BUDGET PROPOSALS AND ECONOMIC SITUATION

HC Deb 07 April 1949 vol 463 cc2218-340

3.37 p.m.

Captain Crookshank (Gainsborough)

Like my right hon. Friend the Member for Warwick and Leamington (Mr. Eden) I should like to express on behalf of all of us on this side of the Committee our admiration at the tone of the speech which the Chancellor of the Exchequer made yesterday, and the fluency with which he made it, because he certainly held the Committee for a long period and nobody, so far as I could see, went to sleep. But he had a tremendous canvas to paint, and now that it seems to have become the practice for the Debate on the economic situation and the financial situation to be run into one, it makes it a little difficult for the speakers on the first day, because the right hon. and learned Gentleman has painted his picture and therefore the later speeches in this Debate will be able to go more fully into the economic position in the light of what he has said whereas, as it is also a Budget Debate, it is common form that hon. Members on all sides of the Committee should express fairly early views on the budgetary side of the matter.

Of course that change is due to the return to the Treasury of the oversight of economic as well as financial affairs. The Lord President was responsible, and he wanted to have a tremendous Debate early in February. It sounded as if it would be interesting but obviously it was not practical politics, and the right hon. and learned Gentleman's predecessor found that. Either he had to say that he could not anticipate the Budget statement or, alternatively, he had to say on the Budget Debate, "All that has already been discussed, we will not go over it again." I think this plan is all right, but it makes it rather difficult after so long a speech as the right hon. and learned Gentleman made, to pick out all the points on which one would like to comment. So I hope he will not take it that, because I do not go into great detail, we on this side are not interested. It is due merely to my own personally limited capacity.

We agree with the Chancellor when he says that the year 1948 has been one of very great achievement. All of us who hold responsible positions as Members of this House are glad to acknowledge the fact and to give praise where praise is due. It is, however, to be remembered that the achievements are largely due, at least in my opinion, to two things. First of all, of course, there is the Marshall Aid and its effect, both financial and psychological. We must remember the second part as much as the first. It has had a great effect, not only in our own economy but throughout Europe.

The second factor which we must not lose sight of is the amazing resilience of private enterprise in this country. [Laughter.] It is all very well for an hon. Gentleman opposite to laugh, but all the increase in the export trade, with just the one exception, to which the right hon. and learned Gentleman referred, of coal, is out of the production of what is called the private sector of industry. It is quite true that coal has shown some improvement and that in export coal and bunkering last year 11 million tons were sent out of the country, but that is much less than a quarter of what was being sent ten years ago; so that it is only a very little way towards the targets we must reach if we are to get complete restoration of our economic and financial position in the world. There is no doubt that by improving our coal exports we shall make a big advance. Therefore, even these early steps are very much to be welcomed. But the big figures of exports to which the right hon. and learned Gentleman referred are due to the skill and ingenuity of what we call the private sector.

In the Economic Survey the Chancellor makes a point about which I want to speak. In assessing the success of last year, which he calls "a year of great and steady progress," he points our that industrial production as a whole rose by about 12 per cent. above the 1947 level. I accept that as a statement of fact, although I note in passing that the Committee on Industrial Productivity, whose report was referred to just now in a question by the hon. Member for Reading (Mr. Mikardo), pointed out the extraordinary difficulty of measuring any increase of production or productivity. The fact that I read that only last week, just before reading this very definite statement about the figure of 12 per cent., made me wonder whether we must be very careful not to put too much reliance upon this figure.

The second point we ought to remember is that while it may very well be that last year there was a 12 per cent. increase of production over 1947—if, indeed, it can be measured; I am granting that for the moment—1947 was the year of the fuel crisis; it was not a normal year at all. Therefore, we cannot begin to expect anything like such a proportionate change for the better in the subsequent year. We lost tremendously as a result of that crisis and it must be remembered that for something like a fortnight, I think, over two million people were out of work, even though there was a Labour Government in power. So that we must beware of taking too much encouragement from that figure of a rise in any given year of 12 per cent.; I am sure the right hon. and learned Gentleman would agree with that; but that does not, of course, in any way detract from the remarkable achievements of the year.

The White Paper on the economic situation has rather changed in its form from the earlier one. We have abandoned now the very detailed estimates and targets of what we were going to export and make in every kind of commodity. I think that is right. Perhaps in their over-enthusiasm for planning some hon. and right hon. Gentlemen overlooked that we could not really go down to such detail. But with the final objective for this year which the Economic Survey gives us I am in entire agreement. Indeed, I should like to quote a sentence from page 15, because it is very strange, to my mind, that a pregnant phrase shows the clue to the whole of the Budget situation. So far as I can see no one has spotted it or commented upon it, yet I am quite sure it was put there with the full deliberation of those who drafted and approved the Paper. I shall read this sentence, transposing the words for easier running: …it is the Government's intention…to increase to the maximum investment in those industries…" for the export trade and particularly the dollar-saving industries. The sentence, however, contains these words: while maintaining investment in the social services at the 1948 level. There it is declared that, whatever happened, it was not the Government's intention to increase expenditure over the 1948 level in the social services. That is the key, it seems to me, of the right hon. and learned Gentleman's proposals. There was the red flag—"We cannot go beyond 1948's level." What is more, on the very next page, it goes on to say that in what I imagine most hon. Members would say is the most vital of all the social services at present—the need for housing—expenditure this year will show a decline.

So there is the picture. The Chancellor had already decided that there could be no greater investment in the social services; that we were to maintain the level of 1948. I am not, of course, saying that this is for all time; I am talking about this year, as I read the Paper; we are maintaining the level—that is to say, we are not increasing it. That is the reason why all the applicants, the queue of deserving folk who suffer from one difficulty or another, who go to see the Minister of National Insurance—old age pensioners, spinsters and all the others—have all been told, one after the other, that nothing can be done.

The Chancellor of the Exchequer (Sir Stafford Cripps)

I think the hon. and gallant Gentleman is confusing capital investment and expenditure, which, of course, are two completely different things.

Captain Crookshank

I was not confusing them.

Sir S. Cripps

It is capital expenditure, not the expenditure on the services, that the hon. and gallant Gentleman is dealing with.

Captain Crookshank

It is the whole investment in the social services.

Sir S. Cripps

That is capital expenditure.

Captain Crookshank

Exactly.

Sir S. Cripps

It is not expenditure on the services.

Captain Crookshank

They go up by automatic rises, naturally.

Sir S. Cripps

The investments there spoken of are the capital goods required —buildings and matters of that kind; it does not cover at all the costs of the services, which are quite a different thing altogether.

Captain Crookshank

Surely they are very closely related.

Sir S. Crippsindicated dissent.

Captain Crookshank

I am very glad to have the matter cleared up if there is any dubiety about it, but certainly, as far as housing is concerned, the statement there is quite definite; so far as concerns other developments connected with the Health Service and the rest—education and so on—the expenditure has to stay at that level. If we are to keep one lot of the expenditure on a steady level, it is pretty certain in present circumstances that we are not going to expand to any very large extent anywhere else. Of course, as we know, the Government are not going to do so. I am not complaining about that. I am just saying that that is the situation which is depicted.

The right hon. and learned Gentleman is doing all this in order to lead up to the final conclusion; that is, that we must regulate the speed of the development of our social services by the rate at which we can increase our national wealth. That is the whole answer which the right hon. and learned Gentleman puts to us. Therefore, the problem facing him was, "How are we to do that? In so far as the Budget is one of the instruments for that purpose, what sort of Budget are we to produce? Are we to say, 'We did pretty well last year in this, that, and the other; we do not require such a large surplus; we shall deliberately aim at a very much smaller one, with concessions here and there'"—very much on the lines of the speech made last night by the hon. Member for Eye (Mr. Granville); or he could have taken the advice of the Co-operative movement, which was given just a year ago on the last day of the Budget Debate for that year, when they suggested that there should be parallel remissions of Purchase Tax and reductions in the food subsidies.

That was another possibility. The Chancellor did nothing of the sort, but set out to teach everybody a lesson and and to show what sound economic and financial principles were. So he says, "Well, as a matter of fact, the situation is that there was a great cake in this country, but we have divided it up already and used up the taxable income and chosen largely to divide it up as far as the recipients are concerned between defence and the social services." The two are very closely intermingled because, unless the country is secure, there is no point in having social services and everything would go. Therefore, defence is one of the primary objectives of all Governments. The country has decided that that was how it would eat its cake. We are eating it and cannot have it all over again by tax remission.

Mr. Ellis Smith (Stoke)

Some eat more than others.

Captain Crookshank

Therefore, if we are to have some way of diminishing the ratio of taxes, we have to set about getting a larger cake. We can only do that by higher productivity, says the right hon. and learned Gentleman: There is no magic formula…which can take the place of hard work and disciplined action."—[OFFICIAL REPORT, 6th April, 1949; Vol. 463, c. 2074.] That is all he said, and it is "elementary, my dear Watson" but, unfortunately, everyone up to now has not realised these economic facts. Unfortunately, some people do not recognise and face facts although they may be sticking up a mile high. The right hon. and learned Gentleman is teaching us that two and two make four and not five, because there is no boundless whole out of which we can eat the invisible fifth. I would have wished that it was "one and a half and one and a half makes three" and that the whole thing was on a lower level; but that the lesson was required was obvious from the demands made for so long on the Chancellor from all quarters.

When the Chancellor of the Exchequer says that there is no magic formula but hard work and disciplined action to increase the wealth of the nation or the size of the cake, the question arises, what is to be the inducement to people for hard work and disciplined action? I know the Lord President of the Council once said in a famous speech that incentives are all bunk, but I think he was a lone voice on that occasion. Most people have taken the view, and probably will go on taking it, that concessions at any rate help to sweeten labour. At this stage, the right hon. and learned Gentleman says we cannot give them, but harks back much more to the trumpet calls of the war when it was a question of appealing to the sense of duty.

I think that the message he was putting over to us and the country last night, was that it was everyone's duty to work hard and that in due course benefits would accrue from the wealth and the piece of cake which it would then be possible to divide. It is a rather bleak prospect. Four years after the end of the great war it is not a tremendous incentive in dealing with Budgetary problems as some kind of financial incentive would be. But, for all that, we know the qualities of our people and, if such an appeal is made to them, I cannot help thinking that there will be a response.

Of course taxation is still far too high. That is the trouble. To take away more than 40 per cent. of the national income is something tremendous. After all, this is the first time the figure of £4,000 million in that form has appeared in any of these White Papers, so it is a milestone. When one remembers that we are talking of having raised more than £4,000 million in the last financial year while, before the war, in 1938–39, we were raising under £1,000 million, one can see what a tremendous change has taken place. The result is—and this is the point to which everyone will have to pay attention—that today there are in fact no reserves of taxable capacity. If an emergency did come, the difficulties of the Chancellor would be immense for that very reason, that there is nothing now left to tap. The tremendous surplus on the last year has had a great effect upon steadying our whole economy. Yesterday the right hon. and learned Gentleman used the words that they had brought about: a comfortable, and not excessive, degree of disinflation."—[OFFICIAL REPORT, 6th April, 1949; Vol. 463, c. 2078.] That is, perhaps, an under-statement, because everyone realises that today money is circulating much less freely than it was. Wherever we go and in every circle people say there is not so much money about. Of course, there was not meant to he so much money about if last year's Budget was to be anything like a success. We all approved the general idea of building up for a surplus last year, so, if we now get some of the results, it is a little difficult to complain overmuch but I think the Chancellor has to watch the situation very carefully.

In his broadcast last night he said: There are certainly not now any signs of a slump. I am glad he can say that. I am glad he is sure enough to say "certainly," because I thought there were some signs of a red light. My impression was that there had been considerable falling off in the demand for goods in the retail shops and some drying up there. But that may have been in anticipation of the Budget and possible changes in the Purchase Tax. The fact that the right hon. and learned Gentleman was able to say "certainly" he saw no signs of a slump reassures me on that point. I hope it is so, because I think that is what he must have had in mind, that in spite of the falling off in demands, there was not fundamentally anything in the way of a slump in the offing. But he will agree that the matter wants most careful watching all the time because the whole economic theory is that when one sees something of that sort happening one has to be quick on the feet and change direction rapidly. I hope we can have confidence that the right hon. and learned Gentleman will continue to bear that in mind.

One of the essential needs is a wise programme of capital investment, and both in his speech and in the Economic Survey a good deal was said about that. There is one point which we should consider. The right hon. and learned Gentleman will remember that my right hon. Friend the Member for West Bristol (Mr. Stanley), in winding up the Debate on the Budget statement last year, expressed the view that the Chancellor was erring in his optimism in regard to private personal savings. As a matter of fact, last year's Survey anticipated that that would rise to something like £450 million or 5½ per cent. of personal disposable income. In the end it did not do anything of the sort, because Command Paper 7649 gives the figure for last year of £220 million and not £450 million, and that is a percentage of 2.7, not 5½ per cent.—slightly less than half what was anticipated. This year the figure is given as £210 million, which is not very different from last year. I know there is a note which says that this is a balancing figure, but I imagine it is a figure which the Government hope will be the balancing figure—

Sir S. Cripps

At least that.

Captain Crookshank

At least that. This shows that the out-turn was half what was anticipated. I cannot help thinking that if the Government, year after year, are to accept responsibility for seeing that there is a big capital investment programme pro tanto a lot of personally harassed taxpayers will say, "They get what they require, or some part of it, through taxation. I really cannot be expected to do much more about it." Of course, because the habits of personal thrift are ingrained in great sections of the community, some will save whatever happens. I would refer the Chancellor to the last speech made. by Lord Catto before he left the Bank of England, when he explained the difficulty of people both saving and being taxed up to the hilt at the same time. It seems to me that there the right hon. and learned Gentleman may have gone too far.

The sad story of the Supplementary Estimates last year has its place in the picture, because if it had not been for them the money required for them would have been available for other purposes. We are very glad to hear that the Chancellor has sent out a circular on this subject to try to check anything like a repetition of last year. He, or at least his advisers, will recollect that for at least two years before the war a nominal figure of £10 million was put into the Budget for Supplementary Estimates. The Chancellor is more rigid than that. He has not included any sum this year. All that we can do is to wish him well in that undertaking.

If the object must be to increase the national cake by "hard work and disciplined action" in order to increase the wealth of the country, the change which the Chancellor is making in the wear and tear allowances is a good contribution. We are pleased that he has found it possible to do that because it will help. As I said just now, we have really no reserves of taxable income. There is no further possibility, according to what the Chancellor said yesterday, of any redistribution of the national income by way of taxation in this country in the immediate future. In other words, the days of soaking the so-called rich have come to an end. The goose has reached the maximum annual production of golden eggs in spite of the shortage of feedingstuffs and until the ration of feedingstuffs can be increased so that the wealth of the country increases, no more can be done. That is what I understood the Chancellor to say. What I wish, as everyone wishes, to be satisfied about is this: if on the one hand there can be no further increase in taxation does the Chancellor also say that we are getting value for money spent? We still think, although the Chancellor did not think there was much in it, that there is a field for some reduction in public expenditure, and we hope that he will continue to look at that aspect of the matter.

The financial proposals of the Budget contain a lot of smaller matters. One of the right hon. and learned Gentleman's predecessors was accused of "raiding the hen roost." I think that the Chancellor has been raiding the pigeon holes around the Treasury and has had an opportunity there of bringing forward in this Budget a lot of little bits and pieces which have probably been waiting about until such time as they could be brought out, just as several other Departments have been waiting for the restoration of Private Members' time so that some of the contents of their pigeon holes could be brought out. The Chancellor has been able to get something out of those Treasury pigeon holes for this Budget. The only one of those proposals of any importance—I am not sure whether it should be called a little proposal—is the reduction in the beer duty. I wonder if the Chancellor has gone far enough for the purpose which he obviously has in mind? I do not think that he is standing on the fact that a penny a pint reduction means a reduction of.7 in the cost of living index. I imagine that he is taking this step because there appears to be coming into play the old law of diminishing returns—that the cost of a pint is so high that fewer pints are being drunk. The Chancellor's reasoning is presumably that if the circle is broken more pints will be drunk, and although the duty will be less more revenue will result. If that was the purpose of the change it seems to me that a penny reduction is perhaps scarcely enough. That can, however, be argued in detail.

There are two other proposals in the Budget to which I, and I think it will be found most of my hon. Friends also, object. The first is the increase in the Death Duties, to which I object because it is one more disincentive to saving. It is also one more example of using capital as income, because it comes into the Budget year. The Chancellor might of course say that he intends to see that all the money received from Death Duties will automatically be put to capital account in one way or another, but he will not do that and he cannot do that. We must consider this proposal as being just a sop to his party in a Budget which cannot be very palatable to them.

My second objection is to the change in the telephone rates. I am completely mystified by that. When all is said and done the Post Office, according to the commercial accounts for the telephone service, 1947–48, is showing a surplus of £10½million. I cannot quite see why the Chancellor should now wish to raise the charges still further unless it is some kind of patent plan by which the Post Office is to help to finance the deficiencies in some of the other nationalised industries. Or is there some idea that because of the difficulties of labour and materials the Post Office is not being able to instal anything like as many telephones as are on order, this proposal will help to check the demand and so help the Post Office in trying to overtake the arrears? If that is the sort of reason behind the proposal, it is very much like bringing down the wine duties to help the Minister of Food out of his Algerian wine trouble. There does not seem to be any other reason why that reduction is being made. If the Minister of Food can get rid of the Algerian wine it will be very satisfactory for him and for the taxpayer. These are the two points on which I disagree with the Chancellor—the increased Death Duties and telephone charges.

When we turn to the Chancellor's handling of the food subsidies, and his firm intention that they should not rise above the figure he gave, surely everyone will recognise that that is one more step, after the change in connection with the steel subsidy, to get nearer realistic prices for a lot of commodities today. In the long run that will be the best solution of all, but one recognises that it will be a very long run. Anything in that direction which the Chancellor has suggested will be agreeable.

After all that, the situation is pretty grim. The outlook for the taxpayers is not very charming this year, and the prospects for next year are none too good either. But it is of value if the Chancellor has managed to get it into the heads of people that the loose use of the word "free" by his friends and colleagues must now stop; that while one may talk about a free service because at the particular moment when one is seeing a doctor or is being given a lesson in school or is getting a bottle of medicine, one at that moment is not paying for it, someone is paying and one will have to pay quite a proportion of it. If one is a healthy bachelor one probably pays all the time for somebody else's benefit, thereby fulfilling the old saw of bearing one another's burdens. If the Chancellor has at last been able to persuade people that these things are not in fact free; that they do not come down like manna from Heaven; that they have to be paid for, and because of that the difficulties of taxation today arise, surely he will have done a good job of work.

The Chancellor called it last night a "hold-fast Budget." As I heard those words I wondered if he remembered Mr. Standfast in "Pilgrim's Progress." Does he remember who it was that Mr. Standfast stood fast against—that wanton woman Madam Bubble? The Chancellor has certainly stood up to Madam Bubble, and pricked one of the biggest bubbles there have been, the easy-going disregard by his friends of hard economic and financial facts. For that bubble being pricked the country should at least rejoice.

4.11 p.m.

Mr. Benson (Chesterfield)

I should like first of all to congratulate the Chancellor on an extraordinarily able survey of our whole financial situation. I should like to congratulate him upon another point, and that is that he has got the Opposition so scared of him that even the right hon. and gallant Member for Gainsborough (Captain Crookshank) dare not put up a fighting speech. I have never listened to an opening Budget speech from the Opposition which was so mild and so innocuous.

I think this Budget is not only a hold-fast Budget but a fin de siècle Budget. Since the war Chancellors have been extraordinarily fortunate from one angle. Decreasing war expenditure, inflation and a rapid change over from war-time expenditure to peace production made the revenue extraordinarily buoyant, with the result that they have been able to do what few Chancellors in the past have been able to do. They have been able to make reductions in taxation and at the same time finance enormous social benefits. But we are now approaching the period of stability.

Most of the war-time expenses have gone. We have got inflation more or less in leash and we are tending to get upon an even keel. The result is that the nest egg which Chancellors have had from the high level to which taxation rose during the war is exhausted and any future progress that we can make in the social services, in the gradual development of the work to which we have set our hands, will have very largely to come out of increased productivity.

When I looked at the Chancellor's Budget figures, an expenditure of £4,000 million and a calculated net real surplus of £14 million, it struck me that he had gone to the very limit that he dare under the present circumstances, with the possibility of a recession—not arising in this country but developing elsewhere which would inevitably affect us—usetting his figures and turning his very tenuous surplus into a possible deficit. There has been some criticism of the Budget from this side of the Committee. In view of the fact that we are now under changing circumstances, that there are possibilities of trouble in the next 12 months, I feel sure that the Chancellor in introducing a conservative Budget has been extremely wise.

As this is what might be called a Budget under new circumstances, real peacetime circumstances, it is wise to review Labour's financial policy since the war. What we have done has been to retain the war-time tax structure and use it for social purposes. That has allowed us, in four years, to do more in social legislation than has ever been done in a generation. It has enabled us to catch up on what ought to have been done gradually in the last 30 years, and we have done it. May I give one example of what we have done? Hon. Members will remember the Beveridge Report and its proposals with regard to old age pensions. The suggestion was that old age pensions should gradually rise over a period of 20 years to a maximum of 24s. Our policy of retaining the war-time tax structure has enabled us not to give 24s. in 20 years, but 26s. immediately; and I think that that is the right policy.

The right hon. and gallant Member for Gainsborough, who was very mild compared with his usual form, referred to the terribly high burden of taxation. The word "high" is rather a relative term. There is no absolute criterion of what taxation is high and what is low. The real criterion is what the country is accustomed to. Any increase in taxation, no matter at what level, is always resisted, and had we not had the war-time level upon which to work, we never could have carried out this revolution in social services of the last four years. The right hon. and gallant Gentleman's complaints about high taxation are not original. I suspect that he knows that. Of Sir Stafford—[HON. MEMBERS: "Order."]—Sir Stafford—[HON. MEMBERS "The Chancellor."]—very well, the Chancellor, if hon. Members wish—it was said: Nothing could justify a Minister in imposing year after year a system of taxation so demoralising and oppressive. That was said of Sir Stafford Northcote when he increased the Income Tax from 3d. to 5d. The right hon. Gentleman referred to the level of taxation at 40 per cent. as dangerous. I think it was Colin Clarke who said that the danger limit of taxation was 25 per cent. Our taxation, national and local, is at least 40 per cent. of our national income; and yet I suggest that there is no evidence whatever that that level of taxation has produced any harm at all. Perhaps I may modify that. The advantage that we have got from the way we have expended it has far outweighed any peripheral disadvantages that may have accrued from it. The reason is that although we have a 40 per cent. level of taxation, that is not a 40 per cent. dead weight upon the income of the country. Far from it. We have not reduced the standard of living by 40 per cent. as a result of our taxation, because a very high proportion of that taxation is used for transfer payments. I shall give one example. The increase in the duty on tobacco since 1939 is, within a few pounds, exactly identical with the cost of the food subsidies. The Tobacco Duty has merely had the effect of making cigarettes expensive and food cheap. It has certainly laid no burden upon the community.

We know exactly what the real burden of taxation is, and it is nothing like 40 per cent. According to the White Paper on National Income and Expenditure, in 1948 the gross national income was £10,600 million. The actual expenditure of central and local government upon goods and services was £1,914 million. That is not 40 per cent. It is barely 18 per cent. of the national income. I do not for a moment suggest that we do not get value for that 18 per cent., but I stress that that is the actual burden of the tax structure, national and local, upon the country. Twenty-two per cent. of the taxation rate is paid back in the form of increased income to somebody or another.

The right hon. and gallant Member for Gainsborough wanted to know how, if we were to increase our productivity, the high taxation allowed for incentive. I think the word he used was "inducement." Is there any evidence that high taxation is destroying incentive? We can only make comparisons. Let us compare the enterprise of private industry in the 1930's with that of today. The 1930's was a period of comparatively low taxation, and here we have one effective and real comparison that we can make. That is the amount of net new plant and machinery which industry put into operation. What happend during the 1930's, during a period of low taxation? On balance during the whole of that time industry did not increase net the amount of plant and machinery in operation by a single penny. It spent its depreciation allowances in renewing worn out plant, and nothing more. There was a slight revival in 1938 under the looming danger of war. In that year the net increase in plant and machinery amounted to £25 million.

Sir Arthur Salter (Oxford University)

Does the hon. Gentleman realise that he is comparing a period of both national and world slump, unrelated to this question of taxation, with a period when, immediately after the war, there were inflationary booms all over the world?

Mr. Benson

I am well aware of that, and I shall deal with that point. I do not run away from the implications of what I say. It is a fact that low taxation there did not lead to increased activity.

Sir A. Salter

That is not the only factor.

Mr. Benson

No, of course it is not the only factor. The fact that low taxation or high taxation is not the only factor is borne out by present conditions.

We have a fair measure of the rate at which industry is re-equipping itself today. The Chancellor has just given an additional 20 per cent. on depreciation allowances. He says that will cost him £75 million. That means that industry is spending about £375 million a year on new plant and machinery. Part of that, of course, is replacement, but if we turn to the existing level of depreciation allowances it is easy to see that practically one half of that £375 million of new machinery is actually additional plant and not replacement, so that we get an expenditure upon new plant of £175 million per annum as against practically a negative expenditure in the 30's, admittedly a period of slump.

Taxation and net return are not the only factors which govern industrial initiative. An undoubted factor is what one might describe as the climate of opinion, the general attitude to the problem. What was the attitude in the 30's? Admittedly 'there was a depression, but the answer to depression as we know, is increased capital investment. The lead given by the Tory Party in the 30's was one of contraction. We remember the spindles Act. We remember the blessing they gave to the concentration of dockyards. The lead that the Conservative Government gave to industry was to attempt to build stability upon scarcity.

Mr. William Shepherd (Bucklow)

Does the hon. Gentleman put the Coal Mines Act of 1930 in the same category?

Mr. Benson

Does the hon. Gentleman mean with regard to quotas?

Mr. Shepherd

Yes.

Mr. Benson

No, That was not the concentration of the coalmines.

The lead given by this Government is the very opposite. From the time they came into power, this Government have preached expansion, increased productivity, and increased efficiency. Industry has responded. This Government, thank heaven, will have a long lease of life. I am sure that when eventually, if ever, we go from office, private enterprise will really have become enterprising. We have a long way to go. A great deal of our industrial plant and our industrial methods still belong to the 19th rather than the 20th century. If we could only get, throughout the whole of our industry, not vast sums spent upon capital expenditure, but modern methods and lay-out, which cost very little, we could boost production by 10 or 15 per cent. However, I am hopeful that the lead of the Government will ultimately produce its effect. Certainly, so far as investments in net new plant are concerned, there has been a tremendous effect, and it has outweighed the theoretical disadvantages of what is admittedly very high taxation.

As is so often the case, the war was followed by revolution. We have produced a minor social revolution in this country in the last four years. We have done that because we have retained the wartime tax structure and have taken advantage of exceptional circumstances, but we cannot repeat what we have done in exceptional circumstances. What we have done is merely to catch up with what ought to have been done in the previous 30 years, but what we now have to realise is that what we have done is unique, and that, in future, what we can do for the country depends entirely on what the country does for itself.

4.32 p.m.

Mr. Norman Bower (Harrow, West)

I am bound to say that, apart from the increased depreciation allowance on plant and machinery and the repeal of the tax on bonus issues, both of which are greatly welcome, the Budget as a whole appears to me to be somewhat sterile and unimaginative from the psychological point of view, although I must admit that the Chancellor's speech did contain a certain element of harsh realism. The point is that there has not been any significant attempt at all to reduce the colossal volume of expenditure and the crushing burden of taxation, which appear to me to be the most pressing of all our internal financial problems at present.

It is absolutely essential to give to everybody, right throughout the whole wage and salary scale from top to bottom, some additional incentive, which at present is lacking, to exert themselves to the utmost and do just that little extra which may make all the difference between our being able to stand on our own feet in 1952, when Marshall Aid comes to an end, and having to suffer a deplorable and heart-breaking cut in our standard of living.

If I am asked, as we always are asked when we advocate the reduction of expenditure, to point out in which direction expenditure should be cut, I would say—though I am expressing only an individual view—that the Chancellor should look again at the food subsidies with a much more jaundiced eye than he appears to have done in this Budget. Certainly, he has imposed a ceiling on them, and that is a move in the right direction. The trouble is that he has not gone far enough to enable him to bring about a compensating reduction in taxation, which is the most important of all. It is perfectly true, of course, that the food subsidies enable a large number of people who are not very well off to buy their food more cheaply than they would otherwise be able to do, but it also means that these very same people, or at any rate most of them, are compelled to contribute through the medium of the various taxes, including indirect taxation like the Purchase Tax, in order that many other people, including all the wealthier classes in the community who could well afford to pay more for their food, may be able to buy it at an artificially low price.

Apart from the advantages which would accrue from a substantial reduction in taxation, which could be brought about by a more aggressive attack on the food subsidies, there are other points to be considered. It would, first of all, as both the Chancellor and the right hon. and gallant Member for Gainsborough (Captain Crookshank) have said, introduce a much-needed element of realism into our economy, instead of the true cost of every article of food being masked and camouflaged as at present; and it would help the Treasury to form a much more accurate and unbiased estimate of what we can really afford to pay for imports of food.

For instance, when engaged in difficult negotiations with foreign countries, they would be able to form a much truer estimate than they possibly can at the moment whether the price which was being asked was really too high and unreasonable, or, as might well be the case, the price which at first sight appeared to be too high was in fact not so unreasonable after all. It is very difficult for the Treasury to form that view under present conditions, when the true prices are masked, and it is impossible to tell what the people of the country are really prepared to pay in order to get larger quantities of food than they can buy at the present prices.

If, as a result of the reduction or even the virtual elimination of the food subsidies, the Purchase Tax were abolished—and there seems to be no reason why it should not be, as the cost of the food subsidies is, I believe, double the amount of revenue from the Purchase Tax—that in itself would lead to a great simplification in the structure and administration of the tax system, which would save money and manpower, and, what is perhaps the most important factor of all, would remove the very undesirable link which at present exists between an increase in the nation's food supplies and the almost automatic increase in the amount of money which has to be found by the Treasury to pay the subsidies.

It seems to me that the direct connection which at present exists would invariably set up in the Treasury some kind of resistance, even if only subconscious, to the idea of making more food available, and must militate against the provision of increased rations at an early date. The imposition of a ceiling has partly severed that direct connection, although not entirely, because the ceiling may prove very difficult to administer, and, in any case, there will always presumably be a desire on the part of the Treasury to try to keep below it if they possibly can.

There is only one other point in connection with the economic situation generally which I want to make, and it concerns what the Chancellor said yesterday about the limitation of personal incomes and the need to pursue this policy further. Undoubtedly, when this policy was first instituted about a year ago, there was some justification for it. In fact, there was a great deal of justification for it, and it was probably essential, but I believe that the need for its continuance is very much less now than it was. The danger of inflation is very much less acute than it was, if indeed it has not largely passed away altogether.

When we are talking about this need for the limitation of personal incomes and we are exhorting everybody to exercise restraint and so on, it should be recognised that this policy does carry with it certain obvious disadvantages which are very clear but not very often mentioned. In the first place, it clearly reduces flexibility, which the Chancellor said it was most important to retain in the economic structure to the greatest possible extent, and eliminates the element of competition in seeking to supply the wants of others as cheaply and efficiently as possible, at a time when that is vitally necessary, that an element of competition should be preserved in the interests of the export drive. Secondly, the further we get from the point at which the limitation was first imposed, the more unfair and unreasonable it becomes, as in the case of E.P.T., where it was recognised that the further we got from the point at which it was first imposed the more unsatisfactory it became until it ceased to be enforceable with any appearance of justice.

The third point, is that the limitation has not been employed fairly as between capital and labour, because whereas no less than 93 per cent. of capital has subjected itself to this limitation, something like 33 per cent. of wage earners have, in fact, received higher wages since the policy was instituted. I am not saying that these wage demands or wage increases were all unjustified; I do not think that they necessarily were; but that is a fact which is certainly worthy of mention. As far as dividend limitation alone is concerned, that, of course, discourages the flow of risk capital, which is bad for industry.

Finally, since the Government insist, despite all the arguments that have been adduced against the policy, on taking the Stock Exchange prices as the basis of compensation in connection with their nationalisation schemes, it becomes almost the bounden duty of every board of directors which has regard to the interests of its shareholders—as a board of directors should have—to try to raise the price of its company's shares by paying the largest dividend it can prudently pay.

As for the Chancellor's implied threat in his letter to the Federation of British Industries to introduce legislation to limit dividends, I consider, in view of the promise which has been made either to limit them, or, at any rate, to exercise moderation and restraint, that threat ought to be treated with contempt. If the right hon. and learned Gentleman or the Government as a whole are animated by an unfair and unjustified hostility towards the private enterprise sector of industry on which they rely to play so large a part in helping us to win the great economic battle in which we are now engaged, then it would be better in many ways if they were compelled to display that hostility openly in order that all those affected by it could see exactly with what they have to contend in addition to the normal difficulties of the times.

4.43 p.m.

Mr. Jenkins (Southwark, Central)

The manner of the speech of the hon. Member for West Harrow (Mr. Bower) was as moderate as that of the right hon. and gallant Member for Gainsborough (Captain Crookshank), but its substance was certainly very far from being moderate. It contained two points. First, he wanted the complete sweeping away of the food subsidies which, of course—whatever taxation remissions were granted as a result—would inevitably have a substantial worsening effect on the position of the worst off people at the present time. Secondly, he wanted the complete taking off of controls on personal incomes. It was probably as well that he prefaced his remarks by saying that he was speaking only for himself and not for the party opposite, because that would mean that he would give his support to the trade unions in any attempt they might make to get higher wages, by striking, or by any other action.

Mr. Bower

I did not say that all limitation should necessarily be swept away. I said that the Chancellor should look at the matter carefully and consider whether it was necessary; that certain very obvious disadvantages of it ought to be carefully considered.

Mr. Jenkins

The hon. Member is now trying to modify his attitude. What he means is that dividend limitation ought to be swept away, but not wage limitation. If his speech did not mean that, it meant nothing at all.

We heard from him, and from the right hon. and gallant Member for Gains-borough, a general objection—in the case of the right hon. and gallant Gentleman it was put very moderately indeed—to the present level of taxation. It is certainly a very high level of taxation about which hon. Members on this side of the Committee should not feel complacent. It is a heavy responsibility to take more than 40 per cent. of the national income in taxation. We should all be aware of that fact and face up to it, but we should see the thing in its proper perspective and realise, as my hon. Friend the Member for Chesterfield (Mr. Benson) pointed out, the many benefits which the nation as a whole is getting in return for that very high level of taxation.

Furthermore, the Opposition are not really in a very strong position at the present time—as I think the right hon. and gallant Gentleman realised this afternoon—to complain about this high level of taxation, not only because they have not put forward any specific large-scale suggestions for its reduction, but because a great part of their by-election propaganda is devoted to saying that if they were in power the social services would be even more generous than they are at the present time. Every mother would have analgesia. The health centres would be better. The schools would go up more quickly. They even hint that war pensioners would have all their grievances remedied, and that even old age pensioners might get something better.

Fortunately, the electorate does not appear to believe this, but it certainly puts the party opposite in a very weak position from the point of view of complaining about the present high level of national taxation. In view of this, they are driven back by the logic of their own propaganda—if they have any respect for its logic—into the sort of position in which the right hon. Member for North Leeds (Mr. Peake) found himself last year when he put forward suggestions for what one might call certain small administrative economies. These were not matters of policy, but matters of administrative efficiency. And if it is a question of administrative efficiency, and if I have to choose between my right hon. and learned Friend and, perhaps, the right hon. Member for West Bristol (Mr. Stanley) or another right hon. Gentleman opposite, my money would be on my right hon. and learned Friend every time.

I think it is true to say that it is the higher level of direct taxation more than anything else to which the principal objection of the Opposition is directed. If they could cut down expenditure, I think they would certainly give a very high degree of priority to reducing the level of direct taxation. But this question of high direct taxation is, I suggest, bound up with something more than the question of a high level of national expenditure. Since 1938, we have carried through in this country a very considerable measure of redistribution of income. According to some figures I obtained from the "Economist," up to the end of 1947, the effective purchasing power of the wage earner had increased by 16 per cent. over that of 1938; that of the salary earner was down by about 19 per cent.; and that of the dividend drawer and rentier was down by 4 per cent. These trends were certainly not reversed during 1948, and this represents a very important move towards greater equality of income in this country. It is a move which I am sure every hon. Member on this side of the Committee regards as being extremely desirable and long overdue.

But—and this is the important point here—a large part of this redistribution has been carried out, not by changing the distribution of income at source, but by means of redistributive taxation. This poses a difficult future problem for us on this side if we want to go further towards equality of income, but it also poses a very great problem for the Opposition. They want rapid and substantial reductions in direct taxation. Are they prepared to say quite clearly and openly that they stand for a move away from the present comparative equality of distribution of income, that they want to go back to the sort of distribution which we had in this country in 1938? Is that their wish? If not, what are their proposals for changing the distribution of income at source?

From a long-term point of view, I regard a standard rate of tax of 9s. in the £ on earned income as undesirable in itself. But I also want to preserve at least the present degree of equality of that income in this country. Therefore I say that we on this side of the House have to do some thinking about how we can change the distribution of income at source. We have to consider how the nationalised industries, which have not been used for this purpose in the past to any appreciable extent, could be used as a weapon in this direction. What is the attitude of the Opposition? Are we to understand that a return towards greater inequality is a plank in their programme, or have they any plans or any thoughts about changing the distribution of income at source, because without that, a reduction in direct taxation inevitably means a substantial return towards greater inequality of income.

I now turn to the relationship between direct taxation and industrial re-equipment. The Opposition say that the present rates of taxation have a crippling effect on the ability of industry to reequip itself. I think that is a great exaggeration. There is no evidence at all to suppose that in 1948 we could have carried on the re-equipment of our industry at a greater rate had the rates of taxation been lower.

Mr. Sidney Marshall (Sutton and Cheam)

It would have provided more money.

Mr. Jenkins

Does the hon. Member suggest that we should have devoted a greater proportion of our national income to capital re-equipment in 1948? Does he suggest that we should have done that and should have cut down our expenditure on consumption to a lower level than that of last year? That is the logic of what he is trying to say.

There is no evidence at all that our ability to re-equip in 1948 was limited by any crippling effect which taxation had upon individual companies. There was no unemployment at all in our capital goods industries. Re-equipment during that year, and indeed ever since the war, has, I think, gone on to the very limit of our ability to provide resources for it. It went on in 1948 at a rate of 20 per cent. of our national income, which was 5 per cent. higher than the rate in 1938. The White Paper on National Income, which was published recently, makes it clear that private savings—that is, taking together these three items: gross personal savings, provision for depreciation by enterprises and additions to free reserves by companies—amounted in 1948 to as great a proportion of our national income as they did in 1938. There was no diminution at all and, indeed, this personal and company saving was able quite satisfactorily in 1948 to pay for the volume of investment which we had before the war. It was only the extra 5 per cent., which did not take place before the war, which had to be paid for by the extraordinary means of a Budget surplus.

We must look at this problem of capital re-equipment not only from the point of view of the individual companies, not only from the accountant's point of view, but also from the point of view of the national economy as a whole. The present rates of taxation may cause a certain amount of inconvenience to individual companies. They may make it more difficult, I agree, for a company to build itself up into a big business while remaining under the ownership of a comparatively few people. In some circumstances they may make it more difficult for a company to finance its development out of ploughing back its profits. It may be necessary in a greater number of cases for them to go to the public and raise money by means of public issues. The result, in other words, may be a greater diffusion of ownership in the case of companies, but I do not think that a greater diffusion of ownership is a thing which the party opposite should oppose.

There is no evidence at all that by maintaining high rates of direct taxation the Chancellor has in any way slowed down our ability to re-equip our industries. What he may have done is to have made a contribution towards a "property-owning democracy" by leading to the ownership of some companies being a little more widely spread.

Sir William Darling (Edinburgh, South)

We find this an interesting theory. How does the argument apply to new businesses? New businesses would have to find capital from nowhere. How would a business, commencing now, seek to equip itself? What about the case of any industry seeking to develop?

Mr. Jenkins

A great number of new industries are continually being set up. It is within the knowledge of the hon. Member for South Edinburgh (Sir W. Darling) that there has been a great spate of new companies which have come into existence since the end of the war. In some cases they have found money from private sources, despite the high rates of taxation. There have been public issues for new companies and a great many sources of semi-public finance from which new companies have obtained considerable sums have come into existence in the past few years.

I will turn to the Economic Survey and the general economic position of this country at the present time. Clearly, 1948 has been a year of quite startling recovery. In his speech today the right hon. and gallant Member for Gains-borough said maybe production was up quite a lot on 1947 but that was not particularly good because 1947 was an absolutely shocking year, including the fuel crisis. He omitted to tell us that even in 1947, even with the fuel crisis, production levels attained in this country, in proportion to those prevailing before the war, were very much higher than anything obtained in the corresponding years after 1918, when compared with what happened in the years before 1914. He omitted also to tell us that production levels in 1947 in this country were very much higher than anything attained in any comparable European country. The 1948 figures, therefore, show a startling recovery and they do not start from a low base year as the right hon. and gallant Gentleman implied.

From all sides of the House we are now very glad to acknowledge this great achievement of 1948. But it was not everybody who expected that 1948 would be a year of great achievement. I am glad to see the right hon. Member for Aldershot (Mr. Lyttelton) in his place, because I remember that just a year ago, when he was taking part in the Budget Debate on 12th April, he said: Now the Economic Survey for 1948 says that the year 1948 is' a year of transition.' That means, I think, a year of transition from bad to worse."—[OFFICIAL REPORT, 12th April, 1948; Vol. 449, c. 631.] Is that still his view of 1948—"a year of transition from bad to worse"? The right hon. Gentleman has also made a great many other remarks in this House which I think he may not find particularly appropriate at the present time. I am very glad he is in his place because I want to quote some remarks which he made in June, 1947, comparing this country with Belgium. He said: I believe Belgium has been a well-managed country, and has pursued a policy which has been both sound as to timing and as to objectives. In both these respects I believe our policy to have been unsound. As a consequence, Belgium's recovery has been quicker and more complete in every way than our own. He went on to say: I say the Belgian problem has been the same as our own, but how different has been the policy; how different has been the method, and how practical and sane the approach: In Belgium rapid recovery and steady increase and in the United Kingdom, some slow recovery and increasing shortage—except, of course, in the matters of combs, lighters and safety razors."—[OFFICIAL REPORT, 26th June, 1947; Vol. 439, c. 751–3.]

Mr. Shepherd

Does not the hon. Member agree that both these prophecies by my right hon. Friend might have had great validity had it not been for two things: first, we had aid from America and secondly, we got rid of the then Chancellor of the Exchequer.

Mr. Jenkins

I cannot see that that interruption is helpful from any point of view. The right hon. Gentleman took his terms of reference in his own words: The Belgian problem has been the same as our own.

Mr. Oliver Lyttelton (Aldershot)

The hon. Gentleman has done me the honour to quote some words of mine which I should certainly have used again, and probably should be using now, if the present Chancellor of the Duchy had remained Chancellor of the Exchequer. I regarded the monetary policy of this country in 1946 and 1947 as one of bad management.

Mr. Jenkins

It must be said in the first place that the right hon. Gentleman's words, his dismal prophecy of gloom in 1948, were said, when the Chancellor of the Exchequer was not the Chancellor of the Duchy, but my right hon. and learned Friend.

Mr. Benson

Let the right hon. Gentleman have another try.

Mr. Jenkins

Let me also say this. This myth that there is a complete contrast between the policy pursued by the present Chancellor of the Duchy and that of the present Chancellor of the Exchequer is one of the most carefully fostered of the myths of the Conservative Party, and it is stated far more often than are facts brought forward in support of it.

However, let me return to Belgium, because I have certainly no desire to escape from points hon. and right hon. Gentleman opposite are putting to me. Certainly we have had Marshall Aid, but so also has Belgium had Marshall Aid. Indeed, the Marshall Aid which Belgium received in 1948 was 30 dollars per head as against 25 that we received in this country. I cannot really think what the right hon. Gentleman meant when he said, "How sane was the policy, how right the approach." We have but to consider the results in Belgium today. I know Belgium has special difficulties of some sort, but from any point of view I cannot see what support the right hon. Gentleman can find for his conclusion on this point. Belgian production is less than ours; Belgium has a very high level of unemployment; and Belgium's dependence on Marshall Aid is more than ours. I cannot think what the right hon. Gentleman is talking about, or what support he can find.

Mr. Lyttelton

This is a very agreeable piece of dialectic, so I hope the hon. Gentleman will forgive me for interrupting him again. Perhaps, he would like to read the speech I made in which I gave various figures of production and consumption. I did not make a statement on Belgium's recovery without supporting it with figures.

Mr. Jenkins

I think it is a generally accepted fact at the present time that while Belgium's production is quite high compared with European production as a whole, it is, compared with her prewar production, very much lower than is our production at the present time as compared with our pre-war record. If the right hon. Gentleman will look at the figures given in the Paris edition of the "New York Herald Tribune" recently he will find our figure is about 127 for the Autumn of last year as against a figure of 115 or 116 for Belgium. However, I do not want to pursue this point any further, and I do not want to be long, although I have been interrupted a good deal.

The fact that our achievements have been so great in 1948 should not blind us to the seriousness of the problem which remains, particularly of the dollar problem. Indeed, I think there is room for worry because of the very existence of these great achievements. We have done so much, and yet we have still such a great problem facing us. If almost any other country in Europe had done the things which we have already done it would now be well out of the wood, but having done these things we still have a great problem facing us, and that is a measure of the enormous legacy of difficulty which was left us as a result of the war and other developments. I would quote from a leading article of the "Economist" of 27th November, 1948. which said: "Alone among the western European nations, they "— that is, the British— have achieved a phenomenal increase fir exports. Alone in Europe, they have drastically cut out of their import programme all that is not strictly necessary. Again, they are virtually the only western European nation to attempt seriously to invade the American market and the reason that they have achieved some success lies in the fact that they have not allowed inflation at home to make the cost of British goods prohibitive and that they have succeeded in maintaining a stable value for sterling. All this has been achieved at a cost, a heavy cost, to ordinary men and women in Britain. Even if Britain's partners in western Europe protest, they cannot say that Britain is seeking an easy way out at their expense. I hope the Chancellor will bear this in mind in his dealings with O.E.E.C., and not give too much away. Our difficulties —our long-term, intractable difficulties, are so much greater than those of any of our neighbours that we cannot afford to be too generous and give away too much while facing this problem.

To conclude, I want briefly to return to the Budget. It is a hard Budget, which has caused some disappointment on this side of the Committee. However, I fail to see what else the Chancellor could possibly have done in the circumstances which are confronting him at the present moment. In our present condition, balanced as we are—balanced precariously—between deflation and inflation, a Budget deficit would have been quite disastrous. I am, indeed, not completely happy myself that an overall surplus of only £14 million really is quite sufficient. I am gravely frightened of being driven back to the sort of inflationary situation which we had in 1947, because I believe that would mean, as any inflation situation always means, comparative losses for the wage earners and comparative gains for the profit earners.

If we are driven back towards the inflationary situation of 1947 we shall have production bottlenecks re-created, and production, therefore, going down. These are two great dangers, and the Chancellor has stood out against them by producing his very courageous Budget. He was compared recently by a weekly paper with Weir of Hermiston— Uncheered and undismayed he marches up the broad, bare staircase of his duty. I am very glad that we have him here to perform that difficult and thankless task.

5.7 p.m.

Mr. Sidney Marshall (Sutton and Cheam)

The only point on which I would follow the hon. Member for Central Southwark (Mr. Jenkins) is his last one, about the disappointment of the Government's supporters with the Chancellor's statement. It is certainly true that no Chancellor has taken so long to give so little while collecting so much, and we can well sympathise with the Government's supporters in their disappointment that there is no remission of taxation. On the other hand, we are, of course, fully alive to the promise made by the Chancellor in regard to Purchase Tax. Although he obviously was resolute —and, no doubt, will remain resolute—in regard to any demands that may be made upon him to give some relief in some direction, it is very obvious that the relief which the Chancellor will give will be very dutifully saved for a more appropriate and convenient occasion of profit quickly ensuing from it to the Government.

I want to deal with only one aspect of the Chancellor's speech. I do think he should be very heartily congratulated on not increasing taxation at all. I myself think that we often devote too much time to the question of increasing taxation and insufficient time to how we can reduce expenditure. Expenditure is always rising. As a local government administrator for many years, I cannot recall any occasion on which rates have ever gone down—except, possibly, by a few pence. Always, for years and years, rates as well as taxes have gone up and up. I am hoping that the admonition of the Chancellor in regard to expenditure, particularly in regard to supplementary expenditure, will be productive of good. This affects not only Government expenditure but the expenditure of local authorities who are now spending millions of pounds.

I hope that the Chancellor does intend his admonition to apply not only at the level of Government expenditure but at the lower level of the local authorities, so that this rising expenditure will be controlled. This has not only to apply to local councils but also to the new hospital boards who, unfortunately, within a very short period of their existence, are spending money without thought and like water. The real truth of the matter is that we are being encouraged all the time not to think whether we can afford to purchase these various things, or spend money on this or that; we just think that if we want a thing we are going to have it. We have no regard whatever for where the money is coming from.

I hope that this admonition of the Chancellor of the Exchequer and the action he has taken will be very far-reaching in saving money. We can undoubtedly save many millions each year by more careful expenditure. This profligate Government are unfortunately encouraging expenditure, particularly in local government, by constant directions and instructions which emanate from Whitehall Departments down to the local authorities; and they not only encourage them to spend money but direct them to spend money by enlarging the local services in an unnecessary fashion. Unfortunately, these councils do not stand up against Whitehall as I think they should do, and refuse to spend money in this profligate fashion.

We are creating a race of people in this country today who firmly believe that it is much better to receive than to give. In the nation growing up today, boys and girls are being taught that they need not make any provision for themselves and that everything will be done for them. I can assure hon. Members opposite that a brief examination of the position will reveal a very disquieting situation in that regard. It is becoming quite the wrong thing to think that one should venture out from the cloak of safety which is cast about the people of this country by the present Government in the provision of all these extraordinary social services to an unlimited extent; but it is still true that success can only be achieved by those who will still venture and go outside this cloak of safety, and not depend too much on this too generous provision of social services. That is one aspect of the Chancellor's speech which pleased me immensely. We are spending money far too freely. We should spend it more carefully, and we need not lessen the social services which the nation is enjoying today.

We on this side of the House do not wish to diminish any of the great social services which we as a party have initiated in the years gone by. The Socialist Party have merely encouraged spending in such a generous and wasteful fashion that we are faced with this huge expenditure and, in consequence, this very heavy taxation which is fast becoming intolerable. I am very glad to think that at last this is coming home to those people who think that it is much more blessed to receive than to give. It was, I think, very pertinent of the Chancellor of the Exchequer to remind those who are receiving all these great benefits of the social services that they have to bear their share of the money to provide them.

Mrs. Ridealgh (Ilford, North)

They always did.

Mr. Marshall

They have never made their contributions in the same measure as other people have had to do who were fortunate enough to earn more money, perhaps by harder work. I am glad that this is now being brought home to them. They will see that all these great benefits which they are receiving today will have to be paid for by them. Without work they will not be able to have them. I am glad to see that the Chancellor—I will not say had the courage, because he does not lack courage —stood up to his own party in pointing out these facts, that we cannot get something for nothing. In that one regard only I am pleased to pay tribute to the Chancellor of the Exchequer, for emphasising the fact that instead of always receiving money and continually spending money, we could better the economic position of our country by saving money and not spending it, as he himself has said.

We can save vast sums by economy in the social services, and I am certain that if that is taken to heart, as I hope it will be, the Chancellor next year, if he is lucky enough to be on that side of the House, will be able to give a better deal and have a bigger surplus without diminishing at all the social services which we on this side would wish to be kept at the highest level possible. I congratulate the Chancellor on that particular part of his speech, although he gave us nothing at all. The people of this country will still live with an iron collar in the shape of Purchase Tax round their necks in order that the Chancellor may save up for its removal next year for the benefit of his party.

5.15 p.m.

Mr. Norman Smith (Nottingham, South)

The hon. Member for Sutton and Cheam (Mr. S. Marshall) has said that during his lifetime it has been his experience as a member of a local authority that expenditure has been rising. If he and I sat down to play pontoon, not for money but for counters, and we started off with 100 counters each, our stakes would be at a certain level. But supposing we started with 500 counters each, our stakes would probably be higher. The explanation of this increased expenditure during his lifetime and mine is quite simple. Somebody has been pumping more counters into the kitty, and there has been such unreality about this Debate so far that I think it is time we started looking at the counters in the kitty and where they come from. It is extraordinary, but it is true, that the Chancellor spoke yesterday for 2¼ hours —and would not some of us back benchers love that chance—and the right hon. and gallant Member for Gains-borough (Captain Crookshank) spoke today for three-quarters of an hour, and neither of them mentioned this question of the number of counters in the kitty and where they come from.

I shall have some criticism to make of my right hon. and learned Friend, and it is therefore right that I should begin by paying him and the Government a great tribute. I strongly support the policy of restricting personal consumption in order to build up capital for the future and to build up exports so that we Englishmen can look everybody in the face and pay our way. That is the cardinal item of Labour Government policy, and I stick up for the Government as much as anyone. The Chancellor of the Exchequer has quite rightly encouraged in every way the building up of new capital assets. The Tory Party talk about Marshall Aid and say we should be nowhere without it. In three years we have had £1,100 million of American and Canadian aid, and look what we have done with it. We have with that aid produced five times its amount in new capital formation. We have improved our railways, restored our coalmines, provided new factories and new machines, and all the rest. We have multiplied the aid by five with our own efforts which have nothing to do with America at all. I support that policy; but why are we allowing the cost of this new capital formation to be added to the cost of living?

The principal issue in current politics is the high cost of living. The cost of living is high because of the price system, and nothing else. The price system is easily defined. Retail goods fetch in prices all the money circulating in the market, and the prices they command are what the goods will fetch. The first law of capitalism is: the price of the thing is what it will fetch. All the money circulating in the retail market is the measure of the aggregate prices which goods will fetch. Let us apply that system to the current condition of things, when we have very large capital forma- tion. We are taking working men away from producing the goods that go into the shops, and setting them to produce capital goods. With what result? They take home wages every week, just as the makers of consumer goods do, but they do not put any goods into the shops as a result of their efforts. Therefore, we have the same quantity or less, of consumer goods and a greatly enhanced quantity of purchasing power in the market. Under the law of capitalism, that the price of a thing is what it will fetch, all the money paid out to the working class and to the people in the country as a whole, and spent in the consumers' market buys all the consumer goods on offer—it buys nothing else.

If we look in the Economic Survey we can measure the exact extent to which the cost of living is swollen by this capital formation programme. The Economic Survey tells us that for 1949 the estimate is that, of £10,900 million disposable income, £8,200 million is represented by consumer goods. There is £10,900 million of money in the market in the retail kitty, because that is what is paid out to all the workers in all the industries. They spend £10,900 million and get only £8,200 million of consumer goods. In other words, the capital formation programme swells the cost of living by 2¾d. in the £owing to the operation of the price system.

Although this is a financial Debate, neither my right hon. and learned Friend nor the right hon. and gallant Member for Gainsborough discussed the question where the money comes from and how the counters get into the Committee.— [Laughter>]—I should have said "into the kitty." As a matter of fact, there is one counter in the Committee today. I can count, fortunately, and I hope to be able to enlighten the Committee on the strength of it. The factor which dominates the whole of this financial business is that money may not come into existence except it is created by bankers, and it may come into existence only as a debt owing to bankers. Forgers and coiners, it so happens, are punished. Bankers who do exactly the same thing—expand the amount of circulating money—so far from being punished, are honoured. Unless hon. Members can understand that banks create money out of nothing and put it into circulation as a debt, they will never understand why the cost of living is so high.

It reminds me of when I was at school 45 years ago. In those days boys did not learn geometry as they do now. We boys had the misfortune to be taught the works of a gentleman named Euclid who was a Greek mathematician, living, I believe, three centuries before the Christian era. This Euclid brought out a number of books, the first of which I think had 46 propositions. No. 5 was the very deuce. The first four were easy; anybody could understand them. Even I could understand them, but when we got to No. 5 it was an appalling business. It was something to do with triangles, and it was illustrated by a diagram which looked rather like a bridge. That proposition No. 5 was known as the pons asinorum, or the asses' bridge, the theory being that if one could understand proposition No. 5 in Book I, one would soon master all the other 45.

The pons asinorum of political finance is the curious fact that money, which is supposed to be so scarce and is believed by so many people to be a commodity, is in fact created out of nothing by bankers. The evidence of that is so overwhelming that I do not need to quote it all. I would quote the Encyclopaedia Britannica, the 14th edition, 1929, which says in Volume 3 under "Banking and Credit" Banks create credit. It is a mistake to suppose that bank credit is created to any important extent by the payment of money into the banks. Again in Volume 15, under "Money," it says: Banks lend by creating credit; they create the means of payment out of nothing. So what? The great bulk of the money which forms the very lifeblood of trade, industry and business comes into existence as bank loans, and it is characteristic of the British banking system that having created money out of nothing, and lent it to industry, they want to get it back as quickly as possible. They put strings to it and they lend only on short term. When industry repays the bank its loans, the bank proceeds to cancel that money out of existence and the money does not exist any more.

Let us look at my right hon. and learned Friend's surplus. We have heard such a lot about this surplus which was going to finance capital production. It was of the order of £400 million last year. My constituents and other hon. Members' constituents paid that money in heavy taxation on beer, tobacco and other things, and the Chancellor got the money. But when he got the money he did not proceed to lend it to the right hon. Member for Aldershot (Mr. Lyttelton) and other industrialists who are in big business.

Mr. Lyttelton

No, he certainly did not.

Mr. Smith

He did not proceed to lend it to industry to go ahead and create new capital equipment. He repaid floating debt with it, debt of the kind that costs the Government one half per cent. per annum interest, most of which debt had been created out of nothing by the banks. The banks, having got back from the Chancellor that money which my constituents had to pay in high taxation, cancelled it out of existence. Having cancelled it out of existence, they were able to create it again and lend it to industry without inflation because there is the same quantity of money, only this time instead of getting one half per cent. for it from the Government, they get four per cent. from industry.

Therefore, my constituents are butchered to make a bankers' holiday. That is how the business of financing capital equipment out of a Budget surplus works. Real money is taken from the people, it is destroyed by repaying floating debt, and the banks change something which brings them in one half per cent. to something which brings them in four per cent. That is very good business for the banks. No wonder my right hon. and learned Friend is highly popular in the City. [Interruption.] I pay 3d. every morning for the "Financial Times," and I can assure the Committee that the standing of my right hon. and learned Friend is very high among the readers of that estimable journal.

Why is my right hon. and learned Friend doing this? Because he is the victim of a fanatical superstition, the superstition that one must not expand the quantity of money in the country, even though one is expanding the capital equipment of the country at a very rapid rate. He says "We have got to do it on the same amount of money as nearly as possible. We will not have bank loans to industry. We will take the money from the people in one way or another, repay debt, and then the banks can create the money again without increasing the total." I put it to the Committee that that is pure superstition. If the capital equipment of this country is being increased, as it has been in the last two or three years, at the rate of something between £1,000 million and £2,000 million per annum, the whole framework of industry is being made bigger, and there should be correspondingly more money.

I put it to the Committee that the way in which taxation can be reduced and prosperity restored to the country would be to nationalise the commercial banks in the first place, and take over from them the function of lending the money to industry wherewith to carry on; but instead of insisting fanatically on lending at a short term, why not lend on a reasonably long term? Why be in such a hurry to destroy the money, when all the time the whole framework of the industrial fabric of the country is being expanded?

Very important consequences would flow from that. The Government and not the commercial banks would have the profits on these loans. Why on earth should the banks get away with the profits on the loans when they do not part with the money they lend? If we nationalised the commercial banks, the interest on loans to industry would accrue to the Treasury and not to the private bankers. Furthermore, we should have to pay only about £10 million a year to nationalise the banks. I have the figures of distributed profits of the commercial banks for the last 10 years. The highest figure was in 1929, when all they paid out to the shareholders was £10 million. Let us be generous and give them £15 million in perpetuity to get their banks. If we did that, not only would the Government derive revenue from the created money lent to industry, but other important consequences would flow.

These commercial banks are the holders of £1,500 million of Government bonds; that is to say, 2½ per cent. or 3 per cent. Government stock, bringing them in some £40 million or £45 million a year, or something of that order, which is a burden on the taxpayers. There would be no sense in the Government taxing the taxpayer to pay interest to the Government once the commercial banks were nationalised. The £1,500 million of Government stock could be cancelled out and substituted by non-interestbearing currency certificates sufficient to cover the banks' liability. All that interest would be saved which is now being paid out to bankers who hold Government stock.

Why should the banks get 3 per cent. on Government stock? Let us suppose that a big business man wants to raise money to carry on his business, and goes to the bank. He might have an overdraft, but he might also sell the bank some Government stock. The bank pay for it by making an entry in the business man's account. The bank creates out of nothing the money to pay the business man for his Government stock. Why on earth should the bank get 3 per cent. on it in perpetuity? There is no reason for it at all. The commercial banks could be nationalised for a payment to the shareholders of £15 million a year in perpetuity, which would be generous, and some £45 million a year would be saved on the bank-held Government stock.

But that is not the only benefit that would accrue to the community. Members opposite are fond of talking about hordes of officials, armies of civil servants and appalling waste in Government Departments, but what could be more wasteful than the administration of the big clearing banks? Nearly every street junction in London has four or five bank branches with their hordes of officials. There are eight major London clearing banks where two would do. If these banks were nationalised, there would accrue to the people of the country the hidden reserves represented by the immense writing down of all these valuable corner premises all over the country. Much of that property could be sold, whereby another huge chunk of National Debt could be paid off. Nationalisation of the commercial banks would be good business for the country, and it would have other advantages. One other advantage would be this. Since banks create money and lend what they have created out of nothing, it is no use pretending that money is wealth in itself and something to command a market rate. If the commercial banks were nationalised, the Government would be in a position to hand out loans to finance first things first, and to decide which industries should have State bank loans and which industries should be left to private enterprise to find their own money from private savings. The Government could also fix the rate of interest according to social considerations.

The Minister of Health has never crossed the pons asinorum. The Minister of Health, who is responsible for housing, does not understand how the counters come to be in the kitty. He does know, however, that the interest on housing loans is a great burden on tenants. Every councillor in the country knows that 1 per cent. added to the rate of interest means 5s. a week on the rent of a £1,300 council house. If the Government nationalised the banks, as I hope they will in their next year of office, they will be able to fix quite arbitrarily what shall be the rate of interest on any kind of loan, or at any rate fix the interest at a low limit—the high limit being decided by what the business men are willing to pay, and the low limit being a matter for the Cabinet. If we nationalise the banks, there will no longer be any obstacle whatever to a 1 per cent. housing loan, which would save 10s. a week on the rent of many council houses without robbing anyone at all.

I have dealt with the nationalisation of the commercial banks that offers many prospects of revenue accruing to the Government which at the moment is not allowed to accrue to anyone. There is another form of financing capital formation, to which reference was made in the Debate last night by my hon. Friend the Member for Dudley (Mr. Wigg). He pointed out, and it is perfectly true, that according to the Economic Survey a very large amount of capital formation is financed out of the undistributed profits of companies. In this connection, I should like to quote a very important company in my constituency, because it illustrates how this works out. Undistributed profits of companies have been taken from the general public in prices. The consumer, as such, puts up the money. The shareholders do not get it, but it is kept in the kitty. As I have said, there is a company in my constituency, known as Raleigh Industries. They make bicycles and are playing an important part in the export trade of this country. I have reason to believe that Raleigh Industries is efficiently managed.

I have told my friends of the Nottingham Trades Council that I hope to see the day when the trade unions of this country will take so much interest in day-to-day management and the technical conduct of business that they will educate their young members in these things so that any vacancies arising in any factory can be filled at whatever level from the ranks of the trade unions. I have told my Nottingham trade union friends that, but that day has not yet come. I do not believe that the trade unions, whose members work in Raleigh Industries, would claim that they could run the works more efficiently than the present management. My Left-wing friends are under the illusion that the management of Raleigh Industries run the works for the benefit of the shareholders, but nothing could be more remote from the truth.

Karl Marx died 66 years ago, and Marxism is as dead as the dodo. What is wrong with the country is not that the employers rob the workers at the pay table, but that the price system fleeces the consumer at the retail counter. That is borne out by what happened at this factory last year. The net profits were nearly £1,300,000, of which taxation took nearly £700,000. The shareholders got £170,000, and ploughed back into the business was £423,000. Let me put that in simple terms. Raleigh Industries took 1s. 1¾d., of which 7d. went to the Government in taxation, 1¾d. to the shareholders and 4¼d. was ploughed back into the business. That is very much like what is happening in Russia, except that in Russia the Soviets have abolished the 1¾d. which goes to the shareholders. They have liquidated the shareholders.

Captain Hewitson (Hull, Central)

While my hon. Friend is dealing with the Raleigh works, I should like him to add that the highest basic rate for the workmen is 96s. 8d. and the lowest 92s.

Mr. Smith

That does not invalidate my argument. Of the 1s. 1d. which is the Raleigh surplus, 7d. goes to the Government in taxation,1¾d. to the shareholder, and 4¼d. is ploughed back into the business. Now who puts up that 4¼? The consumers, the people who buy the product. Surely, it is their 4¼d it does not now go to the shareholders, because now that there is dividend limitation that 4¼d. is not reflected in the Stock Exchange price of the Raleigh stock. What is going on in Russia is paralleled by what is going on in England, because in both England and Russia we have had the managerial revolution. The people who control and run industries run them, not so much for the benefit of the shareholders as for the benefit of the people who control and run the industries.

Now I put it to the Committee, and particularly my right hon. and learned Friend, that the public as consumer has put up that 4¼d., which is the undistributed profits on Raleigh, and which will be used, I am assured by the Raleigh management, for expanded capital equipment for the Raleigh works. I submit that it should be socially owned. The people have paid for it in prices, and I submit that for all the money used out of undistributed profits to expand capital equipment Government debentures should be created at 2½ or 3 per cent. Why not? In that way we could build up a great National Credit Account. It should belong to the people who have paid the money. Since the people pay, let them own; and in that way we can build up a National Credit Account, as well as out of loans made by the nationalised banks on long-term to industry. In a matter of 10 or 20 years, the income derived from the National Credit Account would go a very long way towards off-setting the burden represented by the National Debt. I submit that as a practical suggestion. It is time we had a National Credit Account. When I was a boy the National Debt was £635 million; at the end of World War I it was £7,700 million; now it is £25,000 million—and the banks created most of it out of nothing.

Sir Ian Fraser (Lonsdale)

The hon. Member says that these reserves should belong to the people. Which people? Does he mean all the people? Why should not the reserves belong to the people who subscribed the original money?

Mr. Smith

I would point out to the hon. Member that these reserves do not, in fact, accrue to the shareholders. So long as there is dividend limitation—and so far as I can see there is going to be dividend limitation for quite a long time—the shareholders do not get it. Who, then, does get it? At the moment nobody does; but the country as a whole benefits in expanded capital equipment. I want the nation to own that for which the nation as consumer has paid, and I put that forward as a right and sensible policy, and one which my hon. Friends would endorse if they understood it.

There is one other proposition I should like to put to the Committee, because it really is time it was put, and it concerns the £210 million which, according to the Survey, will be used to finance capital expansion out of private savings. A little while ago I said that in actual fact banks provide industry with the money with which industry carries on. I ask the Committee to imagine the purely hypothetical case of a hat factory which costs £10,000 to build and equip; the banks are persuaded to lend the proprietors of that factory £10,000 on the strength of any collateral—Government securities or anything else; the factory comes into existence and is ready to begin business. The bankers then come along to the management and say: "This is all very well. We created out of nothing £10,000 for you to build and equip your factory, but you cannot go on hanging on to that £10,000. That £10,000 has been circulated among the public in building and equipping, and all the rest of it. Now we want the £10,000 back."

The management can do one of two things. If they can charge enough in prices for their hats, they can get back, not only the cost of manufacturing the hats, but also sufficient to repay the £10,000 capital to the banks, who will destroy the money. But it may be they cannot do that, and the alternative is for them to raise the money through the Stock Exchange in the ordinary way by getting people to subscribe £10,000 as capital. That is all right; the £10,000 has been circulated; it is in existence; it is subscribed by well-to-do people, and then handed back to the banks, who destroy it. The position then is that this factory has come into existence, and no money exists against the capital represented by the factory and its equipment; yet it will be necessary for the management to add a certain sum to the price of the hats in order to provide for interest on capital and depreciation. Now that money is not in the market; it is certainly not circulating in any way. The mere fact of the capital charge for interest and depreciation being added to the price is, in itself, a cause of trade depression through precipitating a deficiency of purchasing power.

That applies to any sort of capital expansion which is financed by private savings, and I put it to my right hon. and learned Friend that the businesslike way of doing this thing—and, after all, the right hon. and gallant Member for Gainsborough was quite right today when he said that there is not so much money about as there was; publicans, shopkeepers, and everybody in my constituency, tell me that there is a shortage of purchasing power—is for the Treasury to have a really first-rate statistical department. [Interruption.] I know that is the last thing the party opposite wants, but it would be an extraordinarily useful thing from our Socialist point of view. There should be a first-rate statistical department capable of assessing, at any given period, the monetary value of consumer goods and services on offer, and the corresponding monetary value of the purchasing power circulating against it. If, as I believe, that computation could be made now it would be found at the present time that there was a deficiency of purchasing power. I am almost certain that there are goods on offer in the shops which are likely to remain on offer because there is not sufficient money circulating: the deflation has been carried too far.

I should like to see the whole of the finance creation business taken out of politics altogether, and accurately computed by a statistical department—say a National Credit Office—which should prescribe from one budgetary period to another the extent to which new money was, in fact, required in the country. I should also like to see it made the statutory duty of the Chancellor of the Exchequer to have, in the one case to create new money if there were insufficient, or in the alternative case to destroy money by means of taxation if there were too much. I should like to see the whole of this money business lifted out of the realm of political argument altogether, so that it was the birthright of the citizens of this country to have enough purchasing power to enable them to consume the goods on offer as a result of the industrial effort in the country at any time.

I submit that this is the sort of policy which the Labour Party and the Labour Government ought rightly to carry out. It is high time the commercial banks were nationalised; and it is high time that we had a National Credit Account. The Labour Party is in the extraordinary position of having actually enacted the whole of the policy on which it fought the last Election, and which it has enunciated from time to time. This party is now in the position of having to think of something new. [Laughter.] Yes, I can quite understand that that would be a very unfortunate position for the Conservative Party which, after all, is nothing more than a confederacy of acquisitive men banded together for the purposes of prehension. But the party on this side of the Committee is different. It exists for a social purpose; it exists to promote the welfare of the community as a whole. I believe the time has come when the considerations which I have advanced should seriously be considered, should be incorporated into the party's policy on which we may fight and win the next Election and then be enacted in the next Parliament.

5.51 p.m.

Lieut.-Colonel Sir Thomas Moore (Ayr Burghs)

I have neither the time nor the inclination to follow the interesting though vociferous lecture on somewhat unusual economics by the hon. Member for South Nottingham (Mr. Norman Smith). There are many expert economists on this side of the Committee who will, no doubt, demolish such arguments as he put forward—though, personally, I did not follow them—and I should imagine that the Financial Secretary will feel it his duty, too, to expose them in due course.

Before commenting on the Budget itself, I would like to join with other hon. Members in paying a tribute to the brilliant, persuasive and courageous speech made to the Committee yesterday by the Chancellor of the Exchequer. It was especially courageous in view of the 239 motions which have been tabled for the forthcoming Socialist conference, where the familiar theme is usually "Soak the rich." If hon. Members opposite are assured that there are no more rich, which is true, then, of course, their only answer is "Go on soaking them." Yesterday was a very significant day in the life of this country in that the Chancellor outlined the gloomy plan for the year which lies ahead of us. Today is another significant day, this time for the people of London whose future for the next three years will be settled for good or ill. One can only hope that the lights which were so providentially permitted by the Government to be put on again a few days ago, will have enabled the people of London to see through this obvious electioneering device.

Sir S. Cripps

Which one?

Sir T. Moore

Putting on the lights. There was no electioneering in the Chancellor's speech; that, no doubt, has been deferred until next year. The right hon. and learned Gentleman's speech was a dreary recital of our affairs. There was no glimmer of gaiety, no glimmer of hope —yes, there was a little glimmer of hope, but it will probably not be realised until both the Chancellor and I are dead—no glimmer of inspiration to brighten the outlook for the people of Britain who, after six years of war have had four years of Socialism—the first destructive of the material and the second destructive of the spiritual. During the long and pitiful record which the Chancellor gave to us one theme wove itself right through his two and a quarter hours' fascinating discourse. That theme was work. The right hon. and learned Gentleman said "hard work is essential; higher productivity of the available manpower, since there is no more of it, is vital," he stressed, though he ignored the fact that manpower is being wasted today to the extent of a million people, which point I will deal with presently. The right hon. and learned Gentleman said that there must be a 2½ per cent. increase in our production. But he did not categorically say, as he should have done, that had it not been for the support of Canada and the other Dominions, and the help of Marshall Aid, the Government's social and socialistic experiments would have led us straight into bankruptcy. Nor did he mention, as he should have done, that but for the losses incurred on the Government's ill-timed nationalisation schemes he could have reduced Income Tax to a rate which would have given zest and inspiration to our people and made this coming year a memorable one in our post-war history.

To return to the theme of hard work and productivity, there is no doubt that we as a people, irrespective of class, trade or profession, are not working hard enough. Mr. Averil Harriman did not mince his words the other day when he said, tactfully and courteously, of course, that we were working very well but that the Americans were working three times harder per head than we were.

Mr. Piratin (Mile End)

Is not the hon. and gallant Gentleman confusing two things—productivity and hard work? It is a well-known fact that our people have been working hard. According to the Economic Survey for 1949, our production went up by 12 per cent. last year.

Sir T. Moore

I did not say that we were not working hard; I said that we were not working hard enough. The facts are well known, and I will confirm later what I have said. I cannot understand why the Government have not had courage or pride to make it plain that the five-day week, regarded as a boon from a Socialist Government, is only possible because in capitalist America a six-day week is permitted. Since 1931, when the Socialists were last found out, this country has been bemused by slogans used as first-line troops by the Lord President of the Council during all these years. The trouble is that very few people know what some of these slogans mean. They are easy to say, short and crisp, and apparently create a great impression. "Social democracy," "human values," "planned economy" they all sound inspiring and invigorating, but I wonder just how many people who have built up their Socialist philosophy or thought on such slogans know precisely what they involve. It is, therefore, natural for the bemused supporters of the Government to be still content to believe that work is comparatively unimportant.

Supporters of the Government believe —and they cannot be blamed, of course —that full employment is the result of Socialism, and that every ill in life, from an accident in a mine to a drought on a farm, is due to the wicked employer. The wicked employer and the wicked Tory were shrewdly blended into one and the same person. It is equally natural for the majority of the people who put their trust in the Socialist Party at the last Election to demand that they should get without much effort all those advantages they were told they had been denied by the wicked employer. While that is readily understandable, it is not the whole story. I believe there is one fundamental reason why our people are not working full out, as the Dutch, the Belgiums, and the Americans are working. I apply this to executives, managements and workers alike; I am not attacking any one category or class. The fundamental reason, which has been referred to by my right hon. and gallant Friend the Member for Gainsborough (Captain Crookshank) and by others, is this lack of incentive.

I suppose the Chancellor of the Exchequer does live very austerely in his ivory tower, as the papers and some of his colleagues tell us, and so he possibly believes that 2s. off light wines and Id. off a pint of beer are going to be an inspiration to the people of this country to "go to it," as the Lord President of the Council would say. However, he must know that when the managing director of a factory, business or shipyard today is asked to take on extra responsibility or to work harder he refuses, because the extra emoluments which he earns means that he has to pay a higher amount of Income Tax and Surtax. It is but human nature that he should refuse.

Equally, if the average wage earner works harder and does overtime, provided his trade union allows him in these days, he has still to meet what the Chancellor refuses to abolish, the high cost of his normal requirements—the necessities of his daily life which are priced so high because of Purchase Tax. I am not referring to luxuries like dog racing, tobacco or the cinema. These are things that a man must choose for himself, but I am still convinced that indirect taxation is the fairest and best way of raising revenue. It is the necessities of life, and household requirements—the curtains which housewives have been denied for so long and such like things—that I have in mind. The Chancellor of the Exchequer has lost a supreme opportunity of giving the incentives which would bring him in a great measure the revenue which he would lose through the reduction of Purchase Tax charges.

Another factor we should consider is the wage earner. I am not here referring to the Scottish wage earner, because I think he is more realistic and more honest than his English counterpart. The wage earner is being constantly assured that under Socialism there is permanent and full employment for him, and he believes it. That obviously must inspire a belief that there is no need to work harder, and, indeed, the less he works or the slower he goes the more permanent will be his full employment. That is a feeling which pervades a large section of our community, despite the Lord President's admonition and the assertion of the Minister of Health that without Marshall Aid we would have one and a half million unemployed, or the more flamboyant reference by the right hon. Gentleman the Member for Wakefield (Mr. Arthur Greenwood) that there would be possibly five million unemployed without Marshall Aid, for that is what he said at the South Hammersmith by-election.

I come back to the question of what incentive would appeal to every section of the community no matter in what capacity they work, whether as employer or as employee. That incentive is a reduction in direct taxation and the cost of living. In other words, as my right hon. Friend the Member for Woodford (Mr. Churchill) said, make the salary of the executive and the pay packet of the worker real and not a sham. How can this be done? The Chancellor knows exactly how it can be done. I am astonished that a man of his sincerity, integrity and honesty of character does not acknowledge the fact, and insist with his colleagues that the necessary action be taken. The ways are quite simple. One has been submitted many times in this Committee, namely, to reduce the temporary Civil Service and divert them to productive work. A start has been made by the Board of Trade. We have been told that 10,000 will be available for production because of the abolition of clothes rationing, and we are also told that amongst the local authorities and in the Government's own Departments there are a further 500,000.

The President of the Board of Trade (Mr. Harold Wilson)

I should not like that figure to go out without correction. The figure is 1,000 from the Board of Trade and 9,000 from the trade. The industries from which they come gave me an assurance that the 9,000 would go to productive work when rationing came off, and now we are waiting to see that assurance carried out.

Sir T. Moore

I accept the right hon. Gentleman's correction but we are not in conflict. I said 10,000 and the right hon. Gentleman says 9,000 and 1,000.

Mr. Wilson

They are not all from the Board of Trade.

Sir T. Moore

I said that the Board of Trade had given a lead. I think the right hon. Gentleman misunderstood the implications of my remarks. We all heard what the right hon. Gentleman said in the House when he made the statement, and we realised where the 9,000 and the 1,000 came from. The fact is that they are released for productive work. In the second place, abolish the policy of bulk buying and so save the fantastic losses that are being incurred through that policy. Thirdly—and some of my hon. and right hon. Friends may not like this —we should render conscription or National Service unnecessary by making the Regular Army a career of dignity and reward through more attractive pay and conditions of service.

This is all within the capacity of the Government to do, but they prefer the hard way. They want the country to be so apathetic, and possibly in a contented state of apathy, that men will not rise up and demand their rights. There is one thing more, and that is that salary or wages should be conditionally dependent on adequate work and adequate production. That will appeal to every member of the House irrespective of party.

I have come to the end. Like the Chancellor's official life, my speech is drawing to a close. I wonder whether even yet he sees the great opportunity that he will have during the discussions on the Finance Bill? There are two ways he can go. Either he can go on as apparently he is going now, and restrict our work, our interests, our pleasures and our vanishing gaiety, or he can take the correct course, which will also be the courageous one, and enable our people, despite their temporary difficulties, to restore the happiness and prosperity of our country and, what is more important, their own sense of honour, decency and self-respect. With those parting words, I remind the right hon. and learned Gentleman of his responsibility, because the possibility of all these things lies in his hands.

6.8 p.m.

Captain Hewitson (Hull, Central)

It is with some regret that I speak to the Committee today because I must strike a note of warning, but not on the lines of the mental gymnastics of my hon. Friend the Member for South Nottingham (Mr. Norman Smith) or on the lines of the muddled thinking of the hon. and gallant Gentleman the Member for Ayr Burghs (Sir T. Moore). There is one thing we must do, and that is bring our minds to the mechanics of the ordinary bread-and-butter policy of our everyday lives. The Chancellor's Budget this year—perhaps I should say the policy of the Government as embodied within the Chancellor's Budget—is bringing this country to a position which could possibly mean the end of our free democracy here.

I have in my hand a list of industries numbering 151; in 122 of these 95s. or less is the average weekly basic wage. During last year trade union leaders, in spite of all the things that have been said against them about lost leadership, not being able to control their members, and so on, have been able to persuade their followers to increase production. At the same time they have prevented inflation by holding back demands for increased wages. We have accomplished that during the last year. We have reached the stage today when we cannot hold that safety valve any longer.

I want to strike a note of warning to the Committee and to the country. My main occupation is national industrial officer for the second largest trade union in this country with one million members. Can I go to my membership, who have a wage of 95s. or less, and justify it to them and convince them that that wage is adequate to keep body and soul within them and their homes, and to give them decent shelter? We cannot do it any longer. If the Chancellor or the Government in the Budget which was issued yesterday had given concessions in Purchase Tax, and concessions that would have made life for the ordinary workingclass home easier, we trade union leaders could have held that safety valve for months and months ahead, and so helped the country to get through its economic crisis. I am striking this note of warning.

As to arbitration courts, we have in this country negotiating systems and arbitration systems that are second to none in the whole world. I happen to be president of a fairly large international of factory workers, and not within my own knowledge is there any system, either in America, or behind the Iron Curtain, or anywhere else, to compare with the system that we have in this country. That system has been maintaining the peace. The peace has been helped along by the persuasion of the trade union leaders of the country, coupled, as I say, with this arbitration system. If that system—taking the Chancellor's White Papers and Government policy as its lead—in considering the applications for wage increases that will come in from today into the next 12 months, dares to say "No" to those applications, then I give warning that we shall face industrial disputes in this country such as there have not been since the end of the first world war. I am giving that warning. It would be inhuman for us to try to convince men and women that the wages they are receiving, less than 95s. a week, are adequate to keep body and soul together for themselves and their wives and families.

I have in my hand a family budget, drawn up on the basis of the Ministry of Labour official inquiry held during 1937 and 1938. The committee or commission that sat to consider the matter stated that the size of the average family in this country was 3.73 persons. Let us accept that, and transform that into present-day life; it means a man and woman and two children over the age of five years. That means four ration books. Let us transform them into everyday life and the cost of everyday life. Let us take the economic rent as laid down by that commission at 10s. 9d., which is not extravagant. For clothing, let us take our clothing books and the coupons that we held, and let us take Mr. Burton or the Fifty Shilling Tailors as the working man's tailors. Let us break all that down into unit costs. For fuel, let us take what the Minister allows to North and South England and make a common denominator and take that as the actual cost.

What do we find? The only extravagance we have allowed on points is 1 lb. of sausages and sixpence worth of bones. What does it come to? We have allowed for no spending money, no drinks, no smokes, no sweets, no cinemas; nothing on pleasure. It comes to a total of £4 19s. 3d. That figure has been submitted to every arbitration court in this country and has been accepted. Not in one single instance has an arbitrator turned down the case, and an award has been made.

In spite of that, we find a Budget introduced yesterday that will make the life of these people just intolerable. Over the last 100 years, since the Industrial Revolution, we have prided ourselves in this country that we have fought against iniquity on the industrial field. If this Government are going to depress us below the line of safety, then we shall fight them as we have fought in the past against Tories and Tory employers. We are not going to be depressed below that safety margin for our people. I would suggest to the Chancellor that between now and the proceedings on the Finance Bill, he should find as we know all Chancellors of the Exchequer can find, that little bit of something from under the counter, that little palliative and concession that is put down for the Finance Bill. I suggest quite seriously to the Chancellor that he should find some of that extra from under the counter, and that he should look with sympathy on the Amendments that will be put down with the object of making the life of the ordinary working-class home more tolerable than it is today.

In consultation with his colleagues, the Chancellor of the Exchequer should make an earnest effort to stop the holocaust that is coming—and it is coming. An industry of 300,000 to 400,000 employees have been waiting for the Budget and have been held in suspense for five months on a wage claim—held back by whom? By trade union leaders, who make no apology for holding them back—in the hope that something would come out of the Budget to help the position for some months ahead. It has not happened. This afternoon, that industry has decided to go forward. Delegates from all parts of the country have said, "We're not taking 'no' for an answer to this one." Their wages are 95s. 4d. They are asking for 100s. That is not extravagant, especially in the mighty industry in which they are employed. That will be the position throughout the country. At Easter weekend, trade union conferences will be held. During Whit weekend our own party conference will be held. On the agenda papers are resolutions on prices, wages, and profits. The trade union conferences being held during that season will have on their agendas resolutions demanding better conditions and wage increases.

Trade union leaders cannot hold these things back any longer. We have held them for a year, in spite of all the things that have been said against us and in spite of the discredit that has been placed upon trade union leadership and upon the working people in the factories, saying that if we raised the workers' wages we should have a greater measure of absenteeism. It is not true. The workers in the factories are prepared to give their all for the good of our country. Trade union leadership is prepared to strive to the very extreme for the good and Well being of our country, but there comes a time when we cannot bear the burden any further.

There was a cartoon in the "Evening Standard" on the subject of the "old white horse, Old Faithful, the old T.U.C." Let me say this to the Government: Their pace is determined by that old white horse. The last straw can break that old white horse's back, but, so far as we are concerned, we are not going to allow the old white horse's back to be broken. If it comes to a last final resort, we shall fight. We say to this Government, or to any other, "You can't afford to fight against us who represent the organised workers in the country."

Again I would strike that note of warning, and I ask the Chancellor to do something between now and the end of the Finance Bill to alleviate the position of our people who live in the ordinary back streets—the people in the ordinary homes—so that we can go back to them and say, "You have got something now. Your wages and your actual spending power are better than they were." Then we can hold the fort a little longer. We do not want to go back to them and say, "You have got 95 bob gross wage. After your health insurance and so on has been taken out it is about 88s." We do not want to have to say to those people," But look at the social services you get. You have free spectacles, false teeth for nothing, you can ring for the doctor any time you like and take a prescription down to Mr. Boots and you get it for nowt." We may say to them, "We have every sympathy about your low wage," and they will reply, "But sympathy does not make a noise in the frying pan"—and it does not. We must lift their wages back to something on which they can live and we can only do that with help from the Government. If the Government will not give us help, then again I give the warning. The writing is on the wall, the footprints are in the sand. The Government have either got to help, or else—

6.22 p.m.

Mr. Spearman (Scarborough and Whitby)

I cannot help thinking that the hon. and gallant Member for Central Hull (Captain Hewitson) would have performed a greater service for those workers whose interests he has, I know, so genuinely at heart if he had shown how the national wealth could be increased so that their real wages could have risen.

Mr. Ellis Smith

Cut down armaments.

Mr. Spearman

I was commenting on the speech of the hon. and gallant Member for Central Hull and was saying that he had not made any suggestions. It is easy enough to raise money wages but that is pretty meaningless if the cost of living rises too. The limit on what can be shared out is not the amount of money available under the Chancellor's disposition but the amount of real resources. Until we increase those, any increase in money wages will only exert an influence driving up prices and impoverishing everyone.

All of us on this side of the Committee would pay a tribute to the Chancellor of the Exchequer for the courage with which he conceived his Budget, whatever shortcomings we may think it has. That admiration is apparently not entirely shared by all hon. Members on the other side of the Committee. Last night the hon. Member for Western Renfrew (Mr. Scollan) said: "I wonder when we shall have a Chancellor with the courage to say that he will declare a moratorium on the National Debt." —[OFFICIAL REPORT, 6th April, 1949; Vol. 463, c. 2151.] For which we have to raise £500 million a year in interest. As those views have been expressed by other hon. Members, some of them of greater experience than the hon. Member for Western Renfrew—a former Chancellor of the Exchequer, the present Chancellor of the Duchy of Lancaster, expressed very much those views last year—it is worth examining what repudiation of the interest on the National Debt would mean. A quarter of the National Debt is held by Government Departments, so repudiation would not help at all in respect of the interest on that quarter. About one-fifth of the remainder is held by banks and insurance companies, not for their shareholders but in trust for depositors and policy holders. Repudiation of the National Debt would mean that those insurance companies would have to default on their policies, which would cause immense suffering to small people. Of the rest, a considerable proportion is held by small people drawing incomes of less than £50 a year to whom it would be a blow which I should have thought few hon. Members opposite could possibly have inflicted. Most of the rest is held by people who are paying tax at a minimum of 50 per cent. and perhaps at 80 per cent. or 90 per cent.

Therefore, the actual saving—there certainly would be some—would be a very small fraction of that £500 million, and in return for that small saving there would be a dislocation and suffering throughout the country and a loss to the Exchequer of several times £500 million. It is an extraordinary policy for responsible Members to put forward, quite apart from the inequity of putting a penalty on saving and a premium on high living. I suggest to those hon. Members—I know that they are only a very small fraction of the party opposite—who speak in that way that, however irresponsible they may consider themselves, they are still members of the party which forms the present Government, and therefore speeches of that nature do quite a lot of harm to saving, which is so vital today.

The Chancellor of the Exchequer yesterday prescribed what I regard as inevitably a pretty nasty medicine for the country, and as I believe him to be not only courageous in temperament but kindly in nature, I have no doubt that it hurt him a great deal to have to do it. The tragedy is that if the spirit shown by the Chancellor yesterday had been present at the beginning of this Parliament, we should not be in our present position today. Indeed, if only last year the Chancellor of the Exchequer had acted more in accordance with his speech yesterday we might be in a much safer position today. Now we do not know whether it is too late and whether next year we may be forced to have an even nastier medicine than that prescribed yesterday. Hon. Members opposite have never in my hearing explained how it is that after the immense devastation and destruction of the war they expected that we could spend enormous amounts more before we increased the nation's productivity.

During this Parliament we have been living in an entirely false paradise which has been made possible because we have lived on the savings of our forbears for some time, we have lived on the enormous and generous aid of the United States of America and the Dominion of Canada and, particularly, we have lived in an entirely artificial world, a starving world where there has been a great demand for goods because of the pent up saving of the years of war and because the countries whose industries were destroyed by the war have been unable to compete. Only last week I was talking to a constituent of mine who to my delight, and perhaps not to my surprise, told me that he and all his family who had always voted Socialist in the past would vote Conservative in the future. I said, "Why? Your friends are saying that this Government is doing pretty well." He put it rather well. He said, "Any blooming government can export in a starving world but we may be approaching very different conditions in the near future."

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

If that is so, why did not the party of which the hon. Member is such a distinguished ornament export when they were in office after the first world war? In fact, exports for some years then were less than they were before that war, whereas they are now well up on pre-war.

Mr. Spearman

The party in power then, under Mr. Lloyd George, was in under very different conditions from those of today. After all, it is the future which concerns us today, not the past. I do not want to go into a long treatise or a defence of the past, but to talk about the present, because that is what is vital for us.

I, for one, accept entirely, as all my hon. Friends do, that we want to maintain a high standard of social services such as health and insurance, but I am quite certain that the Government cannot continue indefinitely to spend the present proportion of the national income. I believe we can spend the amount we are now spending as soon as, by increased productivity, we have increased the wealth of the country. I believe it is well within our power so to increase the wealth of the country that it would then be quite sound to spend what we are doing today, but we cannot continue to spend the present proportion. For the Government to spend 40 per cent. of the national income must, in the long run, sap the energy of the country and check development in every direction. Yesterday, after saying that the possibility of further redistribution of the national income by way of taxation was not great, the Chancellor said: for the future, we must rely rather upon the creation of more distributable wealth than upon the redistribution of the income that exists."—[OFFICIAL REPORT, 6th April, 1949; Vol. 463, c. 2091.] This country depends to a degree that no other great country does, or ever has done, on importing food and raw materials from abroad. I suppose there is not now or ever has been in history a great country which is in our position. If, for example, the whole world were submerged except the United States of America, she could still maintain a standard of living—it might be an impoverished one, but her people could keep alive. So it has been with every great Power in history as far as I know. Our position is utterly different. We all know that if the rest of the world were submerged and we were left, half the population would starve. We just cannot afford to take the risks that those countries which are more self-contained can take.

We all know that a rich woman can afford the luxury of being an extravagant housekeeper. A poor woman cannot, she has to be efficient. It is absolutely vital for us in the long run to be efficient to a great degree, and for that reason I believe the most vital thing in the country today is the cost of production. Unless we can reduce that, we shall face an appalling situation. If world conditions remain the same as they are now, we have to improve output per man if we are to improve conditions. The Chancellor told us that yesterday. If, however, conditions in the world deteriorate, we shall face a time of much keener competition than we have had in the last three years. If that happens we shall have to reduce our cost of production in order to survive.

Mr. Sydney Silverman (Nelson and Colne)

Would the hon. Gentleman allow me to ask two questions? One is, does he agree that over the past two or three years we have increased our productivity and, therefore, reduced our costs? Secondly, is that obligation which he is defining so lucidly an obligation exclusively upon this country or have other countries a similar obligation?

Mr. Spearman

With regard to the first point, our increased productivity has been most disappointing—

Mr. Silverman

But it is better than that of anybody else, is it not?

Mr. Spearman

The Chairman of Lloyd's Bank, in a speech a few weeks ago—which I quoted in this House and which has not been contradicted—estimated that the increased production for the period from September, 1947 to September, 1948—the last year for which he had the figures—had gone up by only seven per cent. in spite of the fact that there was a largely increased working population and in spite of increased subventions. I think we all know that in the United States of America production has doubled.

Mr. Silverman

Can I bring this down to a specific instance? The miners of this country are today producing as much per man shift as they did before the war. There is no other miner in the world who is doing that. Of course, it is our duty to go on improving upon that and to make our production per man shift even greater than it was before the war, and I have no doubt that it will be done. My second question was is that an obligation which rests exclusively upon Great Britain or are we legitimately entitled to ask other countries, upon whose inter-trade we and they both depend, to discharge a similar obligation in their own countries?

Mr. Spearman

I cannot accept the hon. Gentleman's figures. They are in complete contradiction of what my friend, John L. Lewis, told me when I was last in Washington and talked to him. What I say is that in this country there is an obligation upon us to increase our productivity and lower our costs in relation to the immense expenditure we have here. If other countries do not increase their social services as we have been proud to do, if other countries are able to get their food and raw materials from their own resources, then they will not starve if they do not lower their costs, but we are bound to do so.

Mr. Silvermanrose

Mr. Spearman

I cannot give way again. So far, I have been trying to analyse and to face up to a gloomy state of affairs, and to demonstrate the fact that we have been living for some years in an entirely false paradise due to the destruction during the war. Now I want to come to criticisms of this Budget.

It seems to me that it has done little, disappointingly little, to increase productivity. There are only three ways of increasing the amount of work that is done. One is to change the heart of man and induce him to work for love of his fellow creatures, for the sake of service and nothing else. That may come, but it is a long way off and we cannot wait for it if we want to live in the meantime. The second way is the altogether abominable way of driving people by machine gun and concentration camp as they do in Russia, and that I hope we shall never think of tolerating in this country. The third way, which has achieved fine results in the United States of America and elsewhere, is by incentive, by giving a man—whether he is a worker, an employer, or a professional man—financial inducement to do better work, to take greater risks, and be more enterprising.

Captain Hewitson

Is the hon. Member suggesting by that remark that there can be a general uplift in wages in this country?

Mr. Spearman

No, I have already tried to show that the amount we can consume is in proportion to the amount we produce. It is no good putting up money wages unless we can increase our real resources.

Mr. Silverman

Then what is the incentive?

Mr. Spearman

Wait a minute. If the workers of this country will increase the amount of goods, then I should certainly hope to see wages go up, and then there would be a rise in real wages.

Mr. Silverman

That is not a real incentive.

Mr. Spearman

In the meantime we have to do what we can to get that greater increase.

Mr. Silverman

How?

Mr. Spearman

During that period we have to cut Government expenditure—

Mr. Silverman

Which?

Mr. Spearman

—in order to be able to give inducements to increase the amount of work done, and then we can restore the present expenditure.

Captain Hewitsonrose

Mr. Spearman

I do not want to give way again. I have given way many times already.

I am asked by the hon. Member for Nelson and Colne (Mr. S. Silverman) on what items I would suggest the cutting of Government expenditure. Only the Government in power have access to all the necessary information, only the party in power know about their future policy, so as to be able to judge the ways in which it would be appropriate to make cuts, but that something must be cut is absolutely certain, and for this reason. If we do not make a voluntary cut and take our choice of the items to be cut, the choice will be taken out of our hands and the cut, when it is forced upon us, will be one of infinitely greater damage to our people.

Mr. Carmichael (Glasgow, Bridgeton)

Make a suggestion.

Mr. Spearman

I have tried to show how vital it is to increase incentive and thereby increase production. The other way of increasing production is by improving the equipment of our factories. If the Government take 40 per cent. of the national income, as we were told yesterday, and the consumer takes 60 per cent., obviously no resources are left for improving equipment. If the State takes so much from the well-to-do that they cannot save, then the State temporarily must perform that function and must withhold from the country part of what it collects in taxes. For that reason, as I am sure the Financial Secretary will agree, it is vitally necessary at this particular time to have a Budget surplus. There should be no question at the present time of distributing a Budget surplus to the people, for, unless consumption and Government expenditure dropped enormously, that would mean that there would be no resources for re-equipping our factories.

That raises a crucial point: whether the Chancellor has been cautious enough in that respect. He has shown a smaller Budget surplus than last year. It is probable that companies' profits this year will fall, which will mean less saving from that account, and that there will be less borrowing from abroad. I hope that whoever replies to this Debate will tell the Committee how the Chancellor anticipates that an adequate amount will be spent on re-equipment. In this connection I should like to quote a very interesting article by Mr. Chambers, in "Lloyds Bank Review." Mr. Chambers is a former very distinguished official of the Treasury, and therefore, perhaps, knows more about taxation than any Member in the House. He says: Whatever the true figures, what is quite certain is that the figures for 'net capital formation at home' in the Government White Papers give, no doubt unwittingly, a false picture, and one which in no way reflects the danger that the physical capital in industry, as distinct from its money value, may be declining. In fact, Mr. Chambers, formerly of the Inland Revenue, is suggesting that the actual physical set-up in industry, so far from being improved, is actually declining.

I am tempted to describe the Budget as the "no hope Budget." The Chancellor admitted yesterday that there is now no taxable margin to meet any emergencies that may arise. He shows us no reason to expect any increase in productivity and, therefore, holds out no glimmerings of a hope of justifying any tax reduction in the future. I believe that if the Government create the right conditions the people will respond, and can, and will, create an abundance which will give us prosperity and security, neither of which we possess today.

6.45 p.m.

Mr. Ellis Smith (Stoke)

It used to be said that from a working-class point of view, the House of Commons was the graveyard of courage. That can no longer be said, however, because the very fine body of young Members who returned from the war have given the lie to that expression, and my hon. and gallant Friend the Member for Central Hull (Captain Hewitson), who today has spoken on behalf of the organised industrial workers, has given further proof that those words are no longer applicable.

For many years I have made analytical speeches in the House and I have tried to be as constructive as possible. I consider that I am no longer justified, particularly in the issue which is now before us, in making speeches of that character. I was trained to work to drawings and to apply mathematical and geometrical knowledge for.the purpose of building and constructing effectively—the product of large-scale, efficient industry, an industry as efficient as any in the world, with the most efficient organisation, modern technique and science. I claim, as a result of that background, that this country could have adopted a scientific method of planning and that by the application of modern technique and organisation, we could have planned in such a way that the country would now be in a much stronger position than it is in today.

We have no real plan for dealing with the economic situation or with the dollar deficit; no answer to the relatively high prices we are paying for our commodities and raw material from the United States because of super-inflation. In our foreign policy at least £700 million is being spent on armaments. We have no Socialist drive or vision of the end we want to achieve, or how to reach it. As a result of all this, we have in the Manchester area hundreds of men who are eager to work but are not allowed to do so. There is no planning for the manufacture of textile machinery, although that machinery is urgently required on a huge scale in markets all over the world. This one illustration alone is a typical, concrete example of the position in which, we now find ourselves.

The Treasury and others have never liked Labour's ideas of planning. They have carried out a war of attrition against the adoption of Labour's policy, and have won. The result is that there is now applied the London School-KeynesFranks-Butler type of planning, and the Treasury, having won, have complete control. They do not mind propping up, reinforcing or buttressing; they do not mind subsidising electrification or the building of the "Queen Mary" and the "Queen Elizabeth," provided that the system is propped up and that real planning is not adopted. Many Conservatives would be satisfied with the type of planning now being carried out, and no wonder, for has not a spokesman who is a financial adviser to the Government, speaking in Australia, said: Nationalisation in Britain has been mainly of public utilities. Rightly or wrongly, the public demanded that they should be nationalised.… If the Government goes further, however—for instance in the nationalisation of steel—it will make a major mistake. That is typical of the outlook of the people who have been responsible for determining policy behind the scenes. In the April issue of the Union of Distributive and Allied Workers' Report there are some interesting figures. Hotel profits taken at 100 in 1939 were 312 in 1948, and the average dividend paid in 1939 in those hotels was 3½ per cent., but last year it was 15½ per cent. We used to hear a great deal before the war about the need to take the profit out of war. No action has been taken on that and armaments are piling up. Profits are still paid. My hon. and gallant Friend the Member for Central Hull may well speak with the indignation he showed a few moments ago. When the policy of restraint was adopted, we were promised reductions in prices, but the cost of living has continued to increase.

I quote again from the official journal of the Union of Shop, Distributive and Allied Workers. It would not be right to spend time giving the whole of the figures in regard to profits, but in confectionery, for example, it is a common thing for dividends to be 23 per cent. and 15 per cent. and in other forms of food profits are 7½ per cent., 40 per cent. and 10 per cent. In biscuit and cake manufactures it is common for profits to be paid and dividends to be paid of 20 per cent. and 19 per cent. and, in mis- cellaneous foods, of 15 per cent., 25 per cent. and 12 per cent. In recent profits "Weston Foods" for example made half a million and are paying a dividend of 30 per cent.

One could go on giving example after example of relatively high profits being made and dividends paid practically for distributing food while those engaged in productive industry can at the most make 7 per cent. or 8 per cent. There is something fundamentally wrong when, in these days of great economic difficulty, we have on one hand dividends of 8 per cent. and 10 per cent. where the great risks are run in industry, and simply for handling food over the counter profits are made to this extent. To allow profits to be made at all in food in this serious situation is not right, in my view, but to allow exorbitant profits to be made on the people's food is a national scandal which ought to be dealt with.

I wish to speak on the need for a reallocation of the national income. I want to speak for those who join the heartbreak queue and for those who are too heartbroken to join that queue. After the First World War my wife and I waited years for a house. People now have waited—men and women who gave their all in the war—three, four and five years, and there are thousands living in terrible conditions. There were large floods recently in my area and I went to see the effect of them. A large number of the poorest of the sufferers came and told me their story. I noticed a very dark girl among them and asked her if she were happy. She said she was not and I asked why. I tried to pacify and assist her. She told me a terrible story of how she met her young man in Jamaica and came with him from Jamaica, but they never thought they would find conditions such as these.

That girl wanted to go back to Jamaica because of the conditions in which she was living. I tried to assist her and her husband and others. I had letters from her and her husband and immediately sent them to the War Office. They naturally desired to live together and he was afraid of being sent abroad but wanted to be with his wife. I had a letter of a most heartbreaking character from the War Office saying that there were 10 people living in two small rooms. This is an example of the need for a reallocation of the national resources. While we are studying the economic position of the country and the financial situation we do right to call attention to such cases as that.

In my Division the other day this incident took place. "I will do what I can to bring this case to the attention of the authorities," said a coroner when he conducted an inquest on a five months' old boy. It was stated that he had been living with his parents and another child in a room 12 feet by 10 feet. This boy's father was an ex-Service man and the coroner concluded by saying, "You have lost the child, perhaps through the conditions under which you have had to live." That child had been murdered by the housing conditions of this country. That child is typical of thousands of others living in big industrial areas. For far too long have we acquiesced in the allocation of the national income in such a way that there has not been sufficient put into housing and not sufficient provided for the needs of the people. I am not prepared to acquiesce any longer.

Fundamentally this is no responsibility of the local authorities. In the main, it is due to generations of neglect of those who have governed in the past. But that does not excuse us. We now have power to do something; we now have power to allocate the national resources in accordance with the needs of the people. If the Government in 1921, the Government in 1926 and the Government in 1938 could declare a state of emergency because of the industrial situation, there is an overwhelming case which can be made out now for an immediate declaration of a state of emergency in order that our national resources can be allocated in the interests of the people, particularly in regard to housing.

I turn to another urgent issue. I heard my hon. Friend the Member for Chesterfield (Mr. Benson) this afternoon. While I did not agree with some of his speech, in my view he made a very informative and analytical speech, worthy of consideration by every thoughtful person in the country. He referred to the Beveridge Report. I lived right through the Beveridge business, representing the Parliamentary Party on the committee which prepared the evidence and working with the Trades Union Congress, which also prepared evidence, and going before the Beveridge Committee to give evidence on behalf of the organised workers. I remember speaking from the Despatch Box and the vacillation there was in some quarters if any one dared to say any word about it. I remember saying how the people of this country would want to seize the Report with both hands as quickly as they could. The same happened in regard to the Armed Forces, and this gave British democracy a fillip throughout the world. The fundamental aim of that Report was to provide a national minimum, a Plimsoll line for life in Britain. The line has been lowered; it is now at a dangerous level, and if this Budget is allowed to go forward in its present form in the Finance Bill, it will lower the line even further.

There is an unanswerable case for an immediate increase in the benefits paid to all those who require them through no fault of their own, instead of the Chancellor having the audacity to speak about the expenditure on our national social services, for which we have stood for generations, for which people have been victimised and persecuted in order that we could come here. Our movement was never built for 100 years industrially and for 52 years politically in order to bring us to this. I make no reflection whatever on my right hon. Friend the Minister of National Insurance; I have too much regard for him, I know his record and his sterling work. All the same, the time has arrived when someone must take a stand on this matter in order that our national resources shall be allocated in accordance with real Labour policy instead of the policy which is now finding expression in certain quarters.

I have no hesitation in saying that I could go to any part of the country and carry most audiences with me, even people politically opposed to us, in contending that wherever Labour's real policy has been applied, it has resulted in real success. The same will apply in this sphere. Where is the encouragement for the people who are now working in the way they are working, people in the great industrial areas such as Lancashire, North Staffordshire, Yorkshire and Durham, where they are giving of their best and where output has won admiration during and since the war because of those people's contribution to our economic recovery? Where is the encouragement for them in this Budget? How long are they expected to stick it unless they are given more to live for, more to work for and more to which they look forward? We cannot expect the millennium—far from it—but I say that the national resources and finances should be allocated in accordance with real Labour policy.

One of my hon. Friends has spoken about wages of 95s. and of deductions which he said reduced them to 88s. Here is a worse position. As a result of working in industry in the way they are working men are straining themselves, and when they are away from work, sick or injured through no fault of their own, they have to be satisfied with benefits of the kind which are at present being paid. In the 1943 Report of the Trades Union Congress we find the principle stated: It was necessary to say that any plan of social security should provide a minimum subsistence allowance. Later we read: "A subsistence minimum was of paramount importance. We often hear quoted the words: Give me neither riches nor poverty but enough for my sustenance. That is all I am asking, and that is real Labour policy.

The Trades Union Congress accepted the report. It is true that there were fundamental differences about workmen's compensation but the report was finally accepted. It makes me smile when I hear right hon. Gentlemen on either side of the House say that no more can be done in regard to taxation. Does anyone really believe that? If they do, I ask them to go to Westover Road in Bournemouth, and walk from the top of "Millionaires' Road"; or go to the West End of London and go into Claridges, where I have never been and would not go, but which I have been told all about; go to the Dorchester or go into any of these places, and what will one find?

Lieut. - Colonel Sir Walter Smiles (Down)

The hon. Member will find foreigners there people from overseas.

Mr. Smith

That is a very good rejoinder and I accept that within limits, because such people are providing us with a certain amount of income in dollars. Therefore, I should not say too much about that.

I shall simply say, go and talk to ordinary people in the industrial centres and try to "kid" them; one can "kid" some of the people all of the time, one can "kid" all of the people some of the time, but one cannot "kid" all the people all the time. When one goes to them with these stories that one cannot do any more with regard to taxation it simply makes them smile. Here are just a few examples. The Government issue papers appealing to the workers in the Lancashire area; they are appealing to tile Lancashire cotton operatives to increase output, to boost output. Some of the people to whom I belong have "had some." Then one comes across this—one fur coat priced at £1,450 and another at £3,310. So one can go on. Everyone knows that that does not apply only to fur coats. These are the people who have the Rolls-Bentleys, these are the people who have the Humber "Snipes," these are the people whom that standard of living represents, who are skimming off the cream in this way.

Therefore, let the Chancellor and anyone else who supports him—and it is very significant where he has had the most support up to now—take notice of my hon. and gallant Friend who spoke a little earlier. It is significant when he speaks in that way. Let them beware, because the people of this country are watching the way things are going. We still have an opportunity to make progress in an orderly organised way, provided that the national resources are allocated in the interests of the people and the country at large.

7.8 p.m.

Viscount Hinchingbrooke (Dorset, Southern)

The people of whom the hon. Member for Stoke (Mr. Ellis Smith) spoke in the concluding passages of his speech, the buyers of fur coats, Rolls-Bentleys and one thing and another, must have been those in what one might portray as the "Chelsea Arts Ball of Daltonian Socialism," well satisfied nationalisers and well-paid hacks from Lord Hyndley to Mr. Sydney Stanley. Who else in this country today owns the kinds of things which the hon. Gentleman describes, I should like him to point out, if he will.

Mr. Glenvil Hall

I think that on reflection even the noble Lord will think it grossly unfair to Lord Hyndley, who cannot be here and speak for himself, to describe him as a hack. I hope that the noble Lord will withdraw that.

Viscount Hinchingbrooke

I do not withdraw it. I called him a nationaliser. The heads of the nationalised boards have Ministers who can answer for them in Parliament, and if they have not, it is because the Government have legislated badly in regard to nationalised boards. I do not withdraw my remark. Nevertheless, I do not take Lord Hyndley and deliberately associate him with something which would be regarded by the majority of Members in this House as unpleasant. I take him as a creature at the top of the Socialist structure; I take Mr. Sydney Stanley as a creature at the bottom of that structure, and I stick to that.

The hon. Member for Stoke will, I hope, go to Brighton—[HON. MEMBERS: "Blackpool."]—will go to Blackpool and explain the theme which he has delivered today. It really is unsuitable for discussion in this Committee. But if he does go to Blackpool, I hope he will go, not with the idea that government is a science but that government is an art. The art is the management of human beings, it is to give expression to the widest possible differences of opinion in the country and to the desire of millions of people to live in different ways. If the hon. Member were to be placed in a position to be able to put into effect scientific planning in the way he describes it in the House from time to time, however kindly he might feel in his mind and however generous-hearted he might be to those immediately surrounding him, the incentive to the workers would turn out to be not the Christian incentive, not the profit incentive; it would be the incentive which my hon. Friend the Member for Scarborough (Mr. Spearman) described—the incentive of the machine gun and the concentration camp.

Before I come to the main part of what I wish to say on the Budget, I want to make a passing reference to a topic that was not raised, and about which I hope that the Financial Secretary, or the Economic Secretary, or whoever replies for the Government, will find time to say something. It was, I thought, a singular omission from the speech of the Chancellor yesterday that currency in relation to the present world situation was not mentioned. I would like whoever replies for the Government to say something about the present situation in which the sterling area finds itself with regard to currency. The £ sterling is at a discount of between 12 per cent. and 15 per cent. all over the world. It is quite clear that under the present practice of the Treasury we are moving steadily towards Dr. Schacht's conception of multiple currencies. There are at least three types of sterling at work, the ordinary, the transferable and the bilateral. I have in my hand a complicated graph or plan, which I cannot possibly describe, which is used today by commercial firms and banking houses in order to decide what countries can take what sterling, what currencies can be transferred, what trading operations are free and what subject to appeal to the Bank of England, and so on. These houses are confronted with appalling difficulties.

What is happening is that the non-dollar world is hardening into three groups of sterling-using countries, and all sorts of unofficial financial markets are springing up at places like Hong Kong, Singapore, Cairo and Tangiers. These unofficial markets, so I understand, are beginning to engage in large dealings in bills, currency, gold, gold shares and also industrial shares. I have two points to make about this. The first is with regard to the very serious loss there is to our invisible export trade through the operation of this currency and scrip trading system outside the area of Britain altogether. Reputable banks who, in normal times, would, as a matter of course, engage in this business are not allowed to do so by the Treasury, because it is considered by the Treasury that any business below 4 dollars and 4 cents to the £ is disreputable, and they will not allow the ordinary trading firms to engage in it.

There are two alternatives. Either the £ should be de-valued down to the general level of the discount—which I personally favour—or else authority should be given to recognised and reputable merchant bankers to collect this business from these unofficial markets. The real hope of the future in our export trade lies in the invisible items. In this particular aspect of the export trade we in this country are traditionally expert. We are far better known and liked all over the world for our merchant banking and insurance and shipping business than we are for exporting cheap quality physical goods; and I hope that the Government will give serious attention to that.

The second point which arises is that this multiple currency is making the British Government extremely unpopular among traders in the United States, Australia, New Zealand, Egypt and one or two other countries. It will not be long before complaints are taken to their Governments, and representations are made. I hope the Treasury is prepared for that. New York importers are complaining that the Belgians, with bilateral sterling, and the Dutch, with transferable sterling, can pay high prices for furs, skins, hides, wool, tea, rubber, diamonds, pepper, spices, and no doubt some other commodities. They sell these things in the United States for less than the American importers can take them, because these latter have to trade at the recognised rate of 4 dollars and 4 cents. I understand that complaints are on their way to Congress, if they have not actually arrived.

Egyptian motor car traders are embarrassing the Egyptian Government by the facility with which they can buy and sell cars in large quantities at 3 dollars and 20 cents to the £. In Australia the Government are having to resort to trying to get countries not to re-export to the United States wool which they receive from Australia. The fear is that traders in these countries will use this multiple currency system in order to take wool as if it was to be kept in their own countries and then make a profit by selling it off to the United States. New Zealand herself is being obliged to tighten up her export regulations.

What is the view of the Government on the matter? I am told that the Chancellor of the Exchequer is endeavouring to suppress this trade by representations to the European and sterling area Governments. How far he thinks he will get in that direction I do not know. I doubt very much whether he will succeed, because much more latitude is allowed to private traders in those countries than is allowed here. The Chancellor may be able to control trade in this country, but I doubt very much whether he can get the French, Italian, Belgian, and Dutch Governments to control their traders in the same way. Why? Because they have not anything like the same tight system of controls. I hope that we shall get an answer from the Government on that point.

I come now more specifically to the Budget. Yesterday we had a fascinating lecture in high-altitude orthodoxy from the right hon. and learned Gentleman the Chancellor of the Exchequer. I do not complain about the orthodoxy, but I do complain about the altitude. I agree with my right hon. and gallant Friend the Member for Gainsborough (Captain Crookshank) that the Budget is balanced at much too high a figure. When I recommend changes that should be made I hope hon. Members will be good enough to bear in mind that the Budget must remain in overall balance. I agree with the Chancellor that last year's ordinary Budget surplus of £831 million is simply not available for remission of taxation this year. The prospective Revenue next year is down by £206 million and the prospective expenditure is up by £336 million. That leaves only £289 million of last year's ordinary surplus, and that, by current accounting methods, is clearly not enough to be dis-inflationary.

We now see that an ordinary Budget surplus of about £450 million or more must be achieved before one can be certain that the result is non-inflationary. Therefore, I agree with the right hon. and learned Gentleman that tax remissions must come, if they come at all, from cuts in Government expenditure this year. The Chancellor has not been brave enough to do that. On the other hand, I—and I hope some of my hon. Friends—believe that the British people, after four year's prolongation of wartime expenditure and austerity, are due for tax remissions on a fairly large scale.

I want to give reasons for saying that I think it could be done with safety without causing an inflationary position by remissions of something like £300 million this year. I do not want to go into this in great detail because my contribution must necessarily be largely academic, although I intend to move some Amendments to the Finance Bill. After what the Chancellor said yesterday about the representatives of the people acting on the side of the people against the Executive, I would not be at all upset if a number of hon. Gentlemen opposite were to join me in the Lobby when I come to move my Amendments. Let me first give them a shock by saying that I would cut subsidies by £100 million and make it up to the people in other ways. [HON. MEMBERS: "What ways?"] I will tell hon. Gentlemen. The chief defect of subsidies is that they induce a kind of false accounting atmosphere in the home. We are an educated democracy today and the people can be trusted to know what the national figures are. If the figures are artificially distorted by thousands of millions of pounds in taxation and by hundreds of millions of pounds in subsidies before they are given, how can people see the realities of the situation when they buy goods in the shops and consume them in their 'homes? That is one of the chief arguments for abolishing subsidies over a period.

I should like to take £100 million off this year. The Chancellor has only taken off £20 million. That puts us back to the position of last autumn—no further. The figure a year ago was considerably less. It was £400 million, as against £484 million today, when the Chancellor himself in his last Budget said that the objective that year was to prevent the subsidies rising any further. As for the Chancellor of the Duchy of Lancaster, I do not know whether hon. Gentlemen opposite have re-read his speech of 12th November, 1947, where he first gave the costs of the rising subsidies and then said: I intend to find that sum"— that is, £392 million— this year, but, in present conditions, it would be impossible to justify a further increase. If we were to let this upward drift continue unchecked, it could pull any Budget out of balance. And, as I have said already, it is imperative to have, next year "— that is, 1948— not only a balanced Budget, but a large Budget surplus. We cannot undertake indefinite and unlimited commitments, either for food subsidies or for any other item of public expenditure. The thing must be planned and accurately estimated."—[OFFICIAL REPORT, 12th November, 1947; Vol. 444, c. 396.] What a way we have gone from there. For the reasons I have given, I should like to see the entire subsidy removed over a period of four years or less. I would make a start this year with £100 million.

Then we come to the possible savings on expenditure. Here I should like to draw the attention of the Committee to pages 12 and 13 of the Financial Statement. I would definitely impose a 10 per cent. cut in all the Civil Supply Services—

Mr. S. Silverman

Including defence?

Viscount Hinchingbrooke

No, not in the Defence Services and not in the Consolidated Fund Services. I said specifically in the Civil Supply Services. They are set out in chief detail on pages 12 and 13. They totalled last year £1,783 million and they total this year £2,066 million. A cut of 10 per cent. would produce £206 million. If we take that off the total figure we are left with £1,860 million, which is £80 million more than last year. I do not believe that the Chancellor's stopper on the Supplementary Estimates for this year is nearly enough. I regard drastic pruning as absolutely essential. The £200 million cut represents almost exactly the amount which occasioned Conservative hostility to the Supplementary Estimates when they were introduced two months ago and when my right hon. Friend the Member for Woodford (Mr. Churchill) took his forthright stand against them. I should like to see that amount cut now, and I am sure that if my right hon. Friend were here he would support it.

Mr. Silverman

Might I ask a question?

Viscount Hinchingbrooke

If it is about the details, I propose to give them now. If the hon. Member has a copy of the Financial Statement, he will see that there are set out four tables—Assistance to Local Services; National Services (Health, Insurance, Pensions, etc.); Other National Services (General); and Terminal or Temporary Services arising out of the war. I would cut every single one of these items by 10 per cent., with the exception of National Assistance; Old Age Pensions, non-contributory; Family Allowances; and War Pensions, including Mercantile Marine and civilians. With £100 million from the subsidies and £200 million from pruned expenditure, we get £300 million for reduction in taxation to overcome the effect of the subsidies.

Mr. Silverman

Might I ask the question I have in mind? Maybe the noble Lord intended to say it in any case and if he did I apologise for interrupting. What I wanted to know was, having saved in this way his £300 million, which he now says he will use in relief of taxation, does he propose to tell us in what way he would relieve taxation and how he would use the £300 million?

Viscount Hinchingbrooke

I will do that in as much detail as the Committee will tolerate. I was about to say that I would take 1s. off the Income Tax, which would cost £140 million. I would raise children's allowances to £80 and apply that throughout the range of Surtax in order to give a consequential inducement to the higher ranges where the education of children is naturally more expensive. I would spend £10 million on dependent relative allowances. That would help the situation of the aged, the pensioners and the widows. It is a difficult and complicated allowance and I do not think that the Committee would bear with me if I enlarged upon it, but it is a statutory financial allowance. I would make a 10 per cent. reduction in the Surtax throughout its entire range in order to give a step-up to business men and managements.

Mr. Silverman

What would that cost?

Viscount Hinchingbrooke

That would cost £10 million. The Chancellor has already taken Id. off the pint of beer, which I would also do. I would reduce the price of cigarettes to 3s. 3d. per packet, which would cost £30 million, I would take £40 million off the Purchase Tax as the start of a gradual reduction of this Tax. These items total £300 million.

All these remissions act as incentives and they more than overtake the consequent hardships produced by the £100 million off the food subsidies. The Income Tax reduction would assist those married persons without children earning above £6 per week, who are, perhaps, the normal small and large savers in the community, and, unless we can give them some inducement, we shall never get the National Savings Movement started again. I thought the Chancellor's appeal to the movement yesterday was an appeal in the air, because they have not got any material to play with. The reduction of the Purchase Tax would assist the housewives and will bolster up and inspire the home, which is very seriously invaded today by modern conditions of living and also by the social services. The Surtax remission would give to the professional classes the hope of future independence and some comfort in their retirement.

There is nothing whatever in this Budget to lead to increased productivity except, possibly, the initial allowances to industry, and they would only go some little part of the distance. What the Chancellor has done has been to put an iron ring round the entire British economy, and no one man or woman is to be encouraged to break out of that ring, or to recreate the prosperity and fortunes of our island in the only way in which they have ever been created throughout the whole course of our history—in the pursuit of personal gain or advantage for the man or his family above that of his neighbours, though not necessarily at their expense. While the Chancellor was speaking yesterday, I felt that it was almost impossible to approach him, and those who think like him, by argument, because they live in the ivory tower of their own faith in democratic Socialism.

Whatever we may say about democratic Socialism, and there is some good to be said about it, the question which has never been answered, but which is a vital question today, is this: how can a welfare State, which is not self-sufficient, hold up its head against countries which are thriving upon individualism? The really great omission from the Chancellor's speech was a fully developed argument upon the difficulties that are confronting our export trade. Let us look at these countries which I have in mind—Belgium, France, the United States, Holland and even Germany and Japan. Our old defeated enemies, the overrun neutrals, and other countries besides these, are now all reviving faster than we are today.

Mr. Leslie (Sedgefield)

Belgium?

Viscount Hittchingbrooke

Certainly. The entire economy of Belgium is being revived at a rate faster than our own. I quite agree that there are ugly signs of unemployment which we would not like to see introduced here, but Belgium's industrial and economic power is rising at a rate higher and faster than our own.

The Parliamentary Secretary to the Ministry of Transport (Mr. Callaghan)

Neither higher nor faster.

Viscount Hinchingbrooke

The thing is concealed, because these countries started after the war on a lower platform, but the really important fact to consider is the accelerated rate at which some of these countries are climbing out of the slump which fell upon them after the war, and I assert that they are doing it faster than this country. We must also bear in mind that all over the world, new countries are springing up, armed by ourselves and the United States for years and years past with the weapons of competition.

If we were a welfare State which was also a self-sufficient country, we could, to use an expression current in debates on the Iron and Steel Bill upstairs, "hive off," we could contract out of the world and live a satisfactory life on our own. But we are not a self-sufficient country. It is not good enough for the Chancellor to talk about democratic Socialism at home. He should have been franker with the Committee. He should have told us what were his inmost thoughts. Is he aiming at a federation of States, all devoted to social welfare, which are self-sufficient overall and whose economies are complementary—a free trade and fixed currency area in Western Union and the Commonwealth? If he is and if he can achieve it, then the political revolution of the last three years may find a permanent place in British history, but, if not, and the warnings today are that sovereignty and economic nationalism are stronger forces in the world than they were before, then the speech of the Chancellor yesterday and the Budget itself are nothing but a wild gamble with the circumstances of our time.

Personally, I am inclined to the latter view, and that is why I have sketched out the changes that I would like to see made. I believe fundamentally that the pace of our advance towards social democracy is too hot for the world to hold. We shall have to meet many difficulties in the next year or two. But so deep has the wartime propaganda of the new order bitten into our people that I fear that, unless we act now to recreate enthusiasm and to recreate a spirit of financial independence in our people in order to prepare the country for intensive competition, we shall not survive the mass disillusionment that is bound to come, without the gravest social and industrial unrest.

7.38 p.m.

Mr. Zilliacus (Gateshead)

I congratulate the noble Lord the Member for South Dorset (Viscount Hinchingbrooke) on being candid about what his party would do if they came into power. The proposed cut of £100 million in the food subsidies, the 10 per cent. cut over a wide range of social services and the 10 per cent. cut in Surtax are what I might call an attractive programme to everybody but the electorate. Further, I detected in the concluding remarks of the noble Lord an echo of that famous phrase of his own Leader—" Set the people free." On Tyneside, where my constituency is, his party succeeded so thoroughly in setting the people free that they set them free from their jobs. The Labour Government has set the people free from doctors' bills. Of the two freedoms, I think our people prefer the latter.

The Chancellor is now finding himself in the same somewhat painful and ambiguous position in which the Foreign Secretary has found himself for some time, in that his policy is more warmly approved by the Opposition than it is on this side of the Committee. The attitude of the Opposition to it is reminiscent of the film in which Bing Crosby starred that was known as "Going My Way." A good deal of the blame which has been incurred by the Chancellor and a good deal of the criticisms which he has to meet have really not been directed to the right address.

The Budget is criticised for being too austere and too socially conservative. I share those objections to it. I think this Budget is one that turns the screws instead of lightening the pressure. It is a Budget which has called a full halt to the process of advancing towards a classless society, an equalitarian society. But I believe that within the limits that have been set by the circumstances in which this country finds itself—and those limits are accepted as unalterable by the Government as well as by the Opposition; that is the assumption of official policy, although I do not accept it myself—the Chancellor has made as good a job of this Budget as was humanly possible.

To make myself clear let me remind the Committee of a famous passage in the Report on Social Security by Sir William, now Lord Beveridge, which has already been twice referred to in this Debate, in which he said that the first condition for freedom from want being an attainable aim after the war was that the world after the war is a world in which the nations set themselves to cooperate for production in peace rather than to plotting for mutual destruction by war, whether open or concealed. We find ourselves in the kind of world against which the Beveridge Report warned us. We are today in a world situation which makes it impossible, according to him, to realise the first condition for attaining freedom from want.

The Budget today is a "cold war" Budget. It is an austerity Budget because it is a cold war Budget. Only those who object to the cold war and do not believe that our journey to the third world war is really necessary, are entitled to object to and to quarrel with this Budget. If my hon. Friends accept the necessity of the cold war, then all they have to do is to count the cost in terms of the Budget, and to comfort themselves with the reflection that this is only the first instalment of the bill which will be presented. If they do not like the Budget, they should address their complaints, not to the Treasury, but to the Foreign Office.

Let me briefly illustrate the burdens that the cold war lays on us through the Budget and which cannot be lightened unless we do something about the cold war. First, there is the size of the defence Budget—£760 million; an increase of £107 million this year. Next, there is the drain on manpower of 1,500,000 men in the Forces or serving the Forces. Then there is the drain on materials and resources in providing the equipment, feeding these men, housing these men, building the roads, providing the transport, the fuel, and all the rest of it, not forgetting the arms. This burden will increase. The £107 million increase will be still further stepped up next year, because we are now engaged in an arms race, and when engaged in an arms race, one cannot afford to stop or one falls behind. Therefore, the Budget burden will increase, and the drain on manpower will increase. Do not let us believe that 18 months' conscription is the end of the story. From one year to 18 months is only the beginning. I read recently a study by Captain Liddell Hart in an American publication of the defence problem of Western Union in alliance with the U.S.A., under the Atlantic Pact. He came to the conclusion that the forces that had to be maintained as a minimum–20 highly armed and mobile divisions—would require three years' conscription.

The Budget is socially conservative, because the greater the arms burden the less there is available for social services. Armaments come first; social services come second. The more we spend on arms, the less there is left for social services. Apart from that, we cannot have national unity in the field of foreign affairs and defence and quarrel too violently with the Opposition on social and domestic questions. The gravest consequence of all is the loss of hope and incentive to the people. For what are they being asked to put up with these sacrifices. Pigs, at any rate, are fattened on the way to slaughter. But human beings, apparently, have to be thinned down under austerity to condition them for losing their lives. We sacrifice our standard of living in order to get ready to lose our lives.

Sir W. Darling

The hon. Member said pigs are fattened on the way to slaughter. Is he not aware that before slaughter animals are kept without food for 24 hours?

Mr. Zilliacus

I meant they were fattened for slaughter, but I accept the hon. Gentleman's correction.

How is this business going to end? I shall conclude by quoting a prediction about the ending of an arms race—the first arms race—made by Sir Edward Grey as far back as 1912. He said: If this tremendous expenditure on armaments goes on it must, in the long run, break down civilisation. … There are those who think it will lead to war precisely because it is becoming intolerable. I think it is much more likely that the burden will be dissipated by internal revolution, not by nations fighting against each other, but by the revolt of masses of men against taxation. The mutterings of revolt are already audible. We heard them this afternoon from my hon. and gallant Friend the Member for Central Hull (Captain Hewitson), and I ask the Committee to realise the full significance of what he said. He is a member of the National Executive and a leading member of the Municipal and General Workers' Union, one of the biggest unions in the country and certainly not one of the most revolutionary, if I may say so. When he uses such language as he used this afternoon, I want the Committee to understand what that reflects in terms of the revolt and anger of the workers at being asked to sacrifice their standard of living in order to pay for getting themselves landed in a third world war.

7.48 p.m.

Mr. Hollis (Devizes)

It is always a pleasure to follow the hon. Member for Gateshead (Mr. Zilliacus). His argument is, of course, a perfectly coherent, simple and intelligible one with which nobody could possibly quarrel as an argument. Neither he nor I need detain the Committee by giving details of the waste of money and manpower in maintaining our armaments. Nobody is under any disposition to dispute the obvious proposition that if it were not necessary to spend £760 million on armaments, or to keep 1,500,000 men under arms, we could spend that money and use that labour for other and more beneficial purposes. The only question, of course, on that score is whether it is necessary to spend that money and to maintain those Armed Forces or not. If it is not necessary then, clearly, the Government and all of us are to blame, and we should spend the money on other things.

On the other hand, no economy is more false than to fail to maintain the armaments necessary to provide us with security. Nor again, I think, can anybody be under any disposition to quarrel with the hon. Member in his expression of concern at the existence of the armaments race and his expression of fear as to what may be the eventual consequences of that race. Nor, indeed, is it any part of my duty to compose such quarrels as may exist between the hon. Member and the Chancellor of the Exchequer or any other Member of the Government Front Bench. But, without turning this into a foreign affairs Debate or a Services Debate, surely with all moderation we can protest that it is an absurd view to imagine that the British Government are entirely responsible and to blame for the existence of those armaments. [HON. MEMBERS: "He did not say that."] If he did not say that, what are we debating?

Mr. Zilliacus

If I might interrupt, it certainly is not my contention that we are entirely responsible or anything like it, but I say we are partly responsible and that we can change the situation by changing our policy.

Mr. Hollis

That is good enough for my argument. I see that we are not saying that everybody else is necessarily entirely without sin. The question is whether the British Government are responsible to the extent that they can safely scrap their armaments. If that were so, I would entirely agree with all the consequences which follow from the hon. Member's speech, but I will merely make two general points on it. First, there are certain extremely outspoken quotations which have never been out of our minds in the works of Karl Marx or in the works of Lenin, or for that matter of Stalin, about what, in the Communist view, is the necessary relation between a Communist society and the non-Communist world. One hundred years ago Marx told the workers: You will have to go through 15, 20, 50 years of civil wars and international conflicts. Lenin told the people 30 years ago: The existence of the Soviet Republic side by side with the Imperialist States for a long time is unthinkable. A series of frightful collisions between the Soviet Republic and the bourgeois States will be inevitable. Let us take an even more striking and extraordinary quotation which I came across in the works of Lenin only the other day when, in a letter to Maxim Gorky, he said: It would not matter a jot if three-quarters of the human race perished; the important thing was that the remaining quarter should be Communists. In view of the fact that, on the one hand, Russian policy since the war has been what it has been and that the Russians are very heavily armed, I think it is hardly fair—and it is not for me to defend the Government—to say that the Government are partly responsible for the fact that they are providing some arms in order to meet that menace, well aware, as they must be, that it is a great economic disadvantage to do so.

This is the second point I would make about the hon. Member's speech. It has always surprised me, and indeed it is the most curious incident that I have come across in his career, that one of the comparatively few occasions upon which he was entirely obedient to his own chief Whip was in voting in favour of the American Loan. I cannot imagine what is the reason for that curious incident in the hon. Member's career, but the fact of the matter is that this Government are committed to the Inernational Bank, and according to the second article of incorporation it exists to promote private foreign investment. The British Government are committed to this and. what is more interesting, the hon. Member for Gateshead supported it.

Mr. Zilliacus

May I satisfy the hon. Member's curiosity? I voted for the American Loan because I thought we needed it and I still believe we did need it. I also want trade and peace with the Soviet Union and Eastern Europe because we also need that. As for Lenin's words, Stalin has said again and again in the last few years, as well as 20 years ago, that trade and peace with the capitalist world is not only desirable but necessary.

Mr. Hollis

I quite see now that the hon. Member voted for the American Loan because we needed the money, but, as we all know, he and everybody else who went into the Division Lobby on that occasion voted not merely for the American Loan but for the acceptance of the American Loan on the various conditions which were attached to it. What the hon. Member's position seems to be —I do not want to be offensive, but this really seems to be his position—is that he has no objection whatever to taking American money on certain conditions, provided he is not asked to fulfil those conditions. He has a great grievance when he is asked to fulfil them and—

Mr. S. Silverman

Would the hon. Member for Devizes (Mr. Hollis) say which are the conditions of the American Loan, which, as he deduces from my hon. Friend's speech, my hon. Friend does not wish to fulfil?

Mr. Hollis

Well, there is private foreign investments, the conditions attached to the International Bank, and Bretton Woods, getting rid of discrimination, elimination of preference—does the hon. Member stand for the encouragement of private foreign investments as the method by which international trade should be done? If that is so, Socialism is finished.

Mr. Zilliacus

I accepted those conditions, like all hon. Members on this side of the House—HON. MEMBERS: "No, no."]—well, most of us—because without them we could not get the loan. We have done our best to fulfil those conditions. I believe some of them cannot be fulfilled and that that will become clear in the course of time. Some of it has already become clear.

Mr. Hollis

It seems that Socialism is one-half abolished, then. Some hon. Members still want to stick to it, whereas other hon. Members do not. From these events, from Russian policy, from our policy to America, and the whole complicated concurrence of events, has arisen this very unfortunate international situation—as we all agree—whereby this Government—any Government which was in power—is compelled for the safety of this country to pursue an armaments policy which is obviously a very great handicap to our economic recovery. I think there can be no dispute about that, but whether the hon. Member for Gateshead is right in saying that the people of his constituency or the people of this country in general imagine that that armaments policy is an unnecessary one is a matter upon which I am extremely doubtful.

Anyway, we have to debate the Budget policy on the assumption—and indeed the hon. Member for Gateshead admitted it—that the existence of the armaments is thought by the Government to be necessary. That being so, we are faced with a very grim prospect that if that acceptance is necessary and if it is the general wish—as indeed it obviously is—of the people of this country to have an expenditure on social services on the scale which it wishes to have, then we have this intolerable burden whereby 40 per cent. of the national income has to be handed over to the Government.

That is a burden of taxation to which countries have been submitted, indeed, in the past but no country which has been submitted to it has ever survived. In my opinion, it is a burden of taxation which cannot permanently be supported by the people of this country or any other country. It is beyond human nature to bear it permanently. I do not think the question can be answered along the lines of the answer given by the hon. Member for Stoke (Mr. Ellis Smith) by talking about the case of somebody advertising for a £1,000 coat or something like that. Beyond certain limits, taxation simply brings national life to an end. We are faced with one of two alternatives if we are to survive. We have to face that either we must find some way of reducing taxation or some way of increasing the national income.

A number of hon. Members have spoken about this and of the way in which they believe the burden of taxation could perhaps be decreased. I do not want to discourage anybody from exploring those avenues. I think there are ways in which the burden of taxation can, perhaps, be decreased, and it is of vital importance that it should be decreased, but it does not follow, as we know, that it can be dramatically decreased—in any dramatic and sudden way. That being so, the burden of taxation is bound to remain extremely heavy, and, that being so, we must give our minds in every way to seeing if we cannot find a method in. which we can increase the national income. It is along that line we have to try to see if we can find a solution.

Obviously, as we approach the whole problem of the social services, what we have got increasingly to try to make the people of this country understand is that those social services must not be looked upon as mere gifts of pleasure. On the contrary, we must teach people that if they are to be kept in better health, and given better education and the various other things that the social services provide, one of the consequences of that better health and education, and so on, must be an increase of national productivity and an increase of the national income. But within the limits of having to accept the burden of taxation at something like what it is at present, obviously we have got to give our minds to the question whether there is not any way by which the taxes can be collected in such a fashion that they will be less of a deterrent to production than they are at present.

During our Budget Debates last year raised the question of the revision of the whole system of Income Tax assessment, and the Financial Secretary, in reply to me, was good enough to say that the Government would bear that whole problem in mind; and yesterday the Chancellor said that the Government were bearing the problem in mind, but that they had not reached any conclusion. I very much wish that the consideration of that point had been able to move along a little bit more rapidly, because our whole system of Income Tax assessment is one which, I think, is capable of improvement. As we all know, the heavy burden of Income Tax is bound to be a deterrent in any event, but it is more of a deterrent than it need be at present because everybody pays his maximum rate of tax on the extra pound that he earns. Whatever the level of his income may be, whether it is £300 or £700 a year, if he raises it by £1 to £301 or £701, he pays on that extra £1 not at the average rate of his Income Tax, but he pays at the maximum rate. I shall not delay the Committee by developing schemes such as those of Mr. Chambers and Lady Rhys-Williams, by which it is alleged that that deterrent can be lessened, but I do very much hope that the deliberations of the Chancellor on the question will reach a conclusion, and that the Financial Secretary, or whoever is to reply for the Government to the Debate, will be able to tell us something more about how those deliberations are getting along.

There is only one other detailed point I should like to say a word about. I feel myself far from happy about the abolition of the Legacy and Succession Duties, and the substitution for that abolition of increased Death Duties. I quite see it is part of what the Chancellor calls "tidying up"; and in many ways the fewer taxes we have the more convenient it is. There is something in that argument, I quite agree. On the other hand, I do not myself think that the Legacy. and Succession Duties were wholly useless duties, for this very important reason that, as hon. Members are aware, the incidence of those duties varied according to the nearness of the relationship of the beneficiary to the testator. One paid only 2 per cent. if one's relationship was that of husband, wife, child or lineal descendant; 10 per cent. if brother or sister; and, if a non-related beneficiary, one paid 20 per cent.

Instead of that a certain amount of extra now is put on the Death Duties. What it means is that the beneficiary who is not at all related to the testator will benefit by that change. Whatever the sum of money, for however large the amount of money that is left, the Death Duties are not increased by as much as 20 per cent.; on the other hand, if a person leaves his money to his wife or child, who is most naturally the person for him to leave it to, then even if it is a quite low amount, he becomes worse off, because at a quite low figure the Death Duties are raised by more than 2 per cent. I am extremely doubtful whether that is a change that is for the better.

I have always rather interested myself in the fiscal relations between parents and children, and I should myself, even in an austere Budget, very much welcome some further relief for parents. In particular, I think the time has come when it is only fair that Income Tax allowances should be made for any parent who is sending a child to a fee-paying school—at any rate, up to the level of what a place would cost at a free school. The argument, on the whole—so far as the argument has ever been given—why such allowances have not been made in the past has always been that there is no need to send the child to a fee-paying school, and that if one does send a child to a fee-paying school it is right that one should pay for it. That is obviously not at all a fair argument today, from the very fact that it is quite clear that the whole educational system of this country would collapse altogether if everybody stopped sending children to fee-paying schools, simply because there are not nearly enough places in the free schools. Though an individual may choose to send a child to a fee-paying school, yet it is obviously nationally necessary that a large number of children should be sent to fee-paying schools. The parent who does that pays his rates to keep going the free schools, and also pays his school bill to the fee-paying school, and it does seem to be only right in the circumstances that he should, at least, have the benefit of an increased Income Tax allowance, and be allowed not to pay Income Tax on the £35 or whatever it may be that would be required to fill a place in a free school.

Frankly, I had not expected, when I came into the Committee, that I should speak tonight, so I am afraid my remarks have ranged rather disjointedly from one topic to another, but on those topics I appeal to the Financial Secretary, when he replies, to tell us something about the chances of a revision of the system of Income Tax assessment, and to tell us what can be done for the parents of this country.

8.8 p.m.

Mr. Piratin (Mile End)

In his review yesterday of the economic situation, the Chancellor of the Exchequer said: "The resulting situation is far healthier than it was 12 months ago. He went on: "Our task this year will be to maintain that good health."—[OFFICIAL REPORT, 6th April, 1949; Vol. 463, c. 2080.] He made that statement regardless of the fact—or, maybe, having in mind the fact —that in the past year the cost of living has risen beyond the increase of wages, and that many millions of workers have had no increase of wages at all to meet the additional cost of living. I submit that the families of those men—the sort of families the hon. and gallant Member for Central Hull (Captain Hewitson) spoke of—would not say that the situation is healthier than it was a year ago. Yet the Chancellor of the Exchequer, knowing quite well these things, proceeded in his Budget statement yesterday to raise the cost of living further, increasing the cost of basic foods and every-day needs. Cheese, meat, butter, margarine are basic foods, and telephone calls and postage are everyday needs; yet the Chancellor of the Exchequer has seen fit to increase the cost of these. I do not think that the Chancellor is maintaining the good health of the nation and certainly not of the lower-paid sections of the nation by the measures which he has introduced.

As I listened to the Budget speech yesterday, three things became clear to me. First, it seems to me that, as other hon. Members have said, he has given way to pressure from the capitalist side of the community while he has not seen fit to give way to pressure brought upon him by the working-class side of the community. The capitalist side, represented particularly by the Federation of British Industries, are able to see in the coming full year a remission of tax to the extent of £75 million. The working-class side asked for a reduction of the cost of living, notably by way of a reduction of Purchase Tax, and a representative body of the Co-operative movement, who saw the Chancellor a few weeks ago, obtained some kind of veiled guarantee from him to this effect, as I understand on very good information. Certainly the secretary of the Trades Union Congress was able to say only yesterday morning, with great confidence, that the Purchase Tax was to come off a number of family and household articles, yet none of those things have come about.

The second point which is also clear to me, and which was lucidly explained by the hon. Member for Gateshead (Mr. Zilliacus), is that the working-classes are being expected to pay for the next war. It is not called war; we are paying for defence. The third thing which occurs to me is that in the name of E.R.P., which allegedly is meant to help maintain the standard of life of our people, we are actually reducing the standard of life of the working-classes. I hope, in the course of my speech, to make some reference to these points which I have summarised.

As I think one hon. Member said yesterday, the Budget could have been anticipated if one made a close scrutiny of the Economic Survey and accepted the conclusions of that survey. The conclusions of the Economic Survey were very austere and for some reason or other many of us were reluctant to accept them. In fact, the Budget was anticipated in the United States before the Economic Survey. I have a report of a statement made by Mr. Finletter, the chief of the E.C.A. Mission to the United Kingdom, which he submitted to the Senate Committee on 17th February. I ask the Committee to bear with me while I quote one or two things that he said. Maybe, in a moment of indignation, the hon. Member for Finsbury (Mr. Platts-Mills), who has been accustomed lately to speak in plain words, will refer to Mr. Finletter as the gauleiter of this country, and therefore he is of some importance to us. Mr. Finletter, in his evidence to the Senate Committee on 17th February, some weeks before this survey was published, said with regard to help for the United Kingdom and its problems: The housing problem has been quite seriously cut back. So has the health "programme, and so has the programme for education. He went on to say: For example, if I may give you a few figures on housing, we were somewhat troubled about the percentages devoted to housing in the capital formation of the British investment programme "— They were troubled; Mr. Finletter was troubled. Hon. Members on both sides are justified in being troubled; but Mr. Finletter was troubled, the American Senate Committee was troubled; and he went on to say: A smaller proportion of the national product is being devoted to housing in the year 1948 than in the year 1938. On that ground he expressed himself confident that the Senate Committee would, therefore, support the request for 900 million dollars in the second year of E.R.P. May I quote further from this not uninteresting document. You will see that Britain is programming a horrible American word, but there it is— only a very slight increase in her food consumption by the end of the recovery programme. In short, she is holding this austerity programme during the entire life of the recovery programme and she is telling her people "— this is what he said in Washington, four weeks before the Economic Survey was published— she is telling her people they are not to expect any relief from this kind of austerity during the life of the programme. That is Mr. Finletter's statement. He is therefore telling this great and proud nation and great and ancient House of Commons what we are to decide. He was saying that eight weeks ago to a Senate Committee, which, we understand, has no responsibility for the destinies of this nation—or have they? The whip has cracked and the Chancellor of the Exchequer performed yesterday. The blow falls on the working class. The Chancellor of the Exchequer gives £75 million in the coming full year for tax reduction on the maintenance of plant and replacement. How can this be reconciled with the increase in the price of food? Table 4 of the White Paper, Command Paper 7649, shows that the profits of companies in one year increased, in the period from 1938 to 1949, from £543 million to £1,639 million, which is about three times. The same table shows that wages and salaries combined increased from £2,845 million to £5,825 million—double. That does not take into consideration the fact that there are well over one million additional workers sharing this wage since 1938.

Mr. Jenkins

Will the hon. Gentleman tell the House the amount of the distributed profits, which is rather more relevant, because that is what affects the purchasing power.

Mr. Piratin

Until the Chancellor has told us what is the net value of the workers' wages after indirect taxation is taken off, I do not think that the hon. Member is fair in discussing the net value of those profits. Indirect taxation amounts to about half of our revenue, and indirect taxation falls mainly on the mass of the people who are the working class. Indeed, many millions of workers who make no contribution under direct taxation make a substantial contribution by way of indirect taxation—old age pensioners and the unemployed who smoke or drink make their contribution. These interjections are not fitting for Members on the Labour benches, because they are essentially Tory arguments.

If the Chancellor contemplates being able within the coming year to remit £75 million in taxation to capitalist concerns and industrial enterprises, why could not he remit £75 million, say over the next two years, to the working class? There are plenty of ways in which that could be done. I am certain that the representatives of the Co-operative movement whom he met must have suggested a number of ways in which Purchase Tax on the most essential goods could have been reduced. I am certain that the T.U.C. Council had similar ideas in mind and put their proposals to him. Why could not this have been done if the Budget is tight?—and I have my own views on that matter with which I will deal later.

The only other substantial remissions which have been made, apart from the remission of £75 million, are on beer and wine, strangely enough. I say "strangely enough" because although I am in favour of those who like a glass of wine or beer—as the Committee knows, half of my party here does not like it, but that is a matter of personal opinion—this remission follows on the fact that a few days ago the lights in London went up. I am in favour of that too, but these things do not balance the other more important needs of the people. Since yesterday afternoon I have not had an opportunity of talking to many ordinary folk, but I have spoken to ill-paid officials in this House and ill-paid policemen in this building; I have spoken to a postman and a woman on a bus today. They were complete strangers. If they had been my own friends, of course, I should know their opinions beforehand, but these were complete strangers. I know what they are thinking. One man, who I am certain was of the type who likes his pint, said that he would prefer to continue paying the present price of beer rather than receive a nagging from his wife because of the increased prices of the basic foodstuffs.

Mrs. Alice Cullen (Glasgow, Gorbals)

Fourpence-halfpenny a week.

Mr. Piratin

It is 4½d. each person, and for the average family that is 1s. 6d. a week. The hon. Lady should not be so quick to make excuses for 1s. 6d. a week. It is not a fortune, and it may mean nothing to Members of Parliament.

Mr. O'Brien (Nottingham, West)

The hon. Member should speak for himself.

Mr. Piratin

I have seen the hon. Member for West Nottingham (Mr. O'Brien) entertaining himself, and I have no doubt at all about the value of 1s. 6d. to him.

I have listened to most of the speeches today and I heard the Chancellor's speech yesterday, but the speech which impressed me most was made by the hon. and gallant Member for Central Hull (Captain Hewitson) this afternoon. Those who read his speech in the OFFICIAL REPORT will not get the atmosphere and the feeling with which he spoke, for when he had finished there was silence; everyone understood that here was an hon. Member whom no one could say was either "red" or "crypto-red," who represents a very important union in the country, and who has been a consistent supporter of the Front Bench. He was evidently impressed by what he had heard at a meeting which he had attended in the morning with members of one section of his industry—1 understand it is the chemical industry—and he was affected by their attitude that they would not stand for this increased cost of living.

I was glad that the Chancellor was present at the time, because the hon. Member told the Committee what he felt, which is what the mass of the ill-paid workers feel. I refer to those people who are getting a maximum of 95s. 4d. a week or, as the hon. Member said, £4 8s. net. To these people 1s. 6d. is a lot of money. Yet the Chancellor finds an opportunity to reduce the prices of wine and beer while raising the price of such basic commodities as cheese, meat, butter and margarine. Why could he not introduce some Purchase Tax reductions? The hon. and gallant Member for Central Hull gave a warning of what the trade unions will do. Whether he speaks with the authority of his union I do not know, but I say that the immediate result of there being no Purchase Tax reductions will be a large number of unemployed within the next few weeks. That is the immediate indication of the fall in Stock Exchange prices in a number of industries which deal with commodities on which Purchase Tax reductions were expected. The radio, clothing and other industries will be affected, with resulting unemployment. Thus, we create a vicious circle.

Why are the workers expected to put up with this austerity? Because the Government's expenditure is increasing. I should like to quote from the Chancellor's speech yesterday. He said: The three main ingredients in this increase are Defence, Food and Social services. So far as Defence is concerned, we obviously cannot look for any marked reduction for some years, unless there is a complete change in the international situation. Indeed, we may have to face some increase, as a result of our co-operation in making the defences of Western Europe more effective and efficient." —[OFFICIAL REPORT, 6th April, 1949; Vol. 463. c. 2089–90.] Therefore, while he anticipates decreases in the social services and introduces decreases in subsidies, he does not expect any decrease in expenditure on defence but, on the contrary, an increase. The people in this country, in particular the workers, are being asked to pay for a war or, as the Chancellor put it, to "enjoy the benefits of defence."

While I do not want to raise matters of defence in this Debate, I should like to point out what appears to constitute defence. There is talk of a third world war; that may or may not be, but the Atlantic Treaty is aimed at preparing for it. We know, however, what is going on in the name of defence. In the name of defence, we are spending millions each year in Greece, we are spending millions in Malaya and we maintain large forces in various parts of the Middle East. No one suggests that we are being attacked in any of those places. Nor do they have any immediate bearing on the Atlantic Treaty. In the name of defence, therefore, the workers are asked to tighten their belts in order to keep King Paul on his throne, against the wishes of the Greek democrats, and they are asked to tighten their belts in order to hold down the Malayan people in their struggle for independence. That is the kind of defence for which they are being asked to tighten their belts.

The Budget "faces the future," and the sign of things to come is contained in the Chancellor's speech. Reference has been made to this, but it bears repetition, for the Chancellor said yesterday: But there is not much further immediate possibility of the redistribution of national income by way of taxation in this country"— which means that the Chancellor suggests that the present level of distribution of income, which grants to the profit-making section 32 per cent. of the national income, according to official figures, is the ultimate end; that no more can be expected by way of taxation.

Major Bruce (Portsmouth, North)

Would the hon. Member complete the quotation? He only went part of the way.

Mr. Piratin

I can go further and read the whole speech again, but we all heard it yesterday.

Major Bruce

I only want the rest of the sentence.

Mr. Piratin

I will certainly read that in a moment, because I am coming to it in my own speech. Therefore, if I understand it, bang goes the Labour theory of the gradual transfer of wealth from rich to poor by this particular process. The Chancellor went on: for the future, we must rely rather upon the creation of more distributable wealth than upon the redistribution of the income that exists."—[OFFICIAL REPORT, 6th April, 1949; Vol. 463, c. 2091.] Let me make this point on that. In 1948, according to official figures in the White Papers, with which we have been inundated in the last couple of weeks, production went up 12 per cent. and personal expenditure went up ½ per cent. I have the tables in front of me giving the official figures, from which I draw certain conclusions. While production has gone up, the workers, who have been the main contributory factor in production, have not received any corresponding value.

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

These are exports.

Major Bruce

Could the hon. Gentleman explain how much the ordinary capital investment programme has gone up? He must be aware that a good deal must, of necessity on a long-term basis, go into the re-creation of our own physical assets which we lost during the war.

Mr. Piratin

I am aware of that, and have constantly been in favour of and spoken on the need for a wider capital investment programme than that contemplated. I think it was at the T.U.C. last year that the Chancellor made reference to the national cake and said "You cannot take a bigger slice of the national cake, because that would be at the expense of some other section of the community. You must have a bigger cake so that your proportionate slice would be bigger." I think that was the argument. What is therefore suggested is that the workers should go on producing more —and by the workers I include all those who contribute to production—but they are not to have a relative percentage increase of their own productivity. The hon. and gallant Member for North Portsmouth (Major Bruce) speaks of capital investment, and just now the Economic Secretary murmured something about exports. Let us face this question fairly. Have not profits gone up much more than wages?

Mr. Jenkins

No.

Mr. Piratin

Would the hon. Gentleman care to refer me to the tables in the Economic Survey—which I imagine he has studied as carefully as I have—to prove that? I think I gave sufficient figures before. It will be found that wages have not gone up as much as profits have. Such increases in wages as there have been are eaten up by indirect in addition to direct taxation. We now have the Chancellor expressing in economic language what the Lord President has often said, that the rich cannot be squeezed any more.

It seems to me clear, therefore, and this should be clear to my hon. comrade—[Laughter.] Yes, on many things we are on common ground. The hon. and gallant Member for North Portsmouth should note what has been said previously, that the applause for the Chancellor has come only from the other side of the Committee. In the last few hours, since I have been sitting on these benches, speaker after speaker on the Government side has condemned the Chancellor's Budget, while all the applause has come from opposite. The Government's policy is now revealing itself. We are not to spend more on the social services. Instructions have been issued to all Government Departments to reduce expenditure, though the Chancellor hints that these instructions will not apply to the Defence Departments. The burden of taxation is to fall still further on the lowly paid. Take, for instance, cheese. We do not get much cheese a week, I know, but certain sections of the working class get more than others—

Mr. Mitchison (Kettering)

Will the hon. Gentleman—

Mr. Piratin

I cannot give way now I will give way in a few moments. Miners and agricultural workers get an extra cheese allowance, but they have to pay more for it. The Financial Secretary said last night that the rationing of meat through the increased price would be arranged accordingly, but nothing was said about cheese, for which more money must be paid.

Mr. Glenvil Hall

As I may not have time to deal with the hon. Gentleman's speech, I can answer that point now. Meat is at present rationed by value, and we shall have to do something in that case. But cheese is not; it is rationed by amount, so that the point he has just made does not arise.

Mr. Piratin

All the more, therefore, does the right hon. Gentleman acknowledge that those who are allowed extra cheese because they work harder than others, will have to pay more for it?

Mr. Mitchison

The suggestion has been made by the hon. Member that the rise in profits has been greater than the rise in wages and salaries. I have no doubt that he has looked at Table 7 in the White Paper on National Income and Expenditure of the United Kingdom, 1946 to 1948. There it states that the rise of £645 million in wages and salaries compares with a rise of only £14 million in rents, dividends and interest. Other outgoings which can be said in any way to represent profit are smaller, both actual and in proportion, to the rise in wages and salaries. If the hon. Member turns over the page, to Table 8, he will see that between 1947 and 1948 there was a rise of two points in wages, both before and after taxation, and that there was no corresponding rise either in salaries, profits, interests or rents. That being so, I suggest that the hon. Member is mistaken in what he has just said.

Mr. Piratin

If the hon. and learned Member will turn to Table 4, he will find a different set of figures, which confirm what I have said.

Mr. Mitchison

I have studied them carefully, and I do not agree.

Mr. Jenkins

We have all studied them.

Mr. Piratin

Then the figures have not been understood, or perhaps there has been no wish to understand them. There was something else in the Chancellor's speech which was even more ghastly—his meanness to the unemployed and the sick. He expects to get an extra £10 million by not allowing part of the contributions paid each week to be deducted for Income Tax—1s. 7d. per week. On the other hand, he will make no deductions when these people draw their unemployment or sick pay. The quotation is important; though but an incident in the Budget, it gives a hint of a frame of mind which I felt very sharply when I heard it yesterday. The quotation is: Though, theoretically, this should lead to a reduction of receipts, I hope, in fact, as a result of this change, the Exchequer will be £10 million better off than otherwise it would, since it will be able to collect the tax on contributions whereas it is almost impossible to do so on benefits."—[OFFICIAL REPORT, 6th April, 1949; Vol. 463 c. 2099.] From a book-keeping point of view, that is very sound, and I can understand a Scrooge-minded local tradesman or employer arguing that way.

Mr. David Jones (The Hartlepools)

How does that affect the unemployed? The actual fact is that people do not pay contributions when they are unemployed.

Mr. Piratin

To whom is the Chancellor referring?

Mr. Jones

Not the unemployed.

Mr. Piratin

Then it is the sick. Are they the people to whom the Chancellor is referring? This comes within National Insurance. In what circumstances do such people get benefits.

Mr. Jones

When they are sick they pay no contributions.

Mr. Piratin

But the hon. Member admits that they are sick. What the Chancellor is saying is that when they are sick it is very difficult to collect Income Tax from them against the allowance which they are being paid. Therefore, he proposes to take it week by week through P.A.Y.E., by 2d. or 6d. a week, and from that he will get £10 million a year. That is the height of meanness. If he took that attitude towards the employing classes I would support it; if he took it towards both sections he might argue that he was being fair; but he is not doing that because he is only taxing these workers. Hon. Members have referred to his speech as courageous. It appears to me that "courageous" is a new word for persecuting the workers, and that is what is happening in this Budget.

I conclude on two points. The hon. and gallant Gentleman the Member for Central Hull made one of my points, and I dare not emulate him because he speaks with greater authority. I hope that hon. Members who were not present when he spoke, will read what he said or ask him what he said. He spoke with feeling, and he warned the Chancellor of what would happen amongst the organised working classes. Secondly, for myself, and I hope there will be other Members in this Committee who will agree with me, I cannot support this Budget. I will go into the Lobby against it when the opportunity offers.

8.45 p.m.

Mr. Godfrey Nicholson (Farnham)

I do not intend to controvert most of the things said by the hon. Member for Mile End (Mr. Piratin) because he and I approach these questions from totally different angles. But I must say this, that the hon. Member has no right to say that the Chancellor has yielded to capitalist or to United States pressure in the steps he has taken or that he has acted from a desire to court popularity. I disapprove of the Chancellor of the Exchequer in many ways. He has a tortuous and curious nature, but nobody can deny that he has courage and sincerity. He has taken the steps he has taken because he believes that they were right. I for one wish to pay my tribute to his integrity and his courage in that respect. I also pay my tribute for the clarity of his speech. I do not suppose such a long speech was ever delivered in the House before without a single interruption. I only know of one Member who fell asleep and that was only for 10 minutes. That Member was myself.

It was the most important Budget speech of our generation if not of the whole of our political history, for it was the first Budget speech which was not primarily engaged with questions of taxation or the balancing or unbalancing of the Budget, but with the proportion of our national income that was being taken and spent by the State. It will have vast political repercussions. It will have far-reaching effects upon the history and development of the Labour Party, because it represents a complete reversal of their previous attitude. It represents the abandonment of the theory that the State is a sort of Father Christmas with a bottomless sack of presents on his shoulder, which can be distributed ad lib and paid for Heaven knows by whom.

It would be tempting in the few minutes I have to make a purely political speech, for this is a subject which bristles with party points and party opportunities. But I submit that this is far too historic and significant a moment in our national history to make party political gain justifiable. The issues raised by the Chancellor of the Exchequer must transcend party. We are all equally involved both in the responsibility and in the consequences. On the solution of this problem depends not only our standard of life and the measure of our social progress, but perhaps even our continued existence as a nation.

The right hon. and learned Gentleman pointed out that we were spending 40 per cent. of the national income in national and local taxation. That is 8s. in the £. Out of every five days that the average man or woman works, he or she works two days for the Government, and only three days for themselves.

Mr. Mitchison

That cannot be true.

Mr. Nicholson

Yes, it is. Instead of 40 per cent., the corresponding figure in the United States is 25 per cent. and 19 per cent. in Sweden and South Africa. I said that these issues transcend party feeling and party prejudice because the plain fact is that that 40 per cent. is literally intolerable. An indication of that, if not a direct proof, is offered by the past year, 1948. It was a comparatively prosperous year. I doubt very much whether we shall see such a level of prosperity for some time to come, for according to the Economic Survey the Government admit there is not much room for increased productivity. The Government estimate that there will be increased productivity only to the tune of 2½ per cent. There was— I wish I could say there is— a sellers' market all over the world. There was, and thank God there still is, American help. There was no room for savings. Two-thirds of the total capital flotation came from savings, and one-third from borrowed money and foreign money. There was no room for incentive. There were precious few incentives to any class of worker, from the richest to the poorest, in 1948, and the same is true today. There was not an ideal standard of life.

Will anybody on any side of the Committee say with pride that the utmost we can offer to the people of the country is the standard of life provided by us in 1948? I hardly think so. If the level of life provided in 1948 is all we have to offer to the people of this country, then we are indeed condemning them to a perpetual treadmill. What hope is there that the future will be easier? Is there any prospect that our commitments will be less? Will they not rather be bound to increase? There is Defence expenditure. We differ profoundly from the Government on the way in which they spend their money on defence, but I do not believe that any side of the Committee would seriously suggest that Defence expenditure is likely to grow less. Social services—we are all equally committed because it is by our united volition as a nation that the State is committed to an extensive programme of social services. The National Debt—nobody outside the lunatic fringe suggests that expenditure on the National Debt can be very much reduced. I shall deal with food subsidies in a minute. Commitments are bound to increase and national expenditure is bound to go on increasing, and the yield of taxation may well be less; in all probability it is true to say that it is certain that it will be less. A recession throughout the country is already noticeable. There is a falling off in the sellers' market all over the world and the buyers' market is coming more and more into its own.

My point is that next year's Budgetary position is certain to be far worse and far more unpleasant than this year's. If the Chancellor of the Exchequer needed courage this year, he will need 10 times the courage next year to deal with the position which will present itself. There can only be two classes of remedy. Either expenditure must be cut or, perhaps together with that, productivity must be increased. The Opposition believe that considerable economies can be effected by efficient administration, but even the most sanguine of us would not say that that would represent more than a 10 per cent. cut in expenditure. We also believe that in the long run—not in the short run —food subsidies can be considerably reduced. That is certainly not an immediate programme because undoubtedly much of the money spent on food subsidies today will have to be used in order to temper the wind to the shorn lamb when subsidies are substantially reduced. We are more committed than the Government are committed to the theorem that the cost of living must not be allowed to rise.

Now let me turn to increased productivity. There may, indeed, be a new industrial age upon us. The atomic age may produce inventions as far reaching and startling as the industrial revolution or the discovery of America. However, the plain fact is that if productivity increases year by year at the rate of 2½ per cent. every year, it will take a quarter of a century, if expenditure remains stationary, before the proportion of our national income taken by taxation can be reduced to 25 per cent. That is the level which at present obtains in the United States. Also, there is a kind of law of diminishing returns with regard to State expenditure, and if more than a certain proportion of the national income is taken by the State, then instead of the standard of living of the people rising, the standard of living of the whole nation is depressed.

I did not rise merely for the purpose of detailing these melancholy facts which, thank heaven, are becoming more and more obvious to every section of the community today. I rose to ask the rhetorical question of what is our duty, irrespective of party, in the face of this gloomy prospect. I venture to suggest to all parties in this Committee that we must try to forego party advantage. It would be easy for us on this side, for example, to make great party capital out of this Budget. It would be easy for certain sections of the other side of the House to make capital out of it. Then I think we must resolve not to bid against each other in terms of the national wealth for the votes of the electorate. We like to think that the other side of the Committee is more guilty of that than we are, but there is not a single Member of this House of any party who can acquit himself of that completely.

I think we must do what the Chancellor of the Exchequer suggested, that is, resume our rôle as critics and opponents of Government expenditure. We must regard the Government of the day, whatever its party, as being a rapacious spendthrift, and Members of Parliament as being the guardians of the national and of the people's purse. We must recognise that this is a common danger that threatens our existence as a nation and as a civilisation. This will be the political problem that will dominate every aspect of politics during our lifetime. It will go far to transend the theoretical differences between Socialism and Conservatism—this economic problem of how we are to provide the people of this country with the standard of life that they need and demand and deserve, and yet, at the same time, maintain the economic health of the nation.

So far those are negative suggestions. I offer these positive ones too. We must preach as one man that the cost of benefits received by the people is directly reflected in the cost of living. When hon. Members complain that the cost of living is liable to go up as the result of this Budget, they must remember the chain of causation that exists, a chain of causation that is not recognised by one elector out of 20, between taxation and the- cost of living. We must teach and preach that as in private housekeeping the greatest skill and care and planning are needed, so that same skill and care and planning are demanded in the national housekeeping. We cannot have one set of laws and rules applying to people's private household budgets, and another set applying to the national budget.

Finally, we have to recognise, as I have said before, that we are all responsible for the position we have got into through our own volition and weakness. We need not waste time in apportioning that weakness and volition between the different parties. We must recognise that this is a common responsibility. We are responsible for having got into the mess, and we are jointly responsible for getting our country out of it.

8.57 p.m.

Mr. David Eccles (Chippenham)

The Committee always listen to my hon. Friend the Member for Farnham (Mr. Nicholson) with attention, because he speaks with great sincerity which we all appreciate. This evening I want to depart from precedent and not use my fortunate position in winding up on this side, to try to answer the whole Debate but, through you, Major Milner, to confine my remarks mostly to the hon. and gallant Member for Central Hull (Captain Hewitson). The hon. and gallant Member made the most grave speech in the course of the Debate today. As a representative of the T.U.C. he said that the T.U.C. would run the Government, that the T.U.C. would not stand for this Budget, and that unless great concessions were made, he and his friends would not be able to hold the demands for wage increases.

Mr. Ellis Smith

The hon. and gallant Gentleman the Member for Central Hull (Captain Hewitson) did not quote the T.U.C. He was speaking for himself and was referring in particular to a union meeting which he had attended.

Mr. Eccles

If the hon. Gentleman reads the OFFICIAL REPORT he will see a very great deal about the "white horse" and the T.U.C. However, whether the hon. and gallant Gentleman was speaking only for his own union or not, what he said was very grave. I have the greatest sympathy with the hon. and gallant Gentleman on this problem of the cost of living, but from this side we ought to put our position clearly in an attempt to show the hon. and gallant Gentleman that there are some other arguments why he should not pursue the course which he has threatened to pursue.

In the weeks that precede every Budget a theme emerges which is obviously preoccupying the minds of those who pay attention to the national finances. There can be no doubt that this year it was an argument between the supporters of a soft Budget and the supporters of what some hon. Gentlemen call a hard Budget or what, I think, the Chancellor would prefer to call a standstill Budget. The hon. and gallant Member for Central Hull, of course, ranged himself with the hon. Member for Central Bradford (Mr. Webb), who has been the champion of the soft party. The hon. Member for Central Bradford has a generous mind, which we all admire; when it is not turning to foxhunting it is certainly bent upon the cost of living. He asks for a whole range of tax remissions, without considering their effect upon the capital programme. I presume that the hon. Gentleman also had a thought for the next election, and that he considers that a soft Budget would be not only good economics but good electioneering.

On the other side are ranged the supporters of the standstill Budget. These hon. Gentlemen are divided among themselves by two different fears. Some of them fear inflation, the others fear to cut expenditure; but both of them recommend the medicine as before. They both tell us that we are condemned for life to taxation at the level of 8s. in the £. The Chancellor is quite right to have no patience with the appeasers—the hon. Member for Central Bradford and his friends—but I doubt whether his standstill Budget is the only alternative. I am not sure that it is the medicine which the country needs. I cannot get out of my mind some words that Maynard Keynes wrote after the last war about the policies and programmes then in fashion. He said: "… the word is not made flesh…it is futile, insignificant, of no effect, dissociated from events.…" Even after the Chancellor's magisterial lecture yesterday, I had the feeling of unreality. In my view, this year's Budget will influence next year's election—if the Lord President waits so long—not by its effect upon the spending power of those in work, but by its effect upon the number of unemployed looking for work. For ten years Parliament has not had to discuss unemployment. First, the war, and then the stocking-up boom, which always follows a war and always ends, have made us forget that unemployment can exist and have made us do some very queer things in the House of Commons.

The Chancellor himself remarked yesterday that Parliament had abandoned its traditional rôle of watchdog of the people's money. I would go further and say that for four years our financial Debates have been coloured by two fallacious notions. First, many hon. Gentlemen have held that it did not matter how much money their Government spent. It is something quite new in British history for the majority of the House of Commons to take that view. The needs of the people—I refer now to the words of the hon. Member for South Tottenham (Mr. Messer)—are to be the one and only criterion of expenditure in this Socialist age. We must never add up the total of the Budget. Our duty was to spend what it was necessary to spend to meet every urgent need and desire of the electorate. Yesterday the Chancellor of the Exchequer, using words that reminded me of my right hon. Friend the Member for Scottish Universities (Sir J. Anderson), punctured that notion, but he was content to call a halt and establish a standstill at the level of 8s. in the £ taxation of our national income.

It looks to me as if the Chancellor is bewitched by the second fallacy which has got hold of the House of Commons. The majority of this House of Commons, again for the first time in our history, believe that the boom in trade will go on for ever. Many of the Members opposite sincerely believe that full employment has been established for good and therefore —

Mr. Fairhurst (Oldham)

Is the hon. Members arguing that we must have a period of mass unemployment?

Mr. Eccles

If the hon. Member will allow me, I am coming to that as quickly and as quietly as I can. Many hon. Members believe that full employment has been established for good and that there can be no fluctuations in the national income, except upwards, in response to greater productivity. In my submission, this is just as great a fallacy as the other.

If we look back over the years since the end of the war, we see that His Majesty's Government, in deference to these two delusions, about the level of expenditure and about full-employment, and very largely helped by American aid, have encouraged the British people to acquire the habit of consuming more than they earn, and during this period of over consumption Ministers have added very greatly to the commitments for which revenue must be raised in good times and in bad times. Their financial and social policy is, therefore, seen to rest on the proposition that the boom will go on for ever and revenue will continue to be buoyant.

It is that assumption which gives to their Budget proposals a most disquieting air of make-believe. No Socialist seems yet to have asked himself what will happen to the whole sprouting edifice of the welfare State if there is a recession in trade, accompanied as it must be by a sharp contraction in the yield of the taxes? Suppose there are lower profits one day, lower revenue, losses on longterm contracts and a still smaller flow of private savings, substantial P.A.Y.E. refunds and money going out of the Unemployment Fund, what then happens to the various programmes of Government expenditure which we see stretching out in front of us, not in a dwindling perspective, but in ever swelling proportions? As an hon. Member opposite remarked, we are committed to a big programme of rearmament, but, so far hardly any of the cost of the new equipment and the new weapons has appeared upon the bill. The mounting Service Estimates represent merely the rise in the cost of living. Again as the Chancellor pointed out, we are committed to expanding social services which have a long way to go before they reach the maximum. All this expenditure is geared to a revenue collected under boom conditions which are disappearing. On what a false and sandy foundation we are scheming for social improvement!Under what a delusion we are over-spending on national income, feeling ourselves to have a margin in hand sufficient to disregard the effects of 8s. in the £ upon the costs of production, and at this point in the trade cycle—

Mr. Glenvil Hall

Nine shillings.

Mr. Eccles

—the right hon. Gentleman says 9s.; I am prepared to stop at 8s.—and, as I was saying, at this point in the trade cycle, April, 1949, producing a Budget that contains no incentives to personal saving or personal initiative and quite inadequate provision for investment in industrial equipment. For a few months more the revenue will be buoyant because it is to be collected upon the profits of last year. During 1948 world prices were rising, and so were British profits. But those responsible for a cross-section of British industry are already predicting—and I have some experience myself—that there will be large and widespread declines in profits in 1949.

This change in the business climate is only another aspect of the demand for tax remissions advocated by the soft Budget party. Certainly there is less money about and there is less trade. If we were a self-sufficient economy, ringed round with a fence, cut off from the rest of the world, perhaps it might be possible to adjust matters by pumping more money into circulation. To put more money into circulation here, however, if it is done out of step with the other industrial countries, so that our prices are kept steady while theirs are falling, would cripple the export trade.

I was not satisfied with the Chancellor's remarks about the probable course of world prices. He was playing the long-necked ostrich and was hiding from himself the downward movement which has begun and was to be expected after three years of boom. The remarkable thing is that it has not begun earlier. How are we in Britain to adjust out-economy to a change which we cannot control? Taking a look round the industrial countries whose manufactures compete with ours is there a single one of them to whom we could say "Our British costs are more flexible than yours"? What other country has riveted upon itself so high a level of Government expenditure and such a leaden burden of charges as we have? Whatever we may think about nationalisation as a political principle the practical results are to raise the costs of industry and lower the receipts of the Exchequer. Again, the insurance and the taxation payments borne by British industry are higher than those in any other country in the world with which we compete.

Let us try to put this to the test. Those hon. Members, and there are many, who are familiar with trade, know that if the Americans or any other of our competitors, be it the Germans, the Japanese or any of them, lower their export prices 20 per cent. or 15 per cent. or 10 pet cent. we cannot follow them down. The fact is that British costs are today debited with more items that can neither be reduced nor shifted than any other costs in the world. It may be objected that it here and there we are priced out of one of our export markets we shall be compensated by falls in the prices of our imports. That does seem to be the view of the Chancellor. It certainly is not mine.

He spoke yesterday, significantly I thought, of the loss of dollar earnings to the sterling area arising out of falls in the prices of primary products. I should like to know more about that. What difference do these falls, that have already occurred, make to the estimates of the balance of payments in the Economic Survey? It is almost certain that those estimates were made up before the end of the year, and the falls in these primary products have taken place since that survey went to print. I very much doubt whether the balance of payments figures in the Economic Survey are worth much now. I see that in paragraph 57 it says: … competition in export markets is increasing and there is no sign of any lasting slackening of demand for the primary products we import. It would appear that the authors of the survey meant that in terms of our manufactures the United Kingdom will have permanently to pay more for its food and raw materials. I should like to know if that is the view of the Government.

As I see it, the essence of the matter is that we have to import food and raw materials much more urgently than our customers have to take British manufactured goods. Furthermore, the United Kingdom, of all nations, is badly placed to take advantage of falls in the prices of primary products. What we must pay for many of our imports has been fixed for months ahead, it may be years, by the clumsy methods of State trading. At this moment in the trade cycle it is anybody's guess whether the minimum prices in the Wheat Agreement will turn out to our advantage or not.

As we enter a period of world deflation we shall find that State trading is not such an attractive proposition. It may well be that even professing Socialists, who wish to avoid being brought to book for making losses, will turn back to private channels of buying and selling. Recently—and this is a very good example of what will happen —we have seen American industry get an advantage of several weeks out of a fall in the price of lead. Our manufacturers of paint and batteries have been handicapped. They do not even yet seem to have got the full recession in price. When the downward momentum of world prices gathers force that example will be repeated hundreds of times and every time it will be a handicap to British industry.

How do this Government propose to meet this change in the business climate? The Survey talks a great deal about reducing costs and improving productivity, but in the very vaguest terms. As the hon. Member for Stoke (Mr. Ellis Smith) said, the Government have no practical plan which could show results within the short period which we have to get free of our economic dependence. It may be that Ministers are relying upon bilateral agreements to maintain the volume of our overseas trade. That probably is the answer which the President of the Board of Trade will give on Monday. It makes me shiver to imagine what that right hon. Gentleman will do when the blast of falling prices strikes his card-house of bilateral agreements.

The hon. Member for Central Southwark (Mr. Jenkins) took up my right hon. Friend the Member for Aldershot (Mr. Lyttelton) about what had been happening in Belgium. Perhaps I can add a few words about the present state of Belgian industry. The Belgians wrote into their trade agreements lists of goods sufficient to keep their export industries busy. That is just what we are doing. But what happened? Their prices went ahead of those of their rivals; their franc became a hard currency; those who had signed the agreements with them could not, or would not, take up the export quotas of Belgian goods, and they had heavy unemployment in Belgium. If the hon. and gallant Member for Central Hull were here, I would tell him that shortly we shall go through the same test on a much larger scale. The question is how are we to come out of that test.

I want to say something to the Committee which is hard. I hope that hon. Members will hear my arguments before they dismiss them. In my judgment, His Majesty's Government have already lost control over employment policy. One hon. Member to whom I gave warning that I intended to quote him, the hon. Member for Dagenham (Mr. Parker), sees the storm coming and he comforts his constituents with the promise that a Socialist Administration will know how to spend their way out of unemployment. We should pay attention to the hon. Member for Dagenham. He represents in my generation the fine flower of Fabian intellectuals. This is what he is reported in the "Stratford Express" as having said on 11th March: Vast working schemes were being prepared by the Government to be put into operation if a slump came. There would be plenty of work improving the roads and railways during a depression, and part of the Budget surplus was being set aside to finance it. Of course, the hon. Gentleman was quite wrong about the Budget surplus. Last year's has been used up, and next year there is not to be one. But I let that pass. That is not the important point.

The interesting point is that the hon. Member relies on Lord Keynes' technique of spending ourselves out of unemployment should it come. That technique cannot be used today. The Labour Government have destroyed the assumption on which it was founded. If they try, as the hon. Member for Dagenham tell us they will, to spend their way out of unemployment, they will spend themselves straight into a foreign exchange crisis. Lord Keynes' doctrine rested on a proposition which does not now hold good. He assumed that none of his measures to combat unemployment would be frustrated by any lack of essential imports. The hon. Member for Dagenham has completely forgotten that when the demand for exports falls off it can only be replaced with a stimulated demand at home if the necessary flow of imports of food and raw materials can be counted on.

What is now the position? Marshall Aid is tapering off. The gold reserves are as low as the sterling area can afford. British costs are rigid. The bilateral agreements are only pieces of paper. Any attempt to spend our way out of unemployment will result at once in a payments crisis. I find it hard to understand why the Lord President chooses to wait until next year for an election. I suppose it is as it was in ancient times —that the Gods make blind those whom they wish to destroy.

Mr. Fairhurst

Is the hon. Gentleman assuming that central Europe, Asia and India are to remain on a Belsen Camp standard for evermore?

Mr. Eccles

I would not be able to answer that, not being able to see into the far distance. All I can tell the hon. Gentleman is that, at the present moment, we have tipped over that period in the trade cycle when world prices are rising, and, whether he likes it or not, we are entering the period when world prices are going to fall.

The summary of my argument is that the Keynesian doctrine is not applicable today, and, therefore, the Budget proposals are quite an inadequate introduction to the next chapter in our economic history. This Budget does nothing posi- tive to help us in the next 12 months to earn our daily bread from overseas, and what is the reason for that? The reason is that the Chancellor is caught upon a dilemma. If he cannot reduce expenditure, he cannot provide personal incentives or reliefs to the cost of production. I think we should face the truth. Taxation at the level of 8s. in the £ is incompatible with a resilient, risk-taking economy capable of facing a fall in world prices, which, of course, will be reflected in lower costs in the other manufacturing nations.

I ask hon. Members not to be mesmerised by what has been happening in the boom, because so many speakers today have been under a delusion. These boom conditions are not everlasting; they were always bound to be temporary and now they are disappearing.

Mr. Scollan (Renfrew, Western)

May I ask the hon. Gentleman a question? Is he trying to impress on the Committee that the whole effect of the Marshall Aid policy is to be one of failure that will end in a slump?

Mr. Eccles

I am not trying to impress anything of the kind on the Committee.

Mr. Scollan

But that was the hon. Gentleman's argument.

Mr. Eccles

Perhaps the hon. Gentleman will allow me to interpret my own argument. I am telling the Committee that with Marshall Aid it is still true that the prices of food grains, coarse grains and raw materials are declining, and that is well understood. What we have to say to ourselves is—what do we do about it? For Britain is not in a position to insulate herself from the great currents of world supply and demand.

Mr. Scollan

Marshall Aid was supposed to cure all that.

Mr. Eccles

We cannot spend ourselves out of even a mild depression in trade, because we have not got the reserves, or the elbow room to do it. I imagine that some hon. Members believe that the solution to the problem is the devaluation of the £ against the dollar. I do not like that method. Devaluation would depress our standard of life, although it might help to balance our accounts with the hard currency countries at a lower level. I should regard it as a last resort. We may come to it, and we certainly shall come to it if we have not got the courage to tackle our costs now. Like my hon. Friend the Member for Scarborough and Whitby (Mr. Spearman), I prefer to do the unpleasant job scientifically, pruning now where it hurts the least rather than waiting for the brutal axe of devaluation to do it for us.

The Chancellor is not facing this situation; he has only half opened the door to reality. He has told his friends that they cannot have any more benefits until they earn them, but that is not enough, for the present level of earnings, the present yield of taxation and the present level of benefits are themselves in the gravest danger. There is no standstill in this position. Therefore, I cannot escape my conclusions, which I shall put in three sentences. I wish the hon. and gallant Member for Central Hull were here, because I should like to ask him one question: Is there anything more cruel or more unpopular than unemployment?

Now, if that be conceded, we should not shrink from any lesser hurts which, if endured, would help us to hold off what we dread most, and I would ask: What price are hon. Gentlemen prepared to pay to keep our exports in the world markets and our men and women in work? I think I would carry my hon. Friends with me when I say that we on this side would pay any price, whatever it cost in temporary unpopularity; and I think I would carry a great many hon. Gentlemen opposite, too. If that be so, then this Budget does not deserve the epithet "realistic." It would be a realistic Budget if it faced up to this question of costs. That of course means that expenditure must be cut somewhere, and great reliefs must be given, not to persons particularly, but to anything which helps the balance of payments and enables our economy to stand up to a world decline in prices, for if we cannot produce and sell goods at the right price and of the right quality in the markets of the world we shall not be able to earn our bread and butter.

9.31 p.m.

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

As the Committee are aware, this Debate will continue for another two days at the beginning of next week, and my right hon. Friend the President of the Board of Trade, my hon. Friend the Economic Secretary, and my right hon. and learned Friend the Chancellor of the Exchequer will be taking part in our discussions then. I mention that in order to assure the Committee that any important points to which I am unable to direct my attention tonight in the time at my disposal may yet be replied to by one or other of my hon. and right hon. Friends.

In many ways this has been a rather unusual Debate. I have taken part now in a lengthening series of discussions of this kind, and I must say I agreed with my hon. Friend the Member for Chesterfield (Mr. Benson) when he said that he had never listened to so mild an opening speech from the Opposition Front Bench as that of the right hon. and gallant Member for Gainsborough (Captain Crookshank). I should like to say, in parenthesis, that I am sure the Committee will join with me in saying how much we regret that, owing to ill-health, the right hon. and gallant Member has had to leave us before the end of today's proceedings. We wish him a speedy recovery.

We must remember that we are here dealing with taxation. I have yet to find anybody who really likes taxation, which means that we are all inclined to favour changes in taxation which help us or those with whom we are most closely associated. But the Chancellor of the Exchequer has to look at these matters in an entirely different way. He has to face facts and to keep his feet on the ground. From the speeches I have listened to and the comments I have read in the Press, I think there is general agreement that, however much hon. Members in any quarter may dislike certain proposals made by my right hon. and learned Friend, all are agreed that yesterday the Committee was treated to a very lucid and comprehensive review of the situation. Therefore, the Government, in dealing with the points that have been raised, have got to realise that their job is to see that the good work which has financial policy which my right hon. and learned Friend and his predecessor have been done—I think due largely to the carried out—is continued in the years ahead. I will deal first with the speech of the right hon. and gallant Member for Gains-borough, who appeared to find that the Government had departed from the declared policy on social service expenditure laid down in the Economic Survey. I think he referred to page 15 of that document, where he seemed to see that the policy there declared for expenditure on social services had, in fact, been departed from by my right hon. and learned Friend. He was really muddling two very different things. The reference in the Survey is to the investment expenditure on the social services—that is, on building houses, hospitals, schools, and other things for social service purposes—whereas the figure given by my right hon. and learned Friend included, of course, social services expenditure of all kinds, including expenditure for investment purposes.

The right hon. and gallant Gentleman also appeared, so it seemed to me, to be slightly derisory of the circular which my right hon. and learned Friend announced yesterday he had sent out to Government Departments. The right hon. and gallant Gentleman said it was one thing to wag a finger at the Departments, I suppose in a menacing manner, and quite another thing to produce economies. Now the right hon. and gallant Gentleman once occupied the position I now occupy, and he should know that every year there are savings on the out-turn as compared with the estimates put in, plus Supplementary Estimates. In the year 1948–49 these came to £117 million. We have to remember that there is no precedent for a circular of the kind my right hon. and learned Friend has just sent round, and that he did make it clear to the Committee, and has made it clear in the circular, that he does not include in the terms of that document any major changes of policy which may involve increased expenditure. What he has done—and I think the results will prove his action to have been right—is to insist with Departments that supplementaries are not to be the rule but the exception, and are to eventuate only if some major change in policy is made.

I thought the speech of my hon. Friend the Member for Chesterfield was a thoughtful and useful contribution. He quoted from a speech made with reference to an earlier Sir Stafford, which to many of us had a very familiar ring. I hesitate in the time at my disposal to follow him down the avenues which he opened up as to what is or what may be the limit of taxation which any nation can stand. He quoted Cohn Clark, whose works many of us know, as asserting that, when 25 per cent. is reached, that is the danger limit. In this country, as the Committee well knows, taxation has now reached a percentage of over 40. I think it is obvious that the use to which taxation is put must necessarily make a good deal of difference to the percentage which any nation can stand; and where, as in this country, there is a mixed economy, partly socialist and partly capitalist, it is quite obvious that we can bear a much higher percentage than could perhaps be borne in a completely free capitalist economy.

Mr. W. Shepherd

I cannot see the point of that at all.

Mr. Glenvil Hall

I have sat in the House with the hon. Gentleman for some years now, and I can quite understand that many things said here pass completely over his head. If tomorrow he will read what I have said, and also the speech of my hon. Friend the Member for Chesterfield, he will see the point I have tried to make.

The speech of my hon. and gallant Friend the Member for Central Hull (Captain Hewitson) has received a good deal of attention, and may possibly receive more attention in many newspapers tomorrow. I could not help thinking, as he spoke, that he was laying far too much emphasis on the effect which my right hon. and learned Friend's proposals on food subsidies will have on our economy, particularly on the economy of the more poorly paid members of the community. My hon. and gallant Friend has overlooked—and perhaps some other Members may have overlooked—the percentage of the food subsidies that are being changed compared with the total subsidies which are being found. The reduction in the food subsidies, as my right hon. and learned Friend said yesterday, is in the region of £103 million. Of that, £33 million will be found by what I might describe as a purely bookkeeping transaction; that is to say, the tax is to be reduced on the one side and the corresponding subsidy, or its equivalent, taken off on the other. The £33 million is on sugar and tea, and the balance of £70 million has to be found by price increases on meat, cheese, margarine and butter.

As has been said by more than one hon. Member, that will amount to about 4d. per head per week on the rations of our people. We must, however, realise that this is not the end of the story. Butter is to be increased in price from 1s. 4d. to 1s. 6d. per lb., but people will still enjoy a subsidy of over 1s. 3d. per lb. on butter. If my hon. and gallant Friend the Member for Central Hull will look at the price which will be added to the lb. of butter—2d.—and realise that, in addition to that, butter will still enjoy a subsidy of 1s. 3d. a lb., he will see that the situation is not quite so catastrophic as he believes.

Cheese, which goes up from 10d. a lb. to 1s. 2d., will still be subsidised to the extent of 9d. a lb. of margarine, which goes up from 9d. to 10d., will still be subsidised to the extent of over 4d. Meat is more complicated, because it has been rationed by value rather than weight. It depends on the variety of the cut just what effect the taking off of part of the subsidy will have, but a subsidy of over 2d. will still remain on every lb. of meat when the 4d. in subsidy comes off.

Mr. Ellis Smith

I should like the Committee to be told the whole story. Is it not a fact that most of these subsidies were put on in lieu of wage advances during the war?

Mr. Glenvil Hall

I do not think that what my hon. Friend says is quite borne out by the facts. As my right hon. and learned Friend reminded the Committee yesterday, in the first year, which was 1940–1941, the subsidies amounted to £63 million. In 1945–1946 they had gone up to something like £265 million and now, as we know, they are running at nearly £500 million and they threaten, if something is not done, to reach about £568 million within the coming year. It was a situation of that kind which my right hon. and learned Friend could not possibly contemplate, and I am trying to show the Committee that, although he has had to put 4d. on meat, 4d. on cheese and other amounts on butter and margarine, they do not amount to more than 4d. per head. Even when the new proposals take effect, a considerable subsidy will still be running on the things from which part of that subsidy has been taken. What I hope to demonstrate to my hon. and gallant Friend the Member for Central Hull is that the situation is not nearly so catastrophic as the Committee have been told earlier.

Captain Hewitson

Is my right hon. Friend aware that even with the present price of rations, many of the lower income groups in industry cannot even afford to pay the prices as charged at present? Can he imagine any joy or elation on the part of these people about the increased prices?

Mr. Glenvil Hall

I do not want to spend the whole of the time at my disposal on this particular point, interesting though it is. I want to deal with some of the other points which have been raised.

Sir A. Salter

I should just like to get the figures clear. The Financial Secretary has been stating what has been the reduction in the food subsidies. I imagine he means by that reduction a comparison with the figures which food subsidies would otherwise reach if no change had been made, because if I understood it aright if one compares the subsidies last year with this year, one sees that last year they were £485 million and this year £465 million, but £33 million is a bookkeeping transaction, so, in fact, compared with last year, there is an actual increase of £13 million this year over last year in the food subsidies.

Mr. Glenvil Hall

The right hon. Gentleman is quite correct and I was going into that when I was interrupted by my hon. and gallant Friend the Member for Central Hull. Looking at the point another way, if we take off £103 million of the subsidy, £33 million of which is a bookkeeping entry, £465 million remains, and that will include the present subsidies on bread, flour, milk, eggs, bacon, potatoes and also on butter and the other items with which I dealt a little earlier and which I tried to demonstrate, I hope to the satisfaction of that hon. and gallant Member, still enjoy very considerable subsidies. These will still work out at about 3s. 6d. a head of the population.

I want to make it quite clear that my right hon. and learned Friend is not cutting down the present subsidies at all he is simply taking the precaution of seeing that during the coming year they do not become unmanageable and do not go beyond the limit of £465 million. As he informed the Committee yesterday, provision for that has been made in the Estimates which have already been presented to the Committee.

I was sorry that the noble Lord the Member for South Dorset (Viscount Hinchingbrooke) so far forgot himself as to refer in such slighting terms to the Chairman of the National Coal Board. I interrupted to give him an opportunity, if he were so minded, to make amends. Instead of that, he actually made it worse. The Chairman of the National Coal Board cannot come to the House and speak for himself.

Viscount Hinchingbrooke

That is what the right hon. Gentleman is doing now.

Mr. Glenvil Hall

I want to say to the noble Lord that, so far as I know, the chairman is not a member of our party; he is, for aught I know, a distinguished member of the noble Lord's own party. I would only add that the many advantages of education and other things which the noble Lord has enjoyed have apparently failed to instil into him the meaning of the word" gentleman."

The hon. Member for Scarborough and Whitby (Mr. Spearman) told us of some friends of his who had informed him that, although they voted Labour last time, they were not going to vote Labour again, because, apparently the only thing to the credit of this Government was that it had pushed up exports and, according to the friends who spoke to him, any fool can do that.

Mr. Spearman

What the former member of the Socialist Party said to me was, "Any blooming Government can export to a starving world; there is no credit in that."

Mr. Glenvil Hall

Perhaps I paraphrased freely, but the meaning is much the same whichever version one takes. I would remind the hon. Gentleman and the Committee that, although it may be quite easy in a world such as we live in at the moment to export goods, the truth is that after the First World War, when the world was in much the same situation, this country found it very diffi- cult to boost up its exports, and in 1921 they were well below the 1913 figure. I have not the exact figure but I think it is something like 45 per cent. below the 1913 figure. We had not the advantage of a Labour Government in office then and therefore the production figures were not obtainable. They are obtainable now, thanks to the fact that we watch these things and build up our statistics. Compared with 1938, production is now up 125 per cent. and exports are certainly up 33 to 50 per cent.

Mr. W. Shepherd

Is not the right hon. Gentleman aware that in 1920 exports and re-exports were of the value of £1,200 million and that they went down in 1921 to about £800 million, which was very considerably above the pre-war level?

Mr. Glenvil Hall

If the hon. Gentleman will again look at the figures, he will find that what he is saying is incorrect. I am dealing with volume of exports.

The hon. and gallant Gentleman the Member for Ayr Burghs made a curious speech. I am not sure that I should take his speech seriously. He said—and he was careful to except Scotland—that the people were not working hard enough. The hon. and gallant Gentleman also said that here we work five days a week as compared with the six days worked in the United States. The inference—I thought an unfair, indeed a dangerous inference—that he asked us to draw from what he said was that here people are slacking, and living on Marshall Aid which is provided by an extra day's work on the part of the United States workers. Normally one would not bother to answer a charge of that kind because it is so demonstrably untrue that one does not want to waste time on it; but, unfortunately, the hon. and gallant Gentleman is speaking in the House of Commons, and things said here are often taken at a greater value than should be placed on them. Therefore, I want to make it quite clear, both to this country and to America, that what the hon. and gallant Gentleman is saying is completely untrue.

Sir T. Moore

A dogmatic statement like that is unfair unless some proof can be adduced that I am wrong.

Mr. Glenvil Hall

To begin with, the average weekly hours per worker in all manufacturing industries in America during 1948 were only 40, and here they were at least 44. In many industries, particularly the steel industry, they have been working eight-hour shifts all the clock round, as most hon. Members in the Committee know. I do not want to give a large number of quotations. Every Member of the Committee who follows the newspapers will have seen from time to time the excellent compliments paid to the workers of this country by our visitors from overseas.

Sir T. Moore

Will the right hon. Gentleman permit me one sentence—?

Mr. Glenvil Hall

May I give one short quotation from Mr. Victor Reuther, who is an American trade union representative on the Anglo-American Productivity Council? This appeared in "The Times" last November, so that it can be checked. This is what he said: I shared the illusion, which seems quite common in this country as well as in the United States, that the difference in productivity arises from the fact that labour here is not working hard and fast. I believe that if it had the same equipment, tools, plant facilities,"— I do not know who is responsible for the lack of them unless it is hon. Members of the party opposite— and raw materials it would match the productivity of American labour. I found that the tempo in the plants I visited was certainly as fast as anything that is customary in the United States. I hope in the light of that evidence from an American, who had no axe to grind whatever, but was simply here to discover for himself what the truth was and, when he discovered it, to publish it, that the hon. and gallant Gentleman will withdraw—

Sir T. Moore

No, I will not. I quoted an American Senator.

Mr. Glenvil Hall

In conclusion, in spite of the fact that some hon. Members would have us believe, by the tone and temper of their speeches, that the outlook before this country is gloomy, I want to say here quite categorically that that is not so. The outlook is not gloomy at all. The situation today is better than it has ever been for the mass of the people of this country, and it is the desire of my right hon. and learned Friend that that should continue.

Viscount Hinchingbrooke

It is not better, it is worse in almost every respect.

Mr. Glenvil Hall

In the work of continuing the progress which has been made during the last few years, I am positive that the proposals of my right hon. and learned Friend in his Budget will help materially to produce the future prosperity and progress which we all desire.

It being Ten o'Clock, The CHAIRMAN left the Chair to report Progress and ask leave to sit again.

Committee report Progress; to sit again Tomorrow.