I would recommend the hon. Gentleman to take a little trip abroad to see for himself, and hear some of the comments that are now being made about the quality of British goods.

What are the figures of Purchase Tax? The Chancellor of the Exchequer gave them to us in his Budget, and he repeated some of them today. He told us that £300 million was produced on the basis of existing taxation. He made a reduction of £24 million in the Budget itself and a paltry £15 million in Committee. That shows that we have a very long way to go indeed before this encumbrance is removed. How dare the Chancellor of the Exchequer make appeals to industry to lower prices? It is he himself who is the architect of high prices through Purchase Tax, and how can he expect industrialists, large and small, throughout the country to respond, knowing as they do that that is the case? People in glass houses should not throw stones. The right hon. and learned Gentleman has a beam in his own eye, and the sooner he takes it out the sooner this country will get upon its feet again.

I have one question to ask, and I should be grateful if the Financial Secretary to the Treasury, the Economic Secretary, or whoever is to reply for the Government, would make a reference to it. What are the Parliamentary means available to reduce Purchase Tax in the coming year? Is it the case that Purchase Tax orders can be produced at any time subject to affirmative approval by both Houses of Parliament? I am sure we do not want another Finance Bill with all its inexpressibly tedious and technical points in order to achieve a simple operation like a reduction of Purchase Tax. This Autumn without doubt there will be signs of growing financial hardship on the part of the public, and I therefore ask whether the Chancellor will bring to the House, month by month, Purchase Tax reduction orders as they are required to meet the current situation?

There is one final argument I want to make in regard to Purchase Tax. We dislike all taxation but particularly distasteful is indirect taxation. I do not quite understand the Chancellor's argument today that while Income Tax, Surtax and other direct taxes are very high, that in some way justified equally high indirect taxation. I should have thought that the reverse was the case. At least direct taxation gives the public the free choice of expenditure at its net income. Indirect taxation, on the other hand is a clear affront to the intelligence of the public. It entirely disproves the theory behind the dissemination of factual information of which the Lord President of the Council is so very fond. What is the use of campaigning, advertising and informing the public by spending millions of money on posters, brochures, and the like if at the end of that time the public are not permitted to decide how they should spend their money and how they should lay out their income.

What indirect taxation does is to dispense with all apparatus of propaganda and say, "We bureaucrats know better than you do what you shall buy and what you shall sell." Purchase tax is used to force members of the community into and out of particular markets against their inclination. It is a birch rod used on her children by the grandmother State and I advise the right hon. and learned Gentleman to chuck it out of the window as soon as possible.

I gave my views on the Special Contribution on the Second Reading of the Bill. Except for this aspect, which will have the worst possible social and economic effects, this is a no-change Finance Bill so far as the general economy of the country is concerned. We now know that it was the right hon. Gentleman the Chancellor of the Duchy of Lancaster who produced the surplus in the Budget of last Autumn and not the present Chancellor. It was the former Chancellor who had thoughts of deflation though he never admitted his object at the time. We on this side of the House welcome the surplus though we say that it has been achieved at far too high a level of taxation. This Bill provides for £3,500 million in taxation, £400 million more than in the last years of the war, when, heaven knows, we should have reached the acme and summit of collectivism.

Eighty pounds per head of the population is now exacted in taxation and were it not for the progressive principle enshrined in taxation, a man earning £4 10s. a week would have one-third of his wages snatched by the Government. We on this side of the House will continue to press throughout the year for drastic reductions in Government expenditure and drastic cuts in taxation. We do not believe in collectivism. We believe in transmitting money power, along with rights over property, back to the public from whom those powers and rights have been taken. We say that Britain will never resume her commercial, social and moral leadership in the world until that is done.

2.38 p.m.

Mr. Edgar Granville (Eye)

The noble Lord the Member for Southern Dorset (Viscount Hinchingbrooke) has made some interesting suggestions with regard to the Purchase Tax, and I shall be very interested to hear the answers which the Financial Secretary is going to give to those suggestions. The Chancellor of the Exchequer at the end of his speech this morning made a very careful and important statement on the economic and financial future of this country. We are holding this Debate on a Friday and on the second day of the Test Match, but I hope that what the right hon. and learned Gentleman has said today will be very carefully studied both by this House and by the country.

The Chancellor said that there was still a shortage of manpower and in effect also that there was hardly noticeable any real drying up in the demand for consumer goods. I hope with the noble Lord the Member for Rutland and Stamford (Lord Willoughby de Eresby) that the Chancellor of the Exchequer is not relying completely upon statistics. Many speeches have been made here today on this subject, and one hon. Member after another has given evidence of the drying up in the demand by the ordinary public for consumer goods. If the right hon. and learned Gentleman would consult the factories of the country he would be told that demand is falling off. I should have thought that in certain commodities there was a definite reduction in demand. In any event, I agree with my hon. Friend the Member for South Nottingham (Mr. N. Smith), who made a very interesting speech, that the public is looking at price as never before in its purchase of consumer goods. I am a little anxious about this, because, as I have said, I hope the Chancellor is not going to rely purely upon Treasury and Board of Trade statistics. There are many who believe that there is evidence of a buyers' strike.

The United States went through the lag in the supply of consumer domestic goods in six months. If producers of consumer goods in this country were given the right opportunities I believe our production economy could as a measure of deflation get rid of the arrears in less than one year. This point connects with the policy to which the Chancellor has referred today as the dislocation of changing over from the production of consumer goods for export to the production of capital goods to meet licensing difficulties abroad. The present Government, like every other government in the world today, has overestimated the time needed to deal with accumulated demand for consumer goods. I hope that the statements which the Chancellor has made during this stage of the Finance Bill, and which presumably is his considered policy, will be carefully considered by this House in the near future.

The right hon. Member for West Bristol (Mr. Stanley) who followed the Chancellor of the Exchequer today, likened the course of the Government's Budget proposals to the Marathon race from Windsor to the White City won by Dorando, an Italian athlete. That was some years ago. I was interested to hear from the hon. Member for South Nottingham that he proposes to give the right hon. Gentleman a copy of his book. I shall therefore look forward to the Debate on the Finance Bill next year, after the right hon. Gentleman has read that book and also the book offered to him by the hon. Member for West Ealing (Mr. J. Hudson), dealing with Philip Snowden's views on finance. I feel sure that the right hon. Member for West Bristol will then be capable of carrying the Olympic torch of financial reform in these Debates.

The Chancellor has made a number of concessions during these Debates. They are trimming concessions; nevertheless we welcome them. There has been a good deal of give and take during the passage of the Bill. I sincerely hope that the Chancellor will take his cue from the housewife, who is after all the "Chancellor of the Exchequer" in the home. I hope that the next Budget will be fundamentally a housewives' Budget and that the right hon. and learned Gentleman will approach the various experiments that are being made with the Purchase Tax, entirely with the object of giving first relief to the housewife in her everyday problems. It is necessary to take off or reduce taxes to enable the vast number of women in this country to get textile and domestic goods, for instance, for their own personal use and for their homes, at prices which they can afford to pay. That aim ought to be within the range of the Government's budgetary programme, Rumour has it that the Financial Secretary to the Treasury is to be promoted. Sorry as we shall be to lose him as the first Gentleman of our financial Debates, I hope that the Government will be able to appoint in succession to him, a housewife as Financial Secretary to the Treasury. Then, for the first time, the incentives behind production and behind everything connected with the home may be really understood by the Chancellor of the Exchequer and by the Government. The reference to the dresses at Ascot yesterday by the hon. Member for Cannock (Miss Lee) raises in this respect the question of staggered holidays and clothes at a price which can be afforded by the ordinary women of the country.

Following another reference which was made by the noble Lord the Member for Rutland and Stamford, I cannot see anything reactionary in the suggestion that national overheads should be curtailed and streamlined. Whatever we run, whether it is a nationalised industry or a small business by private enterprise—and of course 80 per cent. of industry is still in private hands—we cannot afford to carry swollen overheads. The national overheads of this country that we have to bear are far too large. I ask for the efficient streamlining of Government Departments so that that figure of national overheads is cut to what the national finances and our production or revenue can afford.

The whole Budget depends entirely upon the production and maintenance of the export market. If that market goes, our position will collapse like a pack of cards. I think we are entering a pre-Election Budget period. I hope that the Chancellor and the Financial Secretary will be able progressively to take off controls, as has been indicated by the Lord President of the Council in a recent speech, and that they will progressively remove taxation upon incentive at all levels. Upon those processes depends whether we shall survive with our present standard of living during the next 12 months without an economic crisis in this country which would endanger this and our whole structure of Social Security, for which we on these benches stand.

2.48 p.m.

Mr. John Lewis (Bolton)

I am sure that the Financial Secretary is not surprised that the Debate has been largely taken up with a discussion on the Purchase Tax and references to the Government's decision regarding the taxation of betting. Those subjects have been the main source of criticism. Most hon. Members have based their criticism upon sound, logical reasoning in relation to general economic factors. An exception is the noble Lord the Member for Southern Dorset (Viscount Hinchingbrooke), who seems to live in a world entirely of his own, divorced entirely from any sense of reality. The noble Lord represented the Chancellor of the Exchequer, the Financial Secretary to the Treasury and other hon. and right hon. Gentlemen on this side as having some sadistic pleasure in depriving our people of goods to which they are entitled. He made no reference whatsoever to the fact that the cardinal reason for the present incidence of indirect taxation is to be found in the necessity of providing goods for the export market in order to help us to meet the deficit in our overseas balance of payments, and thus preventing those goods from being absorbed in our own market.

Mr. Spearman (Scarborough and Whitby)

I do not think the hon. Gentleman is being quite fair to my noble Friend. I do not altogether share my noble Friend's views about the Purchase Tax, but his point was that the Purchase Tax means that people are not getting the goods. They are having to pay through tax money which the Government ought not to be spending on Government expenditure. In other words, it is the total expenditure which matters, and if the Purchase Tax were not paid and the Government themselves did not spend so much, inflation would be avoided in that way.

Mr. Lewis

I am sure that the noble Lord will be very grateful to his hon. Friend for having assisted him in that way. I think I followed the noble Lord's argument. The fact remains that were there no Purchase Tax at the present time, there would be a much greater domestic demand for consumer goods which would in other circumstances go to the export market, and thus this market would be deprived of those goods which it so vitally needs in the national interest. I have always been opposed to the principle of indirect taxation but I regard it as a necessary evil at the moment. I look forward to the time when it will be possible for people who have purchasing power in their hands and who have paid their Income Tax, and, if they are sufficiently fortunate, their Surtax, to spend their money on what goods they require. We know perfectly well that that is not possible at present.

I want to join with other hon. Members in criticising to some extent the processes utilised by the Treasury in deciding which goods shall be subject to changes in the rates of Purchase Tax. That is where the Treasury is in very great difficulty because it is virtually impossible to make any firm decision prior to ascertaining precisely what repercussions the proposals will have on any particular trade. The right hon. Member for West Bristol (Mr. Stanley) was right when, in reply to the Chancellor of the Exchequer, he referred to the great dislocation in retail distribution and to the fact that manufacturers and distributors have suffered, as a result of the alterations in Purchase Tax rates, a disorganisation which has had an unfortunately deleterious effect on industry as a whole.

I suggest to the Financial Secretary that the Government would be wise to consider some scheme for next year whereby, say, three months before the Budget is introduced the Chancellor should indicate to trade interests precisely what he has in mind about Purchase Tax alterations, in order to make it possible for representations to be made by these interests, as a result of which it might be possible to avoid the disorganisation which has taken place in the past. I am well aware that there is a time lag between the introduction of the Budget and this stage of the Finance Bill, but during April and May there has been what has been very aptly described as virtually a buyers' strike. A large part of trade concerned with the domestic consumption of goods was almost at a standstill.

Mr. William Shepherd (Bucklow)

Does not the hon. Gentleman realise that this ingenious proposal would lengthen the period of time over which dislocation and hesitation might take place? If he really wanted to solve the problem, the answer would be along the lines of a flat rate on all goods.

Mr. Lewis

If the hon. Gentleman had followed me, he would have heard me say that I would like the Chancellor to indicate the type of goods in which he was contemplating an alteration. That might enable him to reconcile his views after having taken into account representations from all sections of industry, as a result of which he would be enabled to anticipate the situation which would arise when he introduced his Budget rather than waiting until after his Budget to see the repercussions which arose as a result of the alterations proposed.

There is a point which the Treasury have omitted to take into account. It has been put to the Treasury that the volume of exports is affected as the result of Purchase Tax alterations. That is a fatuous argument, and it is not the case. Many people who have a vested interest in industries have gone to the Treasury and said that, as a result of an alteration in the Purchase Tax, they found it difficult to sell their goods in the export market. That is not the case, and exports are in no way affected except in one respect, and in that respect the Treasury have failed to take into account the conditions which obtain in the general process of manufacture.

It is not possible to produce a small quantity of goods at the same price as a larger quantity. That may sound a simple thesis but if the domestic market is taken away or suffers a severe reduction, the cost of production must go up, as a result of which manufacturers supplying goods to the export market find difficulty in meeting competition. In that respect the Treasury have failed to give due consideration to the difficulties of manufacturers who have gone to them and said that because of the increases in Purchase Tax their domestic market has fallen and they are, therefore, unable to compete in the export markets. I can assure the Financial Secretary that that is a fact and should be borne in mind by his right hon. and learned Friend.

The noble Lord made references to the quality of British goods. My hon. Friends will agree when I say that he rendered a very great disservice to the cause of our export market by making those remarks. He is entitled at all times to make fatuous references to National Savings because that is more or less an internal or domestic matter, but when he makes a specific statement to the effect that we are sending abroad today shoddy goods, it is time that hon. Members, at least on this side of the House, made it perfectly clear that we regard that as a very serious statement which cannot be borne out in fact. I agree with him to this extent, that in the first period after the war certain manufacturers sent into the export market goods which could not be regarded as of the highest quality, but they were faced with difficulties at that time. It was difficult to obtain raw materials of the essential high quality necessary. However, at least for the last two years, and in order to meet competition, it has been necessary for us to produce goods for the export market of the highest quality, and if we had not supplied that type of goods, the figures of our exports would not be on such a high level as they are today.

I join with my hon. Friend the Member for South Nottingham (Mr. N. Smith) in expressing some amazement at the approach to the question of inflation by my right hon. and learned Friend the Chancellor of the Exchequer and the somewhat remarkable reactions of the right hon. Gentleman the Member for West Bristol. I am one of those who, together with other hon. Members, believe we are no longer in an inflationary situation. Whereas the Government might have estimated that private savings would be of the order of £150 million, they have reached £450 million.

Captain Crookshank (Gainsborough)

During what time?

Mr. Lewis

In those circumstances it has been found necessary at short notice to raise the ceiling on building repairs and to left the ban on the building of factories, in order to absorb quickly some of the purchasing power and the raw materials and labour now available as a result of the situation in which we find ourselves. The Government should be prepared to face up to this situation, whether or not the right hon. Member for West Bristol succumbs to the blandishments of the Chancellor. The fact is that the inflationary period has gone and we have started on one of deflation. Let us face that fact.

If we were to do away with all the Purchase Tax, the ordinary working man—taking into account his average earnings today—would not have any surplus money available to spend upon goods which were not vitally necessary. Therefore, I reinforce the arguments of other hon. Members who have suggested that the Chancellor should have the courage at all times, if he is satisfied that what I and other hon. Members are saying is right, to take immediate action rather than to wait for pressure to be put upon him, either by trade interests or by hon. Members in any part of this House. The difficulties and the dislocation caused, as we have seen, by the time lag can and should be avoided.

My last point refers to the Betting Tax, introduced by the Chancellor last year, to which further provisions have been added this year. One very remarkable factor about the Betting Tax is that, although I have sat in this House throughout all the stages of the Debates on the Finance Bill, I cannot recall hearing any hon. Member on any side of the House agree with the Chancellor and the Treasury in the steps they have taken in this matter. It is remarkable because, however learned may be the Chancellor—even though hon. Members opposite disagree with him, they agree that he is wise in most matters—I think it would be right to say that the fact that the whole of the House is unanimously opposed to the present measures indicates that something is wrong—or that "something is rotten in the State of Denmark."

When I refer to the "State of Denmark" I do so because the Inland Revenue have been forced to produce this scheme, under pressure, I believe, from the Treasury. I do not believe they would have introduced it of their own volition. They have found themselves in intellectual difficulties, and have had to evolve a scheme of some kind. It has been most difficult for them and I imagine they must have submitted it to the Treasury with their apologies. They have our sympathy, because they are responsible for its administration; but it is in the administration of the scheme that they will find the greatest difficulties of all.

We all believe that the betting population should provide a source of revenue. It is reasonable for a Government to say that, if money is spent on betting, the Chancellor should derive revenue from that source. As my right hon. and learned Friend knows, from the representations I have made to him from time to time, I yield to no one in my enthusiasm that some money should be obtained by taxation from the betting population. I say that, when last year the Chancellor introduced a tax on the totalisator on dog tracks and failed to take the same steps in regard to totalisators for horse racing, he was immediately establishing a system whereby certain people would have grounds for saying, and with some justification, that there was discrimination against the dog-racing public, in the interest of the horse-racing community, and that it was not fair or equitable. The argument which he put forward last year to the effect that large sums of money are being spent in breeding horses for the export trade I think he now knows himself cannot be borne out in fact. There was a discrimination as between horse racing and dog racing which was unfair.

Now, the Treasury has seen fit to introduce the bookmaker's licence duty, not on all bookmakers, but on just one section of them. I hold no brief for bookmakers, but I say that it is grossly unfair to pick out one small section of bookmakers who go to dog-racing tracks from that much larger number of starting price bookmakers who do a much bigger business and draw revenue without being subject to taxation. I trust that, in these circumstances, the Treasury will realise that they have been ill-advised, and that they will look into the whole question of the operation of the Betting and Lotteries Act and the Gaming Act. I hope the Government will set up a Royal Commission to investigate the whole matter and report to the House, because the chaos in which the Treasury will find itself as the result of introducing a Betting Tax so much open to evasion is such that I feel the Treasury itself would be extremely desirous of finding some method of getting out of their difficulties. I hope that what I have said will receive that careful consideration which I know my right hon. and learned Friend always gives to these matters.

3.8 p.m.

Mr. Selwyn Lloyd (Wirral)

It is now my duty to bowl the last over of the day on behalf of the Opposition, and I can assure the right hon. Gentleman who is to follow that I will try to keep a good length. I think he will agree that we have had long and arduous discussions of this measure, and I hope he will also agree that very little time has been wasted; in fact, in my view consideration of some portions of the Bill has been scamped. I refer in particular to the Clauses dealing with the liability of trustees for the Special Contribution and to the Schedule dealing with working directors.

I have been present during most of the Debates on the Bill, and, like my right hon. Friend who began, I also have watched with interest the form of the team on the Front Bench opposite. I listened with amazement and admiration to some of the things which the hon. Member for South Nottingham (Mr. N. Smith) said about the Chancellor of the Exchequer earlier today. The hon. Gentleman said that the Chancellor had no comprehension of our financial system, that he was temperamentally incapable of mixing with all classes, that he was a niggling person, willing to wound yet afraid to strike, that he had a forbidding external appearance and knew nothing about human nature, and that he was unapproachable, remote, aloof and austere.

Mr. N. Smith

rose—

Mr. Lloyd

I do not think I ought to give way to the hon. Gentleman, because he might say something worse. That is an indictment to which I would not dare to subscribe. I should have said that the right hon. and learned Gentleman was invariably clear in his arguments, although not always as convincing in the earlier stages of the Bill as he was this afternoon.

We have missed the Solicitor-General this afternoon. He was invariably courteous but not always clear, and I am giving him the benefit of the doubt when I say that I suspect that that lack of clarity was not always unintentional With regard to the Economic Secretary, who also has temporarily left us, I feel a great deal of sympathy for him, because I think it was rather an indignity that an economist of his standing should be given the mundane and practical task of fiddling about with the Purchase Tax—fluctuations up and down, and so on and so forth. I can only conclude that really it was a punishment upon him for his display of the gift of prophecy with regard to the length of time which the American loan will last.

As to the Paymaster-General, if I may attempt a trifling correction of my right hon. Friend the Member for West Bristol (Mr. Stanley)—and I can assure him that I do not intend any sort of insubordinate onslaught upon him such as the hon. Member for South Nottingham made upon his right hon. and learned Friend—I do not think he quite did the Paymaster-General justice when he said that he never intervened in the Debates because, as a matter of fact, according to my recollection, he did intervene, on the subjects of prunes, the extension of time for claims for rehabilitation expenditure, dishcloths, paper handkerchiefs and wall charts. I fully agree that the connecting theme of those various subjects is a little difficult to follow.

Then we come to the Financial Secretary. I hope he will not think that I am being offensive if I say that to my mind during the course of these Debates he has displayed some slight signs of staleness; he has had to deal with so many Finance Bills with so many different provisions in them in a comparatively short space of years, that I suppose we cannot altogether be surprised at it. I too have read the rumours of his impending translation, and I notice that the Patronage Secretary is sitting firmly on his left. Whether it be up or down, I am sure that we on this side of the House hope that he will not be taken away altogether from these Debates. If, indeed, we are to lose him, I suppose we shall console ourselves in the classic way by saying: 'Tis better to have loved and lost, Than never to have loved at all. I can assure him that the fact that so innocuous a bowler has been put up to bowl the last over which he will have to play is not meant in any way as offensive to him so much as to enable him to have a really good time on this occasion and to hit just as many sixes as he wants to. So much for the team on the Front Bench throughout the Debates.

My task, I think, is difficult because at this stage it is extremely hard to find anything very new to say about this Bill, but I will try to sum up our position. First of all, with regard to the surplus, we on this side of the House welcome it and the honest accounting which has been shown in this Budget. It is better that it should have come late than never. We welcome the end of the era of the Chancellor of the Duchy of Lancaster, and we welcome what we regard in present circumstances as a prudent anti-inflationary step.

I do not want to enter at all into the wider argument about deflation and inflation. Therefore, I limit myself to saying that in present circumstances we regard it as a prudent anti-inflationary step. Personally I welcome the Chancellor's statement that the first signs of disinflation should not cause a panic, and his intimation that he was prepared to resist any pressure which might be brought to bear upon him. I wish there had been more of his hon. Friends present to hear that statement, because it is quite obvious from what has taken place today that he will have certain pressure brought to bear upon him. He made one remark about which I wish he had been more explicit. He said the surplus was to be used for counter inflationary purposes. I should have welcomed rather more clarity on that matter, if it were within the bounds of Order.

The other part of the Budget which we definitely welcome is that which includes the income tax reliefs. I think there is still a feeling in certain parts of the House that the position of married people with children is not yet quite right—that there is not a sufficient bonus on production, in that sense, for those people, and I hope note will be taken of that. Having recorded our satisfaction with these two matters, I think we should also register our regret that this surplus has been achieved only by raising some £3,500 million in taxation. I understand that is 42 per cent. of the national income.

We have had an interesting Debate during the day on the relative merits of direct and indirect taxation. If I may, without causing offence to the hon. Member for South Nottingham, I will quote a Victorian—I think it was Bagehot—who said, some time about the middle of the last century: Indirect taxation so cramps trade and heavy direct taxation so impairs morality that a large expenditure becomes a great evil. I think the first of those propositions—that indirect taxation cramps trade—has only a limited application in these days, for the reasons given by the Chancellor. I think we have an instance of it in the duty on light oils, but in the main, I think, for reasons given by the Chancellor, we cannot on principle object to a measure of indirect taxation at the present time. But the second proposition, that a high direct taxation impairs morality, is I think still quite definitely true. It gives a direct incentive to conceal profits, to circumvent the tax collector and to try to cheat over small matters.

On this point, one of the remarks of the Chancellor was that the advantage of indirect taxation was that it enabled the spender of money to choose whether or not he would pay taxation, whereas the Income Tax payer could not choose whether he would pay or not. I think that showed a fundamental misunderstanding of what is happening because, in fact, the Income Tax payer can avoid paying Income Tax if he does not choose to earn so much, and that is a consequence which this high rate of taxation is having in so many spheres. My hon. Friend the Member for Louth (Mr. Osborne) gave a good deal of data to support that point of view and I think it would be difficult for anyone with knowledge to deny that this rate of taxation is impairing incentive, stopping the taking of risks and diminishing enterprise.

My view, expressed before in these debates, is that at the present time we, as a country, are grossly over-taxed, and sooner or later the Chancellor of the Exchequer will have to consider how he is effectively and extensively to curtail expenditure. I warn the Financial Secretary of the fate of those who levy excessive taxes and I think if he goes to the first book of Kings to see the fate of King Rehoboam's servant, who was "over the tribute," and who was the then equivalent of the Financial Secretary to the Treasury, he will find that those who levy excessive expenditure eventually come to an end which, if not sticky, is at all events stony.

That is our second point. We register regret that this surplus should have been achieved only at the cost of so high a level of taxation. A great deal has been said about Purchase Tax today, and I do not want to become involved too much in that matter, but I think there is a strong case for Purchase Tax on luxury goods whereas I do not believe in a Purchase Tax on necessities or near necessities. I quite agree with what one hon. Member said, when he was trying to point out that a difficulty arises where you have an export trade in luxuries or semi-luxuries and that export trade is dependent to some extent on a home trade. There is also a difficulty about keeping the proportion and keeping the thing properly balanced, but I do not disagree very much with what the Chancellor said today on that point.

He did make, however, one remark that caused me substantial disquiet. He said he regarded the tax as a means of assistance in economic planning. That, I thought, was a very dangerous remark, and it was one which filled me with disquiet, because I should have thought that that was one of the most wasteful and difficult methods of enforcing economic planning. However, the big point we make with regard to the Purchase Tax is that the Chancellor must avoid this oscillation up and down, which makes conditions quite intolerable for traders. I believe the Government have taken note of that point of view and do intend to try to avoid such uncertainty in the future.

Part IV deals with the question of expenses. We on these benches agree in principle that abuses should be stopped, and that excessive, extravagant expense allowances should not be given. The success of these provisions will depend, however, on the way in which they are administered, and I do ask the right hon. Gentleman to pay attention to two points. I ask him to see that they are considered. First, there was in all parts of the House, I think, a feeling that the bringing of expense payments into the P.A.Y.E. system was quite unsound. The Chancellor, apparently, was adamant on the point that they must come into the P.A.Y.E. system. I ask for that to be reconsidered, because it will involve vast complications for the revenue authorities and the firms concerned. I hope it may be reconsidered between now and the next Finance Bill.

The other matter under this head for which I ask for further reconsideration is the position of a man who is a director of more than one company. It was stated quite definitely that such a man would not be entitled to get his expenses for going to another place of business. I suggest that that decision should be reconsidered, because it will stop people from becoming directors of firms at some distance from their principal places of business. If there is a man in a highly paid position in Liverpool earning what I think is accepted by the Government as a not unreasonable remuneration for a highly placed executive, £3,000 or £4,000 a year, and he is asked to go as a part-time director of a board in London where his technical knowledge may be of very great assistance, and if that appointment involves a fortnightly board meeting in London, it will cost him, even under austere conditions of travel, about £10 a time, or £240 a year. He will have to pay that money out of his net earnings; which means that the gross cost to him will be something like £750 a year—and that in order to get to his place of business in London. That computation is on the assumption he is paying tax at 13s. 4d. in the £.

That means that such a man, before he will undertake that sort of part-time employment, will have to be paid a fantastically high salary or director's fees, and I do not think that that is in the interest of the industry of the country.

The Government have accepted the value of part-time employment, whereby people can give considerable assistance to industries other than their own, or to other businesses similar to their own, which are at a distance from their main places of business. I do not ask for a man's expenses involved in travelling between his residence and main place of business, although there is a case for that, but I do ask for his expenses to be allowed when he goes from his main place of business to an alternative or additional job.

Now I come to the Special Contribution. Upon that there has been a quite clear difference of opinion between the two sides of the House. We regard it as a thoroughly bad tax. We think it offends against the canons of good taxation, which are that a tax should be fair, certain, and easy of collection. This tax is unfair as between person and person; it is uncertain in its incidence as between person and person, and I agree with what was said by an earlier speaker that it will be extremely difficult to collect. The provisions of this Bill dealing with the Special Contribution show the tremendous complications of the subject. We have had one or two examples in the past few months, perhaps out of a natural desire for self-glorification, when Socialist Ministers have contemplated the erection of statues to themselves.

I think that it was the Chancellor of the Duchy who contemplated the erection of a statue to himself for his services in the cause of cheap money. I am not sure that had a licence been obtained for the erection of that statue, it would have stood the test of time. I think that the Minister of Health contemplated a statue to St. Nye for services to the speculative builders. If a statue is erected to the present Chancellor of the Exchequer it should be erected somewhere in the inns of court, because there will be a vast amount of work for accountants, lawyers and members of the Tax Bar and Chancery Bar with regard to this, a once-for-all contribution.

Although we regard it as a bad tax, we have made resolute endeavours to improve it. We have pointed out anomaly after anomaly—that in the case of the man who has retired it is quite unfair to take the last year of his earnings as a measure of what he has to pay; the case of the estate of the man who died after the 5th April of this year; the case of persons who held shares in industries which have been nationalised; the case of people who had the temerity to work and who will lose money as a result; and the position of the agricultural landowner. All these anomalies have been pointed out and there has not been much denial that these are harsh, bad and unfair cases. We have been met, it is true, on two points. We have been met on the personal liability of trustees, although I do not think that it is clear that we have been met to the full extent, and we have been met partly in the case of people described as working directors although why a limit should be fixed at £2,000 passes my comprehension.

The answer given with regard to the Special Contribution varied from time to time. First, we were told that it was a tax on income payable by reference to capital, and, at other times, that it was a tax on capital assessed by the measure of income. Today, the Chancellor of the Exchequer has made the matter absolutely clear. He has said that it is a question of asking those with substantial capital assets to make a once-for-all contribution from their capital. So we are now quite clear that it is a capital levy.

So far as the general merits of the Special Contribution are concerned, I think that it was the hon. Member for West Ealing (Mr. J. Hudson) who attempted to enter into a general discussion. He said that he regarded it with approval because it was a method of getting after the rich. I would point out to him that the rich have been got after already to a very large extent. May I quote from the sayings of the Secretary of State for Scotland, whose sayings are becoming almost a glossary for those who want to embarrass the Government. He said, speaking at Edinburgh, on 4th August, 1946: If every penny was taken from people with over £2,000 a year, it would not increase the workers' income by a shilling per day. Whatever redistribution is necessary is a simple budget operation, but our social problems will not be solved by chasing the will-o'-the-wisp of mere redistribution of incomes. The fact is that at the present time the category of rich people has already been diminished almost to extinction. For the year 1945–46 there were left some 34,000 persons with net incomes between £2,000 and £4,000 a year, which compares with 56,000 in 1938–39. Of persons with net incomes between £4,000 and £6,000 a year there were in 1945–46 only 840 as compared with 12,000 before the war, and of those with net incomes of £6,000 and over there were 45 persons as compared with 7,000. So this process of "soaking the rich" has been pushed to such an extent that as the right hon. Gentleman the Secretary of State for Scotland said, there is really not much more to be got out of it.

The reason why we object to this Special Contribution is because it is a capital levy on people who are already very highly taxed indeed. It goes further; it strikes a fundamental blow at thrift and at the acquisitive instinct, which, whatever we may think of it, is what really makes people work and be ambitious for themselves and for their children and attempt to get on, build up businesses and make money and provide exports and employment. That is the position. We have not altered our view about the capital levy. The Government will find in time that they have done no good service to the industry or wealth of the country or to the Savings Movement by endangering people's belief in the sanctity of their savings, and in the worth-whileness of building up private fortunes. So much for that.

It is only fair, having registered our disapproval of the capital levy, to admit that there were some gleams of comfort in some of the things which were said by the right hon. and learned Gentleman. One gleam of comfort which I personally caught was when he was dealing with the question of the Profits Tax on undistributed profits. He did indicate that he would give that matter his consideration. I should have thought that at the present time, when every one agrees that the prime need of our industry is re-equipment and new plant, to have a penal tax on undistributed profits is the height of folly. The figure for undistributed profits is given in the "Economic Survey" for this year at something like £225 million. That means that the Government are getting £25 million of taxation on such profits. I should have thought that that figure of £25 million is if anything dangerously low, and the Government should give every possible encouragement and certainly not put a penal tax on undistributed profits.

The other gleam of comfort he gave us was in his statement on the Bonus Issue Tax. There are other matters but I do not seek to detain the House in attempting to deal with them. In the result we have this Finance Bill which we on these Benches feel is good in parts but is also bad in parts. We shall watch with interest the Chancellor's progress against a sombre background. If he survives until the next Budget, we shall see if he is really capable of administering the finances of the country for the benefit of the whole country or whether the strains and stresses of the Socialist Party are too strong for him, and whether they force him down the slippery slope leading to economic ruin and financial bankruptcy. Whatever unpopularity he may win in his own party, he will have our support in any sound measures designed to maintain our finances on a firm basis.

3.33 p.m.

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

I would like to begin by complimenting the hon. and learned Member for Wirral (Mr. Selwyn Lloyd). He has had a very distinguished career in one profession and has been a constant attender at the Debates we have had on the Budget and this Bill. I am sure that my right hon. and learned Friend will study with the utmost interest the observations which he has offered to the House.

My task in winding up this Debate is comparatively easy. There has been no real sting in the criticisms that have been offered. Proof of that is to be found in the fact that the right hon. Gentleman the Member for West Bristol (Mr. Stanley) indicated during his speech that the Opposition did not intend to divide the House this afternoon.

Mr. Stanley

When did an Opposition last divide against the Third Reading of a Finance Bill?

Mr. Glenvil Hall

I think can remember such occasions—[An HON. MEMBER: "Only in the earlier stages."] Was it only in the earlier stages? At all events, I am glad to hear from what the right hon. Gentleman said in the course of his speech that Members opposite have very little fault to find with this Bill. If it is not customary to divide at this stage, and if no record can be found of an Opposition dividing on the Third Reading of the Finance Bill, I fail to see why the right hon. Gentleman should have announced that he and his friends had no intention of dividing. Therefore, I think it is true to say that today's attack on the proposals contained in this Bill has been mild. That, of course, was apparent from the speech of the right hon. Member for West Bristol who opened for the party opposite. I have known him a long time. I remember the lean years when he was in office. He has now emerged into the sunlight, and he is always in this House an acceptable and witty speaker. If I may use a simile from the Customs and Excise jargon, he has one drawback—so far as I can see, one drawback only—that more often than not the speeches which he offers to the House are somewhat thin and do not give those who have to reply to him anything much to bite on. There is no straw with which to make any bricks. I shall look forward to future Debates because, if my hon. Friend the Member for South Nottingham (Mr. N. Smith) sends him the book he promised and, it they enter into combination, I am positive they will form an irresistible—

Captain Crookshank

Irresponsible!

Mr. Glenvil Hall

—party. Much of the Debate today has turned on the Purchase Tax. The arguments for and against direct and indirect taxation have frequently been put forward in this House, but I venture to say that today, in the light of the situation facing the nation, a discussion as to whether indirect taxes are better than direct is purely academic. Of course, indirect taxes have certain advantages. As my right hon. and learned Friend said, they allow the individual to choose whether to pay or abstain; then the right hon. Member for West Bristol pertinently interjected and asked what would happen if everybody abstained. Of course, it would mean a serious loss to the Revenue. If everyone ceased to drink beer, if no one drank spirits from now on and if other people did not take tobacco, there would be an extremely heavy loss to the Revenue which would have to be made up in some other way. We might even have to have another Special Contribution in spite of the fact that my right hon. and learned Friend said that it was a "once for all" levy.

Hon. Members

Oh.

Mr. Stanley

"In spite of—"?

Mr. Glenvil Hall

The revenue has to be made up from somewhere—

Captain Crookshank

An astonishing statement. We cannot accept that.

An Hon. Member

That is the brick.

Mr. Glenvil Hall

However, as my right hon. and learned Friend said, I think the law of averages will see to it—

Mr. Stanley

He certainly dropped it.

Mr. Glenvil Hall

—that some people will continue to smoke and that others will continue to drink. Nevertheless, it is a fear which has already entered the minds of those interested in both these industries. Tobacco retailers now are a little fearful that the shortage of tobacco and its heavy price will mean that the coming generation will not learn to smoke and that they may not learn a habit which, from the point of view of the industry, is one that they should take to. The same fear is inhabiting the minds of the whisky distillers to some extent. They have begun to suspect that people are learning to drink gin where previously they would have taken whisky, which is now in short supply.

The chief reason for the use of the Purchase Tax at the present time is that it is a powerful weapon, particularly in the economic field. It can be used—as my right hon. and learned Friend has pointed out more than once and as my hon. Friend the Economic Secretary has said also—as a weapon either to prevent inflationary pressure or, if a depression is about to set in, to prime the pump. My hon. Friend the Member for South Nottingham suggested that my right hon. and learned Friend should consider using the Purchase Tax in reverse. Quite what he meant by that, I am not sure, unless it was that, instead of using this tax to prevent inflationary pressure, he should use corresponding subsidies to increase demand and put more purchasing power into the pockets of the people. If that was his argument, I would remind him that it is happening now so far as food subsidies are concerned—

Mr. N. Smith

indicated assent.

Mr. Glenvil Hall

—and there is no reason why the same thing should not be done in other directions, if it should become necessary.

We cannot blind ourselves to the fact that Purchase Tax and indirect taxation generally have great disadvantages. The stage at which they are levelled means that the retailers frequently have to take very great risks. They have also to wrap up far more capital than they otherwise would. Their overheads are increased, their insurance premiums go up and, when reductions come about, there may be a great dislocation in the industries affected and, in some cases, a loss to the retailers. All these are things to which we cannot shut our eyes. They are considerations which must be looked at and, if possible, we must find a solution.

It is impossible for me to say how long Purchase Tax will continue. My private view is that, in normal times, it is a bad tax and not one that should be levied if we can avoid it. In these days, however, it is essential to give to the ordinary worker as much incentive as possible; this makes Purchase Tax a useful method of taxation and one which, for the moment, must be continued. But, as I have said, that should not blind us to the fact that the tax has great disadvantages and that we have not yet learned to handle it properly.

I agree with the right hon. Member for West Bristol that the long discussions we had during the Committee stages of the Finance Bill on this and on that rate of tax are possibly not the way to handle this matter if Purchase Tax becomes, as it may become, a definite part of our fiscal system. We shall have to work out some other method of dealing with changes. I must say, though, that the suggestion of my hon. Friend the Member for Bolton (Mr. J. Lewis), that the Chancellor's decision should be given three months in advance, would hardly work. Some other method than that which has been employed up to now seems to be necessary.

Mr. J. Lewis

I am sure my right hon. Friend would not wish to misrepresent what I said. During my speech I suggested that the Chancellor should indicate to the trades unions and the trade associations in a particular industry what steps he had in mind so that consultations could take place before the introduction of the Budget rather than afterwards.

Captain Crookshank

Too silly for words.

Mr. Glenvil Hall

Consultations which do take place, take place before and not after the Budget, but that does not mean that the Chancellor indicates what steps he intends to take. That would be most unusual and would be queried immediately. Every Chancellor consults trade associations to try to glean from them just how they would react, if he were to take certain steps. I have no doubt that future Chancellors will also seek, and even take, such advice.

Mr. Spearman

Before the right hon. Gentleman leaves this point, could he give us some assurance that the position of the traders will be considered in any reduction that takes place, because in a falling market they are likely to bear the full brunt of any Purchase Tax concessions?

Mr. Glenvil Hall

That has been dealt with by my hon. Friend the Economic Secretary in a reply which he gave some days ago, at an earlier stage of this Bill. The House is well aware of the difficulties which confront the Exchequer in a matter of this kind. I have already said, during this speech, that one of the disadvantages of the Purchase Tax is that it means that a dislocation takes place in industry when a change in taxation is made. There may be some loss to the retailers concerned. How we can avoid it, I do not know. But it should not be beyond the wit of man to work out some scheme, if Purchase Tax is definitely coming to stay.

Mr. Stanley

This is rather important. It is not a new suggestion that we have made, for we have been pressing for some considerable time for action in regard to the loss which has been falling on the retailer. The right hon. Gentleman now says that it should not be beyond the wit of man to meet this point. In what way is it intended that it should be met? Are discussions and meetings going on now with a view to finding some scheme to meet this difficulty?

Mr. Glenvil Hall

No loss need necessarily fall on the retailer because he is entitled, if he himself has paid Purchase Tax on anything brought from a wholesaler, to pass that on to the consumer. I know though that retailers frequently either partially or entirely cut their losses by selling out at the new rate after the Purchase Tax has been reduced. I am not here to suggest—and I hope nothing I have said will be taken as so indicating—that that particular difficulty can be overcome. However, whether some suitable change can be instituted, is a matter for consideration.

Mr. Beverley Baxter (Wood Green)

I should like to ask a question on that point. I may be confused and not understand what the right hon. Gentleman has said, but I should like to know how the retailer can pass on a tax to a consumer when a consumer reads in a paper that the Purchase Tax has been reduced and that if he waits long enough he will get the article at a reduced price? How then can the retailer pass it on?

Mr. Glenvil Hall

I said that legally he can pass it on, and he frequently does. He explains to the customer that he has paid tax on the article and that he must therefore include the tax in the price.

The right hon. Member made observations about National Savings. He committed himself to the assertion—and I was astonished that he did so because normally he tries to be accurate—that the Special Contribution was a blow to savings. If it is, that can only be so, if hon. Members of this House and others indicate to the people that the Special Contribution is not, as my right hon. and learned Friend indicated, a once-and-for-all levy, but that it will be repeated in such a way as to affect not only the savings of the fairly well-to-do people, but also the savings of the small man.

Mr. Stanley

Does the right hon. Gentleman not realise that just now, in the course of his speech, he has committed himself to a statement that if one source of revenue falls off then, despite what the Chancellor of the Exchequer has said, recourse may be had again to the Special Contribution? He has said that definitely, and if he leaves HANSARD uncorrected it will appear there tomorrow morning.

Mr. Glenvil Hall

The right hon. Gentleman need not get so excited. He does not take in me or the House by pretending to be heated in this matter. He knows that what I said was purely hypothetical. I was taking up the point, which he made in joke, when he asked my right hon. and learned Friend to suppose that everybody gave up certain things like smoking and drinking, and then asked what would happen. I indicated that, if that did happen—nobody expects that it will—my right hon. and learned Friend would have to look somewhere else for the £580 million which he now raises an tobacco duties, and that, if he had to raise it somewhere, he would have to look, despite what he or anyone else has said, to some other form of taxation like the Special Levy. For the right hon. Member for West Bristol to talk as he has done is misleading the House, and he knows it very well.

The noble Lord the Member for Rutland and Stamford—

Captain Crookshank

On a point of Order, Mr. Deputy-Speaker. Can you give some direction to the reporters that some parts of the speech of the Financial Secretary should have the word "joke" inserted after them, so that we may know what parts of the speech are serious and what are not?

Mr. Deputy-Speaker (Mr. Hubert Beaumont)

I am afraid that that matter is outside the jurisdiction of the Chair.

Mr. Glenvil Hall

The noble Lord the Member for Rutland and Stamford (Lord Willoughby de Eresby) thought that the Budget was more deflationary than the November Budget introduced by my right hon. Friend the Chancellor of the Duchy of Lancaster. In order to be fair to him, I should add that the noble Lord the Member for Southern Dorset (Viscount Hinchingbrooke) also made the same point. I should, however, make it plain, in fairness to my right hon. Friend the Member for Bishop Auckland (Mr. Dalton), that if the taxes imposed by the November Budget had been continued and if none of them had been reduced, the surplus which we would expect this year would have been greatly increased. In other words, the assumption that the relevant changes in taxation are to be found in this Budget, and not in the November one, is erroneous. Very swingeing taxation was put on in the November Budget. If that had all been continued, there would have been a larger surplus than there will be—and it is going to be pretty big, nearly £800 million old style, and something like £321 million new style.

Therefore, it is grossly unfair to assume that this attempt to deal with the inflationary pressure is only the work of my right hon. and learned Friend the Chancellor of the Exchequer. He has certainly produced a very great Budget. This is obviously so from the speeches we have heard today. The policy pursued by him, and through the Finance Bill worked out by him, will help to check the inflationary pressure which has undoubtedly been present; but it is only fair to his predecessor to say that much of the groundwork was already done.

The hon. and learned Member for Wirral (Mr. Selwyn Lloyd) asked me if I would consider during the coming year whether some of the provisions of Part IV could be mitigated. In particular, he thought it unfair that the expenses there dealt with should come under P.A.Y.E. I can only say that my right hon. and learned Friend will watch this matter during the coming year and, if it becomes necessary, as it well might, to make changes, he will not hesitate to do so. This set of provisions is a new departure which will have to be watched and, without making any promise or commitments, I can assure the hon. and learned Member and the House that, if the thing creaks and if the upshot is quite obviously unfair, then my right hon. and learned Friend will see what changes can be made.

The same hon. and learned Member also said that the Special Contribution offended the canons of taxation. He said it was unfair, uncertain and difficult to collect. Rather, he put it the other way round. He said that, according to the canons of taxation, a tax should be fair, certain and easy to collect. All those things can be said of the Special Contribution. It is certainly fair, it is certainly definite—people know beyond any doubt what they are going to pay—and it is certainly very easy to collect. No extra staff will be needed. The House may be interested to know that, although it has not yet become law, we have already received something like £4 million from those who are liable to pay.

I think I have covered the main points which have been put by speakers today. I agree with much of what was said by the hon. Member for East Ealing (Sir F. Sanderson), and his fellow hon. Member the Member for West Ealing (Mr. J. Hudson). My hon. Friend the Member for Rotherhithe (Mr. Mellish) and my hon. Friend the Member for Bolton (Mr. J. Lewis) asked certain questions about the tax on bookmakers. It was made clear during earlier stages of the Bill that the bookmakers are entitled and empowered to make such deductions as they think proper from the sums which they pay over to winners. The only thing that they must do, before they make such a deduction, is to let the person from whom they are taking the bet know in advance that a certain percentage will be deducted to meet their tax commitments. So long as they do that, they are quite free to make the deduction.

I therefore commend this Bill to the House. It has, I think, received general commendation, here and outside, as a Measure which is fair to all classes of the community, which will, at this juncture in our history, assist us to face the difficulties of the situation and which will—

Captain Crookshank

It is four o'clock.

Brigadier Mackeson (Hythe)

The right hon. Gentleman will talk the Bill out.

Mr. Glenvil Hall

This is exempted Business. I heartily commend the Bill to the House.

Captain Crookshank

I do not think it is exempted on Fridays.

Mr. Spearman

The right hon. Gentleman has somewhat confused the House on the question of the Government's intention in regard to the Special Contribution. He has also confused me as to the Government's intention about the proportion of direct to indirect taxation. I understood the Chancellor to say that with the present high rates of direct taxation, there was much less objection than before to indirect taxation and that he would prefer to tax spenders rather than producers and would prefer to give the citizen a chance of denying himself paying the tax, and he therefore thought there was a good deal to be said for increasing the proportion of indirect taxation. I understood the Financial Secretary to contradict that today. Is he at variance with the opinion of the Chancellor or has he misrepresented what he wanted to say?

Mr. Glenvil Hall

I honestly do not follow what the hon. Gentleman is trying to say. I myself find no difficulty in anything the Chancellor may have said on this point. I think that anything I have said dovetails into it and is not in any way contrary to the policy laid down by him, which is, I think, sheer common sense.

Question put, and agreed to.

Bill read the Third Time, and passed.