HC Deb 06 May 1948 vol 450 cc1465-576

Order for Second Reading read.

3.48 p.m.

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

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

The main purpose of this Bill is to give legislative permanence to the Budget Resolutions passed in Committee of Ways and Means a month ago. The estimated Revenue this year amounts to £3,765 million, of which £3,512 millon accrues from the taxes covered by this Measure. The expected surplus, by normal Government accounting methods, will approximate to £790 million: but if total expenditure on both capital and revenue account is included, the estimated surplus will be about £330 million. Whilst prudently attempting to achieve a substantial surplus to counter the risks of inflation, the Chancellor of the Exchequer has sought to strengthen our productive effort for home and for overseas markets, by means of the provisions embodied in this Bill which re-arrange the incidence of taxation to provide for the maximum incentive to all concerned.

During the budget Debates criticism from the Opposition seemed to me to concentrate unduly on the proposals for a once-for-all contribution on investment income. To paraphrase an old saying it looks as if a quarter of one per cent. of the population occupies more than 5o per cent. of the interest of hon. Members opposite, though they have, up to now at any rate, done their best to disguise the interest of the few as the interest of the many in the community. They have for example, suggested that the levy will discourage saving and thereby defeat—I almost said "wholly defeat" but I am not sure that hon. Members opposite are as holy as all that—the object which my right hon. and learned Friend has in view.

Viscount Hinchingbrooke (Dorset, Southern)

Like Lord Mackintosh.

Mr. Glenvil Hall

Perhaps we can discuss later on what Lord Mackintosh said. I am perfectly willing to discuss it at the appropriate moment. As I said the other day, Lord Mackintosh was perhaps mistaken in some of the effects which he thought might result from the Special Contribution. At any rate, it this is the considered opinion of the Opposition, I can only say that in my view and in the view of all hon. Members on this side of the House, it is a gross distortion of the facts. The provisions of the Bill must be taken as a whole. The Special Contribution, although it is an integral part of our proposals, is only a relatively small part of the formidable sum which will be raised. It will affect only 125,000 people out of a population of something like 50 million, and only £50 million of the £105 million involved will accrue this year.

It cannot surely be seriously argued that this comparatively small sum can have such overwhelming effects. To assume this is to believe one of two things: either that the only people who save are those who will have to pay the contribution—which is not true—, or that the great mass of the people in the country, including incidentally the great majority of savers, particularly the small savers, have decided that their small deposits are in danger. It is a gross disservice to the National Savings movement and to the community to foster such a belief. On the contrary, there are good grounds for believing that the proposal commends itself to the productive workers of the community, professional and managerial as well as wage earners, as a proper spreading of present burdens. They realise, if the Opposition do not, that if this money were not raised in this way there would have to be increased taxation of labour and industry.

Lieut.-Commander Gurney Braithwaite

That is not true.

Mr. Glenvil Hall

Oh, yes, we have to find the money somewhere.

Viscount Hinchingbrooke

Why not reduce expenditure?

Mr. Glenvil Hall

There have been frequent invitations to hon. Members opposite from this Box and the benches behind me to indicate where and in what way they would reduce expenditure. Up to now there has been no answer whatever.—[HON. MEMBERS: Oh, yes."] No satisfactory answer whatever has been given, particularly from the bench that matters, namely the Opposition Front Bench.

Before I pass on to refer briefly to some of the provisions of the Bill, I think it not unprofitable to call the attention of hon. Members opposite to a quotation from an authority whom I believe they will respect. Professor J. R. Hicks, Fellow of Nuffield College, writing in the July, 1947, issue of "Lloyds Bank Review," a periodical which has been referred to with appreciation by hon. Members opposite more than once in previous debates, said: There is a strong case for a capital levy, stronger perhaps than could have been foreseen seven years ago. For a capital levy would be a more useful measure against suppressed inflation of the kind we are now experiencing than it was against the overt inflation experienced by continental countries in the 1920 s. His conclusion in this article is that the case for a capital levy is stronger than is usually supposed nowadays. He does, however, go on to suggest that there is plenty of room for a "British compromise" between the extremes of view on this question.

Mr. Turton (Thirsk and Malton)

Surely Professor Hicks is an active Socialist and has been so for the last 20 years?

Mr. Glenvil Hall

I do not think that is the common view of the political opinion held by Professor Hicks. In any case, not all the advocates of a capital levy have been found on this side of the House. It is not necessarily an integral part of the Socialist policy or belief. Many Socialists have favoured it in given circumstances and many will doubtless do so again. But I have known many people of different, and even Conservative, political views who have held that a capital levy was desirable.

Lord Willoughby de Eresby (Rutland and Stamford)

I thought the right hon. Gentleman said that this "once-for-all" levy was a levy on investing income; I did not understand that it was a capital levy. He now says that it is a capital levy.

Mr. Glenvil Hall

It is called a once-for-all Special Contribution and in many cases it will obviously be paid out of current incomes. In other cases it will have to be paid, out of capital. Therefore, for the purposes of our argument, it is quite immaterial whether it is described in our Debates as a capital levy or as a Special Contribution. It is a contribution that has to be paid on invest- ment incomes above a certain level; it will be for the individual concerned to decide whether he pays it out of capital or income. At any rate. I have given the view expressed by Professor Hicks who cannot be described as a Socialist, and who suggests that there is room for a British compromise between the two extremes of view on this matter. Such a compromise, which fills the immediate needs of the situation and avoids long delays in assessment and an extensive use of Inland Revenue has been devised; it is embodied in this Measure.

Part I of the Bill, in addition to the normal Clauses dealing with tobacco, beer, wines and spirits, contains a number of provisions made necessary by the need to extend Part I of the Safeguarding of Industries Act, 1921, which, as the House knows, is due to expire on 19th August next. Its provisions are to be extended for a further period of three years, and we are also taking this opportunity to implement certain terms of the Agreement on Tariffs and Trade which was concluded by the President of the Board of Trade and those associated with him at Geneva last year.

There has been some criticism of the small increases of duty that have been made on tobacco and beer. I believe that hon. Members opposite thought them sufficiently important to challenge a Division on the Report stage of the Budget Resolutions. I would, however, suggest to the House that we should keep a sense of proportion in these matters. From the extra duty on tobacco we expect to raise in a full year the sum of L20 million and from the increase on beer about L.34 million. Those who feel that the increases are too much have only to smoke 20 cigarettes instead of 21 and drink 15 bottles of beer instead of 16 to avoid these taxes altogether. Therefore, I do not think that it can be claimed that they are an excessive imposition on the British public or, as is sometimes thought, the British working man.

The wish was expressed last autumn, both in this House and outside, that bookmakers should not escape tax if football betting and dog track totalisators were to be taxed. Provision has therefore been made in this Bill to bring them, or some of them, in. A good deal of thought has been given to the form that such taxation should take. Consultations have taken place with independent persons knowledgeable in these matters and with representatives of the bookmakers themselves to ensure that we devise a workable scheme if we can. I would like to add that these consultations with the representatives of the bookmakers were friendly; indeed, the bookmakers expressed themselves anxious and willing to co-operate with the Government in our efforts to find a proper method of extending the tax. As a result, we propose that licence duty should be levied for each normal race meeting. It will vary according to the number of enclosures. At an eight-race meeting at which there are three enclosures, the rates will be£6 £18 and £48 Where there are two, the rates will be and£6 and £24; where there is only one enclosure the rate will be £12.

At this point, I should perhaps mention that many bookmakers seem to have misinterpreted the aim and function of this duty. Many of them—200, at least—have written identical letters to their Members of Parliament. Numerous copies of this letter have come to us at the Treasury, and I hardly think that I shall be accused of betraying any confidence if I quote a portion of it to the House. I am by profession a greyhound track bookmaker. I am prepared to prove and swear on oath that my nett income from dog racing for 1947 was less than the tax I am now being called upon to pay. I feel you will recognise that this is unjust as it must put me out of business, and I shall be glad of your assurance that you will vote against this tax in the Budget Debate. A stamped addressed envelope is enclosed for the favour of your reply. I quoted that in order to say that it is quite wrong for the bookmakers to assume that the tax is to come out of their present profits. The duty is directed at the betting public and designed to ensure that bookmakers operating on greyhound courses shorten their odds by the 10 per cent. which has already been imposed on the tote. The level of the tax has been calculated very carefully with this end in view, and we think that the sums laid down are just about right for the purpose which we have in mind. Nevertheless, it will be possible when we reach the Committee stage to argue this matter if hon. Members are so minded. It is, however, our considered view, after a good deal of consideration of this matter, that the rates that have been embodied in the Bill are about correct and work out at much the same percentage as is taken from the totalisators. This duty will be collected for Customs by the occupier of the racecourse and will come into operation from the tenth day after the Royal Assent has been given to this Bill.

I now turn to Purchase Tax. Clauses 19 to 23, together with the Eighth Schedule, relate to this tax. It will be noticed that in fulfilment of the undertaking given last year that the enactments dealing with this branch of taxation should be tidied up, the whole of the present legislation has been repealed and substantially re-enacted in what we hope will be an acceptable and easily understood form, classified into groups and subject to three instead of five tax rates.

This is not the time to deal in detail with the incidence of this tax, but I should perhaps take this opportunity to point out that certain alterations have been made in Part I of the Eighth Schedule since the Budget Resolutions were agreed to. On 13th April, it was announced in the House that my right hon. and learned Friend had decided to maintain the exemption for young children's garments. Group 1 (i) of the Schedule has accordingly been amended to implement this change. Group 12 (c) has been amended to continue the exemption for gas and electric cookers. This rectifies a drafting error in the Schedule to the Resolution under which these articles would have become chargeable at 33⅓ per cent. In addition, Group 33 has been amended to provide for the new exemption in respect of certain drugs and medicines, which are dealt with in Clause 21 as those who have studied the Bill will remember. On the other hand, the Schedule does not implement the promise which the Chancellor made on the 22nd of last month to reduce the rate of tax on haberdashery. We propose to do this when we reach the Committee stage.

The re-arrangement and reclassification of rates will mean a reduction of something like £50 million on a wide range of necessary goods, although this is offset by increases amounting to about £23 million on things which are less necessary. I think I would be right in saying that these changes have, on the whole, been well received by the public, by traders and, indeed, by the House, though there have, of course, been some criticisms on the classification of specific items in the new Schedule. These reductions on necessary goods are a substantial contribution by the Government to the practical carrying out of the policy of reducing prices to which my right hon. and learned Friend attaches so much importance. The House will have seen numerous instances of price reductions reported since the appeal for voluntary cooperation in price reduction was made in February. The Government's proposals on Purchase Tax should prove to be a further advance in the carrying out of the policy. I am sure that all Members will be gratified to see prices coming down during the coming months, when many of the Purchase Tax changes begin to take effect.

I come now to what, without doubt, is the most popular feature of the Bill, bringing the greatest relief to the greatest number. I refer, of course, to the Income Tax reliefs. The earned income relief is to be increased from one-sixth, maximum allowance £250—that is, one-sixth of an earned income of £1,500 —to one-fifth, maximum allowance £400 that is, one-fifth of an earned income of £2,000. This change exempts half a million people from paying tax altogether. As regards the rate, it restores the full pre-war measure of relief; as regards the maximum, it is au improvement on the pre-war figure. This increase in the maximum of the relief to £400 is deliberately designed to benefit administrative, professional and scientific workers with salaries exceeding £1,500, who have found up till now that the maximum of £1,500 has not helped them as much as it has helped some others. At present, the first £125 of taxable income is charged at the reduced rates of tax, the first £50 being charged at 3s. and the next £75 at 6s. Clause 27 of the Bill increases the reduced rate band to £250, the first £50 remaining chargeable at 3s. and the next £200 being charged in future at 6s. After allowing for the increase in earned income relief, these rates' are equivalent to 2s. 5d. and 4s. 10d. in the pound.

The Bill also extends the reduced rate relief to the earned income of the married woman in employment. At present, when a wife goes out to work, a special allowance of £110—equal to the single allow- ance—is given in addition to the ordinary marriage allowance of £180. Only one set of reduced rate reliefs is given, however, so that if the husband is already liable to the standard rate, anything the wife earns over and above £110 plus earned income relief, attracts liability at the full standard rate. This has always been a source of grievance among married women, and the Clause now meets the point by extending the reduced rate relief to the earned income of married women in employment as a special inducement to them to enter or remain in industry.

Perhaps an illustration will be better than any amount of words. For instance, where a married woman whose husband earns £6 a week, herself earns £4 a week, they will in future pay 4s. 3d. and 2s. 10d. respectively instead of 5s. 5d. and 6s. 8d. This is a joint reduction of 5s. a week and, so far as the wife is concerned, a reduction from 6s. 8d. to 2s. 10d. We think that this change alone should help many a married woman to make up her mind to stay in industry and so help her country at this critical time.

The increased reliefs will necessitate new P.A.Y.E. tables. Effect to the reliefs will be given as from 6th July and the new tax tables will be in the hands of employers in time for deductions on the new scale to start at that date. Hon. Members would do a great service to their constituents if they can make it quite clear to those who approach them that the effect of these reliefs will not be noticed by them until 6th July, although they will be back-dated to 6th April when they come into effect. We have had a number of queries at the Treasury from individuals who are under the completely false impression that any overtime or extra work which is done between these two dates will not qualify for the benefits. All the publicity we can give to the fact that the reliefs take effect from 6th April should help to allay these misgivings.

Part IV of the Bill contains provisions to protect the Revenue against the avoidance of tax by dressing up the remuneration of directors and highly-paid officials of companies and other business concerns as expenses allowances or benefits in kind which purport to be paid or provided solely for business purposes. This legislation does not apply in relation to charitable bodies or to employees of schools or other educational establishments. The legislation is directed against the industrial and commercial world. Those covered will, in future, be required to bring in for Income Tax purposes their aggregate receipts in cash or kind and then to claim against them any deduction due under Rule 9 of Schedule E for expenses incurred "wholly, exclusively and necessarily in the performance of" their duties. Directors are brought in because they are in a position to determine in what form their emoluments shall be paid. The line for highly paid employees is drawn at £2,000 per annum for the aggregate of salary, expenses and benefits in kind. We have to take this as an aggregate because the legislation could otherwise be evaded by granting a small salary and large expenses.

It will be noticed that the legislation contains savings for bona fide expenses and benefits. For example, no charge to tax is to be made on office accommodation, services and supplies which are used by the director or employee solely in the performance of his duties. A saving is likewise included in cases in which an employee, who is not a director, is required by tradition or necessity to live on the business premises in order to perform his duties. A saving is also included in favour of meals provided for the staff on the business premises.

Sir Arnold Gridley (Stockport)

While I entirely agree that this tax on extravagant allowances is absolutely essential, what puzzles me is why the same provision is not being made in the case of trade union officials who may get large allowances, or the officers of trade associations. Why should the line be drawn where it is and not extended to these trade union officials?

Mr. Glenvil Hall

If there is any case of that kind, my right hon. and learned Friend will be only too willing to consider it when we reach the Committee stage. I would say, though, that trade union officials are not like directors who normally are in a position to fix their own emoluments. Trade union officials are subject to a committee and most definite rules of membership. Their accounts are published year by year and they are very closely examined by those who pay dues to their union. I should imagine that few, if any, trade union officials receive more than £2,000, which is the limit we have set. Quite frankly, I should doubt whether any trade union official receives as much as that, even in aggregate emoluments.

Part V of the Bill provides for the imposition, assessment, collection and ultimate incidence of the Special Contribution. First, I will say a word about its general scope. The contribution will be charged on the individual's investment income for the year 1947–48 if his total income for that year—that is his investment and earned income together—exceeds £2,000. The charge will be on the excess of the investment income over £250. It will range from 2s. in the on the first £250 above the qualifying £250, to 10s. in the on all income above £5,000. When the total income of an individual just exceeds £2,000, a marginal relief will be given so that the contribution payable will in no case exceed the excess of the total income over£2,000.

The charge will be imposed only on the income of the individuals. Where the property from which an individual's investment income flows belongs to him absolutely, he will have to pay and bear the contribution. Where, however, an individual's investment income comes from property that is vested in trustees, the contribution attributable to his investment income from the trust will be recoverable from the trustees.

Mr. Scollan (Renfrew, Western)

Right from the beginning, when the Chancellor first announced this, I have had a feeling that it might be simpler. Why not make it a limit of £2,250, and say after that there will be tax?

Mr. Glenvil Hall

It is not quite as simple as that. If my hon. Friend has a method for simplifying the Bill and feels moved to speak to it when we come to the next stage of this Measure, he may do so. The contribution will be payable in cash on or before 1st January next, or on the date following the making of the assessment if that us later Where the contribution is not paid by 1st January, 1949, it will carry interest at the rate of 2 per cent. per annum, without deduction of Income Tax, from that clay until the day when it is paid.

For the purpose of the contribution, an individual's investment income is generally defined as income which is not earned income for the purpose of Income Tax, but there are some necessary modifications that will have to be made. For example, let us take finance houses, banks and dealers in securities. Where income arises from investments held as part of their stock in trade, the question arises whether that is or is not investment income. Clearly—to give an illustration—a dividend received by a Stock Exchange jobber on shares which are in his hands pending re-sale comes in the class of earned income and not investment income.

Another class of case is to be found amongst those who own property and occupy it for business purposes. Income from real property—that is, the rent of let property or the annual value of owner occupied property—is unearned income, except where it arises through the holding of an office or employment, as in the case of a rectory. In general, such unearned income will be treated as investment income for Contribution purposes, but there will be excluded income from property which is owned and occupied by traders or professional people for the purposes of their trade or profession. Where property is owned and occupied partly for business and partly for private purposes—for example, a shop whose owner lives above it—a due proportion of the income from the property will be excluded.

There is another type of case which arises, for example, amongst underwriters at Lloyd's. In that particular case, income resulting from the underwriting activities, though assessed as income from a trade under Schedule D, is not treated as earned income unless the underwriter himself takes an active part in the business, which is not normally the case. This income is the excess of premiums over losses and it flows from business activity, and not from capital investment. It will be excluded from investment income for Contribution purposes.

Terminable annuities form another class. Here again, an annuity purchased through the 'National Debt Commissioners or an insurance company corresponds to no capital investment in the ordinary sense. Such income from an annuity represents in part a return of capital and it is excluded from investment income. A similar course is followed in the Bill in the case of annuities received in connection with retirement from business.—where, for example, a father hands over to his son a business in consideration of a life annuity out of its profits.

There are one or two other provisions which ought to be mentioned briefly. The powers of trustees to sell or mortgage trust property are made to apply so that they can meet the Contribution falling upon them.

Viscount Hinchingbrooke

Will the right hon. Gentleman explain whether the provisions he is making in respect of trusts apply where the trustees are foreigners—American trusts, for example?

Mr. Glenvil Hall

Where the trustees are foreigners they are outside our jurisdiction, and it is quite obvious that no Act of Parliament passed by us will have any effect whatever. I do not want to go into this at too great length on this occasion, but the noble Lord will find in the Bill a definition of what does and does not constitute domicile for the purposes of the Special Contribution. When the trustees have paid or borne that part of the contribution assessed on their beneficiaries which falls upon them, the apportionment of the Contribution between the various interests in the trust property will be governed, broadly speaking, by the same rules that apply when Estate Duty falls upon trust property. In order that those rules can operate, it is necessary to assume that the Contribution represents Estate Duty chargeable on the occasion of a death, and that the various interests in the trust property arose on that death. In general, the incomes of a husband and wife who were living together in 1947–48 will be aggregated, as for Surtax. The Contribution will be charged as though the joint investment income was the income of the husband.

It is, of course, impossible in the course of a Second Reading speech to refer in detail to all the provisions of so long and technical a Bill. Such detailed consideration can in any event be more conveniently left to the Committee stage. I will therefore conclude by commending this Bill to the House. Its proposals are, I believe, generally acceptable throughout the country as a realistic contribution to national recovery. The criticisms that have been made from the other side of the House on the earlier Budgets do not apply this time. The Budget surplus is a real one. Coupled with the other measures taken by the Government, it will, I feel sure, act as a substantial bulwark against the risk of inflation, while the taxation reliefs should act as a real incentive to all producers to redouble their efforts. For it is their Budget and their Bill. It is a Budget for the workers by hand and by brain in every walk of life. It is not a Budget for the spivs and drones of any social class.

4.37 P.m.

Mr. Osbert Peake (Leeds, North)

We have had a highly technical speech from the right hon. Gentleman—lacking however, his usual peroration, a glowing tribute to his right hon. and learned Friend who sits beside him—and diverging only at rare intervals from his brief, and, consequently, only rarely lapsing into inaccuracies. I shall deal, as I go on, with a number of the inaccuracies in his remarks.

Mr. Scollan

Perhaps, the right hon. Gentleman will watch his own, too.

Mr. Peake

The hon. Member can point out mine later on. The Finance Bill must be viewed against its proper background. I have always regarded taxes as a necessary evil. Their scope and extent must depend upon, and must be related to, the volume of public expenditure. The Chancellor of the Exchequer is to be congratulated, at any rate, on having presented a Budget which has a much more honest appearance than any of the Budgets presented by his predecessor, and the figures of national income and expenditure have for the first time been set out in a form which gives an accurate picture of national finances.

The Chancellor's methods compare most favourably with those of his predecessor, the hon. Member for Bishop Auckland (Mr. Dalton), who used to stand at that Box and claim that our national credit had never stood higher, whilst at the same time he was—it is now disclosed—engaging in the nefarious practice of bolstering the prices of Government stocks in general, and his own 2½ per cent. irredeemable stock, in particular, by vast purchases on behalf of the National Debt Commissioners, of whom the Chancellor of the Exchequer is ex-officio chairman, using for that purpose the funds of the National Health and Unemployment Insurance Schemes. Those insurance funds and the insured contributors who have provided them, have suffered enormous losses which, in my view, will ultimately prove far to exceed any of the estimates which have been given in the public Press.

There is another aspect of this matter which will deserve—and which I hope will obtain—thorough investigation, and that is the question of whether it is right and proper to use insurance funds of this character for investment in irredeemable securities. These are funds which may have to be mobilised at short notice in the event of a sudden depression and increased unemployment, and surely it cannot be right to invest those funds in securities which have no redemption date of any sort or kind.

We welcome the change of method and of man at the Treasury. We hope that we have also said goodbye for ever to that carefree, happy-go-lucky attitude towards national finance which was the main characteristic of the tenure of office of the right hon. and learned Gentleman's predecessor.

Mr. Gallacher (Fife, West)

Kick a man when he is down.

Mr. Peake

I hope that the Treasury will now be allowed and encouraged once more to perform its historical function of enforcing due economy on Government Departments, and I hope that there will be no more prodding of Government Departments to spend public money. In our view, public expenditure and taxation are still being maintained at an intolerable level, and we see no real hope of recovery until substantial cuts are made. There is plenty of room for reductions in national expenditure, without in any way impairing the efficiency of the social services, and I shall on this occasion, as I have on every previous occasion in Budget Debates, give illustrations in the course of my speech. The right hon. Gentleman asked for suggestions. In the course of all the Debates on Budgets since the war, he said, he had never heard suggestions from this side of the House. All I can say is that the right hon. Gentleman certainly cannot have listened at all to any of my speeches, and he cannot have listened very carefully to the speeches of many of my colleagues. The Chancellor also, in his speech on the Budget, made a similar challenge. Therefore, hon. and right hon. Gentlemen opposite will have no complaint if, in the course of my remarks, I indicate spheres in which economy can be effected.

Mr. Scollan

That will be something new.

Mr. Peake

No, it will not be. I have done this every year on every Budget since 1945. The astonishing thing is that I have never got any reply from the Government spokesmen. What, in fact, has happened is that a year later—and a year too late—my suggestions have invariably been adopted. I was puzzled when the Chancellor in his Budget speech informed the Committee that public consumption expenditure for the year 1948, on the basis of the provisional Estimates in the Economic Survey, would be 22 per cent. of national income. I must confess that that struck me as a curiously low figure, and I therefore looked at the Economic Survey and found from Tables 22, 23 and 24 that this absurdly low figure of 22 per cent. is based in the first place upon a national income of £9,000 million, and it is stated that Government consumption expenditure includes the expenditure of local authorities as well as that of the central Government. There is then given a figure of only £2,050 million. We all know the Government's plan to spend from the Exchequer alone next year just under £3,000 million. Therefore, it is surprising to find this figure of £2,050 million.

I will explain how it has been arrived at. It has been arrived at by excluding from national expenditure what are called transfer payments to the tune of £600 million. These are all social security payments—war pensions, and release grants. That £600 million has been excluded and not treated as national expenditure but as personal income. Furthermore, the whole of the interest on the National Debt—a further sum of £500 million—has been treated in the same way. This does not give a true picture of the proportion of the national income which is taken by taxation and expended by local authorities.

The true expenditure for the coming year was stated by the right hon. Gentleman in his Budget speech to be £2,975 million. To that we have to add the expenditure of local authorities which is borne by the rates. The figure of another boo million for that expenditure will be found in the financial statement, so that the total expenditure taken from moneys raised from the citizens of this country is about £3,300 million for the coming year. It is perfectly clear that that figure as a percentage of the £9,000 million of national income is more than one-third; it is, in fact, 36 per cent. That is the proportion of public expenditure in relation to the national income. But as the Chancellor of the Exchequer is budgeting this year for a surplus of no less than £320 million and is going to raise in taxation £3,500 million, the proportion of the national income being taken in taxation is no less than 42 per cent. I think that ought to be made clear, since many people must have been misled by the statement that public consumption expenditure in the coming year was to be 22 per cent. of the national income.

I have indicated on previous occasion where economies could be made. In each of the last two Budgets, 1946 and 1947, I have said that expenditure on national defence was too high. No answer was made to that claim from the Treasury Bench at the time, but, in point of fact, in the following year there has always been a substantial reduction in defence expenditure. The figure was budgeted at £1,600 million for 1946–47, £900 million for 1947–48, and £693 million for the coming year. If only there had been some real pressure by the Treasury to get this expenditure down more speedily and to expedite cuts in defence expenditure, that expenditure upon defence might have been substantially reduced much more speedily. I believe that in the present figure of 700 million there is a great deal of expenditure which might have been further cut down.

Mr. Scollan

The right hon. Gentleman invited correction if he said anything that was new. On this point, there was only a handful of us in this House who opposed military expenditure and voted against conscription 'when the right hon. Gentleman's party walked in and supported it. He has no right to complain.

Mr. Peake

That was not the point with which I was dealing. I was saying that defence expenditure in each of the years since the end of the war had been too high. The hon. Gentleman knows that throughout 1946 there were something like one million men engaged on making munitions for the war that had just ended. The curtailment of the terminal expenditure upon defence has proceeded far too slowly. Moreover, I am quite confident that we ought to get better value for the £700 million that we are spending on defence today. Compared with the figure of £250 million which we spent when rearmament was in full swing in 4 1938–39, when we knew that we were on the fringe of war and building up our defences as speedily as we could, even then we spent only £250 million. Allowing for the fact that everything costs probably double today what it did in 1939, I say that £700 million is an excessive figure for us to be spending on defence. The Chancellor of the Exchequer took credit in his Budget speech—

Mr. Mitchison (Kettering)

Has the right hon. Gentleman considered the unfortunate incident—

Mr. Peake

I cannot give way. I have some other things to say about economy. The Chancellor of the Exchequer also takes credit for estimating a reduction of expenditure in the coming year of £55 million for the German section of the Foreign Office and £28 million for Foreign and Imperial Services, and for cuts of £17 million on Civil Defence and of £28 million for the Board of Trade commodity services. These are nearly all things that have been hammered at him, or his predecessor, at any rate, from this side of the House in previous years. For more than two years, we have complained about the expenditure in Germany. It is still remarkable that even in the coming year we are going to spend a very large sum upon the civil administration of Germany. Each year—quite apart from these matters to which I have already addressed myself—as public expenditure for the previous year comes under examination by the Public Accounts Committee and the reports of the Comptroller and Auditor-General are published, examples of scandalous waste are brought to public notice. It is complete nonsense for the Financial Secretary to stand at that Box and pretend that no economies are possible.

Every year, in the Public Accounts Committee we come across examples where public money has been wasted to a scandalous degree. Hon. Members are all familiar with the £80 million odd which were thrown down the drain in black market transactions in Germany after the war. There are further examples which have come to light in the recently published report of the Comptroller and Auditor-General upon the Civil Appropriation accounts. Attention is drawn there to the excessive cost which has been incurred in the provision of temporary houses by what are called non-traditional methods. There has been a fearful waste of public money, as every hon. Member must be aware, in" the provision of aluminium bungalows.

There is another matter to which the Comptroller and Auditor-General draws attention. The right hon. Gentleman's predecessor gave carte blanche to local authorities to requisition house property. But I do not suppose that the right hon. Gentleman is aware that the very moment when local authorities requisitioned house property in this way, the rates became payable by the Government upon those properties, even though they were empty. That was in fact inviting the local authorities to put their hands as deep as they pleased into the pockets of the taxpayer.

There is a third matter which I think I ought to mention, also contained in the reports of the Comptroller and Auditor-General. That is the provision of innumerable training centres, at vast cost, for the Ministry of Labour. I think that £6,500,000 was spent on the provision of training centres for building trainees, and most of these centres have never been used, and very few of them used to more than half their capacity. It appears that no decision has yet been taken as to the future of these white elephants. It is absurd for Ministers to stand at that Box and say that it is impossible to cut down public expenditure without attacking the social services. Everybody with any experience of administration knows there are many ways of saving money if only the matter were firmly tackled.

There is another disturbing feature common to many Departments, and that is the growing cost of administration and staff, details of which are to be found in the memorandum on Civil Estimates to which the Financial Secretary puts his name. Many of these increases in staff, of course, are due to the operation of new and ever more stringent controls. There is also the fact that there is an immense amount of constructional work in progress on Government account. Two features which have been constantly observed in relation to constructional work on Government account are these—and they both go to prove that the Government are getting bad value for money.

The first feature is that only a small proportion, as a rule, of the constructional work planned and estimated for a given year is in fact carried out. We constantly find in reading the appropriation account, let us say of the Ministry of Works, that a building project has been undertaken for which it has been estimated that half a million pounds was to be spent in the year but only £200,000 was in fact spent, and we find a footnote giving the explanation that the work could not be carried out owing to scarcity of labour and materials. There has been a constant failure to carry out work estimated for, and there is another feature, which is that the work actually carried out has always cost more than the original estimate. There is a steady rise in costs on the one hand, and a steady failure to complete on the other, and these two factors show beyond all manner of doubt that the Government expenditure on constructional work has contributed largely to the inflationary position from which we are suffering at the present time. It also shows the complete lack of any coherent plan of priorities and the failure of the late Chancellor of the Exchequer ever to say "No" to any project which has been put before him. In the result, I am quite sure that vast sums have been wasted, and prices have been forced up to levels from which they are very reluctant now to recede. "We have tried to do too much" was the candid confession of the Prime Minister last August.

The Chancellor of the Exchequer puts his total expenditure for the coming year at £233 million less than the actual expenditure for the year before. I would draw the attention of the House to the fact that he has in fact transferred back to last year the sum of £100 million, that is to say, the prepayment to the Argentine, most of which would have fallen to be borne on the expenditure of the current year if it had not been paid in advance just before the end of the last financial year. A true comparison between expenditure for this year and for last year would show only a small balance in favour of the current year.

If the right hon. Gentleman wants some suggestions of where money could be saved, I must refer him to the Financial Statement printed on 6th April, and particularly to sub-heads (a), (c) and (d) of Table VIII. He will find there a number of items where I am confident that expenditure could be reduced. I have already referred to temporary and emergency housing. Both those items show substantial increases for the forthcoming year; they are up from about £25 million to £37 million. Now that we know there is a plentiful supply of bricks and timber in the country for the construction of traditional houses, I should have thought that these schemes of emergency and temporary houses, which have proved so disastrously expensive, might have been shortened and curtailed.

Another big item is one of over £23 million for road construction. As I have pointed out on many occasions, that type of work might well be kept until we are threatened with a slump and with unemployment. Amongst the other matters in Table VIII (c) is Civil Aviation, which is to cost the country £26 million next year. I have referred many times to the appalling cost of Heathrow aerodrome—£28 million for a single airport. It will also be very interesting one of these days to find out how much it has cost the tax- payer to get the Brabazon aircraft into the air.

Then we have a colossal sum for, "Works, Buildings, Stationery and Information Services." This includes, of course, the growing cost of the Central Office of Information. I believe that is being debated as a separate item next week, so I will say nothing more about it today. For "Works, Buildings, Stationery and Information Services," the Budget expenditure for the forthcoming year is no less than £76 million. One might have expected that that figure, which is slightly larger than the year before, would have been curtailed by the cuts in capital expenditure announced by the right hon. Gentleman last October. Then there is an increase of over £4 million in Miscellaneous expenditure (including General Administration). That is the rising cost of government.

We come, at the end, to no less than 136 million of what are considered to be "war terminals." It is three years since the war ended, and I should have thought that these "war terminals'" might have been liquidated by now. The biggest items in this £136 million show that we are still spending, arising out of the late war, £33 million for shipping and inland transport services; £31 million for the German Section of the Foreign Office; and a most strange item called "Advances to Allies, etc.," £27 million. Hon. Members may wonder what is meant by "etc." Some £22,500,000 of this £27 million is for the supply of goods to Russia on 100 per cent. credit; no payment is to be made for them for at least four years, and then only with interest at½ per cent. We struck a very bad bargain in that trade agreement with Russia.

I have given the right hon. Gentleman a few things to think about. He will be glad to note that I have not mentioned the social services. There is a substantial field for cutting down expenditure without touching the social services.

Mr. Scollan

How much will it come to?

Mr. Peake

I have mentioned a great many items. Let the hon. Member add them up and divide by two.

Mr. Scollan

A drop in the bucket.

Mr. Peake

To meet his expenditure the Chancellor plans to raise by taxation no less than £3,500 million. Nobody on this side of the House will quarrel with his desire to provide in the current year a substantial real surplus. In the special circumstances of a risk of a runaway inflation existing today, we believe that to be sound policy and a real necessity. A similar surplus, however, could have been achieved at a lower level, both of expenditure and taxation, if a policy of real economy had been adopted. Let us suppose that Government expenditure for the forthcoming year were less by 10 per cent. than that which the Chancellor projects. In that case, it would be £2,700 million in place of £3,000 million. The Chancellor could still have budgeted for his surplus of £330 million, new taxation could have been avoided altogether and existing taxation could have been remitted to the tune of £180 million or £200 million.

The Chancellor's new taxes are calculated to bring in about £120 million. There is to be £45 million from alcohol, which will be very pleasing to the hon. Member for West Ealing (Mr. J. Hudson); £20 million from the increased tobacco tax and £11 million from betting. There is also about half the yield of the £105 million from the Special Contribution which will be collected during the present fiscal year. A 10 per cent. reduction in overall expenditure would have enabled the Chancellor to avoid the necessity for any additional new burdens. He could have gone further in increasing incentives by giving tax reductions of a considerable sum, possibly of no less than £180 million. If that had been done, I believe that new hope would have arisen and a wholly new spirit of confidence would have been created. The Chancellor has made some welcome efforts to increase incentives. We welcome the increase in earned income relief and the larger slices of income which will bear tax at the 6s. level. We welcome also the Clauses dealing with directors' expenses. If there has been any evasion of tax on that score it should be dealt with, but I support the plea of my hon. Friend the Member for Stockport (Sir A. Gridley), who interrupted the Financial Secretary to say that provision for these expenses should apply to other persons besides directors.

A standard rate of Income Tax of 9s., coupled with a Profits Tax of 2s. 6d. in the £, constitute impenetrable barriers to the development of new and speculative enterprises. Such enterprises are essential to the restoration of our position as a leading industrial nation. We cannot look for any real recovery until this staggering load of direct taxation on industry is reduced to a more reasonable level. We maintain, therefore, that the proposed increases in taxation on beer and tobacco, and the imposition of the Special Contribution, could have been avoided if due economy and good housekeeping had been imposed upon Government Departments.

The Special Contribution is the most controversial feature of the Budget. The Financial Secretary seemed to think it did not much matter how unfair or unjust we were, provided the injustice affected only a small proportion of the population. It may be a small thing to him, but if there are 125,000 people liable to the levy, and if it is going to raise £105 million, it is perfectly clear that the average imposition or fine inflicted upon these people is in the neighbourhood of £900. It may appear a matter of no importance to the Financial Secretary, but, if a considerable number of people are suffering what they believe to be a substantial injustice, it is surely a matter of which the House of Commons should take notice.

The Chancellor assures us that this imposition is once-for-all and will not be repeated either by himself or by the Government. So far as he is concerned, we accept his assurance, but the value of the assurance is greatly diminished by the fact that his predecessor, the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton), on the day following the Budget Speech, asked the Chancellor to keep the idea of a larger capital levy in his list of "possibles." The right hon. Gentleman went on to advocate a wholesale capital levy.

A wholesale capital levy, in which all forms of property were subject to the levy, would certainly be very much fairer than the Chancellor's proposal, which hits those who have saved and invested, and allows the speculator and the spendthrift to escape. That is why we say that the Chancellor's proposals are unfair. The man who has taken the advice of the Government and invested his money in savings or in Government stock will be hard hit, whereas the man who has spent his money on fur coats or on racehorses will apparently get away without paying it.

The pledge that the Special Contribution is once-and-for-all is further discounted by the repeated declarations of the Lord President of the Council in relation to certain other matters recently before this House. He has said that Parliament is always free, and that one Parliament cannot bind another. This doctrine has been distorted to mean that a General Election dissolves all pledges and obligations entered into by all political parties before the election, even though no mandate is sought or obtained for dishonouring the obligations previously assumed.

Lieut.-Colonel Lipton (Brixton)

For example?

Mr. Peake

I should have thought that the hon. and gallant Member might have realised the example which I had in mind. He must have been away for some time if he has not heard anything about the Speaker's Conference of 1944.

Mr. John R. Thomas (Dover)

I think the right hon. Gentleman suggested that a capital levy was preferable to the Special Contribution, and indicated that it would be more fair and just since the Special Contribution did not embrace the spivs and the drones. Will he kindly tell us how the proposed capital levy would succeed where the Special Contribution does not?

Mr. Peake

Surely the hon. Member must have a little knowledge of the way in which the Estate and Legacy and Succession Duties operate. That is the same thing; it is the capital levy in its simplest form—the whole of a man's property is assessed before his liability is decided. We can further discuss the details of this proposal for a Special Contribution during the Committee stage, when we shall protest at its many demonstrable inequalities, and its manifold injustices. On the Second Reading. I would only ask the Chancellor, if he is going, to reply, how he thinks that the levy is to be paid by persons who derive their investment income from shares held in private companies. These people are in an impossible situation since they cannot realise their capital to pay the levy, nor will banks accept unmarketable shares as security for overdrafts. In our view, the real and lasting damage that will result from the psychological effects of this tax on thrift and savings will far outweigh the comparatively trifling amount of revenue that the Chancellor will derive from it. As was stated in "The Economist" on 10th April: The large private investor must have a very stout heart if he does not now abandon the struggle, put all his money in a safe bank and draw on it for his needs. Let it not be forgotten also that in the last 12 months this type of investor has already incurred capital losses on a scale comparable to those suffered by the Health and Unemployment Insurance Funds. Whilst, for the reasons I have given, we believe that this Finance Bill contains a number of bad and indefensible proposals, it has many welcome features, and at any rate represents an honest attempt to cope with our financial and economic difficulties. For this reason, whilst reserving our right to oppose in Committee its objectionable features, we shall not vote against its Second Reading.

5.17 p.m.

Mr. Ernest Davies (Enfield)

While welcoming the last remarks of the right hon. Member for North Leeds (Mr. Peake) about the decision of the Opposition not to vote against the Second Reading of this Bill, I think that the statements he has made have revealed the very great difference which separates the points of view of the two sides of the House. I say that because he commenced his speech by saying that he considered taxes to be a necessary evil: he referred to taxes being an evil. Now, we on this side of the House do not accept that point of view, for we consider that taxes are very necessary—and particularly necessary in a society where income is inequitably distributed, and where taxes form a means of equalising income and providing a more adequate standard of living for the community as a whole. I would say the difference which separates us in discussing this Budget would very largely be that, whereas we on this side welcome taxation, and welcome the increased expenditure by the Central Government and local authorities in the interests of the community, hon. Members opposite regret such expenditure because it is a means of equalising the distribution of income.

The main part of the right hon. Member's speech was devoted to the need for cutting down expenditure; but in total what he suggested would not amount to a great deal—certainly not to the Jo per cent. reduction which he suggested should be brought about in this Budget. Apart from that, the suggestion that expenditure on defence should be cut down comes very ill from the Opposition. The right hon. Member quoted the 1938 expenditure on re-armament and compared it with the present day expenditure. Two points there should be brought to his attention. First, we on this side of the House certainly cannot admit that the 1938 expenditure landed us in a very satisfactory position in 1939. We were only too well aware of that during the first months of the war, and we learnt then that the manner in which that money was expended showed that it had not been wisely expended as far as the defence of this country was concerned.

But more significant than that is the fact that we cannot compare pre-war expenditure on defence with expenditure on defence today, not only because of the situation which faces us, but because of the very different circumstances which prevail in the Forces themselves. We no longer have an army of unemployed upon which to draw to fill the ranks of the Navy, Army and Air Force, to be given inadequate service pay, inadequate living conditions, and very poor conditions of service generally. The whole system of recruitment and the conditions of the Forces in this country, have changed since pre-war days for the better; and that costs more.

We welcome this Government expenditure, and we do not see how it can be cut down in the present Budget, except in small details of administrative economies, because today expenditure has reached the point where it is a definite contribution to the standard of living of the majority of the community—that is, to the wage earners of the country. Put it this way. I should say the average wage earner today is receiving at least—as the Chancellor himself pointed out in the Budget Debate—from 12s. to 14s. a week subsidy through the cost of living subsidies. In addition, the wage earner is receiving family allowances, many social services and free education for his children; and, probably most important of all, a very large section is receiving a subsidy on rent through the housing subsidies; those who are living in council houses receive considerable rent subsidies.

The rise in wages which has taken place is, roughly, proportionate to the rise in the cost of living, and has been accompanied by the increase in these social services benefits and direct and indirect subsidies. I would say that as a result of that, and also because the worker is receiving regular wages—because today he has full employment—on the whole, the workers of our country are probably better off in this regard than they have ever been. If we attempted in this Budget to reduce expenditure—and in spite of what the right hon. Member for North Leeds said, hon. Members opposite think that could come only through a reduction in social services, except to a very small extent —if we attempted to reduce the expenditure on these items to which I have referred, it would disturb the present relationship of wages to the cost of living, and we should bring about a situation wherein we should have industrial disputes; because the workers would no longer be willing to abide by the wages policy laid down by the Government. "In other words, if we were to reduce expenditure today we should inevitably reduce it, to the largest extent, on these items which subsidise the wage earner's income and so enable him to meet the high cost of living; and that would bring about either a demand for higher wages or a fall in employment, and a generally disturbed situation.

I wish to refer next to the relationship in this Budget between direct and indirect taxation. The Budget, through the increase in earned income allowances and other reliefs, takes out of the income paying class at least half a million present Income Tax payers. That may be a move in the right direction. Also, in other ways certain classes are benefited—through reductions in Purchase Tax, and so on. This Budget continues a tendency which has been going on through all the Budgets introduced since the end of the war—the tendency to shift from direct to indirect taxation. I think that this tendency needs consideration today. We must consider whether that tendency has not gone far enough, and whether the time has not come to call a halt to it. I am well aware that the reason for this is largely P.A.Y.E.; and that in order to give greater incentive to production successive Chancellors have found it necessary to increase reliefs on direct taxation, and thereby not to cause a too large percentage of wages to be deducted from the weekly wage packet in P.A.Y.E.

We on this side are also very conscious of the unequal incidence of indirect taxation. We have always argued against an exceptional amount of indirect as opposed to direct taxation. Therefore, I am wondering whether the incidence of the present basis of taxation falls fairly on all income groups. So far, quite rightly, the greatest amount of relief has been given to those in receipt of the lowest incomes, and we welcome that. But in the processes of increasing indirect and decreasing direct taxation certain classes of the community suffer more than others. I suspect that there are what one might call the middle groups—those groups on whom Income Tax falls first and very sharply, and rises very sharply—and that it is these groups who are suffering more than others from this tendency. I suggest to the Chancellor that the time has come when this relationship or division between direct and indirect taxation needs further examination. I ask him to take into account the incidence of taxation on the different sections, the different income groups of the community, to see whether all are being treated equally, proportionately, and whether the time has not come for some review there. Between now and the next Budget I suggest that the Treasury might give consideration to this question and review the situation in this respect.

I do not consider—and I think most people will now agree—that the inflationary pressure, about which we hear so much, comes from the wage earner, or from these middle groups to whom I have been referring. I do not think that today the wage earner has any surplus with which to buy more than the necessities of life. That, I think, is obvious from the decline in savings, which started to take place long before the imposition of the Special Contribution—on which blame has now been laid by the Opposition. Even if there were more goods in the shops today I doubt whether wage earners would be able to buy those goods. The wage earner is not in a position to buy other than essential goods.

Inflation is not so simple as the round figures of the Economic Survey would indicate. Inflation is not simply too much money chasing too few goods. In practice its nature and extent depend upon who has the money and who needs the goods. At the present time—and this is why this Budget is welcome, in that it attempts to correct this situation to a certain extent—those who need the goods most have not necessarily got the greatest amount of money with which to buy the goods. I suggest that here again is something which must be looked into between now and the next Budget, because the present necessity of restraining consumption is not a situation which we desire to last indefinitely. It is only a temporary situation; and, inasmuch as the ability of certain groups to spend money is affected by taxation, it is something which has to be taken into account by long-term planning on the incidence of taxation.

Before sitting down I should like to touch on one or two detailed points in regard to items in the Purchase Tax Schedule. In particular, I suggest that before the Committee stage the Chancellor should give very serious consideration to the increased tax on radio sets. I say that because there seem to be two very strong arguments against an increase of Purchase Tax on radio sets and radio components. The first would be an economic argument: that at the present time industry cannot possibly dispose of these sets at higher prices. Already the price of radio sets is excessive. I believe that the average price is in the neighbourhood of £20; and with the increased tax it would go up to £30. The Purchase Tax has already risen in the Emergency Budget from 33⅓ per cent. to 50 per cent., and is now to go up to 66⅔ per cent. If, as I believe, the sale of radio sets in the home market will decline as a result of the increased Purchase Tax, and if industry, as it claims, is unable to sell more radio sets abroad because of the increased cost owing to the decline in sales in the home market, then a serious unemployment situation will develop in the radio industry.

That is particularly serious because there are radio firms, including a manufacturing business in my constituency, which, at the instigation of the Chancellor or the Board of Trade, have put up factories in the development areas, particularly in South Wales, for the purpose of employing miners who can no longer work in the mines—for instance, those who are suffering from silicosis. As a result of the increase in Purchasing Tax unemployment is developing in the radio industry, and in my constituency men have been laid off and more are threatened with dismissal. But more serious is the laying off of men in the development areas, particularly in South Wales. That is the economic argument.

There is also the social argument against the increase in Purchase Tax on radio sets. At the United Nations Conference on Freedom of Information, which I attended as a Government delegate, two resolutions were carried by a large majority. The first stated: The United Nations Conference on Freedom of Information is of the opinion: that the tax on the sale of receiving sets, valves and spare parts should be reduced to the maximum extent; The possession of receiving sets is necessary to ensure a really free flow of information, and is in no way a luxury;…. That receiving sets installed in the schools of all countries should be exempt from all taxes and charges. The second resolution also regretted the high price of radio sets for the same reason, and urged that steps should be taken to reduce the selling price of such sets. These resolutions were passed because it was considered at this Conference, that radio is a very important organ of information, that it is a means of disseminating news and views and, therefore, should be given the greatest possible opportunity of doing so.

Radio is not only an organ of entertainment; it is an organ of news and opinion, and is educational as well. That being so, I do not see why it should be taxed in such a heavy way as to make the purchase or replacement of radio sets more difficult for large sections of the community. After all, there is no Purchase fax on newspapers, and the Chancellor is reducing the tax on the live theatre and is giving special encouragement to entertainments in rural areas by making them exempt from tax for certain purposes. In the rural areas, of course, a radio set is of far greater value than elsewhere. I therefore urge the Chancellor, during the Committee stage, to give serious consideration to the possibility of restoring the Purchase Tax on radios to at least what it was before the special emergency Budget in the Autumn, even if he cannot abolish the tax altogether.

There are other items with which I will not weary the House on which Purchase Tax should be reduced or abolished now, and which can better be discussed in Committee. They include certain household necessities, such as kitchen cabinets and non-utility mattresses, on which it is difficult to understand why there should be Purchase Tax at the present rate. I also urge the Chancellor, once more, to consider whether he cannot exempt gifts received from abroad on a moderate scale by people in this country. Most Members know of cases of their constituents who have had to pay heavy Customs Duty and Purchase Tax on gifts received from abroad they have had to pay in many cases far more than they were really able to pay. The argument against exemption is that it would lead to abuse. As it is not possible to send money abroad for the purchase of gifts, I do not see why any abuse cannot be stopped. If there were small leakages I do not think they would amount to a great deal, and this would bring relief to a great many people in need, who have relatives and friends abroad who are willing to send them gift parcels.

In conclusion, I say that this is a good Finance Bill, that it is on the right lines and that it is only in certain details that it needs adjustment. It continues that redistribution of the national income that we on this side welcome and hope to extend. None the less, I think it is time that the Treasury sat back and quietly examined whether the present process of taxation is not going too far in the direction of extending indirect taxation and reducing direct taxation. They should examine whether, as a consequence, present taxation is falling fairly on all classes of the community, whether some on the lower level are not paying less than their share of tax compared with those in the middle income groups who maybe are being taxed too much. Above all, I would like to' congratulate the Chancellor on refusing to be stampeded into reducing expenditure which is essential to the fulfilment of the Socialist programme—an expenditure which we would far rather see increased in that direction than decreased.

5.36 p.m.

Mr. Mott-Radclyffe (Windsor)

We have rightly spent a good deal of time during the last few weeks discussing our financial and economic position. We had a five days' Debate immediately after the Easter Recess on the Budget and the Economic Survey for 1948. I do not pretend to be at all well versed in high finance. I listen with admiration to hon. Members who belong to the freemasonry of those who are on amicable and intimate terms with transferability, blocked balances, and No. 1 and No. 2 accounts. I can only claim a remote nodding acquaintance with that sort of thing. Throughout these discussions on our economic and financial situation, upon which this Bill is based, there seemed to run one main theme. I would describe our position as being not unlike that of a man in an iron lung. As soon as the lung is in danger of becoming ineffective 'because of insufficient oxygen, further oxygen, in the form of dollars from America, is purchased to keep the patient alive.

It is against that background that we discuss this Finance Bill, because it should be so framed as to give the maximum incentive to every industry—not only to produce more goods for export, but to stimulate production in certain industries which themselves are capable of saving dollars. What is the industry which, above all others, is capable of saving dollars? It is the agricultural industry. It is curious that this Government, which claims to be a Government of all-wise planners, should have singled out this industry for attack by means of the special levy. Agriculture alone bears a direct burden from it. This levy of course violates all known canons of tax law, in the sense that it operates, as my right hon. Friend the Member for North Leeds (Mr. Peake) said, quite arbitrarily in its incidence between one man and another. The "spiv" and the racketeer escape, while the thrifty man gets caught.

In the case of the agricultural industry, the position is much more serious. In its application to agriculture I claim that the Government, not for the first time, have committed a breach of faith. They have done so in the terms of the Agriculture Act, 1947. The Financial Secretary, and certainly the hon. Member behind him, the hon. Member for West Birkenhead (Mr. Collick), both know that under that Act the Government and the agricultural industry went into partnership. The industry, for its part, accepted the right of the Government to enforce good estate management and good husbandry. The Government for their part, undertook to do a number of things—to provide guaranteed prices, an assured market and, what is especially important in this Debate, to give an adequate return on capital invested in the industry. That is referred to in Section 1 of that Act.

Far from adhering to their side of the bargain, the Government now propose to drain from the industry capital which would otherwise be available for fixed equipment, for improvements on farm buildings and cottages and for other developments on the land, thereby diminishing the interest on such capital as is left.

Mr. Glenvil Hall

I hope the hon. Member will not persist in the assertion that there has been any breach of faith. The Government made no terms with anybody to relieve the incidence of future taxation.

Mr. Mott-Radclyffe

Perhaps the right hon. Gentleman will have a look at Section of the Agriculture Act, and re-read the Debates which took place during the passage of the Bill. The Minister of Agriculture affirmed that there was a partnership, and that each side would fulfil certain obligations. One of the Government's obligations specifically mentioned in that Act, was to ensure an adequate return on capital invested in the industry. I am saying that by the special levy, capital which might have been invested in the industry will now be drained off. I say that that is a breach of faith on the part of the Government. I believe it will have an adverse effect on the attempts of the Government to stimulate home-grown food production.

The other day I re-read a Government Press notice, issued last August, on this question of home-grown food production, which urged all landowners and farmers to play their part in providing, within the limits of their available resources, new farm buildings, water supplies and drainage. I believe that landowners and owner occupiers have responded to that appeal, but this is the point: They cannot at one and the same time, spend capital on repairing and improving farm buildings in an effort to make good the arrears of repairs which they were unable to undertake during the war, because of the shortage of men and material, and also make a contribution under the special levy. The available capital cannot be used in two different ways at the same time. Has it to go into the industry in the form of improved buildings, or has it to go to the Government by means of the special levy? An owner-occupier, unwise enough to invest in Government securities money which he would have spent in repairs during the war, is now doubly penalised. The interest on these investments is regarded as investment income, and the capital value of these securities, thanks to the operations of the right hon. Member for Bishop Auckland (Mr. Dalton), has been seriously depleted.

The incidence of the levy is unfair in a number of other respects of a more detailed nature. As the Bill is drafted, those who manage their own estates are not allowed to claim any portion of the income of the estate as earned income. All income in the form of rents and from Schedule A is regarded as unearned income. That is inequitable.

Secondly, the deduction allowed in respect of the maintenance claim, with which the right hon. Gentleman will be familiar, is based on the average annual expenditure on repairs and maintenance during the five years preceding the year of assessment. The five years preceding the year of assessment includes, as the right hon. Gentleman knows, three and a half years of war when practically nothing could be spent on repairs and maintenance. 1947 was the first year since 1939 in which it has been possible to increase substantially repair expenditure. Then there was more material available and more labour which could use it.

Thirdly, the special levy operates most unfairly on the landowner or the owner-occupier, on whose estate, farm or farms, certain improvements are being carried out, for which the contract has already been signed, the buildings are in the course of erection, new roofs being put on, but whose financial resources are such that he cannot complete the improvements, and pay the final bill as well as pay the special levy. What is his position? Perhaps the right hon. Gentleman will make a note of these points so that some consideration can be given to them.

I hope that between now and the Committee stage the Chancellor of the Exchequer will consider seriously whether 1947 ought not to be the year as far as expenditure on maintenance is concerned, to be set against assessment of the special levy. I hope, too, that he will consider whether the man who manages his own estate could not be allowed to deduct a portion of the income from rents as earned income. I think these are points which operate extremely unfairly against those who are doing their best for a healthy agricultural industry. Home grown food production requires a long-term policy, and if the Government are going to fulfil their boast that they enjoy the confidence of the farming community they really must adopt a different attitude from that revealed in this Finance Bill. They must make up their minds whether the present system of land tenure is to continue or not. If it is their in- tention, by the operation of the special levy, to prevent the landowner from fulfilling his part of the bargain and then to apply sanctions against him for failing to fulfil it the whole of the Agriculture Act might just as well be torn up. Their present attitude is not only thoroughly unsound for the development of the greatest dollar saving industry we possess; it is hypocritical as well.

5.50 p.m.

Mr. Leslie (Sedgefield)

I listened with considerable interest to the speech of the right hon Member for North Leeds (Mr. Peake). I have no doubt that the Chancellor of the Exchequer will take into consideration the various economies that he suggested, but one thing I was glad he did not suggest, and that was the introduction of a "Geddes axe" such as we had after the last war when unemployment benefit and old-age pensions were cut. I believe the Special Contribution is the chief worry of the hon. Members opposite, and that was shown in the speech of the hon. Member for Windsor (Mr. Mott-Radclyffe). He was critical of the Government's agricultural policy, but might I remind him that one noble Lord speaking in another place—a noble Lord who has spent most of his life in agriculture—was not critical. He said that no Government had done so much for agriculture or to give security to the farming community as had this Labour Government.

Mr. Mott-Radclyffe

If I may interrupt the hon. Gentleman, that statement was made before the Special Contribution was introduced into the Finance Bill, and I would suspect that the noble Lord who made the statement belonged to the same party as the hon. Gentleman.

Mr. Leslie

I might also mention that I have addressed a number of meetings in an agricultural community recently and the farmers and smallholders who were gathered around expressed a hope that this Government would last for a very long time.

There are two things to which I wish to direct the attention of the Chancellor of the Exchequer. One is a way to increase revenue without taxing the community, and the other is to safeguard an industry that should be encouraged. Everyone will agree, I think, that land was meant for use and not abuse. Today in the vicinity of almost every town can be seen land which is lying waste. When a local authority desires land for housing or for other public purposes, a ransom price is asked despite recent legislation. An industrial population enhances the value of land. The landowner just sits tight and scoops the pool. When I was on a local authority I remember we wanted to purchase a bit of land to build a fire station. That land was rated at 50s. an acre, but when we wanted to purchase it for a public purpose the owner was paid £1,600 an acre. My contention then, and it has been the same ever since, was that if this was the real value of the land, it ought to have been rated at £1,600 and not 50s.

Over 300 local authorities have asked power to place part of their rate burden on to site values. The rating of a site value is far better than the block grants which have to come from national taxation. Whereas the site value comes from the people in general, it goes in all cases to the landowner. Cheaper land would mean cheaper houses. As an illustration, when Wandsworth wanted land for houses they paid £9,450 for land rated at £14. That was the equivalent of 765 years purchase. Woolwich wanted land for housing and paid £5,563 for land rated at £9, the equivalent of 1,618 years purchase.

Mr. Vane (Westmorland)

Would the hon. Gentleman explain, since rating is an annual value and purchase is a capital value, whether he is trying to equate these?

Mr. Leslie

All I know is that they paid this. Under the Town and Country Planning Act about £300 million has to be paid in compensation, and I ask the Chancellor of the Exchequer to deal with the question of site value.

I now want to direct his attention to the plight of the hand-loom weavers in the Orkney and Shetland Islands. A Purchase Tax of 66⅔ per cent, on handwoven wool cloth is certainly a big handicap to those weavers. It affects the whole of their trade for their export trade is insufficient to keep them fully employed and many of the weavers have to depend solely on this industry to maintain a livelihood which ought to be encouraged. The imposition of the tax will be a blow to the industry, and I appeal to the Chancellor of the Exchequer to think well what he does in this connection.

5.56 p.m.

Mr. Wadsworth (Buckrose)

There is an advantage in having the Finance Bill some weeks later than the Budget. The first impression I had after listening to the Chancellor of the Exchequer's speech was that the Budget was an excellent machine for raising money and a great improvement on previous Budgets which I have heard. But on more mature consideration I am not so sure that it was. I think in pattern it is very efficient, but I disagree with Members on all sides of the House when they talk of the great inflationary pressure being exerted at the present time. In my own opinion, and this is based on my travels throughout the country recently and on contacts I have had in various industries, I am not convinced that there is any inflationary pressure at all. In fact I would say that we are now on the downward slope, on the deflationary spiral.

We had confirmation of this this afternoon in the statement of the President of the Board of Trade. I feel, and I felt when he was making his statement, that the reason why clothes are not being purchased is because there is not that surplus purchasing power in the hands of the public and that the position has vastly changed in the last few months. From contacts I have had with large department stores in London I find they are now having difficulty in selling goods. In fact we are passing from a sellers' to a buyers' market. The public is much more selective in its purchases. If I am correct in that statement—and I have taken pains to make certain by careful investigation—then it spells unemployment by virtue of the large surplus which has been budgeted for in this Finance Bill. I am hoping that the Chancellor will be helpful in the concessions which I shall ask him to make, but I do not wish to detail them now. I hope he will consider the situation afresh when the Commitee stage is reached and make generous concessions to the wishes of all Members in this House.

I listened with great interest to the remarks of the right hon. Member for Leeds, North (Mr. Peake), and I agree with him as a Member of the Public Accounts Committee that public expenditure at this moment should be very severely pruned. By that I do not wish to infer for one moment that we should curtail expenditure on social services. The House knows full well the part my party has taken in the past in securing a reasonable social security for the people, but there are many other directions, I believe, which could be taken by the Chancellor of the Exchequer to accomplish some relief from taxation by cutting down public spending.

The Chancellor should very seriously consider investigating the Civil Service, particularly the Ministry of Supply, with a view to curtailing public expenditure. Is it worth while keeping the Ministry of Supply today? Will the Chancellor investigate that? Will he also pass a great deal of the control which is at present retained over industry to the industrial societies and federations so that they may maintain their own services and the allocation of their raw materials? My experience of societies and federations of industries is that they are fair, and they will assist the Government to the greatest extent in maintaining a reasonable control of their own affairs.

I have no very serious word to say about the capital levy or, as it is preferred to call it, the Special Contribution, except that I wonder whether it will affect the amount of money spent in increasing the efficiency of industrial firms. The efficiency of industry must be increased and money must be found. There are large plants which are very inefficient, and a great deal of work has to be done in raising the standard of efficiency to a very much greater height than at present. Will the capital levy affect that situation? Our standard of life depends to a great extent upon the efficiency of the industrial machine.

The Chancellor of the Exchequer could assist in creating greater efficiency by abolishing the system of maintaining standards based on 1938. The allocations of a good deal of raw material are based on the 1938 requirements. There is the same imposition in agriculture. No young man coming from the Services today can start up a chicken farm or keep pigs because his holding would not have been registered in 1939. That restriction upon enterprise is found throughout agriculture and industry—and unless one was established in 1939, one cannot now obtain a quota or allocation of raw material. That basis is now ten years old, and it is time that the more enterprising firms were allowed a greater quota and the less enterprising firms had a smaller one. A sanction should now be imposed on inefficiency. At present a man can sit tight upon his quota and not care very much whether he increases the efficiency of his concern.

I ask the Chancellor when he winds up the Debate again to direct the attention of the people to the very serious position in which we find ourselves. A chart of the hopes or the attitude of the British public in relation to the crisis would look like Mount Everest. The line would rise and fall very sharply from day to day according to what the people read in the newspapers. One moment the people think we have turned the corner, the next moment they think the position is very serious, and then along comes the possibility of aid from the United States and the British public again think that the position is not so bad and that we shall soon get round the corner.

In fact, the position has never been more serious than it is today. Whereas the Economic Survey for 1948 estimated that the deficit for the balance of trade for the first six months of this year would be £136 million, the actual deficit was £119 million for the first three months. That shows that we are a long way from overcoming our economic difficulties. Over the three years before 1939 we had an average deficit of £60 million, including visible ex- ports. On the basis of today's values that would be double—£120 million. In addition to that we have lost our overseas investments, which amounted before the war to £200 million, and, on the basis of today's values, that is equal to £400 million. Therefore in 1948 we start off with a balance against us of some £500 million. We can grow only two-fifths of our food, and therefore to overcome that difficulty we must provide a tremendous level of export trade. I believe that the targets at which we are aiming will be impossible to realise. I therefore hope that the Government will consider the policy of integrating with our great Empire and the Western States of Europe, for only by doing so can we ultimately overcome our economic difficulties.

Until a few weeks ago emigrants were allowed to take £5,000 over a period of four years when they went to Canada but now only £1,000 is permitted. That has made it very difficult and has discouraged a good deal of emigration. We ought not to discourage emigration because many of us believe that this country is already over-populated. I appeal to the Chancellor to restore the figure to £5,000. Surely he ought not to penalise those who leave this country to such an extent that they cannot afford to buy a home and furniture or to put money into a small business? He is penalising one section of the Commonwealth—Canada—and no one knows better than the Chancellor the great sacrifices that Canada has made on our behalf. In our hour of crisis she gave us a loan of £250 million. Surely it is not proper now to discourage emigrants to that part of our Commonwealth to which we owe so much?

On the whole this Bill is a good Finance Bill. Unfortunately it is a bit late. It would have been a better Finance Bill if it had been introduced six months ago. However, it can be made perfect if during the Committee stage the Chancellor will make reasonable concessions to the requests of hon. Members, and by doing so he will avoid a good deal of the unemployment which is likely to arise because he has budgeted for too great a surplus.

6.13 p.m.

Mr. Bowden (Leicester, South)

The hon. Member for Buckrose (Mr. Wadsworth) suggested that the inflationary tendency had departed and that we were on the downward slope towards deflation. There is no evidence to that effect; in fact, the evidence is to the contrary. I am quite sure that there is still a great deal of money floating about the country which ought to be drawn off if it can be got at—in particular the money available in black market circles. If the Chancellor could devise a system whereby that money could be drawn off, we should be tackling inflation in the way it ought to be tackled.

Mr. Wadsworth

The hon. Member said there was no evidence that the end of inflation had arrived. I would remind him that a little while ago the hon. Member for Enfield (Mr. Ernest Davies) said that in the wireless industry a good deal of unemployment was being created.

Mr. Bowden

That may be so. The inflationary pressure may not be as high as it was, probably as a result of the measures taken to deal with it, but I am still of the opinion that a great deal of money could be drawn off if means could be devised of getting at it, particularly the money used by spivs and drones.

I rise to mention one or two matters with regard to Purchase Tax. The details of Purchase Tax are perhaps best left to the Committee stage, but nevertheless if I mention some of them now, it will give the Chancellor an opportunity to put down Amendments on the Committee stage and save other hon. Members from having to do so. This is a tax which no one likes. It falls upon all sections of the community, and many of the articles subject to it are real necessities in the home life. A concession has been made this year of some £24 million by adjustments which have increased taxation on certain so-called luxury articles and reduced it on other more essential ones. In the main I am in favour of that process. While we have to have a Purchase Tax, that is perhaps the best way to impose it, but there are still several anomalies, and I am sure the House will pardon me if I mention them.

In his broadcast to the nation following the Budget the Chancellor gave housewives the good news that haberdashery was to be relieved of a great deal of its taxation, that in fact much of it would be taken out and put into the exempted class, but he failed to recognise that some haberdashery was outside that group and in a second group which, far from being relieved of tax, was increased from 50 to 66⅔ per cent. As a result, articles such as tape, elastic, bindings, boot and shoe laces, and many other such articles, have had the tax increased—

Sir S. Cripps

My hon. Friend will appreciate that I made a statement a few days ago to the effect that an Amendment would be put down to deal with these.

Mr. Bowden

I appreciate what the Chancellor has said because I was sure he would do that when he looked at it again. Again, in Group 21 of the same Schedule, we find the humble umbrella has been raised from 50 per cent. to 66⅔ per cent. An umbrella is not a luxury article by any means, particularly today when the need arises to protect clothing, although it is grouped with the sunshade which could perhaps be called a luxury article. The umbrella became a symbol of appeasement some years ago, and probably my right hon. and learned Friend will appease umbrella users by looking at this tax again. In Group 20, children's playground apparatus, swings, roundabouts and articles of that kind have been exempt, but still a tax of 33⅓ is kept on the essential gymnasium apparatus used in schools. Here again he might be able to help. So we could go on through the whole Schedule.

Sir S. Cripps

Hear, hear.

Mr. Bowden

It is easy to make out a case for the removal of any tax, but what we have to do is to draw some line whereby the more essential goods can be relieved, even if it means increasing the tax on some other. I would not have objected if 125 per cent, had remained on certain articles. In regard to Group 35 of the Eighth Schedule, I am not clear what is the position with regard to mechanically propelled invalid chairs. I have had letters from disabled ex-Service men who are of the opinion that invalid chairs mechanically propelled are subject to Purchase Tax, and yet mechanically propelled invalid carriages are not. I hope the Chancellor will tell us tonight whether there is a distinction between a chair and a carriage under this Schedule.

This afternoon we have had some good news in regard to the reduction of clothing coupon values on certain articles, of which footwear is one. I think the Chancellor could have gone a little further in collaboration with the President of the Board of Trade, and taken the Purchase Tax off all footwear. Footwear has increased in price rapidly over the last few months as a result of the removal of the leather subsidy on 1st January, and it is exceedingly expensive for the average family budget. I hope he will look at that.

My last point on Purchase Tax is in regard to the tax on drugs and medicine. This is not a query on the amount of tax charged, but on the procedure of charging it. As I understand it, under the new provisions non-proprietary medicines—that is medicines which have been made up under the old formula of the British Pharmacopoeia—will be exempt from taxation, but proprietary brands in medicines, and drugs bearing the special name of a proprietor, a patented name, will be subject to tax. I am not quarrelling with that, but it appears now that under the Eighth Schedule, Part II, subsection (5), a new regulation appears, that: there must not be any writing or any trade mark, as defined in the Trade Marks Act, 1938, in the get-up of the goods or on the goods, apart from any get-up. What that actually means, as far as I can interpret it, is that there must not be any trade mark or manufacturer's name on the label or container enclosing the medicine or drug—that is, of the nonproprietary class. Previously, Manufacturing chemists who have packed drugs, whatever they may be, under the formula of the British Pharmacopœia have been able to place their trade mark or name on the label and, if this is proceeded with, it will have the effect of these firms having to destroy large stocks of labels and containers which will not contribute anything at all to the public need in medicines and drugs, and will not have any purpose as far as the right hon. and learned Gentleman is concerned, because proprietary drugs are all clearly marked and indicated and understood by the general public by the names they bear.

My last point is with regard to Income Tax and Income Tax relief. It has been the practice for a number of years now for widowers who employ housekeepers to look after their homes, to be allowed a taxation relief in respect of them. Today, when almost all of the population who are able to work are working, there are many spinsters and bachelors who also employ housekeepers to keep a home going. I am thinking in particular of the class of spinster who may be a school teacher, at school all day, who is probably sharing a house with two sisters or other ladies, and who employs a housekeeper to keep the house going for them. A case can be made out to give spinsters and bachelors the same relief given to widowers in this respect, and I hope the right hon. and learned Gentleman will look not only at this, but also at some of the other points I have made.

6.24 p.m.

Lieut.-Colonel Sir Walter Smiles (Down)

I have listened to the speeches from all sides of the House, and when the hon. Member for South Leicester (Mr. Bowden) mentioned that every tax might be unpopular, it occurred to me that the extra tax on whisky would not arouse any vociferous protests from the members of the Band of Hope. To another hon. Member who mentioned that the money spent upon defence by the Coalition Government before the war had been badly spent, I would point out that the money spent on radar, and on the Hurricane aeroplane from 1934 onwards paid very good dividends in 1939 and 1940, and I sincerely hope that if ever the present Government are called upon to undergo the stern test of war—which God forbid—their money will have been spent as wisely and as well.

I want to raise only two points, the first being in regard to the extra tax upon tobacco imposed by the right hon. and learned Gentleman. At the Women's Legion Conference at the Albert Hall this week, a Motion was moved by delegates from Wales and Preston as follows: To ask the National Executive Council to urge the Government to give to the incapacitated ex-Service pensioners the same rebates for tobacco and cigarettes as are given to the old aged pensioners. Last year, in Committee on the Finance Bill, I moved an Amendment which the then Chancellor found it impossible to accept. It was probably my own fault because, to make the money involved as small as possible, I moved it to apply only to disabled ex-Service men and women when they were actually lying in hospital. The answer I received was that the administration would be too difficult. I submit that here is a case for an all-party Amendment. We read only this morning about a tablet being unveiled to those women who jumped from parachutes into Germany. We were grateful at the time, but sometimes today we forget our debt of gratitude. Let us remember those words: Never was so much owed by so many to so few. It should be quite as easy for the Chancellor to give concessions on tobacco and cigarettes to disabled ex-Service men and women in receipt of a pension as it is for him to give them to the old age pensioners. A lady who visits a hospital every week told me that it was hard for her to see two people in the same ward, one man with cheaper tobacco and cigarettes and another man, perhaps younger but more incapacitated, having no relief in respect of his tobacco and cigarettes. I am sure hon. Gentlemen opposite are just as much in favour of this as we are on this side, and it would come much better if it were moved by the Chancellor himself. I am quite sure he has a soft heart for these people, and I am sure also that he has a hard enough head to see that it is administered properly.

My next point is with regard to Clause 30 and relates to some 250,000 farmers who are now assessed under Schedule B but who in future will be assessed on their actual profits under Schedule D. Last Monday night I was at a large meeting of the National Farmers' Union in my constituency, and the farmers there pointed out that they did not want to avoid paying their fair contribution to the taxation of this country but that there was great difficulty in making up these accounts on the part of men and women who in some cases had never made up such accounts before. The National Farmers' Union has declared that there are 250,000 of these people now assessed under Schedule B, and they estimate that, when and if accounts are presented, only some 40,000 of them will be liable for the new scheme of taxation. I understand that the former Chancellor of the Exchequer, the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton), suggested that a statue should be erected to him in the City of London. Some stockbrokers have said to me that never did a man do so much for the stockbrokers by his attempt to bring down the rate of interest to 2½ per cent. The class of people by whom the present Chancellor of the Exchequer might have a statue erected are the chartered accountants, because in nearly every case these small farmers will have to call in chartered accountants to do their work.

Mr. Alpass (Thornbury)

What is wrong with that?

Sir W. Smiles

It is all right for the chartered accountants, but when a man is working a small farm from morning till night it is another difficulty for him, tired out, at night, to make up these accounts, although it may mean only another five or ten guineas; and I dare say the chartered accountants have plenty of work to do at the present moment. We all know that there was a good deal of harm done to production and incentive in this country by P.A.Y.E. and the tax on earned income. I was glad that the Chancellor of the Exchequer reduced the Income Tax on earned income. What we must not do is discourage the farmers in any way from producing food. The call in the past has been, "Soak the rich." Now it is, "Soak the middle class." The farmers may begin to think it is, "Soak the farmers." After all, many small farmers live a very hard life. I have not all the figures for all over the country, but I do know that there are 58,000 farmers in Northern Ireland with farms of under 30 acres. I understand that that figure could be multiplied by four to represent the number all over the country.

At the meeting which I attended on Monday, farmers expressed the opinion that many of the specialist farmers, who farm only a few acres of land, did make very large incomes from their energy and their brains—men who produce things like mushrooms or some specialised fruits. The farmers at that meeting considered that it should be possible, indeed easy, for the Income Tax collectors to know who those people were. I have only the figures from the Ministry of Agriculture for Northern Ireland, which state that, up to 30 acres, the profit on a farm is an average of £148; from 30 to 50 acres, £184, and from 50 to 100 acres £299. If we take a farmer's family, the man and wife and perhaps two children under 16, I believe his Income Tax relief would be £350.

By this new suggestion the Chancellor will be imposing a tremendous lot of extra clerical work on the small farmer for a very small financial result to the revenue. The farmer has no pension when he dies. Many of these small men work hard all their lives with the idea of eventually handing over the farm to the elder son. Then the farm has to support the old people who have retired and the new family coming on. It is the difficulty of keeping the accounts that will really affect the small farmer and his wife, and every one will need to have his accounts kept either by a bank or by a chartered accountant. Life on a 3o acres mixed farm is a hard one now and the Chancellor's new proposal will make it still harder.

I thank the Chancellor of the Exchequer for the relief he has given to earned income. We spoke about it last year, and I think it is only right and proper that I should acknowledge it at this moment. One danger I would point out is of driving new companies and capital out of this country. If we compare two companies operating on exactly the same lines and in the same business, one registered in London and the other in the Union of South Africa, we find that the load of taxation is very different indeed. If the Financial Secretary would look at a great company like the Union Corporation, registered in London, and the Anglo-American Corporation registered in South Africa and see the extra weight of taxation during the past ten years on the company registered here, he will see the danger—he cannot fail to see it—of killing the goose that lays the golden egg, and driving capital out of this country.

6.37 p.m.

Mr. Warbey (Luton)

I hope that the hon. and gallant Member for Down (Sir W. Smiles) will forgive me if I do not follow him, except to say that I trust that he did not wish to imply that British farmers are not good business men. In the experience of good business men, the keeping of proper accounts not only saves money, but also, in the long run, time. British farmers are just as capable of keeping accounts and being good business men as any other kind of business man.

I wish to take up the point, which seems to have been the main thesis of the Opposition today, that the principal function of the financial aspect of government is to reduce expenditure. Hon. and right hon. Gentlemen opposite who put forward that thesis seem to me to be living in the world of the 19th century. They seem to be living in an age when governments had little to do, that was not of an essentially negative character. They have not come up to date. They have not recognised that, in the modern world, a government has to run very important public services and undertakings. The financial aspect of the job is essentially one not merely of cutting expenditure but of ensuring a wise and proper expenditure of resources, a proper distribution of those resources between the different forms of expenditure.

Therefore, merely to look at a Budget with a pernickety eye, to run over it with a microscope to see whether a penny can be saved here and a penny there, is taking a very limited view of the functions of the Government, or even the functions of the Treasury. There is such a thing as recognising that it is more important to spend a pound wisely than to save a penny foolishly. It seemed to me that what the right hon. Member for North Leeds (Mr. Peake) was trying to do in his speech this afternoon was to find ways of saving pennies foolishly. It is true that he indicated that it might be possible to effect a considerable saving in our expenditure on national defence. He carefully avoided giving any figures, but I gathered that he was in favour of a considerable cut in defence expenditure. If I am misinterpreting him, I hope he will say so.

Hon. Members opposite cannot have it all ways. They cannot get up on one day—as they did yesterday and the day before—and advocate extensive preparations for the possibility of war, and then, on another day, advocate the slashing of our expenditure on national defence. I could well appreciate the old Liberal slogan, "Peace, retrenchment and reform," but I must confess that I cannot understand this entirely self-contradictory modern Tory slogan, "War, retrenchment and reaction." I leave it to hon. Members opposite to sort it out. It was revealing, too, when the right hon. Gentleman told us that, in the view of his side of the House, taxation was a necessary evil. Presumably, in his view, the great inequality of incomes that exists before taxation is a good thing, and is something to be recommended. The purpose of taxation is to take away from those whose incomes are too large, and to help, through social services and otherwise, those whose incomes are too small. That is regarded by the right hon. Gentleman opposite as an evil, and therefore the inequalities—

Mr. Peake

The hon. Gentleman must qualify the word "evil" by saying "necessary evil."

Mr. Warbey

I appreciate that important qualification, and I would like the right hon. Gentleman on some occasion to tell us what forms of taxation he regards as necessary—and necessary for what purpose. Would he admit the contention on this side of the House that one of the necessary purposes of taxation is to redistribute incomes to lower income groups?

Mr. Peake

The hon. Member will surely have observed from my speech that, in the reduction of expenditure, which I proposed, I carefully excluded the whole question of social services, of which I approve.

Mr. Warbey

We were dealing with the taxation side of the question, and not the expenditure side. What I wanted to know was whether the right hon. Gentleman was in favour of the use of taxation in order to reduce the incomes at the higher end of the scale. That is the question to which I have not had a clear answer.

We have had today, and in connection with every other Budget introduced under this Government, complaint after complaint about taxes proposed by the present Chancellor of the Exchequer and by his predecessor. Every time there is an increase of taxes, every time a new tax is proposed, every time there is no reduction of taxation, we get a complaint from the other side of the House. It would appear, from their references to taxation, that hon. Members opposite object to the purpose of hon. Members on this side and of the Chancellor of the Exchequer, of using the Budget as an instrument for the redistribution of income. I am glad that the right hon. Member for Bishop Auckland (Mr. Dalton) and the present Chancellor of the Exchequer have consistently pursued the purpose of using the Budget as an instrument of social justice. The purpose has also been consistently followed of using the Budget as one of the instruments in our general economic policy, and also as a means of countering inflationary pressure. I trust that right hon. Gentlemen opposite will recognise that taxation is a most important means of reducing inflationary pressure. In my constituency I have found amongst the ordinary people with whom I have talked a general measure of support for this Budget, with a general recognition that it is a realistic and, at the same time, a Socialist Budget, continuing the Socialist purposes of our Government.

There is, however, one matter which continues to give some concern. I refer to the relationship between wages and profits. The argument that profits are taxed both directly and in the form of what accrues to personal incomes, and that what is left after all forms of taxation are taken into account, must be the criterion by which profits are judged, is not always convincing to the ordinary worker. He sees very large profits being made and paid out in certain industries. When he is working in such an industry he is very much inclined to say, "Why cannot my wage be increased; why cannot the wage increase come out of these large profits which are being paid?" That is an argument which must be met. It is an argument which can be met only by direct methods to limit both the amount of profits which are made and the volume of profits which are paid out in the form of dividends.

Recently, some hon. Members including myself—I am glad to see present the hon. Member for Wimbledon (Mr. Palmer), because he was with me on that occasion—had the pleasure of visiting Norway. Norway is a country with a Democratic Socialist Government. It is not one of these disreputable Governments behind the Iron Curtain. Therefore, I think that I may justly quote what we saw happening in Norway as something possibly offering a useful lesson to this country. We found that there they had very similar problems to those which we face here. Amongst others, there was the problem of inflationary pressure. We found that the trade unions of Norway had shown a considerable willingness to accept the thesis that under present conditions they should not unduly press wage demands. They had willingly accepted a large degree of voluntary restriction.

When we inquired why they had accepted this so readily, we found that there was a very severe limitation both of the amount of profits made and of the amount of profits paid out in dividends. There is in Norway a limitation of dividends to 5 per cent., subject only to an appeal to the appropriate hoard in cases where the share capital is very much below the real capital in use in the company. But the appeal must be justified by the production of all figures in order to substantiate a case for any increase beyond the normal permitted maximum of 5 per cent.

That is an example which I recommend the Chancellor of the Exchequer to investigate for possible application in this country. We also found that there is a fairly strict control of profit margins, and that the control at the various stages takes the form of a control not merely of the percentage of profit but of the amount of profit. We found that the general principle laid down is that importers and wholesalers shall be permitted to charge not their pre-war percentage of profit but their pre-war amount of profit. If, for example, an importer before the war imported a machine for, say, £1,000 and made thereon a profit of £200–20 per cent.—today if the price has risen to, say, £2,000, he is allowed not to put on a profit of £400 but a profit of only £200. The amount of profit is the same as pre-war, but the percentage is not. There again, there is a right of appeal. Any increase in profit beyond the permitted maximum must be justified by the production of precise figures showing increases in actual costs. This is a measure which we might usefully look into to see whether something similar could be adopted here.

One of the most serious factors in our economy—one of the most serious factors when there is any inflationary pressure—is the tendency towards automatic percentage addition to profit every time there is an increase of costs. Every time wages go up, every time costs increase in any other form, automatically profits increase by a fixed percentage. That in itself is probably the greatest single inflationary factor in our whole economy. It is a feature which should be inquired into much more closely. I would go so far as to say that this principle of an automatic percentage addition to profits is the main accelerator in the inflationary spiral. We ought to see that this automatic accelerating factor is removed.

I am afraid that I, personally, share the doubts of hon. Members on this side of the House about whether such dangerous factors in our economy will be removed by the voluntary co-operation of private enterprise. I am afraid that, great as is the willingness of many industrialists to co-operate in rebuilding our economy, when each one of them considers his own business affairs he is necessarily tempted to take what I would call an unduly favourable view of them and of his own right to add a little percentage here and there. This is essentially a case for Government action. I hope that the Government will look again into the question of a stricter limitation of the amount of profits at all stages and a definite limitation, subject only to right of appeal, on the amount of distributed profit.

6.55 P.m.

Colonel Gomme-Duncan (Perth and Kinross, Perth)

I will not attempt to follow in great detail the hon. Member for Luton (Mr. Warbey) as he wandered through the somewhat faded plush corridors of the Karl Marx period and then wondered whether we had left the nineteenth century behind. It seems to me from what we heard from the hon. Gentleman that the nineteenth century, if not a still earlier period, is his spiritual if not his factual home. When we hear of these wonderful plans for preventing profit—because it really boils down to that—we must assume that the hon. Gentleman thinks there is something wrong in profit—

Mr. Warbey

Limiting profit.

Colonel Gomme-Duncan

There was no question of limiting the profit when we got an extra £400 a year. It is no use pretending that that was not profit.

Mr. Warbey

Does the hon. and gallant Gentleman not know the difference between profit and a salary?

Colonel Gomme-Duncan

The hon. Gentleman has had a good whack. I shall not give way, and I do not intend to take very much time. It is nonsense to think that there is something wrong in profit. The whole of the Chancellor's Budget depends on the profits of industry. There is no other source from which he will get a penny of the £3,500 million which he wants. Let us realise that. I believe that grinding taxation such as is proposed by this Budget is morally wrong. States must cut their coat according to their cloth, in the same way as individuals. The only difference is that States can last out a little longer before they go broke. The individual is caught much more quickly.

There are a few particular points to which I wish to refer. The first concerns defence expenditure. The hon. Member for Luton mentioned that also. What we on this side of the House say—and I thought that my right hon. Friend the Member for North Leeds (Mr. Peake) made it perfectly clear—is that money spent on defence should be spent properly and that only the money which is necessary should be spent.

Mr. Warbey

How much?

Colonel Gomme-Duncan

We have today a vast expenditure on defence measures and we have no satisfactory defence provided for that money. It is no use having 500,000 men in khaki and yet being unable to produce a couple of divisions. That is the situation today.

Mr. Warbey

Will the hon. and gallant Gentleman say whether or not he wants the amount spent on defence to be cut and, if so, by how much does he want it to be cut?

Colonel Gomme-Duncan

I appreciate the thought that I may be the next Chancellor of the Exchequer and, therefore, have all the figures at my disposal. We on this side of the House are not the Government. We have to say this because we believe in it, but it is ridiculous to expect us to have all the facts and figures before us, which the Government have, so that they can say by exactly how much the expenditure should be cut.

It is perfectly clear that we are getting a thoroughly bad bargain for the money which we spend on defence measures. Whether the Defence Forces be large or small, they should be efficient and effective fighting forces. Otherwise, they are a sheer waste of manpower and money. The man who should be doing a job as an efficient soldier in an efficient fighting force—which he is not doing at present—is not only lost to the Army but is lost to industry as well. The situation today is that he is completely wasted. I hope that we shall hear from the Chancellor that he intends to deal with the matter. After all, it is his job. I was brought up to believe that the first duty of a Chancellor of the Exchequer was to safeguard the public purse. He should see that this money is properly expended and that whatever sum is to be provided—we say that it should be less than it is—should be spent on something which is worth while.

I turn to the capital levy. I regard the other fancy names for it as sheer eyewash. It is a capital levy. I would like to know whether the Chancellor intends to take this levy off incomes derived from farms, when the amount spent on the upkeep of the farm exceeds the rent which is received for it. That is the case with very large numbers of farm properties. I hope that the right hon. and learned Gentleman will be able to say something to the effect that, if income which is received from money invested in farms is properly spent on the upkeep of those farms, he will not raid that nest and take away even that which these people have.

It is perfectly clear that the two agriculture Measures, one for Scotland and one for England, and the Town and Country Planning Act, impose a tremendous financial burden on landlords. That will be admitted by hon. Members on both sides of the House. Just as these enormous new burdens are imposed on the landlord, the Chancellor proposes to take away what little capital he has left to carry out those jobs which he thinks should be done. That is thoroughly unsound. I hope we shall hear a great deal more on this question of the capital levy as applied to farm properties affected by the impositions which have been placed upon landlords by these successive Measures.

One of the most disastrous things for British agriculture has been the imposition of Death Duties. I sincerely believe that in the interests of British agriculture, if land is not sold at the time of the death of the owner, that land should not be taxed. If it is sold, that is another matter and then it should be open for taxation. Generation after generation of grinding tax on land at death has had the most disastrous effect on British agriculture. I hope that consideration will be given to that matter at a later stage of the Bill.

My hon. and gallant Friend the Member for Down (Sir W. Smiles) mentioned the question of Income Tax as applied to small farmers, and he put his point very clearly. I do not need to amplify it beyond saying that we in Scotland have a large proportion of very small farmers. I hope that careful consideration will be given to my hon. and gallant Friend's proposal, whereby instead of the Chancellor putting them all on an income basis as distinct from keeping a number on a rent basis as they were before, he will consider the possibility of making the limit for Schedule B assessment £50 instead of £100 as it is at present, so that the large number of farmers who will not be taxed anyway, will not have this extra burden of keeping unnecessary accounts.

I consider that the financial condition of this country today is preposterous. The fact that three years after the end of the European war our expenditure should be in the neighbourhood of £3,500 million is monstrous. There is no other word for it. My right hon. Friend the Member for North Leeds calculated that about 42 per cent. represented the amount taken by Government expenditure out of the people's pockets. It is ridiculous to expect the country to continue at that high rate of taxation and at the same time expect people to put everything they have got into their work. We on these benches do not want to cut down the social services, in spite of what Socialist speakers in the country say. They know that to be utterly false, because we are the originators of the social services.

It is perfectly clear that the Conservative Party has obtained far greater benefits in social and industrial reform for the people of this country than all the other parties put together. To realise how true this is, one has only to remember that from 1800 until 1945 no fewer than 161 major Acts of Parliament of social and industrial reform in this country were passed by Tory Governments. If taxation is to be continued on this colossal scale these services will fall automatically, whether we want it or not, because the money will not be available to continue them. Let us take heed before it is too late. I hope the Chancellor will deal with some of these points which I have raised, because they arise out of what I believe to be a very serious situation indeed.

7.5 p.m.

Mr. Mellish (Rotherhithe)

I was interested to hear the hon. and gallant Member for Perth (Colonel Gomme-Duncan) talk about the wonderful social services rendered by the Conservative Party in the past. I strongly advise him to read the speeches of the right hon. Member for the Scottish Universities (Sir J. Anderson) on the action of his own party in regard to social services. The hon. and gallant Member ought to get together with his right hon. Friend—

Colonel Gomme-Duncan

To which right hon. Gentleman representing the Scottish Universities does the hon. Member refer?

Mr. Mellish

He made a speech quite recently. I refer to a former Chancellor of the Exchequer in the Conservative Party.

Colonel Gomme-Duncan

In what Government?

Mr. Mellish

He was in the Coalition Government. I think there is no doubt that he is recognised by the Tory Party as a great financial authority.

I would like to refer to one or two other points which the hon. and gallant Member mentioned. He said that the country's money was not being used correctly in our Defence Services. True, I never attained the great heights in the military sphere which the hon. and gallant Member attained. I finished up only as a captain, but I can claim six years' service in His Majesty's Army, and with the knowledge that I have gained since I have been a Member of Parliament, and from having been connected with the Admiralty, as well as the Army, I can say that the Government have done a wonderful job for the people who count—the soldiers. Furthermore, the money that has been spent has been wisely spent. It occurs to me that what the hon. and gallant Gentleman would like would be for the soldiers to do more fighting. I am very glad that our people are not willing to he rushed into more fighting.

Colonel Gomme-Duncan

I said and thought nothing of the sort. After the hon. Gentleman's remarks about what the Government have done in this matter of military expenditure, I would like him to tell me whether there is any efficient fighting force in the Army of Great Britain today.

Mr. Mellish

Certainly there is.

Colonel Gomme-Duncan

Where is it?

Mr. Mellish

Every soldier is an efficient fighting unit in the Army today. The fact that we may not have a pukka Guards Regiment—

Colonel Gomme-Duncan

What is a pukka Guards Regiment?

Mr. Mellish

The hon. and gallant Gentleman probably knows, more about that than I do. I consider that the Government have done an extremely good job with the Fighting Services.

I want also to refer to the speech of the hon. and gallant Member for Down (Sir W. Smiles), who suggested a tax relief on tobacco for disabled soldiers. We on this side of the House share his concern for the disabled soldier, and much may be said in favour of such a tax relief on tobacco for these people, but I believe that the finest way to assist the disabled soldier is to continue doing what the Government have already done, and that is to improve pensions. If we give this tax relief on tobacco to the disabled soldier—concerned as I am for his disability—there will be many other people who will say, "You have given this relief to them; therefore you should give it to us." There are people with tuberculosis who are unable to work and who are living on very small pensions. They have never served in the Forces, but they will feel justified in asking for similar relief. While I sympathise with the hon. and gallant Gentleman's suggestion, I do not consider it to be practicable, and I think that a continuance of the Government's policy of providing better pensions is by far the better way.

This is an extremely good Bill. It deals with the main cause of the trouble of our country today, which is inflation. While we on these benches may object to one or two small points in the Bill, we feel that it gives to many of our people—the people who really matter in this country, the workers—an incentive to work. I can speak with some authority on that subject, as I represent a constituency where the major part of our industry is the docks. The reliefs in taxation which have been given to the people who work there provide a greater incentive to them to work longer hours. We can say that, since the Budget is designed on those principles, output will be better, and I am very proud indeed that the Chancellor realises that the overall factor now is to give incentives to the people who really matter and that in this Bill he has directed his attention to that end.

I will say a word or two about the taxes on tobacco and beer. Representing, as I do, a very working-class constituency—if I may so term it—I think these are an anomaly. I hope the Chancellor will appreciate that his predecessor, the right hon. Member for Bishop Auckland (Mr. Dalton)—who is much criticised by hon. Members opposite but who, in the opinion of the vast majority on this side did a very fine job of work—arranged that many thousands of people in my constituency should pay no Income Tax at all, as a result of the previous Budget. The effect of the taxes on tobacco and beer is simply to place a burden on the shoulders of people who are not paying Income Tax and who may not, I suggest, have understood why this particular burden should have beer, imposed and why, in the main, they should have to bear it.

I want to emphasise, however, that the people whom I have the privilege to represent are politically conscious and that they do now understand why these taxes were imposed, and accept them. They are the type of people who have the right to criticise, because to them the taxes are very hard indeed. Thanks to the right hon. Gentleman the Member for Bishop Auckland, they are not paying Income Tax today and, therefore, they get no benefit from the Income Tax concessions in this Budget. They have to take the beer and tobacco taxes as an additional burden. Nevertheless, they are not grumbling, and I am sure they understand the position.

There is one other question I wish to raise. It may be a Committee matter, but I hope I shall be forgiven for raising it. It is betting. In the constituency which I represent, there are several dog tracks, and there are quite a few people employed as bookmakers. I am not one of those people who regard bookmakers as necessarily spivs or drones. I am not ashamed to say that I have been on these tracks, although not frequently, and I know something of what happens there and something of the position which will arise as a result of this betting tax.

I listened with great interest to the Financial Secretary when he made a statement on the matter but what he—or rather the Chancellor of the Exchequer—has done has been to create what I regard as a shocking anomaly. I must say—and no one can be more sincere about this—that I believe betting as such, is a moral menace, and if it were possible to introduce legislation which would entirely wipe out all betting I should vote for it. But I know it is not possible to do that. I sincerely believe that betting, as such, is inherent in the blood of our people.

Although I appreciate the point of view which the churches maintain, I say we cannot get rid of betting and, therefore, the Government must face up to that fact and must remember, when they are talking about inflation, that here is the greatest inflationary measure of all. Something like £1,000 million were gambled in one year, and what are we doing about it? We have bowed down to pressure—that is what I mean—from the dog-track owners, and we have said, "Because there are bookmakers on the dog tracks, and we have taxed the tote, the bookmakers must pay their share." What we have done is to create a farcical position. There are now something like 60 tracks in the country, where, because they have no tote, the bookmakers will not pay any tax, although bookmakers who operate on the tracks where there is a tote will have to pay tax.

This is an anomaly which I believe should be investigated. The Financial Secretary said he thought bookmakers would pass on the tax. I do not see how they are going to do it. If the Chancellor wanted to deal with the problem, what he could have done was to have considered Entertainment Duty on dog tracks in the country. If he wants to know how to deal with the problem with which he is faced, I suggest the answer is that betting should be legalised. The bookmaker and punter as such must be given a status. We have got to come to the point eventually and not put our heads in the sand and say, "One thousand million pounds is being gambled; we know nothing about it and don't want to know anything about it." It is a farce, and we should do something about it. The bookmaker, like the moneylender, should pay a yearly licence and should be answerable for his conduct each year. There should be some control for the punter because, when Derby day arrives, there will be hundreds of alleged bookmakers standing on Epsom Downs, and the punter will have hardly any security at all except from those people who are in the actual enclosure. The other bookmakers can run away with any money the people invest, and there is no protection in law. The time has come when the Government should look into that.

Here, too, is a source from which a large sum of money could be obtained. If we obtained money from this source we could reduce the taxation on tobacco and beer and get our millions in a much better way. That is my personal point of view on the question of betting. I recognise that the Bill as a whole is an extremely good one. I welcome it, and I say again that it is a further contribution from what I believe to be a great Government.

7.17 p.m.

Major Haughton (Antrim)

I hope the hon. Member for Rotherhithe (Mr. Mellish) will forgive me if I do not follow him in his arguments and contentions, because I want to make three quick points and I want to be brief. In moving the Second Reading of this Bill, the Financial Secretary to the Treasury claimed that the details will be threshed out Clause by Clause in Committee, and of course that is so. Many of the provisions, as he said, are highly technical, and the fact is that they cannot be dealt with effectively unless they are discussed in detail. I think it is reasonable, however, and it may be helpful if, at this stage, I indicate certain aspects which will have to be dealt with at a later date.

If the capital levy is to be imposed, equality of sacrifice should surely be a cardinal principle, and it is, therefore, to Part V of the Bill that I want particularly to refer. I think it is generally agreed that production in this country—or, at least, a great part of it—comes from small firms rather than big firms, and I want to speak now about the private limited liability companies, because in many cases the remuneration of the directors and managements of these private companies is taken in the form of a distribution of dividends, as being the most equitable way of dividing what profits there may be. In other cases, the profit is divided in the form of management shares. As the Financial Secretary knows, these things go back to 1900; they are quite fortuitous, and that form of distribution was not arranged to avoid taxation in any way. That income might be treated as investment income, and the capital levy applied to it. This is a point to which I would like the Financial Secretary to give some attention between now and the Committee stage.

I turn to Clause 33 of the Bill. It does not appear to me to be sufficiently widely drawn. In any case, I am not quite certain whether it applies to companies in Northern Ireland and it is, in- deed, a very technical Clause. I do not want to discuss it in detail—it refers to what is known as balancing allowances and balancing charges—but the Electricity Board in Northern Ireland has recently acquired a number of concerns by voluntary agreement, and it seems unfair that their readiness to co-operate in what is really a scheme of nationalisation should deprive them of the concessions given under Clause 33. I hope that will be explained.

When the President of the Board of Trade today announced some reliefs in coupon rates, I made a plea on behalf of the housewife, because I think it is very hard that sheets and household goods should be so highly pointed. As the President of the Board of Trade could not see his way to make any concessions for the reasons which he gave, I make no apology now for making a most urgent plea to the Chancellor of the Exchequer to reconsider the fact that these goods have been moved up to the 66⅔ per cent. Purchase Tax range. I think that any housewife would agree that it is just as necessary to have bedding as it is to have furniture, and I hope very much that the Chancellor of the Exchequer will consider that matter.

7.21 p.m.

Mr. McAllister (Rutherglen)

When I took part in the Debate on the last Finance Bill in the Autumn I was told that I was a little critical of the Bill. I propose to be a little critical of this one, although I think it is, on the whole, an, excellent Bill; and, indeed, I congratulate the Chancellor of the Exchequer upon it, and congratulate the Financial Secretary for the way he presented it today. The tax reliefs given by this Bill to many thousands of people throughout the United Kingdom are a continuation of the policy that the Government have adopted since they came into office, a continuation of the policy adopted by my right hon. and learned Friend's predecessor, who was certainly unsparingly and somewhat unscrupulously attacked by the right hon. Member for North Leeds (Mr. Peake) earlier today. I cannot follow the hon. and gallant Member for Antrim (Major Haughton) in his brief remarks, except to say that on the question of the Purchase Tax on bedding I fully sympathise with him, and I hope the Financial Secretary will give his words due weight.

I was interested in the speech of the hon. and gallant Member for Perth (Colonel Gomme-Duncan). He made a very characteristic speech. I am sorry he has not waited to hear another. Scottish Member say a word or two about it. He complained when we cut the Services, and now he complains when we keep the Services up to strength. Anyhow, he showed signs of being a keen student who reads his party literature most diligently, and consequently he was able to tell us so much of what had been done by the Conservative Party in social reform. I expended an inflationary 2s. on the document the Conservative Party have issued about the history of their social reform during 146 years. If you have not read it, Mr. Speaker, you may be interested to know that the first boast of the Conservative Party is that their first act of social reform was to prohibit children under 12 working more than 12 hours a day. If I were advocating a social reform policy on behalf of any party I should not claim as one of the brighter diamonds in my crown, the fact that I had prohibited the labour of children under the age of 12 for more than 12 hours a day. It is characteristic of the record of the Conservative Party during the past 150 years that they made the meanest reforms, and made them with the greatest reluctance.

I agree with what my hon. Friend the Member for Rotherhithe (Mr. Mellish) said about the betting tax. I think the proposals in this Bill are better than those in the last Finance Act, but I think the timidity in grappling with this question is not in line with the feeling of the people. It is not a question of legalising betting. Betting is a legal activity in this country today, and to talk about legalising it is to put the matter in a wrong perspective. I agree with my hon. Friend that we ought to register and license bookmakers, and that only registered and licensed bookmakers should be allowed to operate. If we did that, if we had registered offices, we should make street betting illegal in fact as well as in theory, and the punter would pay his due share to the revenue by paying tax as he placed his bet. The receipt for that tax would be a little tear-off slip of paper similar to those issued for seats at theatres and cinemas.

Major Haughton

Cash betting is not legal in this country.

Mr. McAllister

I did not suggest it was. I said that street cash betting was illegal, but that, nevertheless, a good deal of street cash betting goes on, and that if we registered bookmakers and had registered offices it would be possible to put an effective check on street betting, because the only places where bets could be placed would be in the registered bookmakers' offices. From the tax paid on bets on the spot a good deal of revenue would be derived.

Mr. Guy (Poplar, South)

Does my hon. Friend not appreciate that if we had registered offices, there would be a diminished amount of betting by reason of the fact that many people would not go there to bet because they would not like to be seen going in?

Mr. McAllister

I think there is a lot in that, but I am not in favour of encouraging betting, although I am in favour of getting the maximum revenue from betting while it goes on.

However, my primary purpose in rising to speak was to draw the attention of the Chancellor and the Financial Secretary to the question of the increased Purchase Tax on radio sets. I have in my constituency a radio firm with a national—and even an international—reputation, called E. K. Cole. They were persuaded to come to my constituency by my right hon. and learned Friend, not as Chancellor of the Exchequer, but when he was Minister of Aircraft Production during the war. The hope was held out to them that after the war, after they had served aviation during the war, they would be able to continue to operate their factory in the development area and thereby help to cure unemployment in the west of Scotland. That hope was fulfilled, and after the war they went on to produce radios for civilian purposes, and they also went on to manufacture fluorescent lighting. About five or six weeks ago 200 employees were dismissed by E. K. Cole, and on Monday this week 513 employees were put on notice which expires tomorrow week—on Friday of the Whit week-end. Messrs. E. K. Cole say that this step has been rendered necessary by the increase in Purchase Tax. I should not like to say I entirely accept that as a valid explanation why these works are being substantially closed down. Nevertheless, making all allowance for other considerations, I think it must be admitted—and will be admitted by the Financial Secretary—that that has been a factor in the decision which the directors of E. K. Cole have taken. The problem is not confined to my constituency, since I understand that they also have given notice at their works at Southend that 400 men will cease to operate there in a fortnight's time.

There has been a great deal of agitation by the radio industry about the Purchase Tax proposals, and I think it is entitled to create such agitation. However, I should be the first to resent any section of industry trying to operate pressure politics against a proposal in a Bill which has not yet been passed through this House; and if there were any question of intimidation of the Government or the Chancellor in this drastic move of suspending so many employees, I should have very little sympathy with the organisation concerned. Let us accept it that there is no such intention, and that they are giving the notices in good faith because they must. I think that we must accept that, in regard to the fluorescent lighting side of the factory, they have been put in a difficulty partly because it is the policy of the Government to cut down the expenditure of all manufacturing firms on capital re-equipment. Fluorescent lighting was being installed mainly by organisations going in for very considerable capital re-equipment. The bottom has fallen out of their market because of the general policy of the Government in this particular matter.

I think that there are combinations of factors which may account for this decision. I am concerned chiefly for the workers in my own constituency. It has been the policy of the Government and of the Chancellor of the Exchequer in all of his three successive capacities as Minister of Aircraft Production, President of the Board of Trade and as Chancellor to secure the maximum work for the former depressed areas. I congratulate him and the Government on the great measure of success which they have achieved in that way. Many new manufacturing organisations have come to the West of Scotland. Unemployment there is lower than it has been in peacetime since 1918 and much lower than in 1938 or even in 1940, when war manufacture was getting into its stride. Nevertheless, there was always the fear that if a world slump came, English organisations setting up factories, in the development areas might close down their Scottish branches first, before making any inroads on their main works. But now it is happening, say the directors of E. K. Cole, not because of a world slump but as a result of Government policy. I do not fully accept their case, but I think it is one deserving examination, and I would like to think that my right hon. and learned Friend will give it his most careful attention.

7.32 p.m.

Mr. Turton (Thirsk and Malton)

Strangers listening to this Debate must be amazed at the tremendous effect that the mass of legal jargon contained in the Finance Bill has on the constituents of the Members who sit here. We heard the hon. Member for Rotherhithe (Mr. Mellish) saying that beer drinkers and tobacco smokers in his constituency are quite ready to make an extra contribution, but the dog-track bookmakers feel that they have to bear a burden unworthy to be borne in the constituency of Rotherhithe; and the hon. Member for Rutherglen (Mr. McAllister) said that the Purchase Tax provisions of this Measure would hit his constituency very adversely.

I take the view that the Financial Secretary, in his peroration, was making a mistake when he said that the Bill would provide incentive to production. Looking at the broad division of the country as between the more speculative urban industries and the rural industries, I think that the Bill will harm the production of food in this country. I have a belief, which I think is shared by Members on all sides of the House, that unless we can expand our agricultural production we shall face a standard of nutrition which is unworthy of the generation in which we live.

I do not want to go into details, which we can do on the Committee stage, but I would like to consider the Bill in three main divisions. First, with regard to Purchase Tax. Under the Purchase Tax provisions of the Bill, the agricultural tools of the trade—many little items—will have to pay a rate of Purchase Tax of 33⅓ which is not borne by other industries in the country. Their tools of the trade are excepted; the agriculturists will not be. Butter muslin and cheesecloths etc., will all under this Measure be liable to 33⅓ per cent. tax. It may be said that some of them have been previously. This is, therefore, a matter that ought to be remedied earlier, and I hope that the Financial Secretary will pay attention to that.

There is one part of the Purchase Tax provisions of the Bill which is entirely new and which will be a heavy burden on the agricultural industry. That is the tax on drugs and medicines. Under the proposal put forward by the Chancellor of the Exchequer, every veterinary product which the farmer has to buy will bear 33⅓ tax as a branded product. It is quite impossible for farmers to buy their animal medicines by formula. It is highly undesirable that they should do so, and owing to the shortage of veterinary surgeons it would also be impracticable to expect farmers to call in a veterinary surgeon every time an animal was ill; therefore, they rely on the branded product. Disinfectants, which are also of great importance to the agricultural industry, will also have to bear Purchase Tax. I hope that the Financial Secretary will consider the abandonment of the tax on those commodities. We want to have Purchase Tax, broadly speaking, on luxuries, but they must not be levied on the tools of production, whether it is the farmers' tools or the medicines or disinfectants which he has to use in the care of his animals.

The second provision, which is a much more direct tax on agriculture, is contained in Clause 30 and is designed to sweep away Schedule B tax; this will affect not only farmers. The House should remember that. The farmers, the smallholder and the agricultural worker with his few acres of land will be subjected to assessment under Schedule D, and will have to keep accounts. When the Chancellor introduced his Budget he said: They should hereafter be assessed under Schedule D on their profits. With the present system of guaranteed prices, there is no reason why farmers should not in common with everyone else pay taxes on their true income.—[OFFICIAL REPORT, 6th April, 1948; Vol. 449, c. 63.] No one in this House would disagree with that if the case were as stated, but the fact of the matter is that Income Tax under Schedule D when it is levied in connection with agriculture, is an unfair levy for this reason. The produce of a farm is not always offered for sale; it is in many cases carried over to the next year. For example, let us take the ordinary hill farmer who has bought his wether and gimmer lambs in the autumn. He probably intends to sell his wether lambs in a few months time, but his gimmers he keeps forward to the next year to go into his ewe flocks. Under Schedule D, he will have to pay tax on the difference in value between the gimmer lamb and the value when it is a hog. I am using the North Yorkshire phrasing which may be different in Scotland or in Southern England, but which means a two-year-old animal.

With big farmers, the Inland Revenue get over this by making a new basis of assessment—the herd basis—but that will not apply to any of the 250,000 small farmers, smallholders and agricultural workers who are being brought into the net by this new provision. A great injustice may be inflicted upon them. Under Schedule D a big farmer who one year may make a loss but has other resources would get back the tax by the remission of tax on the other resources. If next year he makes a profit, he pays his tax. A small farmer, however, may be in this difficulty, that he cannot carry forward his losses. He may make his profit in one year and he will pay the tax; but in the next year, when he makes his loss, he will not get anything back.

I have always thought that agriculture has a strong case for an entirely different system of assessment of tax on profit; it should be made on a five-year basis or similar long-term measure, where the oscillation between the profit and loss figures, which are very unreal figures, would be evened out. Until that is done, I beg the Financial Secretary to reconsider levying this tax, especially on the marginal farmer. I ask him to do so in the interests of his own inspectors of taxes, who are at present dealing with approximately 77,000 farmers' accounts. Under the new provision and on the basis of the figures of the Land Survey, there will be an extra 210,000 English and Welsh farmers' accounts to be gone through. I know many of these farmers. When all the accounting has been done and obstruction has been caused in the tax offices, it is inconceivable that any high proportion of them will, in fact, be assessable for tax.

This provision will cause dislocation amongst farmers, especially those in the hills who have never kept farming accounts. They will be forced to keep farming accounts in the method approved by the inspector of taxes. It will be a considerable worry and expense to them. The large farmer who is affected by Schedule D usually has his accounting done by the local valuer or accountant; but it will be quite impossible and impracticable to ask these accountants to do the 320,000 farmers' accounts that will be involved.

I admit that there is a reason for Clause 30, which as I see it, is this: under the present law the farmer whose area and value of land bears little relation to the value of its produce gets off without paying tax, although he makes a large profit—that is, where the ratio between the value of the land and the value of the production is out of proportion. All those farmers are included in the category of "market gardeners, growers of fruit or vegetables." I realise that a farmer might have merely two or three acres of onions or tomato glasshouses, and yet escape any tax at present. I suggest to the Financial Secretary that the way to deal with Clause 30 is to retain the present limit of £100, but to remove entirely "horticulture," which is defined by the Income Tax Acts, from the provision of Schedule D. It is not a big burden to place on the market gardener the obligation to keep accounts. He has his farm close by, he knows his sales, and the provision is quite proper in his case; but we should not try to embrace the 250,000 many of them marginal hill farmers, who will be caught in the net.

My third point, which has already been dealt with by the hon. and gallant Member for Perth (Colonel Gomme-Duncan), concerns the capital levy as it affects agriculture. I cannot see why anyone who is a good Socialist and wants to have equality of misery should bring in this capital levy that leaves out the spivs and the drones, the very men and women who are putting their wealth into diamonds or into silver or other things. They are left out entirely, but the man who has invested in Government savings or in land is hit with unnecessary force. The Financial Secretary should consider carefully the position of the landowners who are hit by this provision. I declare my interest—I have got land and it can be said that I am in that category—but none the less I want the Financial Secretary to consider it.

When an owner uses his rents for the improvement and maintenance or repair of his cottages, farms and land, why has he to pay the full effect of this levy? It is true he can deduct from it the average maintenance expense for the past five years, but four out of those last five years were in war time when he was unable to maintain or repair properties adequately. The deduction from this capital levy, therefore, is an unreal one. If the Government proceed with this unfair capital levy—I hope they will not—they should allow as a deduction the full amount of the money spent on maintenance and repairs from rents in the year of charge. Improvements will already be included because of the Income Tax Act, 1945. This method would be much fairer.

Investigations which I have made show that the amounts spent throughout the country last year on the maintenance and repair of farm buildings were 33⅓ per cent. above the previous year. That one figure alone shows the inequality of the present provision. The whole question should be considered in the interests of the nation as a whole. If we want the Agriculture Act implemented, and if we want the land brought into full production, the wisest thing to do is to exempt entirely from this capital levy investments in agricultural land. I do not wish to talk about other investments in land. I am interested in how far we can bring money into the capital equipment of food production. If we do not do so, all the people in this country, especially the housewives and the consumers, will suffer bitterly in the years to come. That is why I think the Finance Bill has made a great mistake. It deflects money from rural England. It is aiding the speculative enterprises in finance and is using the money to spend on a bureaucracy that has grown so big that it is in danger of overtoppling the whole economy of this great country.

7.50 p.m.

Mr. James Hudson (Ealing, West)

The hon. Member for Thirsk and Malton (Mr. Turton) started his speech with the admirable aim of keeping off the details and making the general approach to this Finance Bill which, in the Second Reading, is usually expected of us. If he did not entirely achieve his aim he certainly delivered an interesting speech, because he ended up on the gimmers and wethers, having to explain that they were not to be found everywhere—at any rate under those names. Indeed, most of his speech dealt very much with the details. Even towards the end, when speaking of the necessity for special treatment for agricultural capital and property, he asked for exemptions which, if granted, ought to be made all round, on all sorts of property. The owner of any house is in exactly the same position over the cost of repairs; and complaints are now made about the increased cost of repairs, not only in agriculture but for any type of property, even small property. That is a common factor all round. So that, whatever might be the claim on other bases, there could not be much of a claim on that basis for a special exemption for agriculture—which, after all, has received a good deal in the past in the way of taxation exemptions, especially when the Tory Party was in a position to offer the exemptions. It is my wish to deal, not with details, but with the general issues which confront us in this Finance Bill. Of course, I may fail, just as much as did the hon. Member for Thirsk and Malton.

In past years I have always been interested in and have spoken in our Debates on the general question of transferring burdens from the consumer goods which most people are compelled to buy, in order that taxes should be borne more evenly on all shoulders. The aim is to transfer the processes of indirect taxation to direct taxes upon income—and, indeed, upon capital, as in the Death Duty, where the main burden falls upon capital. For that reason, I do not see why there should not be a considerable extension of that principle. I am sorry that the Chancellor has not been able in this Finance Bill to proceed towards the capital levy. I was a little astonished to hear the Financial Secretary try to prove that a capital levy was not essentially a part of the Socialist propaganda. I remember a General Election when the capital levy was the most important part of our propaganda: indeed, we had to spend most of our time—and I was very glad so to spend it—advocating the capital levy. I am sorry, too, that my right hon. and learned Friend's predecessor, the right hon. Member for Bishop Auckland (Mr. Dalton)—who sits with us on these Back Benches in these days—did not find it possible during his term of office to do something in this regard.

I know the objections; and I know the objections to many other forms of direct taxation which are now being proposed: as, for example, the extension of the Profits Tax; and as, for example, the nailing down of dividends, which I, with some of my colleagues, propose in a Motion which still stands on the Order Paper. The Chancellor, as I understand, has not thought it wise to adopt that expedient. I do not complain, because I appreciate that Income Tax, the capital levy itself, Profits Tax, and most of these taxes, are capable, to a very large degree, of evasion by the least honest section of those on whom they are placed. It generally means a premium on dishonesty and a burden on those willing to shoulder their responsibilities. I do not say that therefore we must give up attempts to make people shoulder their proper burdens; but, after all, I know the difficulties, so I am not prepared to play any part in censuring the Chancellor for not finding it possible in this Budget to do what we have often asked.

I pass to a question which has been discussed once during the Debate—the necessity for the Government to reconsider the type of taxation which can be so based that those upon whom it is placed are in the maximum of difficulty in any effort to evade it. When I put it in that form, I can at once see that hon. Members opposite know perfectly well the sort of tax I am about to propose.

Mr. Oliver Stanley (Bristol, West)


Mr. Hudson

Not at all. A tax on beer can be dodged. I dodge it quite effectively myself; and anyone who is pre- pared to do without beer, can do without paying the tax. I have no sympathy with the beer taxpayers; they deserve to pay, because they persist in buying something that is very expensive and utterly futile. It is their choice, and they go on paying.

I am now proposing something quite different from that: a land tax. I reassert what has been asserted in this House by leaders of my party in the past. Although I admit that the difficulties have increased in recent years, if a tax is imposed on rent those who receive the rent cannot, in the long run, shift that tax. This has been so well discussed by the economist Ricardo, and by John Stuart Mill, that it is not for me to attempt, in my humble way, to argue the issue again. I am assuming that hon. Members accept the position that, in the long run, a tax imposed on the rental source of wealth is the tax least likely to be evaded or put on to other shoulders. I put it to the Chancellor that in the increasingly difficult situation which capitalism offers—and it becomes more difficult as we make increased invasions into the realm of capitalism—by leaving, as we do today, four-fifths of capital enterprise in the original private hands, the likelihood of dodging taxation is increased rather than diminished.

I cannot understand why the Labour Party as a whole does not return with greater enthusiasm to the views that used to be expressed from these benches and from that Box when the late Philip Snowden was Chancellor of the Exchequer. It is interesting to note that when Philip Snowden tackled the problem of the Land Tax he was able to point out that in London—which is a very good barometer on this particular economic development in the community—in the 50 years between 1870 and 1920 land values increased from £18½ annually to £45 million. It was suggested at that time although, not, I think, by Mr. Snowden, that the value in 1931, when the proposal was brought before the House, had increased to £57½ million. I think it was probably more like £50 million. At any rate, since that date this process of increasing value has continued. The London County Council discovered that the value had become £60 million which, if reckoned on the basis of money values, and compared to the period of which Mr. Snowden spoke, amounted to something like £100 million or more. There is, there- fore, an opportunity for the Government to adopt a type of taxation which the leaders of our party well understood 15 to 20 years ago.

Although it may be out of Order to introduce Amendments to the Bill to cover this proposal, I am quite sure that the Government must face the question of imposing a tax on land values. I am all the more certain that I am right in pressing this matter when I recall that 300 local authorities have petitioned for the Land Tax to be re-introduced. They do not necessarily want all the revenue to go to the State, but think they should share it. No doubt some think they should have it all. There is a committee sitting at the moment to consider this question, and they will report later how far this tax could be considered by the Government in connection with local revenues. Despite the fact that the Chancellor has introduced an excellent Bill, the proposals of which I wholeheartedly support, I think he has missed this point. I hope that during his remaining tenure of office he will reconsider the proposal which Mr. Snowden brought before the House, and which would have become law had it not been for the determination of Members opposite, supported, I am sorry to say, by the Liberal Party, who made a temporary truce with the Opposition on this point.

I must now come back to the other matter in which I am interested. I discovered something this week about brewers' profits. I did not get an answer immediately I put my Question to the Government, but I got it several days later—and it was worth while waiting to get a little nest egg like this. The Financial Secretary said about brewers' profits: … The profits are after allowance for wear and tear of plant and machinery and after deducting National Defence Contribution, Excess Profits Tax, and Profits Tax payable. The figures include profits arising from trade ancillary to the main business.

Year Profits
1944–45 £39,000,000
1945–46 £41,500,000
1946–47 £49,000,000."
—[OFFICIAL REPORT, 3rd May, 1948; Vol. 450, C. 104.]

Other figures were also given by my right hon. Friend which showed that there has been a steady rise in profits of £27 million in 1938–39 to £49,000,000 this year. [An HON. MEMBER: "Because beer is best."] Whatever is best, the Chancellor has been telling the trade unions that the problem of profits must be faced by us all. If the claim can justly be made—as it is made, and as I make it myself in support of the Government's general demand—for the fixation of wages, there is no case for any kind of industry, good, bad or indifferent, making profits of this kind.

I want to ask my right hon. and learned Friend whether it is not possible, even at this late day, to do something about this matter? The brewing industry is organised in a way in which few industries are organised. It is helped by the monopoly which is granted to it by the State. It works under licence and may not sell its alcoholic liquor except it be in a market which the State provides, to the exclusion of all sorts of competitors. The brewing industry possesses great power of advertisement, with all its wealth behind it, and pushes its wares, as George Bernard Shaw once said, under people's noses at every corner of the street, pocketing the colossal gains therefrom and leaving us to meet the terrific damage that results from this practice.

Their £49 million profit for 1946–47 prompts me to ask to what extent the Chancellor is prepared to impose a special levy on the brewers that he would not put on another industry? Does he think the brewers are not capable of meeting such a levy? I am willing that he should call the brewers before him and say, "How much are you prepared to disgorge from the tremendous amount of money you are taking into your industry?" In 1932, the brewers had a meeting and imposed a levy on every gallon of beer brewed. What for? To spend on a great new advertising campaign, which ultimately cost millions of pounds. I understand that that levy still exists for the same purpose. I am not usually sympathetic to the working classes in this matter, but I say that they are very largely paying to the brewers, money from which the brewers make enormous profits. That being so, steps should be taken to impose a special levy on the industry.

I have another practical suggestion to make to the Chancellor. Although he is seeking, rightly, to reduce the great amount that is charged to expenses by companies, there is a special point about the brewers which I do not think he has noticed. Under a judgment of the House of Lords given in 1915—I think it was called the Wiltshire Brewery case—the brewers get more favourable regulations regarding the expenses made for allowances than exist with regard to practically any other type of industrial organisation. I am suggesting to the Chancellor of the Exchequer, before he has finished with this Finance Bill, that he should again look at that point and ask his officials for new guidance as to the extent that the brewers can again be asked for the same kind of payments as are already imposed on other types of industries. I do not see why, now that we are faced with the economic facts of all these taxes we are considering in connection with this Bill, the Chancellor of the Exchequer should not very specially impose the burdens that I have suggested.

After all, these brewers, with the profits they have made, have done extremely well out of magnifying the general economic conditions in agriculture today. The enormous profits they made enabled them to offer prices to farmers which have transferred good land that ought to have been used for wheat-growing to help us save some of the imports of wheat we are making from abroad, into barley-growing. Indeed in one year of those profits I have quoted we actually had in this country more acres under barley than we had under wheat, and 50 per cent. more acres under barley than under potatoes, at a time when the people were short of potatoes and rationed for bread. Yet we have gone on increasing the acreage and the amount of labour and capital devoted to producing the means whereby the brewers can make these profits. The Chancellor of the Exchequer cannot come to the House, or go to the country, and make his appeals for more and more work and sacrifices when he is prepared to let the brewers continue with the sort of gains I have illustrated, and I ask for a radical alteration in his policy in this matter.

8.13 p.m.

Mr. Carson (Isle of Thanet)

I regret very much that I cannot follow the hon. Member for West Ealing (Mr. Hudson) into his anti-alcoholic dream or nightmare as the case may be, in the few remarks I would like to make. I would have more sympathy with him if he were really concerned with the profits of the brewers rather than what the brewers brew, which I think, is what is at the back of his mind.

I am surprised, having listened to the Debate today, that most of the hon. Members who spoke from the opposite side objected to the innocent remark made by the right hon. Member for North Leeds (Mr. Peake), that we on this side of the House regard taxation as a necessary evil. I think hon. Members opposite, with quite unnecessary heat, were at great pains to prove that they regard taxation on the whole as a good thing. The hon. Member for Luton (Mr. Warbey) put the point of view from that side when he said he thought it was a good way of redistributing the wealth of the nation because some people had too large incomes. I think we look at it in quite a different way. We consider taxation as a necessary evil—a very necessary evil indeed. We do not consider however that some people have too large incomes, but that others have too small incomes and have too many difficulties. There is a great difference in those two points of view. If one thinks merely that some have too large incomes, then one is bound to have a rather bitter outlook towards a certain class of one's fellow countrymen, and one's only aim is to take as much off them as one can and hurt them as much as possible. If one thinks on the other hand that taxation is a very necessary evil and that one has to have it in order to alleviate the difficulties of people not so fortunately placed, then one's outlook is totally different, and one takes it from people, not because one wants to but because one has to.

If taxation is regarded as a necessary evil, it follows that the right hon. and learned Gentleman who is at the Treasury, and has his hands on the purse strings of the nation, is bound to take far more care to see that no money is wasted. That is what we and the right hon. Gentleman were trying to suggest. We are suggesting that money should not be wasted or thrown away with no good result at all. I would feel much more confident, with my right hon. Friend at the Treasury thinking that taxation was a necessary evil and trying to keep it down as low as he possibly could, than I would with someone who thought it a good thing to have heavy Government expenditure.

I make no apology for raising the following two points although they may seem to be Committee points. The first is the tax on tobacco. Surely this tax has become, by every Budget, far more important than just the last 2d. we had on 20 cigarettes. It opens up the whole question of the incidence of indirect as opposed to direct taxation. It is a question about which I am worried, and one about which I think the hon. Member for Enfield (Mr. Ernest Davies) was also worried. There is a great deal in what he said. I think we have got to consider whether the incidence of indirect as opposed to direct taxation is still right. I think one can draw a parallel in opposite between indirect taxation as it is now, and the food subsidies. Whatever hon. Members may think about the food subsidies, whether they are unnecessary or necessary the fact does remain—and we have maintained it on this side of the House—that food subsidies in ordinary times are uneconomic, because one subsidises the food of a man who does not need it, as well as that of the man who does. Exactly the same thing occurs in penal indirect taxation. It is unfair because it takes no account of individual income.

It is necessary to have indirect taxation and it will always be necessary, because it is right that every person should contribute to the upkeep of the country. But where taxes are added to year after year because they are easy to collect administratively, and simple increases, can be made, one should stop and look at it and try to think again, especially when one item like tobacco has come throughout the years to be regarded as a necessity. I know tobacco is not a necessity, but it has come to be regarded as such, and one has to take individual people's views and wishes as they are and not as we would like them to be, in the perfect world where possibly there would be no tobacco at all.

If we go on adding to the tax on things like tobacco year by year, if the Chancellor of the Exchequer, looking around and wanting to increase his surplus a little more, says, "Very good, let us put something on a packet of 20 Players," one of two things is bound to happen. Either, after a period, cigarettes will be automatically reserved for the richer people and ordinary men will be unable to smoke at all, or an even graver danger is that the ordinary person may go on smoking because he feels that it is necessary that he should do so—that may be a weak minded point of view but it is a point of view held by a good many people—and stop his family having some of the things which they need.

Gin and whisky provide an example. I apologise to the hon. Member for West Ealing for bringing up that example, but in years gone by gin and whisky were the drink of the poor man. Successive Governments raised the tax upon gin and whisky because it was so easy to collect and because the people continued to pay more, and consequently whisky and gin have now become reserved for richer people. The hon. Member for West Ealing will not agree with me, but it cannot be desirable to continue to raise the tax on cigarettes so that in time the same may happen to them. It is difficult to say when taxation is necessary and when it is penal, but the tax on cigarettes—if it is not penal at present—must come near to being so. I could cite examples from people who have been in the Services. People in my regiment in times of difficulty could easily bear the fact that food did not reach them for a day or two, but when cigarettes failed to come along it was a much greater strain on their morale in a tight place. It may be weak-mindedness, but it is a fact. I hope that before the Committee stage, the Chancellor will look again at indirect and direct taxation.

My other point concerns the tax on bookmakers which was raised by the hon. Member for Rotherhithe (Mr. Mellish) among other hon. Members. I have had a good many conversations with the bookmakers in my area and they are worried about it and feel that it is unfair. I am not suggesting that bookmakers should not be taxed. The tax is an excellent idea and we commend the Chancellor's ingenuity in finding such a tax but, in the form in which he has put it forward, will it work? There is a greyhound track in my area. I have never been to it but those who have tell me that it is a thrilling performance. It is even more thrilling when the greyhound catches the hare. This track, the Dumpton Park track, has three enclosures. Under the Bill those enclosures will be charged at £6, £18 and £48 a meeting. A small bookmaker at a small provincial track usually has a turnover of about £50 a race, and "turnover" is not "profit."

At the White City, in London, which I have never visited but which I am assured has exactly the same number of enclosures as my local track but a far larger number of spectators, the best enclosure would entitle a bookmaker to be charged exactly the same as a bookmaker in the best enclosure at Dumpton Park. That is an inequitable way to levy tax. The Chancellor might look at the idea of basing the tax not on the number of enclosures, but on the amount of the gate money and the number of people at a particular meeting. That basis could easily be ascertained because stamp duty is payable by greyhound tracks and it would be quite easy to check up the numbers who go. A sliding scale method of this kind would be far fairer than the arbitrary method based on the three enclosures whatever the size of the track and whatever the turnover of the bookmakers or the tote. I hope the Chancellor will consider these points before the Committee stage of the Bill.

8.26 p.m.

Mr. Gibson (Kennington)

The Bill is without doubt supported by the majority of the people of this country, particularly the industrial workers, the trade unionists and the co-operators generally, who regard it as a fair attempt to provide the financial basis for a policy with which they all agree. I shall support the Bill if a Division is challenged, although I understand that the Opposition will not challenge the Bill upon Second Reading.

The hon. and gallant Member for Perth (Colonel Gomme-Duncan) began his speech by saying that grinding taxation was morally wrong. He might have said something much more apt, that grinding poverty is a shame and a crime in any social order. The Budget and this Bill provide the budgetary basis for a policy which has maintained full employment for our people and fair shares of the goods which are available, and will continue to do that during the coming year. The Budget is therefore an anti-poverty Budget as well as an anti-inflation Budget, and I hope that the Chancellor will not be too ready to give way to suggestions to remove taxation from those who can well afford to pay it.

However, I would like him to consider the Purchase Tax on water heaters and kitchen fittings. I well understand that the desire last year was to avoid the undue use of fuel, but I pointed out then —and it is true now—that the Purchase Tax on water heaters and kitchen fittings does not save the use of fuel. Water heaters of some kind must be put into every home which is built, and if modern equipment is not fitted, we must have the old-fashioned and inefficient pre-war type which uses more fuel. Modern equipment means economy in the use of fuel. Will the Chancellor consider removing the Purchase Tax from water heaters and kitchen fittings?

I know that my right hon. and learned Friend cannot plan a Budget for the benefit of local authorities, but the extra cost to the housing authorities by reason of this tax will be indicated if I tell the House that on orders at present in hand the Housing Committee of the London County Council finds itself compelled to spend £36,900 more than it would otherwise do. If that is repeated for every housing authority in the country, it is obvious that the extra cost to the great housing programme which the Government have successfully got under way will be very great and, in view of the facts of the situation, quite unnecessary.

The same remarks apply to kitchen fittings. I am advised that if a fitting is built into the house, the tax is either off altogether or reduced, but if it is put in afterwards and is hanging on a bracket, there is tax on it, although it may be the same kind of article made of the same material. Purchase Tax ought, in the interests of housing, apart from whoever may be responsible for the housing, to be taken off water heating apparatus and kitchen fittings, and I hope that the Chancellor will give this matter careful consideration on the Committee stage.

Having said that, I want to follow the remarks of my hon. Friend the Member for West Ealing (Mr. J. Hudson) for a few moments. I regret that in this Budget, as in the last, there has been no reference whatever to the worst private monopoly in this country, the land monopoly. I hope the Chancellor will give consideration to the possibility of imposing a heavy land tax before this Parliament ends. My hon. Friend talked about the brewers, and I have a good deal of sympathy with him, but the brewers are not the only pampered darlings of the British legal system. The private landowner is equally pampered, and both the brewers and the landowners take enormous slices out of the wealth produced by the workers of this country without giving any real economic return to the community for it, and very often, as far as I can see, without giving any thanks. I submit, therefore, that if the Chancellor is concerned—and I know he is—about finding a new basis of taxation which cannot be transferred, which is fair, morally as well as economically, he should revive some of his old enthusiasms for the taxation of land values.

There appeared in the newspapers a few days ago an illustration of the way in which private ownership of land exploits the hard labour of the community and of local authorities. The town of Littlehampton, 60 per cent. of which is owned by one company, was up for sale. In 1940 the Duke of Norfolk sold it to the Littlehampton Estates who have since taken the rents out of it, and have sat calmly by while the town council of Littlehampton and the businessmen and workers of Littlehampton have made it a modern, thriving seaside resort. The company put it for sale, but it was withdrawn from the market after a bid of £485,000 had been made for it. That sum is exactly 34 years' purchase of the gross rental values in Littlehampton. It seems to me that if a land owner is getting the equivalent of 34 years' purchase, either of the net or gross rental values, he is doing very well, but a higher figure has to be paid by anybody who wishes to buy Littlehampton and make what profit he can out of it.

I want to stress that the whole of the increased value of that town was created not by the owner of the land—because he could not create it—but solely by the people living in and around the town, by their energy, their initiative, by the enterprise of their business men and their shopkeepers. All of this together raised considerably the land values in the town of Littlehampton, and all that the landowner did was to sit back and sell it for several hundreds of thousands in the first place, and now it has been withdrawn from the market because the present owners want more than has been offered. That value should come back to the community who made it, and I am sure that there is a growing volume of public opinion in this country in favour of that.

I know that an inter-departmental committee is inquiring into the possibility of putting a tax on land for local rating purposes. I hope I am not superstitious, but I have heard of committees of this kind which have succeeded in avoiding any decision for a good many years, and I am anxious that, if we are to get a report from that committee, it should be quick, because the case for the taxation of land values is proved. Wherever in the British Commonwealth it has been used—and it has been used in many towns and countries—it has been retained as a tax by which to raise either national or local revenues. I am quite sure that to any reasonable person there is no need to argue the matter much further, and I hope that the committee will be asked to report quickly and not be allowed to spin out the time. I know also that the Town and Country Planning Act made some attempt to tackle this question, but as I dared to say on the Second Reading of that Measure, I think it does it in the wrong way and that it will find it difficult to separate development values from use values. I am quite sure it was a criminal waste of public money to give the owners of development values £300 million—if they ever get it, there are some doubts about that—and I am doubtful, therefore, whether that Act will ever become effective in the sense of bringing back to the community the development values which it set out to bring back.

What is really wanted is a plain, simple, straightforward tax on landowners, and may I dare to remind the Chancellor of what he said on this subject in the House on 6th May, 1931, when a Land Values Resolution was being discussed. He said: The imposition of this tax, coupled with the valuations which must necessarily precede it, is one of the measures which have been long and consistently advocated by those on this side of the House.… Vast sums have been spent by the community in the past in improving the facilities and services connected with the land.… It is the continual expenditure of this money from day to day that upholds and maintains those values for the owners, and it is only common justice that those who own the land which is so benefited … should pay some acknowledgement to the community for those benefits."— [OFFICIAL REPORT, 6th May, 1931; vol. 252, c. 522 and 523.] What I ask is that, if not in this Budget, at least in the next Budget, we may hope to see some effort being made to bring back to the community some of those values. My hon. Friend the Member for Sedgefield (Mr. Leslie) referred to the support for this idea which is coming from local authorities, and mentioned the 300 local authorities which have already passed resolutions in favour of it. May I point out, in passing, that out of the 28 borough councils in London, 20 have passed resolutions asking for the use of land values taxation as a means of raising local revenues. I do not want to quote from the well-known report of my own well-known authority, but I quote briefly from a report issued by the Birmingham City Council in 1942 and 1943. It would seem abundantly clear that all research on the subject leads to a levy on land values in one form or another. That has been said by many local authorities in this country in regard to the existence of the present unfair method of levying local taxation. The Birmingham City Council Finance Committee came to this conclusion after a long examination, and Birmingham cannot be regarded as a revolutionary city: Local expenditure is met in too large a measure by what is in effect a tax levied in respect of the occupation of rateable property. In the case of leasehold property all rates are paid by the occupiers and none by the owners of land, although the owners of land benefit largely by the development of towns and by the expenditure from the rates on improvements. That is my case, that the whole of increased and improved values of land arise from public improvements, and from the initiative and enterprise of individuals. That value ought, therefore, to come back to the community, either in the shape of national taxes on land values or in the form of a local tax for local rating purposes. I believe that in so doing we would be lifting from the backs of hardworking business men, as well as private people, burdens which they ought not to bear. If a man improves his factory or his house, he increases the rateable value of his property and pays more rates, but the owner of the land on which the house stands pays no local rates at all.

I suggest that the Chancellor should bear this in mind as one way of relieving local taxes. I hope that he will consider the point in connection with water heaters and kitchen fittings but that, far more, he will consider bringing in at the earliest possible moment a tax of the kind I have mentioned. It would have the effect of giving to the people of this country the value created by their labour, energy and initiative, and it would be far more equitable and economically just.

8.43 P.m.

Sir Peter Bennett (Birmingham, Edgbaston)

The hon. Member for Kennington (Mr. Gibson) said that the case he has been pleading is not connected with this Budget. Therefore, I will not attempt to answer him. I will try to get back to this Budget and leave the large question which he has raised to be dealt with at a later date.

I felt very much let down by the speech of the Financial Secretary to the Treasury. I have the highest personal regard for the right hon. Gentleman, but I feel that he has rather let down the House of Commons. I have repeatedly spoken on the work of the House of Commons to gatherings of young people, Rotary Clubs, and various other organisations who are very interested, and rightly so, in the way that Parliament works. A point which I have always made is that, in the House of Commons, one can depend upon it that every individual in the country is regarded as of some value, in contrast with the totalitarian States, where the edifice is the only thing that matters—the individual bricks do not matter. Under our system every individual life and career is of importance, and the House of Commons devotes a great deal of attention to the troubles of individual citizens. Yet the Financial Secretary said that he was not going to worry about 125,000 people, even though they have got a grievance—they could afford it. I think that is letting down the House of Commons. I am not arguing whether they are people who can afford it or not. I am arguing that a case put forward on behalf of such a large section of the community deserves better treatment than that.

The hon. Member for Rutherglen (Mr. McAllister) talked about the fact that a radio manufacturer in his constituency had had to close down. He said the suggestion had been made that the reason for it was the Purchase Tax, and he was concerned whether or not that was so. From his association with the Board of Trade, and his general commercial contacts, the Chancellor of the Exchequer will know whether or not that is so. I can assure the House that there is a growing feeling in industry that we are in for a certain amount of trouble, not necessarily from the Purchase Tax but from the effect on the export drive as markets in other parts of the world get filled up. I have heard of this radio position. It has been put to me that it is due to the fact that in many parts of the world we have fully stocked up the market.

In industry we have to work on the basis of a certain target, an allocation for export. Priorities are granted for goods for export, and we endeavour to fill the export market. At the British Industries Fair I talked to one of the largest manufacturers there, who has spent a great deal of time studying the overseas markets. He said that, for the first time, they are feeling a slowing down of orders. They are getting cancellations. He said that it is partly due to the fact that they are stocked up, but it is also due to a feeling that prices are to be reduced. There has only to be a hint that prices are to be reduced for people to stop buying, and that is beginning to be felt.

We have a drive on in this country to reduce prices. The future of the export drive, on which our bread and butter and our very existence depend, means that we have to concentrate on getting prices down in this country. We have made a start. We are pegging where we can, but the drive has to go on, otherwise we shall be in a very difficult position. It is no use thinking that the time has come when we can work less for shorter hours, and transfer the burden of cost of the goods on to the consumer. That day has ended in this country, and even more so overseas. We have to realise that if we are to live in the export world, it will be on the basis of price. We have to give the quality at the right price, and that means that easy times for workers, employers and managers are over. We have to increase our output and get any benefits we can in the way of better standards of living by increasing our effort, and not by passing the cost on to the customer.

I have been asked to suggest how we can get some of these reductions. Suggestions were made as to how to cut down Government expenditure. I have worked in Government Departments. I was lent to the Government during the war, and very often a high-up civil servant has said to me, "We ought not to be doing this job." Whole departments have grown up which ought not to have existed. If we were to get together the men in the Civil Service who know, and say to them, "Your staffs are swollen; one of these days there will be a Geddes axe, which will be very unpleasant—don't you think the time has come for you to get together and tell your political chiefs what ought to be cut down?" I believe that the Civil Service would cut itself down; the large numbers of those staffs would be reduced, and more people freed for productive industry. We have to reduce Government staffs and non-productive expenditure and get back to producing goods in order that in the future we may live.

8.50 p.m.

Mr. Donovan (Leicester, East)

When I wait here for some time to make a speech, I always find my throat getting drier and drier, and now I find myself quite incapable of talking about the beer which has been roundly condemned on this side of the House, or the gin and whisky which received indirect praise from the other side. There are four matters with which I wanted to deal, but in view of the shortness of the time at my disposal I propose to cut out two of them.

It is a safe assumption that the wise and experienced gentlemen of the Treasury, from the Chancellor downwards, who framed this Budget have no children of school age. I speak of children and not grandchildren. For although £101 million is being given away in Income Tax reliefs alone, the one class of person to whom not a penny is given is that class which consists of parents with young children. Instead, it was proposed originally to tax the non-utility clothing of those children, a proposal which was dropped with such speed that one wonders why it was ever considered. I hope that I may, with some diffidence, suggest to the economic experts on the Front Bench that it would be right sometimes to remind ourselves that things which we call "dollar gaps," "dollar shortages," "inflationary spirals," and all the other economic jargon, have no reality at all except in relation to human beings; and that the future of the State does not depend primarily upon the solution of those problems. It depends primarily upon the rearing of good and healthy citizens. In other words, it depends upon the continued observance by parents of the duty of parenthood.

I submit that the Chancellor, whenever he can, ought to encourage them to perform that duty. The present child allowances, and the family allowances less tax, are wholly inadequate to mark a proper disparity between the bachelor and the family man. Take, for example, the Member of Parliament with £1,000 a year. If he is a bachelor, he pays £318 tax. If he is a married man with a wife and three children he pays £219 in tax. That means that a bachelor Member of Parliament, surveying what the Chancellor will do for him if he gets married and produces a family, finds that he will be allowed an extra 38s. a week in order to keep four more persons. No wonder there are such a number of confirmed and, if I may say so, eligible bachelors among us. The Chancellor on this occasion has not the excuse of saying, as so many Chancellors do, "Yes, I agree that you have a case, but I cannot afford the money," because I will tell him how to assist parents without giving up a penny of his revenue. He should confine the extra earned income relief to parents with children. Let the bachelor wait for a bit. We are not asking the Chancellor to pay out any more money. This is simply a request that he should distribute this extra relief in a manner which I suggest would be much more equitable.

So much for the first point. The fourth point—I skip the second and the third—is this. The hon. Member for Thirsk and Malton (Mr. Turton) spoke of the effect which the jargon of these Budgets has on various constituents. To some constituents it gives content. It makes others discontented. With me it simply produces a headache. I would like to know what steps are being taken to reduce the language of these Finance Bills to something like intelligibility. I asked this question on the Third Reading of the Finance (No. 2) Act of 1947, and the Financial Secretary said, "Well, it is a very long job." That is true, but it is not a long job to appoint a committee to start the work. I asked the former Chancellor of the Ex- chequer to do this some two years ago. I was summoned to an interview but, unfortunately, just as we were making progress, someone more important came in and I had to go. That means that two years have been lost during which this committee might have been working.

I hate discussing case law in this House, but I will overcome that dislike to this extent. I ask the Chancellor whether he has seen the recent case of Nugent-Head v. Jacob decided in the House of Lords about a month ago. Such is the rigmarole in which the provisions are couched which marry, so to speak, the incomes of husband and wife, that the Solicitor-General found himself arguing that within the meaning of those provisions my client, the husband, was living with his wife and living separate from her at one and the same time. The House of Lords made some pointed comments about that.

These provisions about aggregating the income of husband and wife date back to 1806 when a woman lost her property as soon as she became married. It became her husband's. The provisions are intelligible upon that basis. But today the courts must struggle to adapt the language of 1806 to present circumstances. Sometimes it is impossible. The Chancellor must do something about this under the present Bill, because he is to give married women separate personal allowances. Could he not, at the same time, discontinue this silly business of aggregating the incomes of the husband and wife and thus making them pay more than the couple who are living in sin? The time has come when this ought to stop, and if the Chancellor would end this anomaly, his Purchase Tax free church organs might play the wedding march a little more often.

8.58 p.m.

Mr. Assheton (City of London)

I am sure that many hon. Members will agree with a great deal of what has been said by the hon. and learned Member for East Leicester (Mr. Donovan). Certainly he gained general assent for his proposition that parents with young children should be treated rather more favourably than they are under the present proposals. Certainly, also, he gained universal applause for his suggestion that the Income Tax law should be made more intelligible. Of course, he is one of the few people in the country who understands them. Therefore, it is particularly generous of him to make that appeal. As one of those who does not succeed in understanding them, I am bound to say, speaking for the majority of hon. Members, that we would welcome a simplification. I know the sort of things which the Board of Inland Revenue and the Parliamentary draftsmen will say when one talks about that, but I hope that the Chancellor of the Exchequer, with his great legal experience, will be able to set this highly desirable reform in motion.

It is about time that the aggregation of income of husband and wife was brought to an end. The Chancellor has gone some way towards that in starting at one end of the scale. Since the abolition of the incidence of the Married Women's Property Act, in so far as it is completely removed—it is not completely removed yet —there has been little to be said in favour of aggregation except that the Board of Inland Revenue would no doubt lose some income by the change. That is no justification for keeping on a form of taxation which falls unjustly upon the taxpayer.

I do not think that at this stage I can deal with the two or three speeches that were made on the question of the taxation of land values. At some other time I shall be very glad to do so. I would only now ask hon. Members who listened to those speeches to remember that there is a very clear distinction between different sorts of land, and later on I shall refer to the incidence of the Special Contribution upon agricultural land. Of course, agricultural land is not the sort of land to which the hon. Members who have just spoken were referring.

The three main criticisms that have been made from these benches of the Finance Bill, and the Budget upon which it was based, are these. The first is that Government expenditure is too high and there is much extravagance in the administration of our affairs. The second criticism is that following on that, there is a continuance of an intolerably high level of taxation. The Chancellor is not only continuing the very high rates of taxation to which we were subjected during the war, but he is imposing new taxes, and this year is raising a sum of £3,500 million by taxation, which is nearly £400 million more than was raised by taxation at the very height of the war.

That is really an incredible situation, and one which we on this side of the House deeply deplore. The third main criticism concerns the Special Contribution. There has been some doubt whether it is to be called a Special Contribution or a capital levy. The suggestion which has been made that it should be called the "Cripps Levy," seems to me a reasonable compromise, and I shall call it that for the purposes of this Debate. That, at any rate, will be a neutral term.

Before I come to some more detailed observations, I should like to ask the Chancellor to deal with one matter which has been exercising the minds of a good many people in the last few days in connection with the European Recovery Programme. I want to know whether the "letter of intent," to which we have seen reference, in fact commits us to any changes in our arrangements for the sterling area. I do not propose to develop that point now, but I want to give the Chancellor an opportunity of answering that specific question.

Throughout the Debates both on the Budget and on the Finance Bill, challenges have been made from the other side to us to make suggestions for a reduction of expenditure. I am quite sure that if the Chancellor looks through all the speeches that have been made from this side in the Budget Debate and today, he will realise that he has been given a good many suggestions. My right hon. Friend the Member for North Leeds (Mr. Peake) has made a number of very cogent suggestions today, and I want to draw the attention of those who are not aware of it to a very interesting volume. The Chancellor, of course, knows it well, but not so well, perhaps, as the Financial Secretary, who is responsible for it. It is called "Civil Estimates and Estimates for Revenue Departments." I do not know if every hon. Member has studied it, but it is available to everybody. On page 4 there is a very interesting list of all the Departments whose Estimates show an increase during the current year. There are 13 Votes where there is an increase of over £1 million, and there are 60 Votes which show increases of less than £1 million. Therefore, there is a tremendous lot of ground to cover.

A careful study of this volume will show the reasons which are put forward in support of these various increases. Some of them, of course, are quite obvious reasons, such as the new Health Service which is just coming into force, but there are many others which require a lot of explanation. To add to the large number of suggestions that have been made by my right hon. Friend and others, I would direct the attention of the Chancellor to some of the expenditure which is made by the county agricultural executive committees which, it will be observed from this volume, cost the country a very great deal of money. Some of the money, no doubt, is very well spent, but not, I think, all of it.

There can be no Members in this House who are unaware of certain economies which come within their own sphere of observation. Nobody who goes about the country can fail to notice certain things. I would like to suggest that one of the principal causes of the financial state of the country at the present time, and therefore of the difficult financial situation in which we find ourselves, is the system of planned economy under which we are trying to live. We have already suggested from these Benches that a number of different controls should either be abandoned or relaxed, and I think it is impossible to exaggerate the effect which that would have both in increasing the prosperity of the country and also in releasing much-needed labour for the purpose.

Examples have been given of the amount of manpower absorbed in the direction of labour, in bread rationing, in rationing sweets. We were very glad at Question Time to notice that at any rate there was a suggestion of a move in regard to clothes rationing, although I was disappointed that the President of the Board of Trade determined to remove altogether only one control and that all the rest of the business which was very complicated, was to continue. He merely seemed to add to the complication, although I agree there will be increased supplies available for the public. I did not see, as I had hoped to see, the possibility of a great reduction in the administrative expenditure attached to this business of clothes rationing.

The real truth is that we cannot afford the present system of central economic planning. It has been carried over from the war into the peace, and I suggest it is one of the principal causes of our economic distress. It may work all right during a war; it may work all right in a single-aim, non-democratic state, but it certainly does not work well now. During the Debate on the Budget my right hon. Friend the Member for West Bristol (Mr. Stanley) illustrated the difficulties into which this centralised economic planning is getting us all by taking the example of bricks. Bricks seem to be very popular at present; I think the Secretary of State for War said on a subsequent occasion in the House that there had been a plentiful supply of bricks since the Government came into power—he has certainly made good use of that supply in dropping bricks during the last few days. In his reply that evening the Chancellor of the Exchequer said: There was never any brick control, as the right hon. Gentleman seems to think, there never has been one. The only control was the control of the price of bricks which was very largely put on in order to protect the local brick makers from the Fletton prices. There has been no other control of bricks at all."—[OFFICIAL REPORT, 13th April, 1948; Vol. 449, c. 907–8.] We cannot expect the Chancellor, who is a very busy man, to know all the controls imposed. There have been 23,000 new regulations passed by the Government, and it would not be fair to expect him to know about all of them. This, however, is a rather important one and I would like him to refer to it. It is the Control of Building Materials Order, No. 1698, and it is signed "Charles W. Key." I do not know whether that rings a bell with the right hon. Gentleman or not. It appears that this Order was made on 7th August last, and it said: That no person shall in acquiring any scheduled goods acquire a greater quantity of scheduled goods …" etc. Then the first item in the Schedule is, Building bricks, common and facing, in quantities of not less than 1,000. That is dated August, 1947. I offer that to the Chancellor in defence of what my right hon. Friend said so accurately on a previous occasion.

As another illustration of the ill effects of a planned economy on our financial position I should like to refer to some figures published today in the Monthly Digest of Statistics. On page 4 of that interesting document, we find how many people were employed in this country on orders for export before the war and how many are employed on orders for export now. Before the war there were 930,000 people employed on orders for export. The latest figure given is 1,957,000. In other words, less than a million people were employed before the war on exports, and now just under two million are so employed—more than twice as many as there were before the war.

Elsewhere in the same interesting document we see this sad figure of the volume of the exports of manufactures; whereas the prewar volume is expressed as an index figure of 100, today's volume is 132. In other words, although the number of people engaged in the export trade is double what it was, what they are producing is only 32 per cent. in excess of the quantity that was produced prewar. That is largely to be blamed on the planned economy. I am not suggesting —and I hope hon. Members will not suggest—that that is all due to the fact that people are not working hard. That in many cases is not the truth at all. It is due very largely to the delays and dislocations caused by the planned economy.

It is that sort of thing we simply cannot go on affording; we cannot afford to continue to conduct our affairs in that way. Not only can many millions of pounds be saved by careful pruning of our expenditure, but many millions of pounds can be made' by freeing the economy of this country and by letting it work properly. It is, of course, known to everybody that there is an enormous increase in the number of our civil servants. I think there are very nearly twice as many civil servants now as there were before the war. All the important civil servants are grossly overworked and do not have enough time to cope with the difficult tasks with which they are entrusted.

Mr. Alpass

There are too many.

Mr. Assheton

I was saying, they are grossly overworked. Too much is put on them. There are far too many in the lower reaches of the Civil Service trying to carry out in detail plans which, in fact, cannot be properly and adequately translated into effect. All this greatly reduces our productive effort and greatly reduces our wealth, and will, of course, greatly reduce our taxable capacity. When we are talking about all these superfluous servants of the Government, we must remember that in every single business there are the opposite numbers of these people, working to fill up the forms for the large numbers of civil servants to read. Masses of forms are filled up every day which, even if they are read, are certainly not made use of. All this extravagance has got to be pruned, because, we cannot afford to go on spending so much money. I hope hon. Members opposite realise that we could not possibly contemplate spending the money we are spending by this Budget if it were not for the help of the taxpayers of capitalist America. I hope they appreciate that, and will not forget it; because it may be that even now hon. Members opposite and members of the Labour Party outside are beginning to realise that Capitalism produces wealth and that Communism produces poverty. [Interruption.] It is true.

Now I come to taxation. In the House of Lords a very interesting speech was made the other day by Lord Brand, that eminent economist, who said: The most serious internal danger seems to be"—

Mr. Bowles (Nuneaton)

Surely, we are not allowed to quote speeches made in another place?

Mr. Assheton

I will not quote the exact words. The noble Lord was referring to the serious danger consequent upon a huge Budget and the huge taxation which it involved. He went on to suggest that if there ever was a need to de-value our currency that would be the most likely reason for it. This is a subject of great difficulty, and I would draw the attention of the Chancellor of the Exchequer to the interesting observations made the other day by the chairman of one of our most important insurance companies, who said with regard to the Foreign Exchange situation—and I think that it is well worth reading— The difficult position we are in is aggravated by the resolute refusal of the authorities to recognise the lower value of the pound abroad. A true valuation—a better term than de-valuation—is the orthodox way, an old-fashioned remedy, but a sound one. It may not lend itself to the popular phrase of 'targets,' but it will hit the mark, and quickly and automatically cause exports to rise and imports to fall. I draw the attention of the right hon. Gentleman to those remarks because I know that it is only the Government who can decide when such things should be considered.

I think that perhaps the most depressing thing in the whole of the Budget Debate was the fact that the Chancellor gave no hint of substantial reductions of taxation in future Budgets. We have this huge figure of £3,500 million, and I am not sure now whether hon. Members opposite understand altogether how much this high taxation discourages incentive. The Government, I think, are beginning to recognise it, certainly so far as the manual workers are concerned, but they do not seem to realise that brain workers are human also. They do not seem to realise that the profit motive has a very powerful effect on management and those responsible for running the business of this country, and they made no effort whatever to give increased incentives to the few—maybe men with high incomes of which the greater part is taken away in taxation already—to try and improve their position.

I do not think that it is proper for me to quote from another place, but it was suggested there by a noble Lord that we need not be quite so democratic as to pretend that so far as production is concerned it is only the common man that matters. He said that the uncommon man mattered a great deal more. He certainly does matter a great deal, and it is the uncommon man who does not receive any of the advantages and incentives which the Chancellor of the Exchequer is genuinely seeking to give to the producers in this country. In fact, he has very much the contrary; he has everything to make it difficult for him. The man who has capital and enterprise knows very well that if he goes into a new venture it is a question of "heads I win, tails you lose." If he risks his money in speculative business—and this country was built up on speculative business—then, if he loses it all, the loss is his; if he gains, nearly all the gain is taken by the Chancellor of the Exchequer.

The difficulty that is emerging more clearly now than ever before is the difficulty of the formation of new capital. The very high level of taxation, Income Tax, Profits Tax and Surtax, means that new capital is just not being formed as it should be and the consequence of this will certainly be shown during the coming decade in very great difficulty in finding capital. Certain people are misled at present by the fact that money is supposed to be cheap, but it must not be thought that that cheapness is altogether genuine. The time will come when it will be clear that money is really dear and not cheap.

We on this side of the House are grateful to the Chancellor for abandoning the worst of his predecessor's follies, although he cannot claim to escape responsibility because he was a Member—and an important Member—of the Cabinet which was responsible for the activities of the Chancellor of the Exchequer of that time. Never was there a more nonsensical statement than that which said there was a conspiracy in the City to defeat cheap money. What defeated the artificial cheap money policy were the laws of supply and demand. The only conspiracy was that of the late Chancellor and his colleagues to rig the market and to try to force stockholders in railways and in other nationalised industries to take less than a fair rate of interest. That conspiracy cost the unfortunate contributors to the unemployment and other funds many million of pounds, because their money was invested in the 2½ per cent. issue which was made by the late Chancellor and which is now standing at about 25 per cent. discount, a heavy burden which has to be borne in the future.

Dr. Morgan (Rochdale)

That was speculative business.

Mr. Assheton

It certainly was speculative business.

Dr. Morgan

The right hon. Gentleman said the country had been built up from speculative business.

Mr. Assheton

That was a speculative business in which the Chancellor of the Exchequer, who is a trustee of these funds, ought never to have indulged.

I will turn for a few minutes to the Cripps levy. I was as disgusted as was my hon. Friend the Member for Edgbaston (Sir P. Bennett) by one of the replies to the criticisms which have been made. It was stated that there were only 125,000 people who were called upon to bear this tax and therefore it did not much matter, or words to that effect. In this country we have so far succeeded in remembering our duty better than that. There are a number of criticisms of this levy and we shall go into them in detail in Committee.

The first point to be borne in mind is that the levy is no use whatever in the fight against inflation. In so far as it forms part of a Budget surplus, that surplus is illusory, because, like the £160 million which is coming out of Death Duties, it is coming out of capital. It is not an income surplus but a surplus from spending capital. The effect it is having on savings is serious and worrying. The Financial Secretary, in answer to a Question recently, said something unfortunate. I do not want to be too hard on him, because it was, I think, suggested to him by the Lord President of the Council, who was sitting next to him. The suggestion was that somebody—I do not know who —on this side of the House was sabotaging the Savings Movement. If anybody is sabotaging the Savings Movement, it is the Chancellor of the Exchequer and the Cabinet who introduced the capital levy. What has happened already. In the week ending 1st May there was an excess of withdrawals over savings. I have not had time to go back over the figures of very many years but I believe that is the first time such a thing has happened. It is a serious sign and one of which I hope the Chancellor will take account.

I cannot now go into the details of all the injustices of this particular levy. We will do that in Committee. The test which the Chancellor is trying to apply, and which he has not altogether succeeded in applying, is what is known in New Zealand as the personal exertion income. He wants personal exertion income to be exempted from assessment to this capital levy and other incomes to be the test of what the levy should be. Now, we think there are many cases when that does not work out as it should, and we shall expose those cases in Committee.

Comment has been made by one or two hon. Members about the effect of the levy on agricultural capital and the provision of fixed capital for agriculture. That is an important point, and I hope the Chancellor will have something to say about it. Those interested in agricultural land have a tremendous struggle to provide for development, new buildings and so on, and this is a particularly hard time in which to force this levy upon them. I hope the Chancellor will see his way—

Mr. Alpass

They can find millions for fox hunting.

Mr. Assheton

I do not consider that a very serious or helpful interruption. At present, a great deal of money has to be found for agricultural development, new buildings, new cowhouses, new dairies, and so on, and this levy will make the situation even more difficult. I suggest to the Chancellor that he should exclude agricultural land from this levy.

I do not know whether or not the Chancellor is satisfied about the levy. I have the feeling—as I think a great many others have—that he is only, as my right hon. Friend suggested, paying Danegeld: he is paying Danegeld now and he hopes he will not have to pay it again. He gives us the assurance that this levy is once-for-all. Naturally, we believe what he tells us; we believe that he himself will not impose this particular levy again; but can he give us an assurance that neither he nor his Government will impose any other form of capital levy in the future? That would be the only justification for calling this a once-for-all tax: anything else would be merely playing with words, and would not be the kind of thing that I would expect from this Chancellor of the Exchequer.

Obviously, it is quite impossible for this country to get on its feet again unless taxation is reduced. It is constantly said that the Government are soaking the rich; and today it was said that they are soaking the middle class. I say that this Budget is soaking the rich, soaking the middle class, and soaking the poor. It is, soaking the whole country, and we cannot get on our feet if taxation is maintained at this level. A little while ago I referred to the former Chancellor of the Exchequer as Humpty-Dumpty, partly because his initials are the same; and I prophesied that he would have a great fall. This Chancellor is a quite different kind of Chancellor. He is more like a Grand Inquisitor; and he does not mind applying that extra turn of the thumbscrew on the unfortunate taxpayer. I hope that as he continues at the Exchequer he will gradually become a little more merciful, and that when he presents his next Budget he will be able to see his way to make some of the very substantial reductions in taxation which the country so desperately needs.

9.29 p.m.

The Chancellor of the Exchequer (Sir Stafford Cripps)

I think that probably the most convenient course for me to adopt would be to deal with the questions raised by the right hon. Member for the City of London (Mr. Assheton) first, and then to spend a little time in going back over some of the other points. So far as the Debate as a whole is concerned, I think I can say with justice that seldom has any Finance Bill been so little criticised. Indeed, I have been almost appalled at the weakness of the opposition—even to the Special Contribution.

The right hon. Member has given us, if I may say so, a typical City of London speech, putting forward the points for free economy and every opportunity for the bankers and others to make as much as they can, in order to show their speculative enterprise; but that is not very convincing, especially in the circumstances of today. Before he came to deal with the various points, he did ask me whether I would say a word or two about the position under E.R.P.—which, I notice, he referred to as help from the capitalists of America. Unless the workers and farmers in America were to produce the goods we hope to get under E.R.P. we should not be very well off—

Mr. Assheton

I said, "Help from capitalist America," and I meant it.

Sir S. Cripps

And I meant help from the workers of America. There seems to be a good deal of misunderstanding—some of it purposeful, I think, and some of it not—as to our relationship with the administration of E.R.P. Perhaps it would be as well if I answered the right hon. Gentleman's invitation to state clearly what is the factual position, without any speculation as to possible future interpretations which one person or another might put upon that relationship. Under the Act of Economic Co-operation passed by the United States Congress, there is, as the House knows, a provision by which the countries which are to benefit from E.R.P. should enter into bilateral agreements with the Administrator. The Act further lays down a large number of points which may be covered by such agreements suitable, of course, for the various countries and varying conditions and situations.

To facilitate the starting up of the process of E.R.P. the participating countries, of whom we are one, have been asked to sign letters to the Administrator expressing their intention to enter into such bilateral agreements and covering certain limited points. We have signed such a letter, which is called the Letter of Intent. It contains four points, which are as follows: First, that we adhere to the purposes and policies of the Economic Co-operation Act; second, that we intend to conclude a bilateral agreement with the United States of America in accordance with the Act; third, that we will take the necessary steps to make deposits of sterling proceeds commensurate with the dollar amount of assistance under the grant in the special account—that is to say, we will put into the special account the money we receive for the goods we receive and sell for sterling; fourth, that we have signed the Convention for European Economic Co-operation, which set up the Organisation for European Economic Co-operation. By this we are bound, and nothing further.

The next step will be for us to enter into a bilateral agreement with the United States of America. That has not yet been negotiated, much less has it been signed. When the time comes to discuss it we shall have to consider carefully what obligations we undertake. The provisions of the Act of Congress deal with agreements by which the participating countries will agree to do certain things themselves. There is no suggestion of any outside control over their economy, nor is any such thing contemplated under the Act. I hope that that makes quite clear what our position is at present.

The right hon. Gentleman then went on to take up three points of criticism of the Budget. The first of these was that which was mentioned by the right hon. Member for North Leeds (Mr. Peake), that Government expenditure was' excessive. In so doing, the right hon. Member for the City of London drew attention to the excess expenditure which was shown in the Civil Estimates and Estimates for Revenue Departments, but unfortunately he rather misquoted part of page 4 of that document. The Votes for 1948–49 show variations, and not excesses, of a million pounds or more as compared with the corresponding accounts for 1947–48. The right hon. Gentleman did not draw the attention of the House to the fact that the table starts with a large list of decreases amounting to £520,000,000 which he appeared to have overlooked. It is then followed by a number of increases, all of which I mentioned in my Budget speech, the four principal and much the largest are: National Health Service—which is the new service—£129,000,000; Ministry of National Insurance £72,000,000; Ministry of Education £24,500,000; National Assistance Board £17,000,000; and National Health Service (Scotland) £16,000, 000. These are the principal ones and I do not think anyone has suggested that those increases were not right, proper and justified. One has to look rather carefully at these documents and not superficially.

Of course we all agree, and it would be foolish not to, that in a vast expenditure of this size people can always pick out a small item here and there where there has been waste. It would be fantastic to suggest that every penny of Government money was spent to the best possible purpose any more than to say the same of money individuals spend themselves. The question really is, are there any large blocks of money which would be of a substantial character and as regards which there could be substantial savings? I think the only one suggested by the right hon. Gentleman who spoke last, and I do not complain of this, was the county agricultural executive committee expenditure. That is almost entirely spent upon helping the farmer with various services of different sorts and kinds, and I have never known the farmer protest against being helped before. It is all very well to say that this is a lot of money and we should like to know that it is all being spent well. Of course we should, but one cannot criticise expenditure by saying it is a lot. One has to show items which are ill-spent or bad, so I cannot deal with that criticism.

Then the right hon. Gentleman came on to the question of how far the whole system of planning was responsible for excessive expenditure. I think it would be a more convenient course for me to refer back to the right hon. Member for North Leeds and the points which he has raised in regard to excessive expenditure. I might at first correct his correction of myself with regard to the question of the public consumption figure. I think that he is a little confused as to what that figure was intended to show. It is made quite clear in the document. It was intended to show the volume of goods and service which were in fact paid for by the Government. It is not intended to show the money the Government pay out to someone else for private consumption of goods and services.

Mr. Peake

If I was led away it was due to this phrase in the Budget speech of the right hon. Gentleman when speaking of the public consumption expenditure he said: The first of these includes the expenditure of Government Departments and of municipalities, and this comprises all those national activities which we have decided to undertake in common because we regard them as of importance."—[OFFICIAL REPORT, 6th April, 1948; Vol. 449, C. 46.]

Sir S. Cripps

That is an apt description of what it does cover, but it does not cover the money we distribute to other people to spend, the money transferred from one to another. There is no point in it one way or the other, except that tile right hon. Gentleman was suggesting that I had somehow misled the House by saying that something was 22 per cent. instead of 36 per cent., or whatever amount it was. I believe that 36 per cent. was the figure which the right hon. Gentleman gave. He may have been wrong, but I do not know. What we were examining was how much is spent by the Government on goods and services and how much is spent by the private individual on goods and services; we were not dealing with the question of how much money the Government spends as compared with somebody else. Really, there is nothing in that.

The right hon. Gentleman then dealt with his suggestions where we might economise. The first item he took was National Defence the figure for which he said was too high. Curiously enough, it always came down the year after he criticised it. It has, of course, been coming down ever since the end of the war and the only question is the speed at which it comes down. Nobody suggests that the demobilisation and readjustment of the Armed Forces could have been carried out any quicker. It is a pure question of how quickly we can demobilise and how quickly we can readjust our manufacture, and no demobilisation has ever been carried out so quickly or so smoothly as this one. However, other people may have other views on that, but that is the view which I hold, and I think that the fact that we have come now to £700 million—it is a very large drop from last year, the percentage dropping from 28 per cent. to 23 per cent. of our expenditure—is a very good result.

The right hon. Gentleman then complained about the expenditure on Germany. I really thought that was rather a demagogic point. He knows perfectly well what the difficulties have been in coming to an arrangement with other countries about sharing some of our expenditure, and he knows too, that whatever Government had been here would have had as far as possible to keep the German people from starvation. That is, in fact, what the money was spent on. There is no reality in saying now that we ought not to have spent as much money as we did last year on Germany. The right hon. Gentleman does not complain of what we have spent this year because there is an enormous decrease of £55 million.

Then he mentioned the excessive cost of temporary houses. We inherited temporary houses from the previous Government. I happen to know that because I put through the thing in the previous Government which was responsible for it. We knew perfectly well that they were going to be a very expensive venture, but in view of the extreme shortage of houses and the fact that we could get these expensive factory-built houses quickly for the people, the question was whether it was better to have these houses quickly, even though they were expensive, rather than to leave the people without houses. I am very glad indeed that we went on with the programme of temporary houses. If the right hon. Gentleman is suggesting that they ought to cost less, that is private enterprise, because they are all manufactured by private enterprise and all the Government do is to pay the bill. I rather share the view, that perhaps in some cases these firms who have been making them might have made them a bit cheaper, but we can hardly be blamed for that. Then the right hon. Gentleman complained of another item on civil aviation—

Mr. Peake

Before the right hon. and learned Gentleman leaves the subject of temporary housing, may I say that he has really missed my point. My point was that at a time when bricks and other building materials are more plentiful for building traditional houses than they have ever been since the end of the war, his expenditure for next year on temporary houses and non-traditional houses will be greater than it was in the preceding year.

Sir S. Cripps

The point is, as the right hon. Gentleman knows, that we are closing down on building temporary houses but these things cannot run straight out. Nor is he correct in saying that there is plenty of material for traditional houses. The shortage of timber is still acute. We have large stocks at this moment in the country, but we have not the dollars with which to replace those large stocks, and if we were to use them all up now, it would mean that we should stop building altogether in the course perhaps of a year or so. [HON. MEMBERS: "Ah."] The right hon. Gentleman must face the facts of the situation.

Viscount Hinchingbrooke

Planning for scarcity.

Sir S. Cripps

It is not a planning scarcity at all. It happens that last autumn we were able to buy a considerable quantity of timber—

Mr. York (Ripon)

Where from?

Sir S. Cripps

The houses are now being built, but it is not economic, if there is not a flow of timber coming forward over the future months, to use it all in these months and then have nothing left to use later. If I may say so, this is an absolutely typical case of the way in which—[An HON. MEMBER: "Socialist planning."]—private enterprise would use their resources—[An HON. MEMBER: "On houses."] Hon. Gentlemen must really remember that it is not merely for the next six months or year that we have to look—[An HON. MEMBER: "We want houses now."] It is all very well saying, build houses now; we are building now more than have ever been built before. We built 20,000 in March.

Mr. Assheton

More than ever before?

Sir S. Cripps

More than ever before since the end of the war, or after the other war.

Colonel Gomme-Duncan

Poor old Addison!

Sir S. Cripps

And there are some other poor old people too, who are represented in shreds and pieces opposite.

The next point that was raised—I am afraid the right hon. Gentleman diverted me from it—was about the Brabazon being a waste of time and material. Again I am afraid I was responsible for that in the last Government, and again that was a venture undertaken with a perfectly good knowledge of the very large expense which would be entailed when it was completed. The fact that it would need to have a special aerodrome built for it was known perfectly well when the work was undertaken, and I do not suppose that the right hon. Gentleman suggests that it should now be abandoned, many millions of pounds having been spent on it. Then he came to the question of the rates payable on requisitioned properties. Does the right hon. Gentleman really think that we shall make a great contribution to the Budget by reducing the amount of rates paid on requisitioned properties? I do not think I need deal with that.

Then he came to the question of the training centres. He said a great many had been built, which is perfectly true, under pressure from all sides, and quite rightly—they were built in order to deal with the trainees, the people who had been through the war and had not had an opportunity of being trained in any particular craft. Owing to the fact that the materials shortage in the world has been greater than was anticipated, though we have been getting more than our fair share of world supplies, those have not been fully used in all cases. That is a thing which nobody could have foreseen, and if they had not been built, no one would have shouted louder than hon. Gentlemen opposite that we had neglected our duty to train these people.

Those are typical—I cannot go through every one—of the examples which the right hon. Gentleman gave of expenditure that might have been saved. Now I suggest that the reality of the situation is this: that there may be cases where a few hundred thousand or a million or so might have been saved if one had been prescient to foretell exactly what would happen so far as supplies of material were concerned in the world in the years after the war, but if one adds all that up together it does not make any impact whatever upon the problem with which we are dealing and, when we examine the Budgetary position, we must come to the conclusion that, within £10 or £20 million, we have to spend the amount of money provided for in the Budget if we are to maintain the standard of social services and subsidies that at the present time we have embarked upon.

We come, therefore, to the second point of the right hon. Gentleman, which is that a system of planned economy is one of the chief causes, and that there are many controls that might be abandoned or relaxed. People are constantly saying that there are many controls that might be abandoned or relaxed. The right hon. Gentleman mentioned the question of sweets as one of them. I do not know what he thinks the effect would be if sweet rationing were discontinued while there is still an acute shortage. I do not think that he has thought about what would happen. I think that all he has thought about is that it would be very nice for everybody. I quite agree that it would be very nice for everybody—except those people who could not get sweets, or could only get them at a high price as a result of the shortage on the market.

We have proceeded, quite definitely, upon the basis that as long as there is a shortage provision must be made for giving everybody equal shares of what is short. There are other countries who have proceeded upon another basis. I was in Belgium the other day, and if one goes to Paris it is the same thing. There is no shortage at all over there, for certain people. One can buy anything one likes in the shops, providing one has the money. It was once said by the late Lord Darling, that justice was even handed. It was open to everybody—like the Ritz. Much the same applies in some other economies. Anybody can buy whatever they like, provided they are rich enough to buy it. We have not proceeded upon that basis, but upon the basis of controlling things, to see that they are used for the general benefit of the community, and not for some particular small class of the community to enjoy when other people cannot enjoy them. That is the profound difference of opinion between the two sides of the House. It is not a matter about which it is worth arguing, because we take a fundamentally different outlook on the whole situation.

The next point raised by the right hon. Gentleman was a point as to which there has often been confusion. He quoted some figures out of the Monthly Digest which purported to show that we were using twice as much labour to produce the same volume of exports as we did after the last war. It has often been pointed out before that the figures of people employed upon exports are not comparable at all in the two periods. There has been a much more careful analysis, going right through to all the subsidiary industries, as to those employed upon exports now, whereas the previous figures included substantially, only those in the main export industries.

Mr. Assheton

I was not referring to the comparison between now and after the last war. I was referring to the comparison which can be found in the Digest between now and before the war. There are just more than double the people employed, but the volume of production is only 132 per cent.

Sir S. Cripps

I was referring to those figures. The figures in 1938 do not include the whole of the secondary industries which contribute to exports, in the same way that these figures do. It is quite understandable, because now, when materials are often looked upon as the basis of exports, it obviously is a very necessary thing for people to look meticulously at their staff and see how many are employed on export. It may even be that sometimes the figures are exaggerated. The only real figure one can take on production is the new production index which appears in that volume. I think that the right hon. Gentleman will see that the latest figure is 125 per cent. compared to the year 1946, which is the basic year. I think that it is actually the highest figure so far recorded. That was for the month of February. The estimated figure—it is only an estimate, because it is too early to get a completely accurate figure—for the month of April is that we exported £122 million worth of goods, 135 per cent. by volume of 1938. I do not think that that is a very unsatisfactory record of production for the export industries.

The next point with which the right hon. Gentleman dealt was a speech made in another place by Lord Brand, on which he made some observations. I am very sorry indeed that he should join in that propaganda which is being put about by a good many enemies of this country abroad—I am glad to say that Lord Brand is a friend of this country in this country—that there is a need to devalue the pound. Nothing more fallacious could possibly be put forward. He quoted some insurance company director on the same point. It could not help us with our exports because we are already exporting all we can. It would seriously injure us with our imports because we should have to pay twice as much for them as we pay today. That means to say that we should have to export much more and get very much less than we get today. To embark upon such a programme would be the extreme of folly. This Government certainly have no intention whatever of embarking upon such a programme.

Colonel Stoddart-Scott (Pudsey and Otley)

You will have to do it.

Sir S. Cripps

That is just the sort of statement and propaganda for which our enemies abroad are looking and longing. No doubt they will be very grateful to the hon. and gallant Gentleman for what he said.

Mr. Assheton

In defence of Lord Brand, may I say that I quoted him correctly? What he said was that if ever it did happen that there had to be a devaluation, it would be due to the policy which the right hon. and learned Gentleman is pursuing.

Sir S. Cripps

I was not saying anything about Lord Brand. I merely said that the right hon. Gentleman had referred to his speech. I was referring to a statement which he said was made by a director of an insurance company, and some observations which fell from him and from one of the hon. and gallant Gentlemen behind him.

The next point which the right hon. Gentleman made was that this Finance Bill does not do anything to encourage the brainworker, and that the incentives are those which merely apply to the ordinary working man. First, he said that there was no incentive for the brain worker. That, of course, is quite untrue. In fact, some of my hon. Friends have complained that a great deal of the incentive has been given to the middle class and not to the workers. As I said in my Budget speech, we have done that on purpose, because we believe that the class of technicians and scientists who are the real brain workers in industry should be given some encouragement and help at this stage.

But when the right hon. Gentleman says that a few men with high incomes have not got any incentives, does he really think that at a moment like this it is the time to encourage high incomes when everybody is suffering from shortages of every sort and kind? The question today is not whether one is to have a vast surplus to spend, but that we should try to distribute spending power in such a way that nobody will draw unduly upon the pool of goods and supplies which are available. I am quite sure everybody will agree that in such circumstances if a burden has to be borne it should be borne by those who are best able to bear it. That has always been a very sound-principle of taxation. It is a principle that has always been applied, too, by the railway companies in making their charges for traffic. They have always imposed a charge that the traffic could bear. That was the principle, and in taxation it is also a very good principle.

Hence the Special Contribution. Nobody has really taken any objection to the principle of it; they have objected that it has not been imposed in the right way. The right hon. Member for North Leeds said it ought to have been a full capital levy if it was to be fair, and that this, compared to a full capital levy, was not really very fair. The objection which the right hon. Member for the City of London took, among other objections, was that it would affect the War Savings movement. Of course, anything may affect anybody psychologically, but if it comes to the question of actual fact, I do not think the bulk of the people who go in for the War Savings movement will be among the 125,000 people who will be affected by the Special Contribution.

Lieut.-Commander Braithwaite

It will be their turn next.

Sir S. Cripps

That, I think, could only be possible if there were a change of Government at the next election. Then, indeed, I think the small saver might have to draw out his savings during his term of unemployment.

I was asked by the right hon. Member for the City of London to consider whether any special arrangement could be made in relation to agricultural capital. As the House will have observed, the Bill states that where the land is used as part of the business—that is, where it is the farmer's land—it will not, of course, attract the Special Contribution, but where it is the landlord's land—that is to say, from his point of view, a mere investment and not part of the business—then it will attract the Special Contribution. I can see no reason why there should be any differentiation between that form of investment and any other form of investment. It may he that in some cases there are landlords who are prepared and willing to spend large sums of money to improve their investments, but there are very many people who own land simply for the purpose of the rent which they earn.

Colonel Gomme-Duncan

Where it can clearly be proved that expenditure on improvement and maintenance of farms from which a rent is derived is greater than the rent itself, does the right hon. and learned Gentleman still say that this Contribution will have to be paid?

Sir S. Cripps

Yes, certainly. Many people are making fresh capital expenditure from year to year in their businesses, farms and in all sorts of different ways.

Colonel Gomme-Duncan

For profit.

Sir S. Cripps

Well, it is all for profit is it not?

Colonel Gomme-Duncan

Not where a man does not get rent.

Sir S. Cripps

If a man does not get any rent he does not pay.

The hon. Member for Buckrose (Mr. Wadsworth) said that he hoped we should all remember that the position was still serious, and I certainly hope that we shall all remember that fact. Although in some ways the outlook is tending to lighten, if I may put it in that way, and it looks as if the situation were getting a little easier, as was shown by the announcement of my right hon. Friend the President of the Board of Trade, by the fact that standard petrol is coming back shortly, exports are going up, and various factors of that kind, we certainly must remember that it is still a most serious situation for this country. We do not yet know at all what the position is going to be under the European Recovery Programme, but of this we can be quite certain: it is not going to be such as to allow us to sit back on the cushion of E.R.P. Rather has E.R.P. to stimulate us to take all those steps which will be essential in order to revivify our own production.

When we come to consider the problems which we shall have of associating our economy with that of Western Europe and with that of the Commonwealth and Empire in a closer manner than hitherto, we shall find there are many economic problems which will cause us very considerable headaches and will need quite a lot of overcoming. It is one thing to talk in theory about a close association with the economies of other countries, but it is quite a different thing when we get down to the actual fact of what we and other countries have to do in order to bring about that dose association.

When I was in Brussels the other day I expressed to the Finance Ministers of the other countries who were there our willingness, as a country, to adapt our economy to this co-operation, if they were prepared to do the same, because I was quite confident that this country would be behind me in that promise. But this means that we have to contemplate some quite considerable readjustment in our economy as that co-operation develops. We may have to deal with certain industries; we may have to agree that we should not manufacture certain things; but that they will manufacture them, as they may agree that they will not manufacture some things which we will manufacture for them. If we are going to achieve any measure of co-operation and planning it must not be on the basis of the sharp competition which there has been between different countries in the past. This, indeed, is what economic co-operation is bound to mean.

Finally, there were a number of points raised on the Purchase Tax. I do not propose to go into all these; they are really Committee points. There is one thing of which we can be quite certain as regards Purchase Tax, and that is that after a Budget everybody who sells anything in the Purchase Tax list will provide a perfectly good argument why that particular article should not be taxed at all. One thing they will never tell you is what should be taxed instead. I would ask hon. Members, when they come to consider the matter at a later stage, if they are going to suggest that some articles should have the tax taken off, will they at the same time suggest an article upon which the tax should be paid? Otherwise we shall end up with no income at all from Purchase Tax, and I am afraid that is a position I cannot tolerate.

I am very grateful to the House for the fact that they have given this Bill such a good reception. There is not even to be the excitement of a Division upon it. I hope we shall have as smooth and as easy a passage on it when we come to the next stage as we have had on this.

Question put, and agreed to.

Bill read a Second time.

Committed to a Committee of the Whole House for Monday next—[Mr. Snow.]