BUDGET PROPOSALS AND ECONOMIC SITUATION

HC Deb 12 April 1949 vol 463 cc2643-765

3.30 p.m.

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

So far in this Debate there has been practically no challenge to the Government's basic decision to continue their general disinflation policy in the present Budget but to a lesser degree. I do not think that any hon. Member has argued that we ought to have budgeted this year for a deficit, on the ground that the time for disinflation is over. The hon. Member for Chippenham (Mr. Eccles) tried to make our flesh creep, as usual, with predictions of unemployment to come; though, also as usual, he did not tell us very clearly what he would do about it. The hon. Member for Stockport (Sir A. Gridley) and others have also spoken of diminishing order books and difficulties with export sales.

A good many signs of disinflation, both at home and abroad, have been quoted; and it is perfectly true that these signs, which we have been watching carefully, are visible. They certainly establish that the Government's general policy over the last 18 months has succeeded in checking the inflationary tendencies, which everybody agreed were dangerous to our whole economic stability a year ago. But they surely do not establish any more than this. Anybody still in doubt on this point should study the figures of unemployment and the cost of living in recent months.

Perhaps the best single criterion of success in internal economic policy these days is the extent to which we can prevent either unemployment or the cost of living from rising. That is the objective we have set ourselves over this last 18 months, and have in face very largely attained. The Retail Price Index, after the changes in the present Budget, will be barely one point higher than it was in June of last year, and only two to three points higher than it was in April of last year. Total unemployment, as hon. Members will have seen from the figures given out this morning, have not merely fallen further between January and March this year than it did last year; but is lower this year as against the previous autumn than it was last winter. In particular, hon. Members will have been glad to see that in March unemployment has again fallen further in both Scotland and Wales, where we have been working particularly hard to get it down.

This evidence, I suggest, would not justify our flying into a panic and reversing the whole policy of disinflation this spring. Such a reversal would in fact mean throwing away most of the substantial gains of the last 18 months. It does however justify our relaxing the degree of disinflationary impulse in this year's Budget compared with last. That we have done. The hon. Member for South Hammersmith (Mr. W. T. Williams) in his very persuasive maiden speech yesterday—on which I am glad to have the chance to congratulate him—argued that we ought to take the non-financial as well as the financial factors into account in framing our Budget policy. I entirely agree with him, and we have in fact done so.

If we had followed the strict logic of the financial situation, we should have found it leading us to a much bleaker Budget than the one which my right hon. and learned Friend has introduced. We have not allowed ourselves to become the slaves of our statistics—which, in my view, are good servants but bad masters. We have taken a general view of the situation, and in particular of the movement in the cost of living and unemployment. Actually, the overall Budget surplus will be reduced by our proposals from £352 million in 1948-49 to only £14 million in 1949–50. What my right hon. and learned Friend called the "true revenue surplus," that is, the surplus after loan and other non-revenue items have been eliminated on both sides, will be £192 million less this year than last. That represents a material easing of the disinflationary drive by the Government.

If it is agreed that there are not as yet any signs of real deflation, and that we should not be justified in abandoning the overall surplus altogether, it follows that we have to face the problem of the mounting food subsidy bill, coming on top of the inevitable increase in expenditure on the Health Service and other social services and Defence. Do not let us forget that, of the annual cost of the Health Service, the Exchequer provides £260 million and the ordinary employed man, through the 8½d. out of the 4s. 11d. a week insurance contribution, only £34 million.

If we are to retain control of the financial and economic situation, avoid inflation, and at the same time fully finance these rising items of expenditure, and the investment programme of which my hon. and gallant Friend the Member for North Portsmouth (Major Bruce) spoke yesterday, there are really only two ways out of this dilemma. One would be a steep rise in taxation, which I notice nobody has advocated in the past three days. The other is by calling a halt, at the maximum now reached, to the increases in the subsidy bill. This bill which stood at £265 million in 1945–46 and which both the previous and the present Chancellors sought to hold at £400 million, in fact rose to £485 million last year. That was on the same basis and including the amounts we are cancelling out this year by reductions in the tea and sugar duties. It would have risen, on the same basis again, to £568 million this year.

What were we to do about this dilemma? I am a firm believer in food subsidies as a general policy. I am convinced they have been a major factor in preserving our economic stability and avoiding inflation—to the great envy of many other countries—in the last few years; and incidentally they have greatly assisted the export drive by keeping down costs. I also agree with the hon. Member for South Hammersmith that they ought to be used as what he called "a weapon of social welfare." I totally disagree with the famous demand made by the right hon. Member for the Scottish Universities (Sir J. Anderson) that they should be reduced to "negligible proportions." The right hon. Gentleman complained yesterday of misrepresentation, but those were the exact words he used.

I noticed that his policy of making sweeping cuts, or soaking the poor—because that is what it would amount to—was substantially supported in this Debate by two Tory Members, the hon. Member for West Harrow (Mr. Bower) on the one hand, who spoke of the "virtual elimination" of food subsidies, and the noble Lord the Member for Dorset South (Viscount Hinchingbrooke) on the other, who wanted to cut last year's total by £100 million, if I understood him aright. Both these hon. Members were speaking on an afternoon when their Party's propagandists in the local elections were telling the voters that a Tory Government would mean a lower cost of living. I hope that the House and the country will take note that the "virtual elimination" of subsidies as proposed by, at any rate, some hon. Members opposite, would add 13 points to the Retail Price Index, whereas our combined proposals on beer and foodstuffs, matches and other small items, will only mean a rise of 1½ points.

Viscount Hinchingbrooke (Dorset, Southern)

Might I interrupt to tell the hon. Gentleman that he is completely ignoring, deliberately ignoring, the consequential cuts in taxation which I also indicated?

Mr. Jay

I was describing the effect of the noble Lord's proposals on food prices. I shall come to the other point later.

Nevertheless, I am equally convinced that our budgetary situation will get out of hand altogether, and inflation set in again, if rising food consumption were to push up this subsidy bill to the extent of another £100 million a year or so on top of all our other commitments. What I think all the commentators before the Budget failed to realise was the fact that rising food costs and supplies, both at home and abroad, now confront us with a new dilemma. We have never yet decided to cut down or restrict our food import programmes because of the increasing subsidy burden on the Budget. But this dilemma is now forced upon us, for this reason. Not merely are food production costs, at home as well as abroad, still rising but, apart from meat, in very many cases consumption is now increasing. Indeed, ironically enough, it is our very success in obtaining increased supplies which has forced this dilemma upon us.

Of the prospective increase in the subsidy bill this year of £83 million—on the basis of present prices—from £485 million to £568 million, some £53 million would have been due to increased prices, but £30 million would have been due to larger supplies. Consumption is now running at a higher level—though some people may have forgotten this—in the case of eggs, milk, cheese, butter, margarine and cooking fat than it was a year ago. Faced with that dilemma, of either permitting higher consumption with higher prices, or enforcing lower consumption at existing prices, we have decided in favour of higher consumption. Surely, that is right. Surely, it is right to allow the public to consume more food at higher prices if they want to do so.

I would ask the Committee, since there is still some misunderstanding about this, to notice exactly what our proposals are. Of course, it is entirely untrue that this year's effective subsidy bill for food is to be lower than last year. On the contrary, it will be higher. Last year the total bill was £485 million, of which £33 million represented a purely bookkeeping entry by which, on tea and sugar, the tax cancelled out the subsidy. Therefore, the real rate of subsidy was £452 million. This year, on the same basis, the real rate of subsidy will be £465 million, or £13 million more, as the right hon. Gentleman the senior Burgess for Oxford University (Sir A. Salter) correctly pointed out last week. The £465 million is the actual amount going this year into the household each week in relief of food prices and the cost of living. It will still be about 3s. 6d. per head per week, and it will be slightly higher this year than last. What we have done is this: we have set a limit to the increase in the subsidy bill, but we have set it at a level higher than last year and at the maximum level yet reached.

Obviously, we all regret that any rise in any price of food should be inevitable. Indeed, that is why we tried to avoid it so hard for so long. Nevertheless, I ask the Committee to see this increase in perspective. It is 1½ points on the Retail Price Index, as compared with the 13 points or so which would result from the virtual elimination of the subsidies, which some hon. Members opposite have advocated. It is 4d. per head per week on the basis of current rations, and that compares with the 3s. 6d. per week which will still be paid. I agree that even this is a serious matter to many households. But is it really catastrophic—coming as it does on top of all the benefits and tax reliefs given to the ordinary household in successive Budgets since the war, some of which were described by my hon. Friend the Member for Sowerby (Mr. Houghton) in another maiden speech yesterday, and including incidentally the substantial reductions in Purchase Tax which we made a year ago?

In the last 18 months an immense service has been performed by the organised labour movement and, if I may say so, by trade union leaders in particular, to the whole of this country by their support of the stabilisation policy. The magnitude of that service, and the strain it has placed on the persons responsible, has perhaps even now hardly been realised. After all, they have been asked for patriotic reasons to do almost exactly the reverse of what would normally be expected of them. We should all join in a tribute to them. But when I was listening last week to my hon. and gallant Friend the Member for Central Hull (Captain Hewitson) I could not help asking myself whether it would really be worth while for the sake of 11 points on the Retail Price Index to imperil all these immense gains. All that he said would have been justified if our proposal was that of sweeping away the subsidies altogether and precipitating this 13 points increase. I ask him in all earnestness, is it right or wise, or setting these things in their true perspective, to imperil all this for the sake of 1½ points rise in our proposals?

If it is then agreed that we have to meet the rising expenditure on defence and social services, including the continued bill of £465 million on food subsidies, and if the time has not yet come for Budget deficits, I am afraid it follows that there is very little scope for tax reductions.

Mr. Ellis Smith (Stoke)

Accepting most of the hon. Gentleman's reasoning up to now, is it not a fact that when the policy of restraint was adopted and loyally carried out, a promise was given that the cost of living would be brought down?

Mr. Jay

A promise was given that the Government would do everything they could to bring down the cost of living. That promise has been carried out, and it has involved among other things the decision I have described to allow the subsidy bill slightly to rise. The right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) told us yesterday that he would have tried to make some substantial reduction in Purchase Tax, reflecting that reduction in action with regard to food subsidies."—[OFFICIAL REPORT, 11th April, 1949; Vol. 463, c. 2486.] But there can be little doubt that a heavy reduction in Purchase Tax and food subsidies simultaneously would tend to shift a heavier burden of taxation on to most wage-earning households. This is because Purchase Tax, after last year's concessions, is far more a tax on less essentials, including luxuries, than seems to be realised. Of course, many common household goods which all sections of the people have to buy, are taxed, though at the lower rate.

But the bulk of the actual Purchase Tax revenue is in fact raised from the following main items: Non-utility clothing, non-utility footwear, non-utility furniture, motor vehicles, stationery and toilet preparations. These items account for over £140 million, or about half the whole Purchase Tax revenue. At the same time, a much higher percentage of clothing and footwear production is now utility, and therefore free of Purchase Tax, than seems to be realised. For instance, of the present output of woven woollen garments, some 73 per cent. is now utility; of woven cotton garments, 68 per cent.; of knitted garments, 95 per cent., and of boots and shoes 87 per cent. Thus, it is quite clear that the Purchase Tax is not, to the extent that people seem to think, a tax on the ordinary wage-earning household.

Naturally, there has been a good deal said in this Debate on the fundamental question whether the country's economy can work with about 40 per cent. of the national income passing through the hands of the Government and other public authorities, and with direct taxation at its present level. The hon. Member for Flint (Mr. Birch) last night told us that these huge transfers were paralysing and ossifying our economy. I have noticed, however, that demands from hon. Members opposite for lower expenditure and lower taxation in this Debate have been remarkably restrained; although the right hon. and gallant Gentleman the Member for Gainsborough (Captain Crookshank) did tell us, though without much apparent conviction, that taxation was too high.

The evidence of the last few years seems to me, in fact, to suggest that our economy can sustain this measure of redistributive taxation much more easily than we had thought. In the first place, surely there is a fallacy in the argument that the system necessarily cannot sustain a transfer through public authorities of 40 per cent. of the national income. After all, if the health services are transferred from private account to public account, of course, that percentage goes up. But there is not necessarily any change in the proportion of its total resources which the community is devoting to the health services, or, therefore, in its ability to sustain them. All that has happened is that we decide how much medical attention each individual in the community gets according to his needs and not according to his purse.

Secondly, as I see it, the practical evidence does not support the Tory view that present direct taxation is crippling enterprise and production. Indeed, the Tories have always said this and have always been wrong. My hon. Friend the Member for Chesterfield (Mr. Benson) quoted last week a dictum of Sir Stafford Northcote, and I have been reading the Budget Debates of 1907, in which Mr. Austen Chamberlain said: Income Tax … as high as Is. in the … reacts directly upon the amount of employment for the people."—[OFFICIAL REPORT, 22nd April, 1907; Vol. 172, c. 1440.] In 1909, I notice that Mr. William Joynson-Hicks said that Income Tax of 1s. in the £— abolishes the reserve fund of the country." —[OFFICIAL REPORT, 17th May, 1909; Vol V, c. 112.] —whatever that means.

No doubt the fact that the Tories were wrong about this in 1909 does not necessarily prove that they are wrong in 1949. I give them that. What impresses me is that, in the last 18 months, we have had higher direct taxation than ever before in the history of the country; and also higher production, higher exports and higher investment. If that is paralysis and ossification, let us have more of them. The right hon. and gallant Member for Gainsborough argued that our export record in these last few months was largely achieved by thriving private enterprise. If his view is that private enterprise thrives best under a Labour Government, and with Income Tax and Profits Tax at their present levels, we do not quarrel with him.

Although the present level of direct taxation does not seem, therefore, to be so very crippling, I notice that, even in this Debate, there is not much quarrel with the statement of my right hon. and learned Friend that, for the time, there is not much more hope for a redistribution of income by taxation.

Mr. Scollan (Renfrew, Western)

Walk round the West End.

Mr. Jay

I am coming to the West End, if my hon. Friend will wait a minute. What the hon. Member for Mile End (Mr. Piratin) failed to notice in his remarks was that, as the White Paper on the National Income shows, the share of the national income after direct taxation going to wages rose from 39 per cent. in 1938 to 48 per cent. in 1948, whereas the share going to profits, rent and interest fell from 34 per cent. to 28 per cent. However, as my right hon. and learned Friend the Chancellor said, though that seems to be true of income, it is far from true of property. The distribution of property in this country is still exceedingly unequal, and we, as a party who believe sincerely in the idea of a property-owning democracy, intend to distribute it more equally by taxation.

There is not much evidence that the Death Duties over a long period have greatly effected as yet the distribution of property between the wage-earners and the property-owning sections of the community. That is no doubt because the forces of private capital accumulation, largely through company savings, have been working in the opposite direction all the time. Both receipts from Death Duties and the total value of the estates assessed to Death Duties have held up remarkably well over a long period of years, though there has been some shift, it is true, from the higher to the middle ranges of estates, which is perhaps due to the fact that the rates on those middle ranges have never been nearly as high as the rates so often quoted on the higher ranges.

Much of the luxury spending which the working man certainly sees before his eyes—in the West End and elsewhere—comes in fact from the owners of inherited property living on their capital. All this suggests that there is quite a way to go yet in the redistribution of property by taxation. At present, be it noted, we are modestly taking only about £175 million a year in Death Duties out of the total assessed of £750 million. The right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) told us yesterday that he feared we were leaving no margin of taxable capacity in the case of Death Duties. Well, there is the margin between £175 million and £750 million.

Sir J. Anderson

Will the hon. Gentleman excuse me? What I said was that, if the Chancellor took the view that there was a margin of capacity, it ought, in the national interest, to be preserved.

Mr. Jay

I am pointing out that it is being preserved at present to the extent of the difference between £175 million and £750 million. We took one step forward last year in the re-distributive process with the Special Contribution, which turned out to be much more successful than we had hoped, and entirely belied the dire prophecies of hon. Members opposite about all the evil consequences which would follow. We have taken another step this year in raising the Death Duties which I notice that the party opposite, despite their theoretical belief in a property-owning democracy, tell us they are going to oppose. We have taken those steps, among other reasons, because we really believe in that democratic ideal, not merely in theory, but in practice.

As my right hon. and learned Friend said, this is a "holdfast" Budget in which, as a matter of fact, the totals of both taxes and subsidies are nearly the same as last year. It is intended to hold fast the structure of social services, which we are proud to have built up—and proud, I may say, to have built up faster, as the right hon. Member for the Scottish Universities candidly told us yesterday, than he would have done. The Labour Government of 1931, quite frankly, got into difficulties because they failed to put a sound economic and financial foundation under the social services which they rightly introduced. Whatever we do, or do not do, we are not going to make that mistake again.

4.1 p.m.

Mr. Oliver Lyttelton (Aldershot)

In the course of my remarks I shall take up many of the points made by the Economic Secretary. I thought that as the atmosphere in which this Budget had been received was rather chilly, I had better begin by taking out of the Economic Survey—because it is to that Survey that I shall chiefly address my remarks—some of the heartening features. I will try to keep away as far as I can from Bleak House and confine my attention to Great Expectations.

Every hon. Member—and none more than those on this side of the Committee —is greatly heartened by the improved position shown by the country in 1948. That improvement is, first of all, an improvement in the balance of payments. During the last six months of 1948, we were in balance. Secondly, we are heartened by the forecast that we may reasonably expect to have an overall balance in 1949–50. Of course, we are all aware of the obdurate part of the problem, the dollar deficit which the Economic Survey quite rightly stresses in more than one place. But of all the encouraging news with regard to 1948, news which has surprised and indeed exhilarated me, the most important is the fact that our exports have surpassed the targets set for them in the previous economic White Paper.

Twelve months ago I, personally, did not think it was possible even to reach the targets set down. I always said at that time that in my belief we could produce the necessary goods, but that I did not believe we could force those goods into the export market and at the same time maintain the prices overall which were necessary. It is very exhilarating that the demand has kept up to these figures, that production has been sufficient, and that the forecast has been exceeded. I think it is going to be very much more difficult to make even the modest increase which the White Paper mentions; I think it is going to be very difficult even to maintain the level at which we were in 1948.

There is another matter, the fourth. which I think is a cause of congratulation with regard to 1948, and one which cannot be stressed often enough—the contribution which Great Britain has made in a time of great stress to the recovery of Europe. We can remind ourselves and others of what we have done in this matter in a very simple way. It is true to say that the exports from this country for which we have not been paid are about equal, taking the official rates of exchange, to the amount of imports for which we have not had to pay. This is a very good bolster to our self-respect. It is true, of course, that the imports for which we have not paid are, in the main, dollar imports, and that the exports for which we have not been paid are sterling exports. Nevertheless, whether we express them in one currency or another, they are goods and services which we have supplied. The Economic Survey is not ungenerous on this subject. It says: A remarkable achievement for which great credit is due to all working in British industry. A more modest rise is expected in 1949. I hope that hon. Members opposite will not think it ungenerous of me if I say that this remarkable achievement has been due, with the exception of comparatively small exports of coal, entirely to the efforts made, no doubt with Government help, by the private sector of industry.

It is very necessary to examine why these good results for the year 1948, have, in the main, been achieved. I hope that hon. Members opposite will acquit me of trying to make party points on this subject. I am engaged upon a more austere task because I think that we must recognise—and the President of the Board of Trade has on more than one occasion assented to this proposition—that the state of demand is entirely abnormal. It is almost unique in our commercial or industrial history. There are, again, four main reasons why this is so. I put the most obvious at the head of the list. It is the vast destruction during the war of plant and machinery, of public services, such as docks, harbours, bridges, and railways, and, perhaps above all, the destruction of dwelling-houses for those who have to go to work. This is the first great void which has to be filled.

Secondly, there are the seven years during which our plant and machinery have been worked to death, and during which no replacements, except those which were absolutely urgent, have been undertaken. It is a curious commentary upon our century that the destruction from the second cause is generally conceded to be greater than that from the first. I think it is Mr. Paish, a well-known economist, who estimates the unrepaired damage in this country resulting from enemy action at £2,000 million, and that from insufficient maintenance and obsolescence of plant at £3,000 million. The third cause of this abnormal demand is the distortion of the European economy. For example, up to quite recently the coal production of the Ruhr and Saar was a very small proportion of what it was before the war. This is another cause which, partly from the lack of coal itself, and partly from the lack of power to drive the industries of Western Europe, has created another void which has to be filled.

The fourth reason—and one to which I think insufficient attention has been given—is stockpiling by the United States for strategic purposes. It must be quite obvious to every hon. Member that the United States does not stockpile materials for strategic purposes if she is satisfied that she has them in sufficient quantities. She concentrates, of course, upon those materials of which she thinks she is short, and possibly on those materials which she thinks may have to be carried across the perilous seas in case of war. So here is another and abnormal source of export demand. It is an artificial source, and we should recognise the fact that when the stockpiling programme of the United States is completed there will be a very noticeable falling off in the demand for certain primary—and particular primary—materials. This is a sort of second tier of abnormal demand.

I think we must be wide-eyed about this matter and recognise that these four major causes are the reasons to which in the main—and I want to be perfectly fair; in the main—we must attribute the full employment which we are now enjoying in this country—and long may it continue—and, secondly, the buoyancy of our exports. A void on this scale has never been seen in the commercial and industrial history of the world, and we are still filling it.

Twelve months ago I thought, particularly for consumer goods, that there were signs that the demand was drying up. I was wrong, and I hope very much to be wrong again, but I must say that with the general fall I anticipate in food prices and many other red lights showing, I think we have to take warning that this state of abnormal demand may gradually be assuming more normal dimensions. We must look at this without any pride and contradict the belief that we have found any new economic remedy for these troubles or that in the main their solution has been due to anything the Government—

Mr. Warbey (Luton)

The right hon. Gentleman is endeavouring to be fair, so will he, so far as the maintenance of a high level of internal demand is concerned, add a fifth point, namely, the extensive redistribution of income which has maintained internal demand to an extraordinary degree compared with the collapse which took place two years after the 1914–18 war?

Mr. Lyttelton

That is quite a different point. If the hon. Member is referring to domestic employment, in parenthesis I may add that measures upon which I believe hon. Members of all parties are agreed for the maintenance of employment would involve the reduction in capital expenditure now so that there might be an unspent amount to take advantage of lower prices and restore employment later. To return to my original point, I think the Economic Survey agrees with the general point of view which I have been adopting. I think it expresses it in very candid terms, but certainly not grammatical terms, and I do not think the hand of the Chancellor can be detected in that. It says, on page 22: The approximate balance which is now forecast for 1948–49 is partly the result of a number of exceptional circumstances, though it represents in itself a very considerable achievement. I do not think it means that the forecast is a considerable achievement, but I think I understand what it does mean. I think there are here very sound reasons for satisfaction, but I must pass from these heartening matters to matters which are less agreeable to the national pride.

Mr. Sydney Silverman (Nelson and Colne)

The right hon. Gentleman has not been so very encouraging so far.

Mr. Lyttelton

I think so. I turn to matters which are less agreeable to the national pride. The Economic Survey is an extremely candid commentary on the subject. It is not a subject on which hon. Members opposite, or the Socialist Press, are particularly vociferous; but the Economic Survey makes no bones about it at all. The Economic Survey will not have a very wide circulation—in short, it is caviar to the general—but it has this advantage, that if the truth is unvarnished in its pages, at least it has a good chance of passing unnoticed. It is for that reason that I want to refer to these matters. I should like to pick out one or two sentences from the Economic Survey. One has hardly gone 12 lines before the Economic Survey says: When the year ended the chance of continued recovery was seen to be dependent upon foreign assistance. On page 5 it says: This deficit, which is now the worst danger spot in the economy, was met in the first half of the year largely by drawings on the United States and Canadian credits, and later by receipts of £170 million under E.R.P. As a result of these transactions, there was only a small fall in our gold and dollar holdings during the year. Later on, it says: It brings out clearly the increasingly important part played by E.R.P. aid in 1948 … For the year 1949–50 estimates were tabled at the O.E.E.C … that on certain assumptions we should be able to carry out our programme with E.R.P. aid of 940 million dollars. … that is, instead of the higher figure of the previous year. I think we are entitled to congratulate ourselves upon our achievement, but we must not fall into the error committed by the Economic Secretary in omitting from our remarks all mention of the foreign aid we have received. The Chancellor himself is not guilty of these omissions. The sums we have received since the war are massive. The United States has given us a loan of £1,100 million, Canada £248 million, Australia a gift of £43 million, New Zealand a gift of £10 million, South Africa a gold loan of £80 million—and these make up, according to my arithmetic, £1,481 million. In addition to that, we have had Marshall Aid of £313 million, a total of £1,794 million. That is a fairly large sum of money for the Economic Secretary to omit from his speech.

Last night we listened to a speech from the hon. and gallant Member for North Portsmouth (Major Bruce)—I am sorry he is not in his place—and he made a statistical speech, succeeding at the end of his remarks in persuading himself that we have created what he called an investment State, but of course there was again no mention whatever of the foreign aid which has made the investment State possible. The whole of his speech need not have been made had he mentioned this one fact. I prefer him in his more abusive mood. Also, I should make some reference to the popular version of the Economic Survey.

Mr. Ellis Smith

Before the right hon. Member leaves that point—and what I am about to say applies equally to same spokesmen from our Front Bench—is it not a fact that, in view of the fact that Britain strained herself, as she did, during two world wars, that the world is really indebted to the tremendous sacrifices made by the British people?

Mr. Lyttelton

I entirely agree with the general line which the hon. Member is adopting. I do not for one moment suggest that we do not deserve help. On the contrary, I think we do deserve it in full, but I do not want to be drawn into this particular controversy because I am trying, without being offensive, to point out that we have received massive aid from abroad after this World War and that we received none after the First World War, and yet it is customary—

Mrs. Jean Mann (Coatbridge) rose—

Mr. Lyttelton

The hon. Lady must first permit me to finish my sentence. I think that in Socialist propaganda it is customary—and I am not putting it too highly—to compare our situation, say, in 1946 with what it was in 1919.

Mrs. Mann

Is it not the case that, so far from having received no aid whatever, the financial accounts in the Library show that there is still outstanding a balance to the United States of £897,534,246 which we have never paid and which we borrowed for the First World War?

Mr. Lyttelton

The hon. Lady is falling into a very common error, and that is the difference between goods which are received and not paid for and loans in cash which are received. It is common knowledge that a large number of the weapons and raw materials which we received from America during the 1914–18 war and fired off against the enemy have not been paid for, but the sums I am talking about are entirely new money which has been put at the disposal of His Majesty's Government by the United States. Now I want to get on to the agreeable subject—

Mr. S. Silverman

The right hon. Gentleman is putting the matter so fairly that I just wanted to suggest to him that he is leaving out inadvertently one very serious point. He says that after the first World War we received no financial income from America, whereas after the last war we did, and that this is new money. That is how he distinguishes it from an unpaid loan. However, is that quite true? [HON. MEMBERS: "Speech."] I am coming to the point now. Surely, after the First World War we were still in receipt of a large income from capital investments abroad, which were sacrificed in the first years of the last war.

Mr. Lyttelton

The hon. Gentleman has taken more than his usual share of our indulgence. Of course, it is common knowledge that we had investments abroad. Now I want to refer for a moment to the popular version of the Economic Survey. I shall do so in only a few words. It does not contain any photograph of a royal baby, or any photograph of a slum area cleared by a Tory Administration. It merely includes a photograph of a pit sunk by my hon. and gallant Friend the Member for Fylde (Colonel Lancaster) 12 years before the mines were nationalised. My hon. and gallant Friend, with the urbanity and politeness for which he is justly renowned, referred to this as a slipshod piece of Socialist propaganda. It seems to me that these mistakes are becoming so frequent that they are almost falling out of the category of mistakes and into the category of habit.

The Chancellor of the Exchequer (Sir Stafford Cripps)

I think that the right hon. Gentleman will find that the mistake was made by the "Daily Telegraph" in wrongly quoting the Survey. It was never suggested that that pit in question had been built by the National Coal Board, or anything else. It was put in as an example of the kind of capital works that have been done in this country over the past years.

Mr. Lyttelton

One sometimes gets a glimpse of how the right hon. and learned Gentleman made that great reputation at the Bar. We rest on a very simple thing. If any fair-minded man who does not belong to any of the parties in this House reads the circular, and if he does not think that this is a suppressioveri or suggestio falsi, then my name is something quite different. [Interruption.] Do I hear an interjection that I know nothing of what I am talking about? I am now suggesting something which is obvious.

Sir S. Cripps

The right hon. Gentleman ought to know all about the conditions of the mines and of the sort of work which has been going on through capital investment.

Mr. Lyttelton

I also know exactly what that pamphlet intends to suggest, and I appeal to anybody to look at it. This is not the first instance of this sort of thing. However, I will pass from that to some other subject more agreeable to hon. Members opposite. Since the events of last Thursday and Friday, they seem to be extremely touchy upon some ordinary points.

The Economic Survey sets a target—or hopes that we shall achieve—2½ per cent. greater productivity over the whole range of British industry in the year 1949–50. I say in parentheses that the statement is made frequently that there was a 12 per cent. rise in production during the year 1948–49. Admittedly this rise was in comparison with the figures for 1947–48, when there were special reasons why British production was low. The fuel crisis, and the mismanagement of our affairs in that year, meant very low production. But I find it extremely difficult to check up on this figure of a 12 per cent. rise in 1948, and I should very much like, even if not in this Debate, to be given the information how this figure is reached. When we are told we should increase the productivity of British industry over-all, and when, as I think, that includes the activities of the Armed Services and the distributive trades, that increased productivity of 2½ per cent. over-all means a much higher increase in British industry, and it is a very stiff task.

Yesterday the President of the Board or Trade talked about our exports to America. I think it is clear from what he said that the Government intend to do all they can, by allotting dollars for market research, or travelling into those markets, by their consuls, and by using unorthodox methods of lending money, to foster that trade. I do not like the phrase "unorthodox lending" very much, because in all my experience that is a genteel synonym for lending money to people from whom one never expects to get it back. Be that as it may, I think we may be sure from what the right hon. Gentleman said that the Government intend to do everything they can to foster this trade. If the statement of the President of the Board of Trade appeared unimpressive—and I think it did—it was because the Government cannot do very much themselves, but have to rely upon private industry to make this drive against the hard core of our economic problem.

I think that anyone who looked out of his bedroom window in his hotel in New York, or Chicago, or Cleveland, or Akron, or Detroit, or San Francisco would see the task of introducing into those markets manufactured goods from the other side of the world, as rather like what we used to say, in the old days, was the rather superfluous task of trying to sell coals to Newcastle. It has not the same significance now. I think there are probably more opportunities in Canada, where the shortage of dollars will naturally turn the Canadians to sterling markets. But one thing is quite clear: I think the Government ought to do everything they can to help the private trader, and any efforts that either the private trader or the Government make towards this problem will be given the support, wherever it can be given, at all times and in all places, of every hon. Member on either side of this Committee.

In the few minutes more for which I want to keep the Committee, I want particularly to refer to one sentence in the Economic Survey with which I very much agree. It is: Our recovery will never be complete unless we can develop a keen and adventurous spirit in management, and a readiness to welcome new and improved methods by labour. I agree with that profoundly. In this country we have not much natural wealth to fall back on. We have no oil, copper, sulphur. and no gold, and we can grow only so much wheat; and so we have got to live by our wits; we have got to be a country of ingenuity, enterprise and contrivance.

I must here say somthing about our invisible exports, because, there again, I find the change-over in the invisible exports position of the country extremely encouraging. But it is not enough, and the Government ought to get busy and start opening the terminal markets which provide facilities for world trade, and which once brought the merchants of the world and their business to London to do their transactions upon the London contracts, and to fall back upon the well-known commercial integrity of London dealers. What are we doing about it? Are we going much further than printing a resounding sentence?

Of course, the first cold douche to the keen and adventurous spirit is direct taxation. I would remind hon. Members opposite that direct taxation cuts very far down. The revenue from direct taxation comes from the tool room—if I may use that expression—just as much as it does from the board room, and direct taxes fall at their full rate upon the single man earning £8 18s. a week, which is not at all the minimum wage for a skilled man in industry today. Out of the direct taxation which we levy, and which I think amounts to about £1,400 million, no less than £500 million comes from those with under £1,000 a year gross. In addition to that, about £600 million is levied from tobacco. I believe that the right hon. Gentleman has given up, as I have, smoking, so we are not contributing to the revenue. There is also £300 million from beer and £300 million from Purchase Tax. This particular sentence in the Survey refers specifically to management, and asks for a keen and adventurous spirit in management. I must ask the Committee to look for a moment at how this works out in practice.

It is impossible for a surgeon, a doctor, a barrister, a solicitor, a prospector, a scientist or an engineer to earn more than a very limited salary. He can earn about the equivalent of £1,100 or £1,200 a year of 1913 money. That is substantially the "cap" of his earnings. I do not profess to know whether that is good Socialism or not; I am not making any observations on that and I do not profess to know whether it is deflation or disinflation or discrimination or not; all I know that it is not good sense for a country which has to live by ingenuity and enterprise. All these kinds of general phrases are not very persuasive unless backed up by actual instances. I will ask the Committee to bear with me while I give three instances, very briefly, out of my own experience.

The first relates to my own industry. We have a number of engineers in our company who, by their brilliance and technical skill, have earned the maximum income which they are allowed to retain by the age of 35. There are higher responsibilities and greater anxieties in front of them, but not a penny more pay. We are bringing up a generation who are going to say when offered promotion, "Promotion! Move from Rugby or Warwickshire up to London, with a higher scale of living and wider responsibility, and nearer the boss, without any extra pay? Promotion! Thank you for nothing. I will stay where I am." I only ask hon. Members whether they think that is the way of carrying out the rather bombast sentence in the Economic Survey— Our recovery will never be complete unless we can develop a keen and adventurous spirit in management … With regard to the second case, I had to negotiate a partnership for a young man in a professional firm of high standing. I entirely forgot to ask what share of the profits he would receive. I rang them up and said that I had forgotten to ask this, and could they say at what it worked out? The reply was, "We all take out about the same. There is no point in the senior partner taking more out, because it all goes in taxes and, therefore, we all take the same." Is this encouraging a keen and adventurous spirit in management? Of course, not.

The last instance may appear to hon. Members opposite to be even more fantastic. I was present when the chairman of one of the great public utility companies which has been now nationalised was working out his budget when he was appointed chairman. He happened to have been naughty enough to quadruple his own private companies and to make an amount of money which made him a Surtax payer, a very naughty creature. He was appointed chairman at a salary of £6,000 a year—something less than what our new commissars are getting in the nationalised industries; £2,500 a year less than Lord Citrine, for example—but owing to the Surtax which he had to pay his net receipt from the chairmanship was £150 a year. The job involved his living in London, which cost him £1,000 a year, so, for the benefit of assuming this wide responsibility, he was fined £850 a year. I have no doubt that he got an expenses allowance and came out about even—

Mr. Edward Porter (Warrington)

With regard to the illustration which the right hon. Gentleman has just given, surely he will agree that this gentleman was still drawing from his other jobs, although he was not there and was living in London?

Mr. Lyttelton

The hon. Gentleman shows a really delightful attention to my argument. The point which I was trying to make was that by taking on another job he not only made nothing but actually got fined, whereas if he had looked after his own interest he would have been running his own business and making more money, instead of devoting his time to the public interest in London. I ask hon. Members opposite whether they think that this really is the way in which to encourage "a keen and adventurous spirit in management," and whether that is the way for the country to get the best brains to do the big jobs of the country. I only say that we cannot run an industrial country which possesses only one industrial raw material—that is coal, and we are not managing that very well—with direct taxation at its present height.

The last part of the sentence in the Economic Survey states: and a readiness to welcome new and improved methods by labour. The right hon. Member for the Scottish Universities (Sir J. Anderson) mentioned the matter of unloading sugar in bulk. I think that hon. Members will acquit me of trying to say that this goes on all over industry, because it does not, but there is a good deal too much of it. We have modern equipment in London capable of unloading sugar in bulk instead of in bags. That means that we can unload 300 tons an hour instead of 300 tons a day. When the union was approached on this subject, it said that it would not increase the rates but leave them where they were. The effect of this is that all improvement in mechanisation goes straight away in increased wages. That results in £10 a day for three hours work in some cases, and as much as £20 a day for certain men. That is poison to our economy. I do not blame people, because I think that there is nothing more natural than to try to protect one's job by seeing that it cannot be done by fewer men. That is very natural and human, but it is poison to the economy of this country at the moment.

Mr. Austin (Stretford)

The right hon. Gentleman has just applied a rebuke to the workers in regard to their limitations on mechanisation. Would he now apply that rebuke equally to the Master Cotton Spinners' Federation, who are refusing to take advantage of the Cotton Subsidy Act and thereby improve our trade and prospects of export?

Mr. Lyttelton

I think that suggestion is too particular. There are many other considerations such as double-shift working, and so on, which are involved in that question. I agree with the hon. Gentleman that any employer who endeavours to restrict production in these times in order to maintain prices is doing something against the national interest. I say, however, that we cannot run this country, which has only one industrial raw material, on direct taxation on this scale. What does the future hold? We have now spent so much and are raising so much that we have no reserve for an emergency. A falling off in world trade, which, I must say, I expect to see this year, or the threat of war, which I do not expect, would produce an acute crisis, with very little taxable income on which to fall back. What hope is there? Surely it lies, first, in expanding the national income. I believe that we can only do this by adopting the principle, or re-adopting the principle, of unequal rewards for unequal services.

The hon. Member for South Hammersmith (Mr. W. T. Williams), in a somewhat controversial maiden speech yesterday, appeared to think that it was desirable that everyone should have equal pay for unequal work. I must really part company with him there. I believe that those who have ideas, who can provide inventions, take the risks or work harder or longer than others should get more pay. Or is that very naughty? I see only too clearly the difficulty the Chancellor of the Exchequer has in making remissions of taxation this year to restore incentive. But it can be done. It must be done. A reign of frugal administration—and rumour has it that the Chancellor is a frugal man—must begin at once. A daily insistent pressure—all the more insistent because it is so long delayed—must be kept up on all the spending Departments. There must be a reduction in the amount of administration—a reduction in the numbers of staff of what we rather unkindly describe in industry as "non-productive labour" all over the field. There must be an example of care and good housekeeping shown by the Government itself in every little detail. To-day, waste is rife.

Mr. E. Porter

Where?

Mr. Lyttelton

I am about to tell the Committee. Do not be impatient; I will give one very large instance, in a very laudable object. Waste in research is rife today—and I am prepared to support that if I am asked. Waste in the Armed Forces is rife; it is rife in administration generally—in small things as well as in large.

The Chancellor at long last appears to be willing to recognise that expenditure can be materially reduced, and I believe that the savings which can be effected are very much larger than appear at first sight. I would remind hon. Members that the area in which waste and extravagance are now spreading is very much larger than it used to be. Everyone here knows that the Transport Commission, the National Coal Board, B.O.A.C., and this, that and the other, are very wasteful adminstrators, and we all know that their staffs are proliferating while we are talking here. The only hope lies in calling a halt to expenditure in cutting down waste, and, what is much more amusing to do, to expanding the national income. I do not believe that the national income can be expanded unless some of the rewards for enterprise are restored. Here, I believe, are the simple lessons of the Budget Debate.

In conclusion, I recognise, as everybody does, that there will always be people who will take risks, and who are prepared to go as far as risking their lives if the cause in which that risk is taken is high enough. But in the workaday world of trade, commerce, and finance it is only a fool, or perhaps a Socialist, who thinks that enterprise, adventure, and keenness can be fostered and promoted by taking away nearly all the rewards which have attended them in the past.

4.43 p.m.

Dr. Broughton (Batley and Morley)

I should like to try to make a small contribution to this Debate on the proposals of my right hon. and learned Friend the Chancellor of the Exchequer. In the first place, I wish to express my admiration of the masterly talent shown by the Chancellor when he unfolded to us the economic and financial position of our country. I found his speech one of absorbing interest; he held my attention throughout the whole of the two and a quarter hours. I am sure that all hon. Members were very pleased to hear 1948 described as a year of great achievement. Having been an eye witness, I can state with pride that the people of the heavy woollen district of Yorkshire contributed their full share to this splendid achievement. When the economic situation had been explained, and when we knew the difficulties ahead—particularly the dollar problem—the Chancellor then gave his Budget proposals.

This Budget reminds me of a mixture containing all the essential ingredients for the recovery of the patient, but lacking in carminatives to make it palatable. I realise that a limit has to be fixed for food subsidies, already costing over £400 million a year, and that this causes a slight increase in the price of some of our rationed foods. I realise also that the tax yield from beer has fallen, and that the penny off the pint is suggested in the hope of gathering more tax. I clearly understand that these two measures are economically unrelated; but I am sure that an unfortunate misunderstanding has arisen in the country. During last weekend I was in my constituency in Yorkshire, where I heard it said: "Mum has to pay more for the family's food, but dad is getting his beer cheaper." It is only natural that mum should not be pleased. To have offended the women is, to say the least, unfortunate.

That brings me to another matter upon which I should like to touch. I very much regret that the Chancellor could not see his way to making a reduction in Purchase Tax. In Batley and Morley—as indeed in many other parts of the country—hundreds of women turned out to work in response to the appeal made by my right hon. Friend the Minister of Labour. Some reduction in Purchase Tax would have helped women, and would, I think, have been regarded as a mark of appreciation for the valuable work done by thousands of women throughout the country.

My final point of criticism is because of my concern for the old-age pensioners. I am aware that several hon. Members have already referred to this matter, but I should like to mention it also, because I regard it as of such importance. Today the old-age pension stands at 26s. a week. If we were in a period of greater national prosperity I, for one, would press for an increase up to 40s. or two guineas a week. It may be said that the additional cost of food amounts to only a few coppers a week; but when a person has to try to make ends meet on a very small income every penny counts. Indeed, every halfpenny counts, and I am sure that even the halfpenny on a box of matches will be felt by old-age pensioners. When the Duty on tobacco was last raised the Chancellor kindly, and rightly, allowed old-age pensioners to enjoy their smokes at the previous price. I should like to suggest that a similar arrangement now be made for the old-age pensioners' food. I do not know if this is financially and administratively possible, but I should be grateful to my right hon. and learned Friend if he would consider the idea.

This Budget has been described as one of harsh realism. With that I agree. It is also a monument of courage and integrity. There are some aspects of it which displease me, but it is based on sound economic and financial principles, and therefore I must support it. I should be grateful, however, if my right hon. and learned Friend would look into my suggestion for helping the old-age pensioners, to see if that is a practical proposition.

4.50 p.m.

Sir Hugh Lucas-Tooth (Hendon, South)

I should like to begin by welcoming one of the statements in the Chancellor's opening speech on the Budget. Perhaps I might anticipate myself, because I did not appreciate that the speech to which the Committee has just listened was a maiden speech—perhaps that is as good a compliment as it lies within my power to pay the hon. Member. I hope that there will be many occasions when the House will have an opportunity in the future of hearing the hon. Member for Batley and Morley (Dr. Broughton).

I was saying that I should like to begin by welcoming the part of the Chancellor's statement which has received surprisingly little attention in the course of the Debate, and that is his statement of intention to set up an inquiry to investigate the tax incidence on industry. That proposal is really linked up with a number of other proposals to which the right hon. and learned Gentleman referred in his speech. It is bound up with the proposal to double the initial depreciation allowance in industry, with the proposal to give Surtax relief on Lloyd's underwriters' reserves, with the proposal to give depletion allowances for certain mining concerns, and with the repeal of the Bonus Issues Duty.

I confess I was a little surprised that the right hon. and learned Gentleman who is normally extremely logical in his remarks, did not link these subjects together. I imagine one reason was that he was very happy to leave his statement of intention to repeal the Bonus Issues Duty in a quiet corner where it would receive the least attention. These subjects together are indicative of a trouble which is affecting industry. The trouble is that our taxation system has been built up over a long period—it is based on distant history and on an economic system which no longer exists—and really should be revised.

It is true to say the Chancellor of the Exchequer has recognised that some amendments are vitally necessary. Capitalism cannot work without incentives, and the present system denies incentives. In the second place, it cannot work without a reasonable amount of financial elbow-room, which the present burden of taxation prevents. The burden of taxa- tion certainly must remain heavy, but I hope very much that it may be possible to do something to move that burden about so that it lies more fairly and comfortably next year. Perhaps it would be possible at the end of this Debate to have an answer to some questions on the subject, as it is a subject which cannot he raised on a later occasion.

I hope the Government will say something further about the nature of the inquiry that is to be set up. Is it proposed that it should be purely a Treasury inquiry to advise the Chancellor of the Exchequer, or is it to be some form of public inquiry? Will the report be published? Who are likely to serve upon the Committee? I should like the Financial Secretary to tell us whether the inquiry is to be limited to limited liability companies, or whether it is to extend to non-incorporated firms and to other businesses and professions. It may well be that some of these questions are premature, but if we can have some information it would be of great interest to a large section of the community.

While I welcome the Chancellor's announced intentions, I think we have all made it abundantly clear that this is not a reorganisation of taxation which is going to provide any real relief for industry. What is essential is that our industries should have to bear a lesser burden than 40 per cent. of their total earnings if we are to continue to expand at all. I want to take a more hostile view to the Government over this Budget on the general issue of whether or not it is likely to produce the kind of realistic result which has been claimed by those who sit behind the Chancellor. This is not a realistic Budget. The Estimates which have already been presented are quite inadequate and will prove to be very considerably exceeded. It is quite clear from the Chancellor's opening speech that he has fairly lively apprehensions of that risk. He said: Looking at Government expenditure as a whole, I have thought it advisable to issue today a Treasury Circular asking all Departments to review again the expenditure which is likely to flow from the development of existing policies, so that it can be kept within the bounds of what is considered feasible. In particular, I have emphasised that only in special cases, such as, for example, major changes of policy, can any Supplementary Estimates in future be permitted."—[OFFICIAL REPORT, 6th April, 1949; Vol. 463, c. 2092.] These are strong words, and that statement is quite an astonishing statement to come from any Member of the Government at any time. The Committee is entitled to be told what is the sanction upon which the Chancellor relies for giving effect to the threat contained in that statement. What is to happen if Government Departments present Supplementary Estimates? I have taken the trouble to obtain a copy of the circular letter referred to by the Chancellor, and as far as I can see the only sanction is that Departments have to report to the Treasury if they think that a Supplementary Estimate is about to be required. That is no sanction at all.

I should also like to ask what is the purpose of this threat. Is it intended to be a threat to civil servants within the Departments to whom this circular is sent? Is it the intention that if in the course of their duties they incur Supplementary Estimates they will be surcharged for them because the Government will not make themselves responsible? Is it a threat to the public? Is it a threat to those who are availing themselves of the National Health Service, that if they take too great an advantage of these services something will have to be done to cut them down?

If that is the intention I can only say that it is entirely unfair and improper. It is not the Government's duty to provide benefits for the public and then to threaten the public if they take advantage of them. As I see it, the real purpose of that threat by the Chancellor is neither to the civil servants nor to the public but to the Chancellor's own colleagues who sit beside him on the Front Bench opposite. Perhaps I might be allowed to refer the Committee to what occurred in the Debate on the Supplementary Estimates for the National Health Service in February. I wish to read a passage from my own speech on that occasion so as to give the context of an interruption by the Minister of Health. I said: The right hon. Gentleman"— that is, the Minister of Health— was determined to get this scheme"— the health scheme— and the whole of this scheme floated. He had many difficulties. I am quite satisfied that one of the difficulties which faced him was Treasury opposition. I am quite satisfied on the facts before me that the right hon. Gentleman must have known that this scheme would cost so much and that it was at least doubtful whether the finances of the country could carry it. I am quite satisfied that the policy of the Minister has been to keep the Estimates as low as possible so that the scheme would, at any rate, be on its feet and the House would be presented with a fait accompli in the Supplementary Estimates. At that point the Minister of Health interrupted me and said: What conclusion does the hon. Gentleman draw from that; that we ought, therefore, not to go on with the scheme at all?"—[OFFICIAL REPORT, 17th February, 1949; Vol. 461, c. 1386.] I would draw the Chancellor's attention to that interruption by his right hon. colleague. In the first place it is to be noted that the Minister of Health did not deny, and so far as I know he has never denied, that the Health Estimates for last year were deliberately pitched as low as they could be, he well knowing that they would come out at a considerably higher figure. In the second place the implication of the right hon. Gentleman's interruption was that the alternative to footing these Supplementary Estimates was not to cut down the scheme but to stop it altogether. That is still true.

I do not believe that this Treasury circular can possibly have the effect of cutting down the current Estimates for this year. I believe that if this circular has any effect it must be to hold up the health scheme altogether in some vital part. As I see the position there are two sections in the Government pulling in different directions, and it is that which makes this Budget an unreal one, and it is really due to that fact that there are criticisms of this Budget which have been heard not only on this side of the Committee but on the other.

The current Health Estimates are quite unreal. Let the Chancellor of the Exchequer ask any hospital what is the present position about this vast Estimate for tens of millions of pounds for hospitals and he will hear what happened. In the first place hospitals sent in their estimates for the current year last Autumn in the ordinary way. They were expressly told that they were not to take into account any contingency in spite of the fact that in any business, whether in the sphere of industry, commerce or hospitals, contingencies are bound to arise. Having sent off their estimates after taking no account of contingencies, heavy increases were imposed on the hospitals under the Spens Committee's Report on additional pay for specialists. After those increases had been imposed on the hospitals they were each told that a cut had to be made not on an estimate taking into account these specialists' increases, but on the original estimate, the cuts amounting to between 5 and 15 per cent. in each case. The fact of the matter is that those cuts cannot possibly be made, and it is no use the Government pretending that by circularising a Department and saying that supplementary estimates will not be honoured, that that will effect cuts; it will not.

There are only two alternatives. Either there will be large supplementary estimates under these headings or else a large number of hospitals will be virtually brought to a standstill. We cannot simply reduce the number of beds by imposing cuts in this way. The effect of the duality of the policy now being pursued by the two halves of the Government is that they will either break the back of the health services, and I believe probably also of most of the other social services of the country, or else they will break the back of this Budget. We are getting into that position. I object to this Budget as an unreal one.

I think that the policy which is being courageously pursued by the Chancellor is the right one, but I do not believe that he can carry it out, sitting on the Government Front Bench and knowing the views and obvious intentions of his colleagues who sit beside him. I would say that when we come to look at this Budget in retrospect in a year's time, it will show no such balance as we expounded in the course of the Chancellor's speech. If that is so we are getting dangerously near to the position in which the Chancellor will have to come back and make an even more drastic statement to the Committee than that which he has made this year.

5.8 p.m.

Mrs. Jean Mann (Coatbridge)

This Budget has been presented with great honesty and great courage. I remember the Chancellor's statement that he could not present for an electoral advantage, something which was contrary to his principles. A rather curious situation has arisen however. We have been told that this Budget is responsible for Labour defeats all over the country. We are being told that the Progressives, the Moderates and the Tories have gained by this Budget. That surely is dishonesty enthroned in this country, if the people of this country, because of the 3½d. or 4d. a week rise in the price of food, because of a withdrawal of a part of the food subsidies, have completely gone over to the other side, completely gone over to people who have all along been irritated, not at the subsidy being £100 million too much, but at there being a food subsidy at all, and have voted for ladies and gentlemen who railed at the food subsidies, and who, if they had had their way, would have increased the cost of food not by 4d. but by 4s. They have accepted the votes of the people of this country. Can they honestly maintain their position? Can they honestly rush into the Conservative Party headquarters and say, "Congratulations," knowing in their hearts that they would have gone 100 times further than the present Chancellor has gone? The honesty of our Chancellor has shown up something very dishonest in the nation.

I deprecate very much the speeches from these benches about this 4d. a week increase in the cost of food, because it is not altogether correct. Nothing whatever has been said about the decrease a fortnight ago in the price of sweets and chocolate, and the decrease this week of ld. on a 2 lb. jar of jam; nothing whatever has been said of the fact that onions which are now 4d. a lb. were 9d. a few months ago—and even then only a vision on a spiv's barrow. Nothing has been said about the decrease in the prices of eggs, curtain cloth, sheets and all household commodities. But there has been a terrific row about this 4d. a week.

When we compare the increase in the cost of living in this country with the increase in the cost of living in other countries, we find that Britain has a remarkable record indeed. The United Nations Bulletin of 15th January, Vol. 6, No. 2, which is in the Library, gives the following figures which show the percentage increase in the general cost of living between 1937 and 1948, and the highest percentage figure reached in the last 12 months is given in each case. This Bulletin shows the figures for the United Kingdom as 10, New Zealand 36, Australia 50, Sweden 60, Norway and Switzerland 66, the United States 70, Ireland 88 and Belgium 143. I have received a telegram which states: Protest against the scandalous boss class Budget. Voice the workers' protest against food prices and war expenditure. I have received such telegrams from people who say that this 4d. is to pay for the extra armaments, and that it is because we are arming that there is this increase. Ireland has not joined the Atlantic Pact, and her increase is 88. Czechoslovakia has joined neither the Atlantic Pact nor Western Union, and her increase is 228. If 10 per cent. is the measure of getting ready for the next war à la the hon. Member for Gateshead (Mr. Zilliacus)— what is 228 per cent., which is Czechoslovakia's increase? What is 12,904, which is Poland's increase? If this increase of 10 per cent. is the result of getting ready for the next war, Finland seems to be preparing pretty well with 747.

I believe that the Budget might have been better if it had been presented in an "as you were" fashion. I have heard criticisms to the effect that the Chancellor should have prepared us for the news that we should not get a great many concessions. I do not know, but the Chancellor has never been very optimistic about any Budget concession, although a great deal of campaigning has been going on about concessions that we were likely to get in post-war credits and in Purchase Tax reductions. The price of butter was reduced by 2d.; it was reduced from ls. 6d. to ls. 4d. some time ago when the Co-op slashed prices, when they also took 2d. off cheese, ld. off margarine, ½d. off sugar, 2d. off bacon, and 1½d. off cooking fats. The housewives then said it did not matter, and that what mattered was the the increase in the price of beer.

The junior Member for Blackburn (Mrs. Castle), writing in the "Tribune" on 1st April, said: It would be intolerable to lessen the tax on non-utility clothes so long as the working man is paying such a heavy price on his pint of beer. Yet the Chancellor has been accused of acting wrongly in reducing the price of beer by ld. and putting something on the housewife's burden. I have been brought up with the working classes. I know the custom among the lower income groups. The husband comes home and gives all his wages to his wife. When a rumour went round some time ago that a Private Member's Bill would be introduced in this House to enable wives to claim a portion of their husbands' income, I received a great many letters from constituents who said, "Good luck to this Bill; at present my wife receives the whole of my income." That is very largely true. The husband usually gives his wife everything, and she hands something back to him for pocket money.

Mr. Kirkwood (Dumbarton Burghs)

That is what they do in our country.

Mrs. Mann

I can hardly believe that the Englishmen in the lower-paid groups do not do the same thing. I suggest that the housewife will deduct these pennies before she hands her husband his pocket money. Where we did feel the pinch was in clothing and household goods. We have been told that everything is bearing Purchase Tax. The other day I went into a shop for a coat; I wanted a utility model. I was told that there were no utility coats. I wanted a coat costing about six guineas. I was shown one at 16 guineas and another at 20 guineas. Only when I was going out of the shop did the assistant volunteer to bring something out of the utility range at six guineas. If I had said, "I will accept the 16 guinea coat," I suppose it would have been all right. If I had done so I should have gone out and said, "There are not enough utility coats on the market." Instead, I suspected that there was a far bigger commission on a 16 guinea sale than there was on a six guinea sale.

I believe that Purchase Tax is being blamed too much for high prices. For instance, children's apparel is too highly priced. Mothers are grumbling about what they have to pay for children's coats and shoes. But children's apparel is tax free; three-quarters of adult clothing is tax free; 90 per cent. of sheets are tax free; 96 per cent. of wool blankets are tax free. I am sure that my hon. Friend the Member for Blackburn would agree with me, because I am quoting an article which she wrote for the "Tribune." We are constantly being told that all tea, glass and kitchen cloths bear Purchase Tax, but 90 per cent. are tax free. Domestic glassware and crockery is nearly all tax free; brooms, brushes, dustbins, buckets, pails, babies' baths, cookers, wash boilers, coppers, electric irons and kettles, mending and knitting wool, handkerchiefs and three-quarters of men's braces are tax free. More and more curtain cloth is being exempted and more and more furniture is being brought within the utility range. Generally speaking, the cost of living has been greatly decreased, and is going down all the time.

I hope no one will think that the housewife is selfish, that she is concerned merely with the ½d. increase on butter or the 4d. increase on meat. Believe me, housewives are not nearly so interested in the Budget as they are in the question of when they will get a new house. Housing is still the predominant issue in the country, and we must go to our women folk and tell them that the more they demand in housing, the more money must the Chancellor raise for capital investment. The first concern of housewives is security—"Will my husband keep his job and, if so, how long will he keep it?" Housewives will be glad to know about our capital investment programme of 443 factories in production, 530 factories being built and 210 being planned. We must tell them, in the words of Mr. Hoffman, that our recovery commands the admiration of the whole world and that we are only at the beginning. We must point out to them that they will be only at the beginning of high prices and unemployment if they continue to vote for the party represented by Members opposite, but that they will be at the beginning of their prosperity if they continue to place their trust in a Labour Government. I am certain that this Government have warranted that trust, and that if Labour Members present their case properly to their constituents they will continue to retain that trust.

5.25 p.m.

Mr. T. G. Galbraith (Glasgow, Hillhead)

As this is the first occasion on which I have had the privilege of catching your eye, Mr. Bowles, and the honour of speaking in this House, I crave your indulgence and that of the Committee, too. I welcomed the general tone of the Chancellor's Budget statement because it seemed to indicate that the days of wishful thinking were over and that the Government had decided to face the stern economic facts which confront us. In spite of this general welcome, however, there are three matters in respect of which I should like to make a criticism. The first involves a matter of principle; the second involves a matter of fairness; the third involves a matter of policy.

The matter of principle is involved in the increase of telephone charges, and is this: should a Government Department, which has been granted a monopoly to run a service in the public interest, be allowed to increase the price beyond the cost of production? I believe that a Government Department should not be allowed to do this, and that State monopolies exist for one purpose and one only, to provide a service at the lowest possible cost and with the highest possible degree of efficiency. Any deviation from that is a breach of trust.

As I listened to the Chancellor's speech it was not quite clear to me whether he was increasing the cost of the telephone service to raise revenue or to reduce demand. In so far as his purpose was to reduce demand, he seems to be relying on the laws of supply and demand to justify these increases. But those laws operate only in the open market, where, it is true, an increase in price would stimulate an increase in supplies. That, however, does not happen in a closed market where there is a monopoly. What the Chancellor is doing is arbitrarily to fix supply and artificially to limit demand to suit that supply, by raising the price. We have seen the same process at work this year in respect of electricity supply.

I do not believe it was ever the intention of the public when these State monopolies were created that they should carry out restrictive practices in this fashion, or try to limit demand by price increases which are bound to fall most heavily on those least able to bear the cost. Nor do I believe that it was ever the intention of the public that State monopolies should be used as an easy way of raising revenue. Indeed, I cannot follow the Chancellor's logic in this matter. Up to date, the right hon. and learned Gentleman has been pressing industry to keep prices and profits as low as possible, although, if prices and profits were high the Treasury would have benefited from increased taxation. Now the right hon. and learned Gentleman suddenly changes his tune and sanctions high prices for the benefit of the Treasury, although these prices are upon a commodity, a service, which is essential to industry, commerce and the ordinary citizen.

There is another feature about this increase which I regard as particularly dangerous, and that is the ugly precedent which it creates for other State monopolies and nationalised industries. None of these have made a profit to date but, if they do, will that profit be used to improve the service in the interests of the public or will it be used, as the profit on the telephone service is being used today, to fill the coffers of the Treasury? This is a matter which is causing the public great anxiety. There is nothing new in this technique of establishing a monopoly and using it to extract money from the public. It is following the well-worn road of tyranny and oppression which led Louis XVI and his advisers to the guillotine.

I now come to my second point, which involves a matter of fairness in the application of the Death Duties. I shall not conceal from the Committee that I do not like Death Duties. They fall harshly on small family businesses, which often have to sell out to strangers. I agree that this may spread abroad the benefits of ownership, but it means that the personal link is lost, which is something of inestimable value to the workers, as the nationalised officialised industries are now finding out to their cost. I do not believe in them because the family is one of the greatest incentives to output. People work and save for the future of their families. It is often said by hon. Gentlemen opposite, in trying to justify Death Duties, that it is bad for the character of young people to be left something by their parents. What is not recognised is how bad it is for the parents to be prevented by the State from carrying out their natural duty to do the best they can for their children.

These are old arguments and I am not at present trying to persuade the Chancellor to reduce the Death Duties. I am only trying to persuade him to alter their incidence in a way which will be fairer. The Chancellor is perfectly right in trying to simplify the Death Duties, but lie is wrong to retain Estate Duty in its present form. What he ought to do is to blend Estate Duty with Legacy and Succession Duties. As the Committee will remember, Estate Duty is a tax on the amount of property which is left, and it varies with the total amount of property. On the other hand, the Legacy and Succession Duty is a tax on the amount of property which is received, and it varies in accordance with the relationship of the recipient to the donor.

Both these principles ought to apply, and Death Duties should be graded according to both the amount and the relationship. For I do not believe that even the most rabid egalitarian would seek to try to place a wife or a child on the same level as a stranger or an institution. Yet this is precisely what the Chancellor is doing with what appears to me to be a thoughtless disregard for the ties of blood and affection. On what amount is the tax to be paid? Should it be paid on the total amount of the property left, as in Estate Duty, or should it be paid on the amount of property received as in the Legacy Duty? It would be far fairer in my opinion for the tax to be levied not on the whole estate but on the amount received from the estate. An example of what I mean will clarify the position.

Suppose that there are two brothers, each of whom leaves £100,000. I have taken that large figure because it is easier for the purpose of illustration, but what I have to say applies to anyone who leaves more than £2,000. One of these brothers has an only child. The other has five children. After taxation, the only child gets £50,000 while each of his cousins gets £10,000. So far as the only child is concerned it is perfectly fair. He was left £100,000 and tax is at the rate of 50 per cent., so that he inherits £50,000. But it is not at all fair for his cousins. They were left only £20,000 and on this they had to pay tax of 50 per cent. at the same rate in fact as their wealthy cousin. I cannot see anything fair in this, and I cannot understand why the Chancellor should look at the whole size of the estate which penalises the many and benefits the few, instead of looking at what individuals receive from the estate which would be fair to everyone.

There is nothing new in what I am asking the Chancellor of the Exchequer to do. It is a principle which applies in Income Tax and family allowances. The more children there are, the greater the relief. It is only in Death Duties that the few benefit at the expense of the many. I would ask the Chancellor to consider this matter most seriously, because of the hardship and injustice that is being caused. And I ask the Chan- cellor to amend the Death Duties in such a way as will prevent the present unfair discrimination against those with large families.

I now come to the last point, which is more general than the two preceding, which were rather specific. As a matter of policy, is it wise to maintain taxation at the present high rate, particularly that of an indirect character? I do not believe it is wise, and I think some relief is possible by a reduction in the expenses of Government. I see that the Chancellor is shaking his head, but he said that it is impossible to have administrative economy. I remember that when I was in the service of the Crown, in the Forces, I spent money much more lavishly than I would have done if it were my own and I do not think I was unique in that. It is always possible for officials to justify expenditure on the grounds of increased efficiency, but what is not considered nearly enough, is whether this slight extra efficiency is worth the vast increase in cost.

I believe that money could also be saved by encouraging people to do more things for themselves. Take national health for example. Many people would be quite willing to employ and pay for their own doctor if they could have their medicine on the State, but the Minister of Health says, "No, if you want my medicine you will have to have my doctor." Thus people have been forced into the State service who would rather have stayed out of it, and there has been a corresponding increase in expense to the State. The same thing can be said of education. Many people would be prepared to educate their own children if they were allowed to put against their Income Tax what it costs the State to educate their children for them. I do not believe that the days of self-help are over. It is the duty of the State to encourage people to help themselves, and if the State does not encourage those who can to help themselves, it will not be able to afford social services for those who cannot.

All this would serve to reduce taxation. Unless taxation and particularly indirect taxation is reduced, it will not be possible for the Chancellor to stem inflation. People forget when things are expensive that they carry indirect taxation. They demand increased wages because the cost of living is high. The link between the cost of living and wages was one of the most disastrous ever forged. When the cost of living rises what do people do? They do not think of working harder, but they argue that this increased cost of living automatically justifies an increase in wages whereas, in fact, an increase in wages can only be justified by an increase in output.

Is the Chancellor likely to get an increase in output with taxation at its present high level. Already he has had to reduce the duty on beer, because he was getting a diminishing return. What I am afraid of is that, instead of the increase he hopes for, he will actually get a decrease in output. Indications are all in that direction. It may be that output per man-shift has gone up, but what about output per man-year and the increase in absenteeism? Those are not signs of a nation which realises that it is living beyond its means?

Last week in a magazine called "Illustrated" I read an article on this question of cost of living. The publication is not official, but the figures are probably accurate enough. This article gave an account of the weekly budget of a Jarrow riveter which may possibly explain the limpness and lack of response in the country in spite of the present serious situation in which we find ourselves. This riveter had a weekly income of £6 and of that £6 he spent 27s. a week on beer and tobacco. My point is this—the Chancellor's whole economy depends upon people spending these relatively fantastic sums on relatively worthless luxuries. If the nation wants to get more meat, more houses and better health what it has to do is to smoke and drink more.

This topsy-turvy "Alice-through-the-looking-glass" way of doing things may be perfectly clear to hon. Gentlemen opposite, but it is not clear to ordinary men. After a while a man gets tired of working his fingers to the bone for a few extra cigarettes. And so far as beer is concerned, he has already failed to respond to what was expected of him. People work for one thing and one thing only, and that is for a reward which is limited, which is personal, where there is a real connection between the effort they put out and the reward they get, and where that reward is clear, immediate and worth while. It sounds all very well to say, as the hon. Member for South Hammersmith (Mr. W. T. Williams) said in his maiden speech: from each according to his ability, to each according to his need."—[OFFICIAL REPORT, 11th April, 1949; Vol. 463, c. 2537.] But it does not work out in practice. Our social sense is not developed sufficiently.

This goes to the root of the whole problem of the welfare State. People as individuals are failing to shoulder the burdens which they have acquired collectively. People, by and large, are only willing to work for themselves and for their families, and are not prepared to work for one another because the system is too complicated and they cannot understand it. This seems to me to be the sad lesson of the last three years. It is a lesson which we must recognise in the Budget if we are to get the best for the nation from the nation. The Chancellor was a brave man to admit in his Budget speech that the emphasis must now be upon economy and not upon expenditure. Is the Chancellor a sufficiently brave man to state the unpalatable corollary of that, which is that the emphasis must no longer be upon collective equality but upon individual opportunity? Unless the Chancellor has the courage to say this and to implement it, the future for this country will be one of bleak sterility and gradual increasing impoverishment.

5.43 p.m.

Mr. Leslie (Sedgefield)

I am glad of the opportunity of congratulating the hon. Member for Hillhead (Mr. Galbraith) upon his very eloquent maiden speech, although we cannot say that it has been non-controversial. However, he has given the Chancellor something to think about. The hon. and gallant Member for Pollok (Commander Galbraith) must feel very proud of his son's maiden effort. I hope that we shall hear the hon. Member on many occasions, and that he will continue the controversial note, so that we can all reply.

The other day I listened with considerable interest to a speech by the noble Lord the Member for South Dorset (Viscount Hinchingbrooke). He put forward a plan to deal with the Budget. I understand that he visited America some time ago. No doubt, as a patriotic Britisher, he would extol the virtues of the British workers who stood to their tasks and increased production. His visit to America happened at a time when strikes were rampant there because of the increased cost of living due to the decontrol, which caused prices to rise sky-high and to become extortionate. President Truman saw the light, and no doubt he won his election on proposals based on what Britain was doing.

The noble Lord suggested a reduction in subsidies by £100 million to start with. Does he imagine for one moment that the workers of this country would be different from the workers in America if the cost of living rose sky-high? Would they calmly acquiesce in an increase in the cost of living without a commensurate increase in wages? I am afraid that that is not what would happen if the suggestion made by the noble Lord were put into operation. We all know that the Chancellor had to face a very difficult situation. No doubt his eyes were turned beyond the seas. I can imagine that America is well satisfied with the Budget as showing that we still have to practise austerity.

Many of us hoped that there would be some relief of Purchase Tax on household commodities, but the Chancellor had to set his face against it. There is one incidence of Purchase Tax to which I would call the attention of the Chancellor. It could easily be abolished straight away, for the simple reason that the Chancellor derives no revenue from it. I refer to the tax on hand-loom-woven Shetland tweed. It is a cottage industry which has been throttled. While the export trade was good, the weavers did well, but import duties killed the export trade. A 66⅔ per cent. Purchase Tax has killed the home trade. Doubtless many of these weavers are ex-Service men who put their gratuities into the purchase of hand-looms. These looms are idle now. There is no Purchase Tax to come from them, because there is no output from the looms. These ex-Service men are self-employed and will have to resort to national assistance, which means a further loss to the State. I see no earthly reason why this particular Purchase Tax should be continued. In the special circumstances, surely, wisdom will dictate either a reduction of this excessive tax, or its complete abolition.

Sir William Darling (Edinburgh, South)

Is it not the case that when such craftsmen are self-employed they pay no Purchase Tax?

Mr. Leslie

That is not what I understand. The fact is that Purchase Tax was imposed upon this hand-loom Shetland tweed.

Sir W. Darling

Not from the self-employed men.

Mr. Leslie

I shall be glad to know that. Other men may have been working as wage-earners. They will certainly be out of employment and will have to claim unemployment benefit. I appeal to the Chancellor to give this matter his sympathetic consideration. I hope that my appeal will not be in vain.

5.48 p.m.

Mr. Wilson Harris (Cambridge University)

The Committee will remember the citizen of ancient Athens who explained that he voted for the banishment of Aristides because he was so tired of hearing Aristides called "the just." Similarly, I almost expect that the Chancellor of the Exchequer will vote for his own banishment out of sheer boredom at hearing himself called courageous. I will not add to that tribute—though I fully endorse it—lest it should push the Chancellor over the edge of mere courage into sheer foolhardiness, a process which some of his supporters, I gather, think has already happened.

Since I am under contract with the Chair to speak for seven minutesapproximately—an example which I respectfully commend to other hon. Members, I will confine my remarks to one subject, which has now already been dealt with in the admirable maiden speech made by the hon. Member for Hillhead (Mr. Galbraith). I refer to what I will not call an indelible blot, for I hope it will be deleted, but what is an indefensible blot upon an admirable Budget—the telephone tax. I am astonished that the Chancellor should have imposed such a tax and should have justified it by some of the arguments which he used.

There are three decisive arguments against this tax. First of all, an essential feature of a civilised society should be cheap communications. There is no means of communication of greater social value than the telephone. The one aim should be not to make the telephone dearer but to make it cheaper, and it could have been made cheaper. Last December the Postmaster-General told the hon. Member for Worcester (Mr. G. Ward) that in the preceding year the telephones had made a profit of £10,500,000. Obviously the price to subscribers could have been substantially reduced. [HON. MEMBERS: "Should have been reduced."] Instead of that, this additional £8 million taxation is to be imposed at the cost of very great hardship to many classes of the population.

Another argument against this tax has already been voiced by the hon. Member for Hillhead. If we are to have nationalised industries—I say nothing at all about the merits of that—surely the fundamental principle should be that they should give the consumers the best service at the lowest price. If we depart from that and use nationalised industries to make a profit for the Treasury, we are in danger, not of "soaking the rich," which I understand is popular opposite, but of soaking the poor, who can ill afford to be soaked.

I would ask the Chancellor to consider some of the classes of the community who will suffer through the telephone tax. I take, merely as an example, the rather isolated farm, and I take that instance simply because a day or two ago I happened to hear of a farm where the telephone had lately been installed by a considerable financial effort. The owner could barely afford it and it meant a great deal of sacrifice, but he has a milk-round to look after, he has to keep in touch with his suppliers in the neighbouring town, and so on. His first reaction on hearing of the Budget proposals was that he must give up the telephone altogether, but he can ill afford to do that if he is to carry on the farm properly.

Let us come a little nearer home than that. The scattered constituency which I represent contains a large number of clergy and ministers, a large number of doctors, a certain number of university teachers and a much larger number of school teachers of one kind and another. I appeal to the Chancellor to consider for a moment the case of the clergy in particular. The clergyman in the village is, or ought to be, the centre of the village life and it is essential that he should have a telephone. The same is also true of the clergyman in the large town parish. I doubt whether any class of telephone user can less afford to have the cost increased than the almost impoverished country and other clergy. It seems an almost inhuman hardship which the Chancellor is placing on them.

Take the case of doctors. We may say, as I was inclined to say for a moment, that doctors will not suffer very much because their calls are mostly incoming calls; but it is nothing of the kind. Only yesterday I heard a doctor explaining the amount of time and money he spends in ringing up hospitals here and hospitals there to try to get beds for his patients often having to put in several trunk calls before he can get anything arranged. If we are to have an efficient medical service, is it reasonable that doctors who have to use the telephone to that extent should be faced with the additional impost? I shall not dwell on the case of university teachers, but obviously they have to keep in touch with each other and the central offices of the university; or on other classes to whom the telephone is in not the slightest degree a luxury installation but a necessity. I agree that an incredible amount of nonsense is talked over the telephone lines, but for many people the telephone is essential in their daily life, and many, such as the clergy and ministers, simply cannot afford to pay a penny more for the telephone than they do now.

I most earnestly appeal to the Chancellor, if he cannot remit the tax altogether, to cut out of its operation the private resident. Let him tax the business house if he will—I am sure that he will gain the greater part of his revenue from that—but let him consider in a human sense—I know how human he can be under this traditional austerity—the case of these people who need the telephone, who can barely afford to pay for it and who will not be able to have it at all if he continues in his intention to impose this tax.

5.55 p.m.

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

I hope that the junior Burgess for Cambridge University (Mr. Wilson Harris) will excuse me if I do not follow him, as time is short and I have two specific points to put to the Chancellor of the Exchequer.

A year ago the Chancellor introduced some innovations. He distinguished between a true and a fictitious surplus. He went on with these innovations this year and has now given us three surpluses to consider, "above the line," "overall" and "true revenue." We are, in fact, swimming in a sea of fictitious surpluses, and according to the more or less roseate view which we take of things, we may choose one or other of them. But the Chancellor went on: By the word 'true,' I am not, of course, claiming that final accuracy has been reached." —[OFFICIAL REPORT, 6th April, 1949; Vol. 463, c. 2081.] Surely this is a grotesque situation at a time when the Government's tentacles are smothering with nationalisation industry over an ever wider area and when we are dealing with astronomical figures of a size with which we have never had to deal before. The Chancellor has recognised this because in April he invited criticism and suggestions upon the nationalised accounts.

The system with which we have to put up just now would not be tolerated in any commercial concern and would not be tolerated by the Companies Acts. It is not tolerated in nationalised industry. There exists no statement of the nation's assets on a written down basis, because the financial statement is on a "cash in" and a "cash out" basis and the moneys which come in, in any year, whether they are recurring or not, pass into one side of the accounts and the expenditure in any one year, whether for an enduring purpose or not, passes into the other side of the accounts. But the recognised accounting system is that when we have an asset which will endure for some time, we estimate its probable life and write it down out of revenue during the period of that life. Without some such system we have no check that the expenditure allocable to any particular year, squares with the income properly belonging to that same year. So in order to put this matter into some sort of perspective estimates have been issued—things like the Economic Survey for 1949—but these estimates are very often quite wide of the mark.

I therefore suggest—there is a strong body of commercial opinion behind the suggestion—that the national accounts ought to be revised on an income and expenditure basis supplemented by statements of assets and of liabilities, discriminating between long-term and short-term, and if as a corollary of that—and it seems logical—there were set up within the Treasury a banking department to deal with the trading Ministries such as Food and Supply, then the responsibility for estimating and the responsibility for expenditure would fall on the same shoulders.

If some form of reward for efficiency was given, it might easily result in some considerable economies. Without some such system, policy may well be based upon wrong premises. The Netherlands Government have recognised this and are engaged on re-editing the form of their national accounts at present. It may well be that something worth while may be learnt from that. The right hon. and learned Gentleman invited criticism and he has got it. He has set up a Committee to inquire into the narrow field of computation of taxable profits, and I suggest that he widens the field—I believe it is his intention—and lets the Committee examine and report on this important question also.

My second point on the Budget relates to the question of the flow of capital into industry. In the main—some would argue "entirely"—the provision of capital for industry comes from individual saving. It is true that industry can be capitalised out of taxation through nationalised industry, but, after all, in the long run, taxation also comes from individual savings. Recently statistics on national savings have not been impressive. Apart from individual savings, the other main source—it might easily be shown that it is fundamentally and originally the same source—is the reserves that concerns can accumulate and out of which they provide for their own future.

I was astonished to hear the hon. Member for Central Southwark (Mr. Jenkins) say that there was no evidence that industry was not able satisfactorily to re-equip itself at present. That theme was supported to my surprise by the hon. Gentleman the Economic Secretary today, who called in evidence the fact that our exports and production were higher than they had been, and said that that was self-evidence that industry was perfectly well able to re-equip itself with the plant it needs. Someone has said that any fool can sell in a strong sellers' market, and I can assure the hon. Gentleman that I know many cases where industry is hard put to it to be able to find the capital necessary to modernise itself and re-equip itself.

Where has his evidence come from? In talking with members of the Fabian Society no doubt the hon. Gentleman would get support for his view, but I call in support of my contention not Parliamentarians or politicians but the following papers and individuals: first, the "Economist," "secondly, "The Times," thirdly, "Lloyds Bank Review," fourthly the Chambers of Commerce and the Federation of British Industries. Those are august bodies which cannot be claimed to be strongly political and which have a deep knowledge of this subject. [Laughter.] Well, I wonder what the politics of the "Economist" are? In the past they certainly were favourable to hon. Gentlemen opposite.

The need for capital in industry is increasing and has increased greatly in the past few years for two main reasons. First, because during the war it was impossible to replace plant and very often impossible to repair it, so there was an accumulated backlog of machinery and plant which is not of the most modern type at the present time. That will require to be made good in the near future. The second contributory factor is the immense increase in cost of the replacement of that plant. The Survey, for example, to give an indication of the figures we are considering, under the heading of "Other Manufacturing Industries" stated that in 1947 the capital investment programme was for a figure of £340 million, in 1948 of £370 million, and in 1949 of £400 million—an ascending graph. If we add to that, the demands of power, railway, gas, electricity, and all the other expenditure required at the present time, we would probably find that the figures are two to three times what they were before the war.

Can industry meet these demands at the present time? It has to do it either out of new issues of capital or out of its own reserves. So far as new issues of capital are concerned, I have shown, and all the statistics support me, that savings are tending to dry up with taxation as it is It is inevitable. I shall not argue the advantages or disadvantages of the redistribution of wealth, but it is surely self-evident that a man with £5,000 a year will have something available to invest in industry, whereas 10 men with £500 a year are much less likely to be able to maintain the capital flow from savings which industry requires.

So this redistribution of wealth, whatever other arguments for or against may be adduced, in relation to the flow of capital into industry, is playing a serious part. An American visitor here the other day stated that a country could be ruined by the drying up of venture capital more quickly than in any other way. Nor, indeed, do enforced savings help because, as the Chancellor has foresightedly recognised, we have already reached the limit of taxation, at any rate at the present time. However, even if taxation could produce more, the temptation to come forward with some new social service scheme seems to be irresistible, and the possibility of being able to pay for it, as we have seen in the cursory and perfunctory discussions on the money Clauses after a lot of time has been spent on a Bill, shows that the cost comes in far too often as a mere afterthought.

The "Economist" has said in connection with this need for capital that it is a lucky concern or a lucrative monopoly which can cover its needs today. "Lloyds Bank Review" has said that the amount spent on capital formation in industry is almost certainly less than what is necessary to replace worn-out equipment at today's prices. And "The Times" states that an accumulation of deficiency from the past between the actual cost of replacement and the depreciation allowances which have been permitted is in the area of £1,500 million, and if one adds stocks in, one would have to add in another £1,000 million. Those are fantastic figures, and the fact is that the present system of depreciation allowances has broken down and will always break down when there is a major change in the price structure.

Mr. Gallacher (Fife, West)

The hon. and gallant Gentleman means that the present system has broken down.

Colonel Hutchison

The present system of tax allowances has broken down. The Chancellor has recognised this because he has gone a little way, but only a very little way, to meet these needs. His doubling of the initial depreciation allowances is something, but it is not anything being given away by the Treasury, it is only an anticipation of what would have been given away anyhow. Let it be realised that it does not provide for the individual whose plant is already half worn out and who has to find the capital in order to replace that plant. That is the first and the most urgent question that will come along. Nor does it do anything for the owner of buildings in the matter of depreciation. Finally, it does nothing for the stock position in industry.

The cost of stocks has been growing every year, and apparent profits have been shown in balance sheets which have paid their taxation but, when they come to try to replenish their stock, they find that the price has risen even higher and that the apparent profit has gone. Therefore, I say to the Chancellor that the one thing he can really do which will be of help is to abandon the Undistributed Profits Tax. It is a tax which is defended on no reasonable, equitable grounds by any one. It penalises prudence, it prevents industry, by that amount, from being able to provide its own reserves, and so its own plant.

Until some help like that is given, industry will in many cases struggle on with inefficient plant at a time when every type of efficiency will be needed in order to compete in the world's markets. It is no good looking at the past when we had a strong sellers' market and saying, "We have done well, therefore everything must be right for all time." That is a dangerous fallacy. So until some such step as this is taken, industry will work on with inefficient plant, some concerns will have to try to keep up the same turnover with reduced stocks, because they cannot finance larger stocks, and the taxation of industry and the spending of its capital will continue. This rake's progress cannot go on indefinitely.

The Associated British Chambers of Commerce, and the Federation of British Industries have asked that the Chancellor should appoint a committee of inquiry into the effect that taxation is having upon the national economy. As the right hon. and learned Gentleman has said that he is setting up this committee with a narrower field, I ask him if he will extend their activities to the wider and more important question.

6.8 p.m.

Mr. Kenneth Robinson (St. Pancras, North)

May I ask for the indulgence which this House traditionally extends to those who address it for the first time? I am conscious that I am the fifth Member of this Committee to ask for this indulgence in the space of about 24 hours, and I have promised that I will do my best not to trespass on its patience for too long.

May I first add my small voice to the chorus of congratulations that has been won by my right hon. and learned Friend for the extremely lucid survey he gave on Wednesday of last week? The picture he drew was one of solid achievement, and one on which the people of this country can look with pride. It is a picture which reflects the greatest credit on my right hon. and learned Friend and his colleagues no less than on the working population of this country. In stressing, as he did, the efforts that we still have to make, he did nothing to minimise the distance we have already travelled in the direction of economic independence, particularly during the year under review.

Yesterday my right hon. Friend the President of the Board of Trade enlarged upon the steps we must take in order to meet the paramount need of the coming year, which is to increase our exports to, and achieve a balance of trade with, the North American Continent. I am sure that we shall get the fullest response from the workers in the same way as in the past year. We shall get that response because the workers today have a very lively understanding of the country's economic position. They have that understanding largely because of the intelligent publicity campaigns that my right hon. and learned Friend has initiated and also of the Government's public relations programme generally. Today, as a result, the workers have a feeling that in helping the Government—their Government—they are helping themselves. That is a new and rather significant feature in this country.

I should like to turn now to the Chancellor's taxation proposals for the coming year. I realise at once, as I think the country realises, that no major concessions could have been expected this year. If I venture to criticise one or two specific points, I do so realising that the overall picture could not have been very different. The Budget has been called, amongst other names, a "standstill Budget." I do not think it is that. I rather wish that it had been, because the Budget has caused widespread disappointment amongst the less fortunate of our people. It has produced that disappointment because it does nothing to reduce the cost of living. It is only now that some forms of rationing have been abolished and goods in greater variety are on the shelves in the shops, and perhaps beyond the power of the purse to buy, that the cost of living is really brought into sharp relief.

It is especially unfortunate that in this Budget a reduction in the price of beer should have been offset by a rise in basic food prices. I know that my right hon. and learned Friend has made a most convincing case for both these changes, and I am sure it was not his intention that they should have been equated in any way. Nevertheless, that is how they are regarded in the home, simply because they are the only two Budget changes which directly affect the home. Despite what was said by my hon. Friend the Member for Coatbridge (Mrs. Mann), I think those English housewives will be fortunate and few who get 1s. 6d. a week more housekeeping money because "the old man" has a penny off the pint. Many sections of our community find the present cost of living really oppressive. I am thinking of those living on minimum wage standards and small fixed incomes.

All our minds fly immediately to the old age pensioner. These people had been led to hope for some concession, for some remission, perhaps of Purchase Tax, during the weeks before the Budget. They were led to that hope because that sort of prophecy was scattered around the pages of the national Press during those weeks. I do not suggest that the Press deliberately engendered false hopes for political ends, nor do I want to suggest that their freedom to comment or to prophesy should be in any way curtailed. It is a very difficult problem. I do not know quite what the Government could do in the way of countering this sort of propaganda before it does harm. I think that all one can ask is for a rather more responsible attitude on the part of the Press in future.

My right hon. and learned Friend told us in his Budget speech that there is not much further immediate possibility of redistribution of national income by way of taxation. I hope that the operative word here is "immediately," because I do not believe that the Government's deliberate policy—and a very desirable policy it is—of lopping off the extremes of wealth and poverty, has gone nearly far enough yet. I should like in this connection to support the suggestion made on the first day of this Debate by my hon. Friend the Member for Gravesend (Sir R. Acland) and to ask for some sort of investigation into the mysteriously high standard of living still enjoyed by so many fortunate citizens of this country. There are too many of these persons who seem comparatively unaffected by the so-called crushing burden of taxation on the higher income groups. Hon. Members need nothing more than the evidence of their own eyes in places like Bond Street and in the more luxurious restaurants to see what is going on. It may be said that those people are living on capital gains. For my part, I do not think capital gains are markedly different in many cases from untaxed income. Somewhere there is a considerable pool of taxable wealth in which, if only my right hon. and learned Friend can locate it and drain it off in the public interest, he might find a little more margin for the redistribution of national income.

I support also the constructive suggestion made yesterday by my hon. Friend the Member for Sowerby (Mr. Houghton). He spoke with far more authority than I can, but I am sure that if the intensive survey he envisaged were carried out and, if successful, were extended, the Chancellor would be surprised at the windfall that might result for the Exchequer when all those people who should already be within the net of Schedule D are finally drawn into it.

Now I turn to the concessions that the Chancellor was able to make in his Budget. First, there is the initial wear and tear allowance, about which the hon. and gallant Member for Central Glasgow (Colonel Hutchison) was speaking. The doubling of this allowance from 20 to 40 per cent. will cost the Exchequer £75 million in a full year. I think both sides of the Committee agree that it is necessary that industry should be able to renew and re-equip its plant in order to maintain its place in the export markets of the world. But while I was pondering over this matter, I turned to the White Paper on National Income and Expenditure, to Table 6, which is entitled "Company Profits and Dividends." Under the heading "Additions to free reserves," which I take to be undistributed profits, I notice that these have been increasing at a rate of roughly £120 million a year—that is, the additions have been increasing—and that in 1948 they reached a figure of no less than £545 million. Might there not be sufficient margin here to finance this re-equipment? I know that the strongest possible pressure has been brought to bear on this matter from all sides of the industrial field from industrialists themselves, but this cannot be the explanation, because we also know that few men experience more obvious enjoyment in resisting pressure than my right hon. and learned Friend the Chancellor. He must have been satisfied that this added incentive was necessary, and I hope he was right. If it does, in fact, increase and speed up re-equipment the concession will be justified.

The other concession I would mention is one which I do not think has been mentioned so far in this Debate. It is the concession of half a million pounds in a full year to Lloyds' underwriters, who are not a very hard-pressed section of the community. Hon. Members may think this is not a large sum, but I would remind the Committee that it is going to a comparatively small number of men and that they include some of the richest men in the country. For a dozen or so years I worked among Lloyds' underwriters and the speech of my right hon. and learned Friend was the first occasion on which I had ever heard it suggested that Lloyds' existing collective reserves were not ample to meet all future possible emergencies. There may be a good case for an adjustment here in normal times, but I deplore what seems to me a gift of half a million pounds of Surtax to a handful of business men, in a Budget which calls on the housewife to dig deeper in her pocket when she goes out shopping.

I wish to conclude with a more general observation. Many hon. and right hon. Members opposite, in the course of their speeches, have implied, and some have stated, that the lesson of this Budget is that the country cannot afford, or soon will be unable to afford, social services at their present level. I suggest that that completely misses the lesson of the Budget. The lesson is that the people of this country cannot indefinitely afford social security and Defence expenditure at or above its present level. Since neither I nor, I think, any of my hon. Friends would contemplate for a moment any cuts in the scheme of social security which the Government have brought into being since 1945, I think we can only look to Defence as the field where, given certain conditions, substantial reductions of Government expenditure could be made in the future.

Few hon. Members would deny that the expenditure of £763 million on Defence, in the uneasy state of the world today, is a condition of our security. At the same time, the only way in which this crippling burden can be eased lies in reducing the barriers of mutual suspicion and fear that divide the world. It is no good saying we have tried and failed in the past. We must continue to try. It is something we cannot do alone; I fully realise that. I know we must seek good will in quarters where good will is singularly little in evidence at this moment, but at the same time I think the lesson of the Budget is one primarily for my right hon. Friend the Foreign Secretary.

What is the alternative? I read that America, our senior partner in the Atlantic Pact, has just authorised £3,300 million on Defence for the coming year—more than 80 per cent. of our total Budget. That is setting a pace which we can only maintain in this country at the expense of damaging intolerably, and perhaps permanently, the standard of living of our people. I think the Foreign Secretary must redouble his efforts, if necessary using new and unorthodox methods, forgetting past rebuffs, to achieve that international understanding which the people of this country and, I think, of all countries, anxiously await. I think it is no contribution towards building a stable world, or a lasting peace, for Ministers and right hon. Gentlemen opposite to go around, both here and abroad, making speeches and saying that war is not inevitable. Let us rather hear them say, "We shall not rest until we have brought about conditions in which war is unthinkable." Between those two attitudes of mind there is a great difference of emphasis. It could be the difference between fear and courage.

6.26 p.m.

Mr. Selwyn Lloyd (Wirral)

I wish to offer my very sincere congratulations to the hon. Member for North St. Pancras (Mr. K. Robinson) on his maiden speech. I have been a Member of this House for such a short time myself that it is almost an impertinence for me to comment on it, but I think he made his speech with agreeable modesty, it was exceedingly well phrased, well thought out, and forceful. I did not agree with everything he said and I do not think the Chancellor of the Exchequer agreed with everything he said, but that was no fault of the speech. We shall look forward with great pleasure to his future interventions on these subjects.

I wish to follow only one point to which the hon. Member referred at the beginning of his speech. That was when he referred to the dollar problem, and in particular I wish to say something about our trade possibilities with Canada. I am very glad that this matter is receiving a degree of public attention at long last, because we have every reason in this country to want to solve this problem of our trade with Canada. We owe a very deep debt of gratitude to Canada for the help they have given us in the past, and we should have a very strong incentive to try to strengthen our ties with a country which is still part of the British Empire.

There are strategic considerations because, although we agree with the hon. Member that the last thing we want is another war, we cannot blind ourselves to the lessons of the past and the tremendous strategic contributions which Canada made to us, particularly in regard to supplies of timber in the last war. Finally, there is the ordinary business reason that we very much want some of the products of Canada. It is a little doubtful whether the public in this country have realised what has been the effect on Canada of the dollar shortage in this country.

We may take the case of timber. During the war, Canada sent all the timber for which we could find shipping space. She did that to the neglect of markets where she could have got higher prices. Her production was expanded, more sawmills were built, her machinery was adjusted to British needs and British demands, and now the bottom has dropped out of the market so far as they are concerned and her timber producers are in a very critical situation. Last year was not so bad, because America was able to take a great deal of Canada's production which we were not able to take. But America is really a timber-producing country herself and it is doubtful whether Canada can look for that relief in the future. Take the case of salmon. In prewar years Canada sent us a million cases of canned salmon a year. During the war no Canadian could buy B.C. salmon. It was reserved for this country. Now, as I understand it, we are taking none at all. Again, last year the canners were able to get out of their difficulty because America was able to take the pack, but it is very doubtful if that will happen again. So far as fruit is concerned, Canada used to send six to eight million boxes of apples a year. Now the effect of the complete embargo means that tens of thousands of fruit trees have actually been uprooted in parts of Canada. That has produced a sense of deep resentment against this country.

I wish to quote two Canadian views, and I make it clear that I do not agree with the first view which I shall quote, but it represents one extreme. It is from a paper called "Timber of Canada," the monthly journal of the Canadian Lumber-men's Association, published in Ottawa. After saying it was reasonable for Canada to expect Britain to revert to heavy purchases from Finland and Sweden, because they were traditional sources of supply, the writer talks about negotiations with Russia and Yugoslavia, and goes on to say: If enemy countries are to receive preference to Canada in United Kingdom dealings, it is time the Canadian lumberman threw sentiment completely aside in his dealings, and it is time the Canadian Government took adequate steps to protect him in future from being the dupe of the British timber market … Ever since the Napoleonic wars Canada has received the same ungracious treatment from Britain. In time of war and need we have been hailed as saviours. In time of peace, we may starve for all Britain cares. In past generations, it might be argued that private individuals were guilty of ingratitude—not the British people. Now the purchasing is done wholly by the British Government, which is a Socialist body, elected by popular vote and presumably enjoying the confidence of the people of Britain. I said that I do not accept that statement at the present time. The only reason I quote it is to show—and I am satisfied of the truth of this statement—that there are in Canada a considerable number of people who share in some modified form that sort of feeling about the present course of our trade.

Now I will quote a much more moderate view from an article written by Mr. Ferguson, the editor of the "Montreal Star" and published in this country towards the end of last year. He spoke of the great disappointment expressed by Mr. James Gardiner in December. He writes of the Canadian view. He said—and I think it is interesting that I should quote the words of a Canadian rather than attempt to paraphrase— If we are driven to close our lives inside the dollar bloc, it is equally clear that our position and function as an independent North American State would be gravely threatened … This year British exigencies have sharply reduced orders for bacon, cheese and eggs. The British pleaded necessity and no fair Canadian would deny their right to do so. At the same time, the Canadians have right on their side when they argue, as they do, that the British should not ignore the long-term benefits of having a Canada more than an economic satrapy of the United States. This can only be achieved if Europe buys and finds the dollars with which to pay. Hon. Members will agree that that is a more moderate statement of the position from the Canadian point of view.

What I think we are entitled to explore is the extent to which the position has improved lately. The right hon. and learned Gentleman issued a statement in Ottawa on 24th September referring to this problem. It was a joint statement made with Mr. St. Laurent: The two Governments are satisfied that, in spite of present difficulties, there is a prospect of a large and continuing trade between the two countries and that Canadian raw materials and foodstuffs will continue to play a vital part in the recovery of the United Kingdom. So in September the right hon. and learned Gentleman was taking up the view that he was satisfied that there was a prospect of large and continuing trade. I understand that at the present time Canada is the largest importer of manufactured goods in the world. Before the war I am told we used to contribute 17½ per cent. of her imports. Now, of a very much larger amount, I am told that our share is between 7 and 10 per cent., so that we are doing worse at the present time relatively than before the war. I am also told, applying another test, that in January of this year 3.6 per cent. of our exports went to Canada, whilst for the last quarter of 1948 the figure was something like 4.6 per cent. I agree that that is rather a narrow period on which to make a comparison. One month's figures may naturally not be very conclusive; but they do appear to show this falling off. The reason I have quoted those figures is in the hope the right hon. and learned Gentleman will be able to reassure the Committee on that point and give an explanation of the expansion which is going on, as I hope.

I welcome what was said by the President of the Board of Trade about his plans to promote trade with Canada. I welcome his eight points, so far as they go. But I would make one comment. If they mean the export of bureacratic methods, I do not think they will be very much good. There are one or two provisions in them which may easily lead to that, but, subject to that reservation, I think that the eight points go some way. First of all, there is the clear lead as to permanent importance. I think we can all support that. The letting of industry know the export objective—that is simply another set of targets. It cannot do any harm.

Open favouritism to exporters to Canada and the United States of America—the right hon. Gentleman made some play with that point. I would like to know how long has that been going on? Is it something which the Government have only just thought of? Has it been going on for some time? What effect has it already had and what effect is it expected that it will have? Then he spoke of the best possible service to exporters and the division of the United States into four regions with four superintendent "trade consuls"—I think that was the term—being already in post. They were to be assisted by trade advisers of whom apparently only one had been appointed. One wonders why it has taken so long to develop this. The right hon. and learned Gentleman was talking about this matter in September of last year. One would have thought that the problem has been obvious for some considerable time. We hear of the benefits of economic planning and the overall plan, and we have been told that it is always the Tories who give too little and too late. Surely this problem has been sticking out a mile high for at least two years. Why is it that these various measures have not been put into operation long since?

Then there is talk about dollars for sales promotion. That again obviously must be accepted. Here may I, in parentheses, make a point which would more properly be made on the Finance Bill itself, and that is the irritation that businessmen are enduring at the present time in regard to their expenses allowances. May I express the hope that the right hon. and learned Gentleman will consider some central method of giving rulings to individual inspectors on that point? I said that that was in parentheses, but when considering the export trade and encouragement to be given to businessmen and the question of sales promotion, I mention it as a practical point on which I am told there is a great deal of irritation at the present time. All it needs is some centralised direction of the activities of the individual inspectors. As I said, those remarks were in parentheses.

Then the right hon. and learned Gentleman spoke of special help in the special difficulties of the situation. Again, I should like to ask why this has only been thought of now and what has been happening in that regard during the past 18 months. He spoke of the Export Credits Guarantees Department. If this is new, one wonders what has been happening during the last 18 months. I will not comment on market research and on the publicity campaign. Provided those contributions do not involve bureaucracy, I think they will do good. But they do not really touch very much the questions of price and quality which were the first two points to which the right hon. Gentleman referred. I agree that they may go some way with regard to the third, that of service.

What are some of our difficulties? If we take cotton goods, I understand that the United Kingdom used to supply 75 per cent. of Canada's requirements. In 1947, of 290 million yards, which was three times the pre-war requirement, we sent only seven per cent. In 1948, although it was planned to send 80 million yards, which was a substantial increase, I am told that a great deal less was delivered. I see the hon. Member for Ashton-under-Lyne (Mr. Rhodes) in his place. He knows about these matters. He knows that there has been very great difficulty in selling our cotton goods in Canada. In that respect, there are two points I wish to make. The first is that one of the handicaps is the high price paid for our raw cotton in certain regions particularly Egypt. The second is that our methods of purchasing raw cotton are putting a great handicap upon our export trade in cotton goods.

I do not want to approach the matter as if it had a political content, although that was the way the right hon. and learned Gentleman approached it in 1945. I approach it simply from a practical point of view. I challenge the Chancellor to deny that there is grave dissatisfaction in Lancashire with the service which is being given to the spinner by the present purchasing commission. Unless the spinners can get raw material of the quality they want and in the way in which they want it, then we shall not be able to sell our cotton goods overseas. Radical changes in the methods of the Raw Cotton Commission—I do not put it higher than that: I am not asking for any loss of face or any abandonment of political principle—would be a material contribution.

Then, with regard to rayon, our prices in Canada are not competitive with United States prices. I am told that one of the reasons is the effect of price controls in this country which result in the margin of profit not being sufficient here, so that the manufacturers have been trying to make up for that on their export sales. If that is the situation—and it is only what I have been told—it would appear to be an occasion upon which price controls should be overhauled. It seems nonsense to allow an insufficient margin of profit so that prices in the export market go up. That is the last way in which we shall ex- pand our exports. I ask the President of the Board of Trade to consider that.

In pre-war years I understand that Canada used to take 1,500,000 tons of Welsh anthracite each year. In 1947 we sent 20,000 tons. In 1948 we sold 150,000 tons with great difficulty because of the price factor. I am told that in 1949 it is planned to sell 300,000 tons, but our prices are not competitive as compared with those of Pennsylvania. This is a matter within the control of the Government. Presumably it is a matter for the National Coal Board. What do the Government propose to do in this instance where the power lies in their own hands?

In the case of steel, in 1947 we sent 20,000 tons. In 1948 there was a substantial improvement. I am told that the demand in Canada for steel is literally insatiable. The point I would make about steel concerns the folly of using steel as a substitute far timber here. I have heard a variety of figures quoted about the amount of steel that we are using. I have heard mentioned 250,000 tons and 500,000 tons as the amount of steel used in housing and other forms of construction in this country. One ton of timber is the equivalent of 1.16 tons of steel. I understand that timber to substitute for 250,000 tons of such steel would cost four million dollars, and the amount of steel released would fetch at least 12,500,000 dollars and possibly much more. I think that the President of the Board of Trade has conceded this argument on another occasion, but it would appear that vigorous action should be taken by the Government to stop the use in this country of those raw materials which have a high export value.

I understand that Canada wants 100,000 tons of cement a month. We here are using concrete floors and concrete sleepers. I am told that the Railway Executive pay £2 each for concrete sleepers as compared with the price of 23s. 6d. for the wooden sleeper, the latter, of course, also being re-usable. This is at a time when Canada is crying out for cement. There really would seem to be something wrong there. Cement is the second material with regard to which I suggest the Government should inquire into the matter to see how far materials in demand by Canada are being used here, thus preventing the import of Canadian timber.

These are detailed matters. The kernel of the problem, as I think the Chancellor would admit, is the rigid division of the free world into a dollar and a non-dollar area. With all the improvements in salesmanship, with attention to all the matters to which I have attempted to point; with a scrutiny of these various bilateral treaties to which the gentleman in the "Timber Trade Journal" referred—with all these matters, I do not believe that Anglo-Canadian trade can be made to thrive in a bilateral straightjacket, to use an expression which "The Times" recently used. I admit that a completely free multilateral system is not possible at the moment. I wish to ask the right hon. and learned Gentleman whether some partial substitute can be found in a wider trade and payments agreement between the countries and Colonies of the British Empire. The Marshall Aid countries are supposed to be doing that. It should be possible to do something within the Empire. Have the Government considered that question? What various alternatives have they considered? What has been Canada's reaction? The onus depends a great deal upon Canada. What have the Government done with regard to those suggestions which have been put forward in a number of places? I see that the Chancellor is leaving the Chamber. I hope that he has gone to search into his files to see what has been done about those suggestions.

If the Government do not do something of this sort, then the only alternative, the only way of getting our goods into American and Canadian markets, may be by the alteration of the value of the £in terms of dollars. That is a matter of which my noble Friend the Member for Southern Dorset (Viscount Hinchingbrooke) spoke the other night. It was significant that the Financial Secretary did not comment on what the noble Lord said in the reply which he made. I am sure that the matter is urgent and vital and that on every ground of economy, sentiment and strategy, we must do something about trade with Canada. We must assure the Canadians of our gratitude and good wishes, and tell them that many people here are urgently concerned about the matter. We must ask—and this is most important—for their co-operation in making successful the various measures outlined. On that part of what the Government desire to do, I wish them all success.

6.50 p.m.

Mr. Mikardo (Reading)

The hon. and learned Member for Wirral (Mr. Selwyn Lloyd) confined his observations almost entirely to the single narrow, though doubtless relevant, subject of increasing our trade with Canada, and I shall not attempt to follow him into that subject, for the fairly adequate reason that I know little or nothing about it, and I am sure that on that account he will be very willing to forgive me.

What I seek to do is to return to one of the fields of this problem which was mentioned by the Chancellor in his Budget Statement, namely, the extent to which the economic health and industrial stability of this country are dependent upon a steep rise in the industrial productivity of the nation as a whole. I would draw attention to a very important White Paper which was published only a few days ago under the title of First Report of the Committee on Industrial Productivity. I invite hon. Members of the Committee to devote their attention to this White Paper, because those who delve within its pages will find a great deal to consider when they are turning over in their minds the question of how far we can rely upon British industry to solve the economic problems which face the country at present.

The Committee will be aware that the Committee on Industrial Productivity, under the general chairmanship of Sir Henry Tizard and divided into four specialist panels each under the chairmanship of a distinguished public servant, was set up rather more than a year ago, under the general aegis of the Lord President of the Council, to consider the extent to which existing agencies are adequate to cope with all the problems arising out of the need for higher productivity, to correlate the work of the existing agencies so far as they could and to fill in the gaps where there were no existing agencies dealing with a particular field.

This report is the record of a year of very commendable activity—one might almost say exciting activity. When one reads of the wide scope of the work of the Committee on Industrial Productivity, of the many organisations with which and through which they have sought to carry out their work, of the many matters into which they have initiated inquiry and those on which they have initiated action, and also of the many ways in which the fruits of their work would have startling effects on improving the efficiency of British industry, one only regrets that this sort of scientific approach to the problems of British industry was not begun many years ago, and that we had not the benefit of this committee in those 20 years—very largely wasted years, so far as industrial efficiency is concerned—between the two wars.

I want in particular to refer to three points mentioned in this report, all of which have some connection and two of which have very direct connection, with the Chancellor's proposals in the Budget. The first of these three points is taken from a passage on page 13 of the report. It refers to the setting up, under the Industrial Organisation and Development Act passed in 1947, of development councils in a number of industries. On this subject, the committee says: It is our view that, if Development Councils are not to be set up for other industries. some comparable alternative method will have to be found. … I am sure that the President of the Board of Trade, who has been having some difficulty with some industrial interests in getting their agreement to the setting up of development councils, will find that strong reinforcement and support for the concept of development councils which is put forward by this extremely authoritative committee. One hopes, too, that those people who have been opposing—some of them rather selfishly—the setting up of development councils will take to heart what the Committee on Industrial Productivity has said on this subject.

The Chancellor of the Exchequer was President of the Board of Trade when the Industrial Organisation and Development Act was introduced, and he faced a good deal of opposition from hon. Gentlemen opposite, but, with solid support from those on these benches, he obtained the assent of the House to a Section in that Act empowering him, if need be and in cases where he could not get a development council set up by the ordinary means and carried out voluntarily in an industry, to set up one compulsorily. My right hon. and learned Friend fought very hard for those powers. They are powers which we should all join in hoping no Minister would need to use, but we do hope—and the observations of the Committee on Industrial Productivity lend some force to the hope—that if we are to be forced into a position in which a Minister does need to use these powers, the Members of the Government will not hesitate to use them.

There is a reference in the passage I have quoted to some "comparable alternative" to development councils. That is a vague phrase that may be interpreted in one of many different ways, and, indeed, some of these trade associations and individual employers who are opposed to the setting up of development councils have put forward, as an alternative for particular industries, some bipartite proposals for carrying out functions similar to but not quite as wide as the functions of the development councils. The way in which these bodies differ from the development councils is that, where they are bipartite, they consist entirely of representatives of employers and workers within the industry and therefore exclude individual members appointed by the Minister who are included in the proposed composition of the development councils. I hope the President of the Board of Trade and the other Ministers concerned will resist the idea that such an alternative is a comparable and acceptable one to a development council, because, if we are not careful, we shall get in these bipartite bodies a rather watery imitation of the industrial corporations of Mussolini's Fascist State.

It does not at all follow that even the unanimous view of the employers and the workers in an industry will necessarily be the view which is in the best interests of the nation as a whole. The consumer has to be thought of, and one should also have regard to the necessity within an industry of avoiding intellectual in breeding, by bringing in technicians from other industries to fertilise the ideas of that industry itself. That is the principal reason why development councils were set up as tripartite and not bipartite institutions, why the President has appeared to include independent members, and why one hopes that, in tackling this problem of industrial productivity, we shall now resist the attempt on the part of some interested bodies to substitute the bipartite for the tripartite bodies in this way.

The second of the three points in this report on which I wish principally to comment is that there are two areas in the general problem of raising industrial productivity of which it might be said, on the evidence provided in this report, that neither any existing agency nor the work of the committee or any of its panels, covers the gaps which have been exposed. The first—and again I quote from page 13 of this report—is in connection with product and component standardisation, on which the Committee on Industrial Productivity was treading on familiar ground because they are repeating what has been said by many other experts before them. They say: There can be little doubt that variety reduction by standardisation of many of the products of industry, and especially of components of different products, is essential in relation to productivity. The promotion of such standardisation has, in the past, been largely left to the British Standards Institution, but Government Departments have in recent years played a much greater part in the work of standardisation. They go on to quote, in particular, some work done by the Ministry of Supply in this field.

What this reveals, without any question, is that the British Standards Institution, on which in the past we have relied almost entirely for this field of work to be carried out, is an inadequate tool. It suffers from major limitations of one type and another, and the fact that Government Departments have had to work all round it, in order to get the job done shows that we ought to tackle this problem in the right way by revitalising and reorganising the British Standards Institution itself. It is always wrong, whenever the right tool is found to be turning blunt, to throw it away and to use the wrong tool. It is better to sharpen the right tool for the job. The British Standards Institution is the right tool here, and we ought to sharpen it and turn it into an effective one.

The second area of this general problem of raising productivity which is revealed in this report to be inadequately covered, arises out of the passage on page 14 in which the committee quotes an opinion with specific reference to the cotton textile industry, but which clearly has a much wider application as well, as they seem to suggest. They say: As a result of these studies we were led to the conclusion that the first need was not for new or improved equipment, nor for further technical research, but rather for a concerted effort to apply the principles of good organisation and deployment of labour over an increasing range of firms … This was the job for which we set up the British Institute of Management. I do not think this is the moment to dilate upon the extent to which they have or have not carried out, or have or have not even begun to carry out, the job for which they were set up. I have half a feeling that we shall shortly have an occasion for discussing this matter because I rather believe that they are running out of their grant much faster than they anticipated and that they are not getting the income they anticipated. Presumably, they will have to come to us for more money, and that will be the moment to ask what value we are getting for the money they have had up to now. I think the answer will be little enough in all conscience. Leaving that for a more favourable opportunity, I pass over this question.

Another thing seems to arise out of this, and also out of an advertisement in this morning's Press on the productivity campaign which says: Higher productivity just means making the best possible use of the time, effort, machines and materials we have and appears directly to reflect on the Budget proposals. It is the suggestion that the proposal of the Chancellor to double the initial instalment of the wear and tiar allowance is at this moment, a wrongly conceived proposal. I say this for three reasons. In the first place, we already have far too many people in British industry who say, "Well, we know we want better methods, but we cannot do anything until we have new machinery; therefore let us do nothing at all."

Although we want to see re-equipment going on as fast as possible, there is a great deal which can be done, as the Committee on Industrial Productivity says, by the best use of existing machinery if people will only apply some real thought to its best use. What we are doing by doubling the initial depreciation allowance, is to give a sop to those people who are relying on a new machine to create a change in method instead of relying on their own thoughts.

Sir Patrick Hannon (Birmingham. Moseley)

Does the hon. Gentleman suggest that the manufacturers of this country are not at this moment, and every moment of their lives, giving the closest possible attention to making the best possible use of the machinery at their disposal?

Mr. Mikardo

That is precisely what I am suggesting. The hon. Gentleman has a great experience of very large and efficient organisations, but I would ask him to bear in mind that there are many much smaller and much more backward manufacturing organisations than those with which he has direct contact and experience, and which still account for a very large part of the national output.

The second thing that leads me to say that the doubling of this initial allowance is misconceived, is that the pressure which has been put upon the Chancellor for this purpose constitutes only one side of the case. The hon. and gallant Member for Central Glasgow (Colonel Hutchison) talked about the evidence which had been provided by such disinterested and altruistic bodies on this subject as the Federation of British Industries and the Associated Chambers of Commerce. What the federation has said, quite rightly, is that the price of machinery for re-equipment is now very much higher than it was in the past. But when an industrialist is making a decision whether to replace an existing machine by a new machine, he does so on the basis of weighing the two sides of an equation, and sometimes the two sides are not equal.

The principal debit factor in the argument is capital cost, and hence the depreciation cost of the new machine. As the federation and others have pointed out, the sterling value of that principal debit factor is much larger than it was, and is growing fast. But the principal item on the credit side is the extra profitability of the new machine because it produces more and better pieces per hour. What the federation omits to say is that the sterling value of that principal credit factor has already gone up as well, and the two things are roughly in balance. If it is true that it costs more to replace an old machine by a new one, it is also true that, in proportion, more extra profit would be got out of the new machine when prices went up than out of the old machine. The most serious objection to this action at the present time is that it is stimulating the demand for new plant at a time when that stimulus is least needed.

The hon. and gallant Member for Central Glasgow, arguing against the speech made by my hon. Friend the Member for Central Southwark (Mr. Jenkins), said that there was all sorts of evidence to show—he quoted a number of newspapers, some good, some bad, but mostly indifferent—I quote his words: that industry cannot re-equip itself out of its own resources, and that the present taxation has broken down. There is one piece of serious evidence which he did not quote, and that is the manufacture of machinery. The short point is that manufacturers of capital goods now have a longer order book than they have ever had at any time in their history. More and more industrialists have been rushing to buy equipment in the past few years, for good reasons, than was ever the case in the past. In the 20 years between the wars, when we did not have this big depreciation allowance—it was much less than at the present time—and when we did not have this high level of direct taxation which some hon. Members opposite are now saying is throttling incentive in these matters, people never bought any new equipment and many manufacturers of capital goods went bankrupt.

Now that we have this high level of direct taxation and this high depreciation allowance, we have these long piled-up order books. The fact is, for instance, that one cannot get delivery of a boiler—and a boiler is a very good index because all industries, or practically all industries, need boilers—in under two years. There is some machinery in some trades which one can obtain, but one cannot obtain machinery for the woollen industry or pasteurising machinery for milk under a two years' delivery date. Many manufacturers are refusing to take any more orders because they have so many orders piled up. When this is so, it cannot be true that industry cannot find the money to re-equip itself. Obviously it is finding the money—and finding it without any difficulty.

The hon. and gallant Member for Central Glasgow pointed out that, of course, this doubling of the initial instalment of the depreciation allowance does not mean any total addition to the allowances. In effect, of course, sooner or later, 100 per cent. of the cost is allowed, but one very important point arises out of this and I want to draw it to the attention of the Economic Secretary who, I know, is very interested in these matters. The new proposals mean that instead of the man who spends money on machinery getting back 20 per cent. now and, say, 2 per cent. per annum afterwards, he will get 40 per cent. now and, say, 1½ per cent. afterwards until the 100 per cent. is reached. In other words, what we are saying to the industrialist is, "We will make life a bit easier for you now, even though we shall have to make it a bit harder for you afterwards." This is exactly the opposite of what the Chancellor has said to all the rest of the community. To them he has said, "I am making life a hit tougher for you now in order to make it a bit easier for you afterwards."

It is this which, perhaps in a vague and subconscious way, is realised by and is a source of irritation to many workers who are annoyed by the provisions of the Budget. They do not suggest—except those who do not understand it—that the industrialist is getting more in depreciation allowance. What they suggest, I repeat, is that whereas the community as a whole is being asked for present abstinence in the interests of future ease, the industrialist, and only the industrialist within the community, is being given present ease even at the cost of future abstinence. It is not true that lack of finance is the limiting factor on re-equipment at the present time. The limiting factors are the output of machinery by manufacturers and the diversion of a good deal of their output by machines being sent abroad as exports.

Sir P. Hannon

May I ask the hon. Member whether he has ever dealt personally with the, problem of finding the extra capital to re-equip an industry so as to increase productivity? He has referred to the White Paper on productivity which is an exceedingly good docu- ment in every respect, but may I ask whether he has had personal experience of this?

Mr. Mikardo

I am glad to be able to say "Yes" in reply to the hon. Member—and on more than one occasion, in more than one industry and in recent times.

I have spoken for a very long time and I want now to conclude, but would point out how what I have been saying appears to the cotton operative, although cotton is not one of the industries in which there are long delivery periods for machinery. The ordinary cotton operative sees three things which have happened very recently. First, his employer has been given by the Government a considerable subsidy—an actual cash subsidy—on new machinery. Secondly, he sees that his employer has had his initial depreciation allowance doubled. Thirdly, his own wage claim has been turned down flat. It is obvious that, combining these three things, we shall have a good deal of trouble in the cotton industry.

That leads me to the last of the three points which I would like to make arising out of this Report. The whole of the Report of the Committee on Industrial Productivity emphasises and re-emphasises the importance of the human factor in industry. The panel on the human factor, brilliantly presided over by Sir George Schuster, is doing a great deal of valuable work, and one sees in the Report how necessary it is that we should consider industrial morale as being at least as important as, if not more important than, the level of technical equipment if we want to raise our productivity. But my hon. Friend the Member for North St. Pancras (Mr. Kenneth Robinson) in what, if I may say so, was the most solid and effective maiden speech I have ever heard in this House, put his finger on the spot in this matter when he said that the higher productivity we achieved in 1948 was, in many cases, due most of all to the growing belief on the part of the workers, for the first time in their lives, that higher productivity is in their own interests.

The right hon. Member for Aldershot (Mr. Lyttelton) quoted one case of loading sugar—and bitter memories last a long time—in which there was still violent reaction on the part of some workers to new methods, but he would not disagree that the resistance of the workers to new methods has been much lower in the past two or three years than it has ever been in the past. That is largely the result of growing confidence and the fact that, for the first time in their lives, they believe that higher productivity will benefit them and not benefit only their employers and other people.

Mr. Lyttelton

Is not that an argument why workers in industry should be in favour of the 40 per cent. depreciation allowance in the initial stages of re-equipment?

Mr. Mikardo

I do not think it is. I think it would be if finance were the limiting factor but the workers in machine tool factories and loom factories know that it is not. It is a fact—and I see the right hon. Member for Aldershot does not dispute it—that workers now are taking more kindly to changes in methods and are giving up the defensive attitude of a century, because, for the first time, they believe that higher productivity is in their interests. With my hon. Friend the Member for North St. Pancras, I am afraid that this rise in food prices, however small it is, will break that feeling and will cause in their minds the first real doubts about whether higher productivity is in their interests. I think we shall lose a tremendous upsurge in industrial morale which was the major cause of the increase in productivity in 1948.

One is not entitled to say that, without asking oneself whether these rises in food prices were not inevitable. I do not think they were. The right hon. Member for Aldershot and my hon. Friend the Member for North St. Pancras both drew attention to the possibilities of considerable savings in our expenditure on the Armed Forces, and I am sure there are other ways in which savings could be made. I believe that within the sphere of food prices and their subsidisation there are three things which we could have done without upsetting the general balance of the Budget and which would have avoided this rise in food prices. First, we could have carried out that book-keeping change which, in fact, my right hon. and learned Friend has carried out, by shifting things out of one pocket into another and removing the Excise duty on tea and sugar. Secondly, I think we could have cut into the ridiculously inflated profits of the farming community at the present time. The Economic Secretary made some reference to them. We have got to bear in mind that a very large part—the major part—of food subsidies is subsidisation of farmers' profits.

Mr. Dye (Norfolk, South Western)

Which farmers?

Mr. Mikardo

The farmers of this country.

Mr. Hurd (Newbury) rose—

Mr. Mikardo

I have taken up a long time already, and the hon. Gentleman has only just walked in, and so perhaps he will forgive me if I do not give way. Everybody must be agreed—the Chancellor himself said it, and the right hon. Member for Aldershot said it—that there seems to be—I put it no higher than this—some signs of a first break in world food prices. If that is so, then I should have thought that the Chancellor could have possessed his soul in patience a few months to see what would happen. At any rate, I should have thought that he would have been willing to say that if the availability of food increased, he would pass on to the consumer the cost of the extra food, but that he would not pass on to the consumer any increased cost of the present supplies of food and of the present rations. If, when more food became available, he had gone to the people and said, "Well, I can give you twice as much butter and twice as much meat, but I cannot afford to pay the subsidy on the increased amount, and you will have to pay for this extra food," I believe people would have been willing to pay the increased price in return for the increased quantities.

Mrs. Mann rose—

Mr. Mikardo

I ought not to give way any more. I think that if the Chancellor had done that he could have avoided the reduction of food subsidies. As it is—and this is the great question that arises out of this Budget—it is gravely open to question whether we shall now hold the wages front. It is true, of course, that there have been wage increases during the past year. It is true, of course, that there would have been some wage increases during next year, even if the price of food had not been put up. However, the dam which has held back the pressure of the demand for more wages has been seriously breached by this rise in food prices.

If the Chancellor wants to be realistic about this—and the Chancellor always prides himself on being realistic—he must know that the balance of forces within the trade union movement, between those leaders who have been trying to support his policy on the stabilisation of wages and prices and those other people, those less moderate people, who have been trying to break that policy, has been during the last few months a rather delicate balance. He must know that he has taken one weapon out of the hands of the moderates and placed it in the hands of the others. At this coming Easter weekend there will be the annual conferences of a large number of trade unions. Every one has resolution on its agenda on wages and prices, most of them, though not all, inspired by Communist sources in the trade union movement. That is what this Budget has done: it has given an enormous weapon to the mover of every one of those resolutions. It has weakened the moderates who are trying to hold down and to limit as far as possible the pressure for large increases in wages.

I should not object—and here I share the view of my hon. Friend the Member for North St. Pancras—if this were really a hold-fast Budget, but it is not a hold-fast Budget: it is an inflationary Budget. It is an inflationary Budget because it makes impossible the task of those trade union leaders who are trying to hold the wages front. It makes their task impossible, and this inflationary flood will burst in. It is on those grounds, not on the grounds that it is a hard Budget—I think we had no alternative to a hard Budget, and that those who were asking for all sorts of concessions at this time were living in a pipe-dream—but on the grounds that it is an inflationary Budget in its effects and that it weakens the chance of holding the wages front, that I believe that, on balance, it is a bad Budget, and, indeed, a dangerous one.

7.25 p.m.

Sir Patrick Hannon (Birmingham, Moseley)

The Committee has just listened to a very remarkable lecture from the hon. Member for Reading (Mr. Mikardo). With a great many of the things that he said I think many of us will be in accord, but as one of the older Members of this Committee I should like respectfully to suggest to him that an obligation to put a time limit on speeches here is eminently desirable from time to time.

Mr. Mikardo

I thank the hon. Member.

Sir P. Hannon

I agree with most of what has been said about the Budget. I would particularly commend the speech made by my right hon. Friend the Member for Aldershot (Mr. Lyttelton) in which, in a generous, kindly and touching way, he gave the Budget its full meed of praise, and then afterwards showed precisely its weaknesses and defects. I also commend particularly the speech of my hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), who is out of the Committee at the moment. It was an admirable speech, and he called attention to our trade relations with Canada. I endorse the suggestion he made that we ought to take the Dominions and the Colonial Empire more into consultation from time to time than has been the case during the lifetime of His Majesty's present Administration. I suggest to the Economic Secretary, who has himself an immense knowledge of Imperial relations, that at the next meeting of the Dominion Prime Ministers, it would be sound policy on the part of the Government to lay down some general plan, some co-ordinated means, by which exchanges on trade and commerce within the Imperial fabric could take place from time to time.

I think that industry, on the whole, appreciates the concession made to it in the 40 per cent. for the installation of new machinery. It is the only concession we have got, and it means very much to the expansion of productivity and to the maintenance of a high level of exports. One is thankful for small mercies. However, the real reason I rose was to ask the Economic Secretary to explain the new structure of the last Budget Resolution that we are debating. It says: That it is expedient to amend the law with respect to the National Debt and the public revenue (other than purchase tax) … I particularly commend to the consideration of the Committee the insertion of those words in brackets. It is quite true that the Chancellor said in his Budget speech that he contemplated other means of dealing with those who suffered from the incidence of Purchase Tax during the course of the forthcoming financial year. He was not very explicit in the indications he gave of the course he intended to pursue, but he did indicate some measures. I ask the Economic Secretary whether it has ever happened before that in a Resolution such as this there should have been inserted in brackets the name of a tax. It seems that it is the open, deliberate intention of the Chancellor to exclude from our Debates on the Budget, and from our Debates on the Finance Bill when it is presented to the House, the subject of the amount, the effect and the incidence of Purchase Tax.

For several months past we have had deputation after deputation to the Treasury—to the Economic Secretary and to the Chancellor himself—on the disabilities inflicted upon the trade of this country by the Purchase Tax. All sorts of proposals—many of them, I think, practical and helpful—have been made to the Economic Secretary himself, for some reconsideration and readjustment of the present incidence of Purchase Tax. I was not present at these deputations, but I understand that the large organisation of manufacturers which I represent sent delegations from time to time, and that promises were given that statements made to the Treasury would receive sympathetic consideration; but, apparently in order to exclude the possibility of voice being given in the Committee, the Chancellor of the Exchequer has inserted these words in brackets in the final Resolution. I doubt whether words of that kind have ever before been inserted in the final Resolution. I would not like to think that the Chancellor of the Exchequer introduced into the Budget some unworthy device in order to avoid debate in the House, but it certainly looks to me and to the Committee as if there is a tiny note of malice aforethought against the Purchase Tax sufferers, in inserting these words in the final Resolution.

If the Chancellor had indicated in his speech, which he did not any process by which relief would be made in accordance with the various representations made to him, I should have nothing to complain about; but I do complain that in the Debates on the Budget and on the Finance Bill subsequently we are precluded from discussing the Purchase Tax because the Chancellor has inserted these words in the Resolution. That is a new means of preventing the expression in the House of the intense feeling that obtains outside in relation to the incidence of Purchase Tax. I submit to the Economic Secretary that it is not a worthy attitude for His Majesty's administration to adopt to provide against attack and criticism, which is, no doubt, well-meant, by introducing a Resolution of that kind. I emphasise very strongly that the action taken by the Chancellor ought not to have been taken in the circumstances of the time, and that we should have an opportunity of stating publicly the feelings of thousands of traders throughout the country and the misery inflicted upon them by the unsatisfactory and chaotic conditions as a result of the present incidence of Purchase Tax in relation to their business and trade.

Of the Budget as a whole, I have not much to complain. I represent a very large organisation in the production world, and my organisation, embracing as it does over 7,000 manufacturers, has made its contribution to the proposal made by the Chancellor with regard to the stabilisation of dividends. As the Economic Secretary knows, we have met the Chancellor from time to time in the most friendly spirit and the exchanges of views have, I hope, been helpful and constructive. They were carried on in an atmosphere of hope for the betterment of the industrial life of the country. I think that it was a little unkind of the Chancellor, when the three great organisations concerned with the stabilisation of dividends and prices met him and exchanged correspondence with him, to say in reply that if the arrangements were not effected in the way indicated in our letter, possibly he would have to introduce legislation.

Mr. Lever (Manchester, Exchange)

Does not the hon. Gentleman think that the recent action of the chairman of the Rugby Cement Co. in increasing substantially the dividend of that company, and, in addition handing out a tax-free bonus, amply warranted the words which the Chancellor used?

Sir P. Hannon

I do not know anything about the Rugby Cement company. I am only stating that it appeared to me to be a little unkind of the Chancellor. I make no complaint about it. It is a matter of taste, if I may put it that way, for the Chancellor himself.

We shall continue, with all the energy which we command, to increase productivity and to maintain our efforts to vitalise the export trade of this country. The manufacturers of this country are proud of what their workpeople have done. The question of the human factor was referred to by the hon. Member for Reading (Mr. Mikardo); believe me, in this country today the understanding, kindly feeling and give and take between employers, managers and workpeople are at the highest level in my experience. The workpeople of all the organisations with which I am associated desire to have a more intimate knowledge of their industry and are anxious to meet the exigencies of the export trade and to play a full part in industrial enterprise. All round the Midlands, particularly in Birmingham, there is a spirit of harmony, good will and co-operation between the workpeople, the managements and the employers which indicates that, given consideration of the problems which arise, the human factor will never fail in playing its part in the expansion of our industrial organisation.

7.35 p.m.

Mr. Rhodes (Ashton-under-Lyne)

I listened with great interest to the right hon. Member for Aldershot (Mr. Lyttelton), and I am sure that a stranger hearing the right hon. Gentleman's speech would not have been able to tell what he was in politics until he came to the point about the "keen and adventurous spirit in management." Then, I think, he showed the intrinsic difference between the other side of the Committee and this side. He said that management must have incentives and rewards even higher than they are getting now, or they could not expect them to show a keen and adventurous spirit. Let me point to two spheres of activity that are known to everyone. One is the Tennessee Valley where we can see men at work—fine men, clever men—who are working in some cases for one-third of what they would get outside, either as economists or hydro-electric engineers or inland navigation experts, or what you will. The right hon. Gentleman gave three illustrations to back his point, and I will give three.

Another place is the Sudan. I notice that the hon. and gallant Member for Eastern Dorset (Colonel Wheatley) is sitting next to the right hon. Gentleman. He has every reason to be proud of the service to which he belonged. There is work going on there which is not known of in this country at all; the building of the fabric of North Africa which can be the life and soul of Africa generally. There is the work going on for the settlement of the peasants in the Gezira which is a credit to this nation and its representatives on the job. The people who are doing that job would not be doing it in the terrific heat if the only consideration was that put forward by the hon. Gentleman of a large increase in salary or profit. The third is the example of many splendid managements in this country.

Mr. Lyttelton

The hon. Gentleman must read tomorrow in HANSARD what I said, as he is now attempting to quote me. I said that there were always people who would give their work and risk their lives in a high cause but in the workaday world of commerce we may find other less noble creatures.

Mr. Rhodes

I gather that the right hon. Gentleman did not think the cause of pulling this tight little island through its economic difficulties a high cause. Other people might take exception to what he says, because I take it he included all Tory managements. Well, I am not having that. In my division there are some first-class Tory managements, some of which, I hope, will vote Labour at the next election in return for the inestimable benefits that this Government has conferred on their businesses.

Sir John Barlow (Eddisbury)

Would the hon. Gentleman say when a man is worthy of his hire and when he is not, when he should take the market wage for the job and when he should not, and when he should take perhaps 50 per cent. of what he could gain in similar work outside? Would the hon. Gentleman expand on that for a moment?

Mr. Rhodes

Yes, I will; I will be drawn into that argument. When a man is working either in his own business, and with his own operatives for the community, in my opinion there is no limit to the sacrifice that he should make, even if it means that he never pays a dividend, so that he can re-equip his business on the right lines.

Mr. Ellis Smith

That is a personal example.

Mr. Rhodes

There are many quotations. I could read from the first Report of the Committee on Industrial Productivity to answer my hon. Friend the Member for Reading (Mr. Mikardo). I am not particularly struck by the report myself. The first half of it could have been written by the hon. Member himself in his own office. Perhaps it was. Let me deal with his theme about the redeployment of labour. It is not a bit of good going too far with one thing and then having to catch up a tremendous distance with the other. They must be considered together, even if they do not coincide in timing. Against the quotation of my hon. Friend, I would quote paragraph 45, which says: in the long run, greater efficiency and improved productivity can only be achieved by a substantial programme of re-equipment with up-to-date machinery. That is the point I want to deal with. Let me make one or two references to what is happening in my own trade, with particular reference to that paragraph. I might as well again disclose my interest: I am engaged in the woollen industry. All woollen mills using imported wools—whether in the West Riding, the West of England, or the Tweed Valley—have at least one thing in common: they have stacks of pieces of cloth requiring mending or repairing before they can be finished and delivered to customers. Deliveries have been delayed, and many cancellations have resulted. We cannot allow this to go on. It is due to faulty materials which cause thread breakages and consequential loss of production, and bad pieces of cloth. The problem has been tackled by individual firms, by groups of firms, and by the trade as a whole, but it is still the bottleneck in production.

Why has this situation arisen? Let me try to give the Committee a picture of the position. We were first in the industrial field in the commercial use of wool, and because we were first we had the cash to buy the pick of the world's wools. Continental imitators had to be content with what we did not want, so they fashioned their plant and their trade according to the wool they could get. For many years we were pre-eminent in the wool industry and in wool cloth manufacture because of our national skill and resources, and also because we had available to us the best of the world's wools. [Interruption.] What was the right hon. Gentleman saying?

Mr. Lyttelton

I should not advise the hon. Gentleman to ask me to repeat what I was saving to my hon. Friend.

Mr. Rhodes

It might bear out the opinion I have of hon. Gentlemen opposite. In my opinion, we are preeminent yet on the grounds of national skill and resources, and shall remain so if we can couple these with the intelligent use of the raw materials now available to us.

The position I have mentioned held good until the '20s or '30s when American incursions into the market showed that she could outbid us for the best and finest wools. Japan began a rapid expansion of her woollen industry in the early '30s, and again the demand was for the best merino types. The writing was on the wall in those days, that changes were pending in wools available to us. It is not surprising, therefore, that having shipped much of the best wools to America during and since the war, we should now have to make do and mend with inferior wools. This situation caused the wool trade working party to write into its report: In the long run, as the U.S.A. continues to be a heavy buyer, the British industry will have need of its traditional ingenuity in making the best of the raw materials available. In fact, the position is made even more complicated by the entry of Russia into the market, as she too is buying wool on a large scale out of her sterling balances. In the meantime, we use wools which we are not properly equipped to deal with. We are losing an appreciable amount of production, and we employ a large female labour force which ought to be freed to go on to other jobs in the industry. I am of opinion that if this problem is tackled scientifically, we shall find that we can do what the President of the Board of Trade wants of us—and do it with the present labour force.

At the moment it is nobody's responsibility to do anything about the raw materials problem; it is nobody's business to assess or predict what raw materials are likely to be available to the trade in the years to come. A few weeks ago I went to the Wool Research Association to discuss this matter, and asked the head of the association if he could give me any idea of what wool types are likely to be available to us during the next few years. The answer I got was that that sort of inquiry was not in their field; he said that it was a national matter. Personally, I am willing to accept that. It has been said so often in this Chamber that it has become a platitude, that unless we can convert raw materials better than our competitors and sell the finished articles at a price which is attractive to customers throughout the world, our standard of living will decline.

This concern about the use of raw materials is not confined to my own industry. The cotton working party had this in mind when they wrote the following into their report: We hope that a plan for generous international co-operation in expansive trade policies will be evolved at the forthcoming international conference and that it will lead to effective action. Unless, however, this happens, it would be unrealistic not to recognise that, in face of the new and very difficult conditions which lie before this country, national policy may have to be framed in ways which may affect the raw materials available to the industry not only may the import of one particular type of cotton suit the national economic needs better than another, but these needs may perhaps weigh the scales in favour of increasing the use of artificial fibres by the Lancashire textile industry. My friends in the paper industry tell me that they too are concerned with this problem of making the best use of materials available. Everyone will agree that the availability of materials should come into any considerations regarding research and development.

How can the machine-developers produce the right machines unless they know what they are developing the machines for? The logical sequence is: what are the available materials, how can we develop the best machines to work them, and how can we put them into the hands of users so that they can discard their old machines and replace them with the new? It is about time that the money spent on research showed some tangible results in the form of new machines that will reduce costs. The position of machine development is a patchy one, and many of those engaged in it are not sure of their aims and objectives. So long as they can sell their products the machinery makers stick to a conventional and well-tried design. The result is that machines are offered that very often have little or no economic advantage over the ones they supersede.

To illustrate this, I need only mention the efforts the Government have made to induce the cotton industry to re-equip. Did the Government not offer £12½ million for re-equipment in the cotton spinning industry? Is it not true that very little more' than half a million pounds worth of orders for new spindles has been placed, and yet the time allowed expires at the end of this month? This must have been a bitter disappointment to the President of the Board of Trade. A fresh approach to the problem has been made through the depreciation provisions in the Budget, and industry is grateful, but the speed with which it is taken advantage of will depend in the long run on the economics of the new machines offered.

The solution lies in a structure that begins with the availability of materials and pure research on them, the development of machines to work the raw materials available, and a guarantee to machinery makers that improved machines will be used and so provide regular work for them. We must tackle this job with a will and determination. The approach to it must be logical and in sequence. We have the gaps, but let us fill them. I think the decisions that need to be taken on this matter will have to be decided at a high level, and bold and imaginative directions will have to be given. For instance, if we are successful in research and development and fail to direct the results into our own factories, we can be in the position that all our research and our development will be for the benefit of new starters overseas who will use our improved machines against ourselves.

7.54 p.m.

Sir Ian Fraser (Lonsdale)

When this Budget is looked at perhaps ten years hence, it will be seen to be a turning-point in our political and economic history. It will be the point at which those younger and thoughtful men in the trade union movement will begin to say that an era has come to an end, the era during which they could join forces with the two large elements of unhappy, unpaid, discontented people to try to equalise the distribution of all wealth and thereby to gain greater purchasing power for the members of the unions of which they were the leaders. The time will have passed when they can appeal to class feeling and sentiment. I do not want Members opposite to think that I am trying to be unfair in this brief review backwards and forwards. The time will have gone by when people can appeal to class feeling and sentiment, and they will have to sit down and think hard from where the increased wages for their members are to come.

Trade union leaders will have no living unless they can get better wages and conditions for their members. The time will come when the older leaders will pass away and the younger ones will be forging their way forward, conscious that the wages and conditions of their workers are their first task. They will realise that the era has passed in which they can secure improvements by "soaking the rich" and robbing the savings of past generations.

Mr. Gallacher

There is a long way to go yet.

Sir I. Fraser

I do not think that there is, and to support me I have no less an authority than the Chancellor of the Exchequer, who has now come forward most courageously and explained to those behind him that that era is past. This is a milestone, and it is a very important one. The doctrine and teaching of the Labour Party for the last 50 years have been along that road; for higher wages, better conditions and care of the poor and injured, there were the savings of the capitalist efforts of the 19th century. The inherent wealth and riches were there to sustain the raid. But that era has passed. [An HON. MEMBER: "Who created the wealth?"] The workers of course, but under a capitalist system. It is very important to remember that this enormous wealth which has stood the strain of two world wars has led to the extraordinary increase in the well-being of the individual wage-earner, in whose home there are now many things which the middle-class and even the wealthy people could not get in earlier generations. That fact is due to the work of the workers under the capitalist system.

No wealth is created but by the work of the workers, and it is very important to let them work under a system which gives them some of the things they make for their enjoyment and enables them to spend at their own discretion. One of the fundamental things in human nature is the wish to improve the position of one's children. Therefore, it is necessary to have some rights of inheritance and some rights to acquire property. That is a very human and laudable incentive which we must not abandon without gravely endangering our economic future. We cannot have our cake and eat it, as the Chancellor of the Exchequer has said, and let us hope that that lesson will be learnt. I do not doubt that the trade unionists themselves will be the first to deny the validity of my argument. They will fight the next election on the lines that you can have something for nothing, but in the end they will learn that the only way is the policy of co-operation with management and with the owners and the encouragement of investment and risk-taking. They will come to realise that nothing can be had unless one pays for it, not even the admirable virtue of abstinence, which leads to the accumulation of capital; and without the accumulation of capital we cannot have the development upon which further rises in wages depend.

In the last week or two we have begun a return to some of the fundamental economic laws which our fathers and grandfathers understood, and to which we must return if we are to be saved. One of them is to pay our way. I congratulate the Chancellor on doing that. Another is not to borrow when we cannot pay back. I congratulate him on doing that. I have studied some of the Victorian economists and some of the later ones. There was one, not an academic man but a very practical man who was the Finance Member of the Indian Council and a Director of the Bank of England during the last 20 years, Sir Basil Blackett. He taught me a lesson which we all ought to learn or relearn at this time.

That lesson is that we cannot arbitrarily fix certain elements in our economic system without upsetting the whole of it. For instance, we cannot fix wages without upsetting the human aspect, namely the men who do the work. That is a reason why all attempts to fix wages fail. That is why the trade unions will not have it and why they looked with disfavour on the White Paper which tried to fix them. We cannot fix prices without affecting wages; unless we fix wages we cannot fix prices and we cannot fix wages because the men will not have it. It is terribly simple yet it is forgotten by so many.

We cannot fix wages and prices inside an economy like ours, and at the same time fix the rate of exchange between our currency and that of the rest of the world. We might do it in an economy which was world-wide. We have to do it in wartime because all sorts of arbitrary standards intervene. For example, if the world price of tin was £300 or £400 a ton it might pay us to pay £1,000 a ton for tin from Cornwall because it would cost more to send warships to fetch it. That is an arbitrary aspect of war, and it must not be assumed that because Members of my party, in a Coalition Government, agreed to these arbitrary fixations in war-time those standards are necessarily sound in peace-time or that there is anything wrong in trying to get back to a freer economy now.

If we fix prices, wages and profits inside this island and fix the rates of exchange between this island and the rest of the world we shall break our economic system. One or the other has to be elastic. We cannot trade with the rest of the world if our prices are fixed by us and not by the world prices. Unless we introduce a Communist world, unless we go so far as to dominate the whole world economically, which is what Russia very logically and very intelligently wants to do, with the approval of the hon. Member for West Fife (Mr. Gallacher), it is not possible to fix these things.

I believe that we shall have to go a little further than the Chancellor has gone in this matter of returning to a freer economy. Not merely have we to pay our way and not borrow what we cannot pay back, but we have also, it seems to me, to let the economic law have its way, either in the price structure here at home or else in the relationship between our currency and the dollar.

Mr. Gallacher

Is the hon. Member trying to argue that intelligent man is incapable of organising his own life or directing his own destiny, that man must be the play of economic forces over which he has no control?

Sir I. Fraser

On the contrary, economic forces as I see them, are the summation of all the desires, ambitions, virtues and vices of mankind. Economic law is an attempt on the part of analytical minds to read from men's virtues, vices, desires and inhibitions what is likely to happen when these have free play. If we interfere with any one of them we upset the balance of all the others. That is the point I am making.

I am not denying that it would theoretically be possible to have a completely free economy throughout the whole world or that it would be theoretically possible to have the whole world in the kind of strait-jacket from the economic point of view which the Russians have imposed upon their vast country. I am saying that between these two there is a system in which we try to live and have our being, and we must be careful-not to go too far towards either of those extremes. I do not advocate a wholly free economy in which everything is left to chance, but, on the other hand, I am not advocating a too strongly controlled economy such as I believe we have at present.

I congratulate the Chancellor on having returned to reality in two or three respects. I am suggesting that he should come back to reality in some other respects. What would be the result if, for example, we were to free the tie-up between the pound and the dollar? Some people would prophesy disaster and would say that we could not feed ourselves, that we should not be able to buy anything from the dollar countries. But we are now very nearly in that position of being unable to buy there. My own belief is that if we were to free ourselves from that tie-up as soon as we reasonably can, though we should for the moment be cut off from buying the foodstuffs which we required from North America, what would be the result of that? They cannot do without this market, and their prices would tumble to levels at which we would begin to buy again. That is the inevitable result of allowing this law of supply and demand to operate. It is the only effective way in which it will begin to operate. So soon as there is a market in which goods cannot be sold down comes the price.

Mr. Lever

According to the hon. Member, when we abstain from buying the price cracks and people who want food get it because it becomes cheaper for them to buy. Will the hon. Member explain how it was that when a free market was allowed to operate in that way so much food was thrown into the sea, burned or used for fuel in railway trains in all parts of the world?

Sir I. Fraser

It is quite an irrelevant question—[An HON. MEMBER: "It is germane."] I shall not shirk it, but I do not wish to take up more time than I promised to occupy. If it is thought to be so germane I shall try briefly to answer it. The hon. Member is complaining that if there was abundance then there might be over-abundance and at the same time poverty. That is the point about which the hon. Member is complaining. I would say, thank God for abundance and let us then take care of the over-abundance which might lead to the burning of this and that. I have already said that I do not want to press a free economy so far as to take off all control; and minimum standards for our people and for the Colonial peoples would go a long way towards avoiding possible waste due to over-production. The day when over-production in foodstuffs will occur is far off. We are concerned with the difficulty we are in, because we are trying to tie up everything in this island with the relationship of our trade to the rest of the world, so that the economic law is not having its chance to operate. In my judgment, it is the quickest and best way of bringing about a swift recovery here and in Europe.

Hon. Members opposite will say I am wrong because this is not the doctrine which they have been preaching for 50 years. But let me point out to them in how many other things they have been wrong. For years I have heard them on their platforms saying that overseas investments were a crime, that any man who invested his money in the Argentine, South Africa or Canada was committing a crime against the English people. Why did not he invest his money here? They have said that from every platform for the past 30 or 40 years. Now they know what utter nonsense they were talking. Their own Chancellor is not merely praising overseas investment, not merely deploring the absence of overseas investment with the extraordinary advantage which it gives us of bringing us buying power, but he is positively promoting overseas investment by encouraging loans by special arrangement in his Budget.

That is one of the things about which hon. Members have been wrong. But they are learning some thing. Except for innately monopolistic enterprises like electricity and railways, the nationalisation of industries which depend on individual variety and enterprise is a mistake. Indeed, they are beginning to find it out now. The new list of objects which they propose to nationalise, as shown in their recent party forecast of an election programme, avoids any industry such as iron and steel which has this necessity for variety. They are picking up insurance and things like that which are standardised operations—very unjust to appropriate, but very easy to manage. The only time when they will have a rude shock is when they find themselves trading in the competitive overseas market. It is easy enough to manage a nationalised industry when there is a monopoly in one's own country, but it is not so easy when one starts tampering with a thing which is in competition with the whole of the rest of the world.

Another way in which Members opposite have been wrong is over this question of profits. There are still hon. Members who stand up in the House and outside it and decry profits. I think that some of them believe all of what they say, and all of them believe some of what they say, but some are sticking to the kind of thing which they have been saying for 50 years because it is familiar, because it has gob them votes in the past and they think it will do so again.

Mr. Gallacher

Profits are plunder.

Sir I. Fraser

Profits are simply the difference between the cost of doing a thing and the price at which it can be sold. [Laughter.] Can anyone tell me what it is, if it is not that?

Mr. Gallacher

I will tell the hon. Gentleman. Profits represent the difference between what the worker produces and what the worker gets for producing it.

Sir I. Fraser

No, no. What the worker gets is part of the cost. What the management provides is another part. The abstinence and saving of previous generations which produced the capital which bought the machinery is another part, and the reward of those who risk their savings and apply their directive ability is another part.

Mr. Ivor Owen Thomas (The Wrekin) rose—

Sir I. Fraser

I have given way enough already. I shall not give way again, unless it is itching too badly.

Mr. Thomas

Yes, it is. The hon. Gentleman just mentioned that profits in part are the reward of savings of previous generations. I want to ask how much the previous generations are now securing as a reward for their savings.

Sir I. Fraser

Very little because there is extremely high taxation, but I am not complaining of that. The taxation burden must be put upon the broadest shoulders. I am not complaining; I am only saying that these economic facts cannot be ignored. A profit is the difference between what it costs to do a thing and what one gets from the customer for doing it, if it is on the right side. If it is on the wrong side it is called a loss. A trade union or a local authority call it a surplus. Call it by any name, it smells as sweet. Unless a profit is made, there is no certainty of going on, and if there is no certainty of going on, there is no security for one's workers or for one's business.

More and more the Labour Party, or at any rate its leaders, are realising that the recovery of this country is due to private enterprise which depends for its incentive upon the profit motive. More and more they are encouraging it. This very Budget was an encouragement to further profit-making in the provision for accelerating depreciation. There again the Chancellor, himself very quick-minded and able, is now expounding this doctrine from that Box. There is at least the hope that Communism will be so long delayed in coming to power here, that there will be time for the Labour Party to become respectable. I do not mean "respectable" in any offensive or inoffensive sense. I mean respectable in its economic viewpoint.

I want to congratulate the Chancellor upon having introduced a courageous Budget—and if it is unpopular it will be the fault entirely of those who sit behind the Chancellor, for having talked so wrongly for so long. I think the right hon. and learned Gentleman will stand the strain. Philip Snowden's virtues are remembered, and I am glad. The good is oft interred with their bones. The Labour Party got rid of him because he was a little before his time. I prophesy that they will not get rid of the Chancellor of the Exchequer because he is in the favourable position of not much minding if they do. When a man is willing to lose his job, as he has shown himself many times in the Labour Party, he stands on extraordinarily firm ground.

Mr. Gallacher

He has the F.B.I. behind him.

Sir I. Fraser

No; more important than that, he has got in his armoury the promise that he will do something better next time just before an election. That is probably safer. Those two factors will probably save him. However, I congratulate him on going as far as he has gone. He is teaching his hon. Friends; they are learning, and it gives us a chance.

I want to make one brief local observation about my constituency. The President of the Board of Trade said that the activities of the tourist industry were one of those groups of activities which he would regard as being important dollar earners, and he would therefore apply to them some of the exceptional favouritism which he was promising to anyone who could produce or earn dollars. I welcome that statement, and I am sure that the seaside resorts and the holiday resorts, of which my constituency, with Morecambe, Lonsdale and other famous beautiful places, are notable examples, will be very glad of that.

I return to my last observation of a general character. The Chancellor has reminded us of another lesson of supreme importance in showing what wisdom there is in our history and how much we can gain by looking backwards to see what good things we have built up in this country over the centuries. He has reminded this Commons House of Parliament of its fundamental duty to look after the money—a duty we had begun to forget. It is, of course, true; it is enshrined in our constitution and history. The House of Lords is not allowed to deal with finance; we alone, who represent the Commons of England, have to deal with it. We are responsible and we must learn, or relearn, the lesson that we can have in this world only what we work for, that we can enjoy only what we deserve and that if we fly in the face of economic law we are in for disaster.

I congratulate the Chancellor on the broad general lines of his Budget, and I reserve any criticisms of detail to the Committee stage. I earnestly hope that the lesson he has taught will be sympathetically understood, by the wage earners of the country, whose benefit absolutely depends on following his lead. I also hope that right hon. and hon. Members opposite will learn the lesson, though I should not be surprised if the wage-earners and electors generally learned it first.

8.23 p.m.

Mr. John McKay (Wallsend)

I want to take a special line in the short time at my disposal, but first I want to refer to the opening part of the speech made by the hon. Member for Lonsdale (Sir I. Fraser). The hon. Gentleman mentioned trade union leaders. One outstanding thing in the country's recent period of trial has been what trade union leaders have done, and the historian who takes no account of that, will be missing a very important factor in the present situation. Doubtless there is at present a feeling of dissatisfaction about the Budget among many trade union leaders, some of whom have expressed a desire that something should be done to reduce, if possible, the cost of living. They did that because they wanted to have removed from themselves the stress which has been put upon them because of the low wages which are being received by many men in industry today.

We have been told—and some have said it as though we were being told for the first time—that the social services must be paid for. There seems to be some inclination to delude the people into thinking that this information is new. People knew very well that the social services would have to be paid for, but there are many ways of paying for a thing. While there may be some disgruntlement among trade union leaders, they are sufficiently loyal to the Labour Party to try to use their influence in the right direction for the sake of the country as well as their own party. There is no question that trade union leaders and responsible people in the Labour movement generally, will in no circumstances say that our social services must be cut. Of course, the international situation is costing the country more money than we had originally expected to spend—

Mr. Gallacher

Nonsense.

Mr. McKay

—but we are satisfied that, arising out of that situation, we must bear a greater financial burden than we anticipated. By this Budget we have not tended to make the position of trade union leaders any easier in their attempt to prevent agitation for increases in wages. The remarkable thing we have to recognise, as Members opposite and some of the most influential papers recognise, is the tremendous change which has taken place in the position of the country compared with 1947. The "Economist," in its first issue this year, remarked on this change when reviewing what had been done in 1948. It said that this was the result of the combined efforts of the whole community, but that if we had to pick out any one person who should be given the greatest credit for this state of affairs, it was the Chancellor, who had given the lead to the country in 1948.

As I listened to the discussion, I began to wonder whether I was crazy or whether my outlook was sound and logical. The progress made in 1948 is not in dispute at all, and what applies to 1948 applies also to 1947. There has been a gradual rise in the cost of living with an increase in profits and wages; but a large part of the community has not shared in the benefits from increased wages or increased profits. We have reached a stage where we are making an effort to provide greater education with more opportunity for the workers' children to have secondary and university education, and there are other greater demands on the national income to provide services for the people In order to meet those commitments, the Chancellor has had to withstand the idea of cutting down such things as Purchase Tax and giving other reliefs, which many of us would have liked, had they been possible.

The steps which have been taken, however, reflect more on a certain section of the community, and it is that which disturbs me so much. One section of the community is worse situated than any other through the increased cost of living, because increased wages or increased profits have not enabled them to meet rising costs. This section of the community exists on a low level, and the problem today is how to help them. More revenue must flow into the Exchequer to cover the cost of the social services, rearmament, and the cost of providing a greater number of schools. That we shall meet these extra charges there is no doubt, because we are determined to do so, but the question that I pose is whether we are doing it in the right direction?

Do the aged people get full benefits from all these services? We can point to cases where they do, such as the pensions they receive, the aid they get from national assistance, or the provisions under the National Health Scheme. They may require, say, a set of teeth, or a pair of spectacles; but the people who, for the greater part, are demanding teeth and spectacles are not so much the old people as those who are full of activity and very much younger. In the matter of new schools and the educational services generally, these aged people get no benefit whatever. We increased the subsidies to farmers to enable them to get more profit and pay more wages to the farm workers. Did the aged people get any benefit? None at all. They got increased food prices. The Chancellor admitted that the subsidy to farmers was one of those things which had to be met by increased revenue.

What is the position about Income Tax? Have the aged people and the pensioners received any Income Tax reliefs during the past two years? There have been Income Tax reliefs to wage-earners and to the middle and wealthy classes. We have reduced our revenue by reducing the Income Tax and yet we have given subsidies to farmers. So now we have to get increased revenue. How shall we do it? By increasing the prices of essential foodstuffs as an indication that people have to pay for the social services? Different people in different grades of society have to pay Income Tax differently, according to their ability. Once again the aged people have to suffer the same burdens as the rest of the community, regardless of whether their incomes are large or small.

I have always understood that the Labour Party and Socialism stood, above all, for meeting the community's liabilities to those who were the worst-situated people, the underdogs, yet we still hear it said: "We know that the old people are badly off but we give them national assistance and they are getting their rents paid." Meeting that liability by changing the prices of food is unsatisfactory to me. I have been in close contact with the workers on this point. While they agree that a penny off beer is suitable, in a sense, they feel that it increases the liability on the aged people. Rather than have my burdens eased in that way, I would spread the liability over the rest of the community in a way that would leave the aged people as well off as they are now, so far as food is concerned. The liability must be put somewhere else. Can it he done?

Mr. Odey (Howdenshire)

Has not the hon. Gentleman yet learnt from the Chancellor the lesson that we cannot settle this problem by the simple expedient of taking the money from the rich and giving it to the poor?

Mr. Gallacher

I wish he had tried it.

Mr. McKay

We all have our views on the best way to live individually and communally, but there is little difference between us on this point. The workers are prepared to meet their liability in this matter. The principle is already established that where there is a given need and an ability to meet that need, we vary the penalty in accordance with the ability to pay. Income Tax is not a nice thing, but if the aged people can be saved from being penalised, the general conscience of the nation is such that it would be prepared to meet the liability. I believe that the liability could be met by putting 3d. on the Income Tax; then every section of the community would help to meet the liability and food prices could remain where they were. The trade unions will perform their duty to the party and the country, but many of us on this side and in the trade union movement, believe that there must be a new viewpoint in meeting any national liability. In doing so, we must not forget the position of the aged people.

8.42 p.m.

Mr. John Henderson (Glasgow, Cathcart)

I have listened to a great many of the speeches during the last two or three days, and what has interested me very much has been the complete change of attitude on the part of many hon. Members opposite. At first a considerable amount of anxiety and indignation was expressed at the terms of the Chancellor's Budget, but as time has gone on, and particularly yesterday and today, there have been far more speeches complimentary to the Budget than opposed to it. If there is an awakening of hon. Members opposite and the country as a whole to the gravity of the country's financial position, our gratitude and thanks are due to the Chancellor of the Exchequer. There has been an awakening of interest as far as the financial condition of the country is concerned.

Mr. Gallacher

The hon. Member thinks it is a good Tory Budget?

Mr. Henderson

Like many other hon. Members I went to church on Sunday and—perhaps I should not admit this—during the service my mind reverted to the Chancellor and his supporters on the benches opposite. Perhaps my mind ought to have been on higher and purer and nobler things, but the reason why it travelled that way was because of the text on which the minister based his sermon. The text is to be found in the 25th verse of the Gospel of John, Chapter 9. The text is—and this is why I thought of hon Members in the House— Whereas I was blind, now I see. If this Budget has been anything, it has been a real eye-opener and shows what a Socialist Government have done during their term of office.

I want to touch briefly on two aspects. The previous speaker mentioned the in- creased cost of foodstuffs and I was more than intrigued to listen to the hon. Member for Coatbridge (Mrs. Mann) as she so lightly passed over this important aspect of the Budget proposals. I have had the pleasure of knowing the hon. Lady for a number of years. She is a champion of the housewives, and I cannot bear to think of the hon. Lady when May Day comes round, when great demonstrations will be held throughout the country; I cannot conceive of the hon. Member justifying to those who will listen to her, approval of the increased price of foodstuffs for the working classes.

Mrs. Mann

Just let the hon. Member come and see.

Mr. Henderson

I have been there before, but I doubt whether I shall go back a second time. What her slogan will be I have not the faintest idea. But in the city from which I come, namely, Glasgow, there are placards all over the place bearing the words "Labour gets things done." The price of the telephone both for business and private purposes is to be increased, and railway fares have gone up, the B.B.C. licence has doubled, coal has gone to an exorbitant price. Now the prices of meat, cheese, butter, margarine 'are to be advanced.

Mr. Mitchison (Kettering)

Would the hon. Member allow me to remind him that, since the railways have been nationalised, the only change has been not an increase of fares but the introduction of a number of cheap excursions which were not there under private enterprise.

Mr. Henderson

I am sorry that the hon. and learned Member for Kettering (Mr. Mitchison) seems to have forgotten that long before the war, far superior cheap day excursions were provided by the railway companies under private ownership than are provided under State control at present.

Lieut.-Commander Braithwaite (Holderness)

Cheap excursions to the election!

Mr. Henderson

I want to emphasise a point touched upon by the hon. Member for Wallsend (Mr. J. McKay). I have a profound regard for the Chancellor of the Exchequer—it must be embarrassing to the right hon. and learned Gentleman to have so many complimentary things said about him—but I cannot understand the right hon. and learned Gentleman giving to the beer drinkers £18 million at a time when in his Budget proposals, there is not the slightest indication of any concessions being given to elderly people with regard to post-war credits. I have in my hand a book containing 1,500 names of elderly people in my constituency. They were gathered together by a dear old soul. There was no publicity, no organisation, but he was so convinced that an injustice was being meted out to these elderly folk, that he went to the trouble of compiling these names. Surely the time has come when some act of grace should be extended to the elderly folk who are within a year or two of receiving their post-war credits.

Mr. Collins (Taunton)

Does the hon. Gentleman know that pensioners aged 65 do get their post-war credits?

Mr. Henderson

I am quite sure that the hon. Gentleman recognises that although people may enjoy perfect health and be physically sound up to 60, frequently between the ages of 60 and 65 certain necessities arise—physical defects, for example, may show themselves—and a little more is required between 60 and 65 than between 55 and 60. Consider the elderly couple, who married, perhaps, at 20 and have lived together for 40 years. At 61 the husband dies. His widow is left with only an old age pension and has to wait another four years before she qualifies to receive her post-war credit.

Mr. Percy Wells (Faversham)

She gets it at 60 years of age.

Mr. Henderson

The ages I have quoted could be reduced by five years; the same things would still apply. In this direction lies real injustice and hardship. I hope that before the Finance Bill is reached, the Chancellor will turn a sympathetic eye—he has such a thing—and a soft heart to the payment of post-war credits.

I have packed as much as possible into the very short space of seven minutes. I have only these two points to make about the unjust increase in charges for telephones, and about post-war credits in particular. I hope that the Chancellor will yet do something to alleviate these burdens. I am sure that the back benchers will agree that we are profoundly grateful to the Chancellor for his courageous Budget, which has opened the eyes of many in the country, and in particular members of his own party to the serious financial state of the nation.

8.50 p.m.

Mrs. Castle (Blackburn)

I am in the position of someone who has been sitting watching the clock all the afternoon and who is called upon at the last minute with very little time at her disposal and who, therefore, has to jettison half her speech. For that reason, as far as I am concerned the Chancellor has been saved by the gong—[Laughter.]—because if I am limited—

Mr. Osbert Peake (Leeds, North) rose—

Mrs. Castle

I have very little time.

Mr. Peake

I am going to make a concession. I was about to suggest that the hon. Lady might take five minutes of the time which has been reserved for me.

Mrs. Castle

That is extremely kind of the right hon. Gentleman, but I would point out to him that it is more important for me to keep in with the Chair than with the Front Bench opposite. However, I may be driven, in view of his interruption, to avail myself of his hospitality of time.

I was about to say that in a situation of stringency such as the one with which I am faced, if one has to choose, I would certainly choose to attack the greater evil. Whatever my views might be about some of the temporary aberrations of the Chancellor of the Exchequer, always in my view the greater evil would be hon. and right hon. Gentlemen opposite. Sitting here and listening to their speeches. I have contrasted them with the kind of speeches they make in other parts of the country, where their tone is different and where they show their determination to exploit the Budget and mislead the people and I find it extremely difficult to remain silent. The Chancellor knows perfectly well my feelings about some items of his Budget. I am unhappy about his decision with regard to the food subsidies. I think they are a keystone of our policy which should not be abandoned until the very last resort. I do not believe that the last resort has been reached, or that this change should have been made.

But, above all, I want to make two points about the effect of the Budget on the propaganda of hon. Gentlemen opposite. First, it is imperative to make it perfectly clear to the country that the reason we are going through this present period of stringency—why Purchase Tax or Income Tax cannot be reduced at this stage—is not because the Government have set their hand to a level of social services which the country cannot be expected to sustain, but because there have developed two external and untoward factors which have bedevilled the perfectly legitimate hopes which we were entitled to maintain. I do not believe that the level of the social services for which we have provided is any higher than the country had a right to expect, and, in particular, than the men who tought in the war demanded and expected to see on their return to this country. Indeed, we should have been failing in our duty to our ex-Service men if we had not embarked upon these schemes.

The factor which has bedevilled the situation is one which we had every right to hope we should be spared, and that is the factor of Defence costs. In his last Budget, the Chancellor was able to show a saving on that item of £200 million, but in this Budget there has been an increase of £67 million. If we look at the Defence expenditure of today, which is £760 million, and compare it with that even of the rearmament year of 1938–39, we find that the Defence expenditure was then running at £254 million, and we can see what has been the cause of the trouble.

Or take the position after the First World War. Defence expenditure dropped dramatically in the first two post-war years, and gave the Chancellor of the day an opportunity—which he did not take—of expanding the social services and the.standard of living of the ordinary people. Whereas Defence expenditure in 1919–20 was £604 million, by the following year it had dropped to £293 million, and we were fully entitled to hope, following this war, that we should not have this additional burden placed upon us at this time. If that could have been avoided, if the Chancellor could have produced a further saving in this Budget of £200 million on Defence expenditure, it would have been sufficient to cover both the increase in this year's social services cost and also the prospective increase in the food subsidies, while leaving him some margin in which to manoeuvre decreases in taxation.

I suggest that it is unfair to expect the lower-paid income groups to bear single-handed this extra cost which is one to provide for the defence and safety of the whole country. This situation has been exploited in the country by our opponents. Yet hon. Gentlemen opposite really cannot take comfort from the election results because if those were a reaction to the Chancellor's medicine, they had better remember that if they had power they would double the dose. For they have not given a single example of the way in which expenditure could be reduced without cutting, into the benefits and payments which every man, woman and child in this country actively desires to receive.

Certainly, a very dangerous game on the food question is being played by hon. Gentlemen opposite, because their manoeuvre is to go to the country and say that if they were in power they would cut the food subsidies without there being any consequent increase in the price of food. Any increase in the price of food is unpopular in every home in this country, and would be bitterly resented and resisted in every home, and a dishonest attempt is being made to fool the people of this country into the belief that we could have a reduction in the food subsidies without anyone feeling the impact in their own budget.

This point was played upon by the right hon. Gentleman the Member for West Bristol (Mr. Stanley) in his broadcast the other night. I did not hear it myself, so I am quoting from the report of what he said in the "Daily Mail," which I think hon. Members opposite will accept as a reliable source. This is what he said with regard to the decision of the Chancellor not to allow the food subsidies to rise: In future it is the housewife who will pay directly in the increased cost of food for any mistakes which the Minister of Food makes. Many of you already think him a luxury; I am afraid that you are going to find in the future that he's a very expensive luxury.

Hon. Members

Hear, hear.

Mrs. Castle

I hoped that hon. Members opposite would say "Hear, hear," because I am glad to have them endorse and place on record that particularly dishonest folly of the right hon. Member for West Bristol. I have gone to some trouble to try to find out just what has been the achievement of the Minister of Food. To some extent I feel that the existence of food subsidies has operated to the disadvantage of his reputation because they have disguised the amazingly low level of food prices which he has achieved regardless of the subsidies. Every time we refer in this Chamber to the achievements with regard to the cheapness of food in this country, we are told by hon. Members opposite, "Oh, well, of course, it is the subsidies. The people are paying for it out of their taxation." But that is not the case.

I have taken two main items of which the price has recently been increased, and which figure very largely in the food budgets of every home. The first is meat, and the second is cheese. I have taken the average cost of meat in Britain with subsidies removed and compared it with the cost in other countries. After taking away the subsidies, we find that the average cost of meat per pound in this country is still only Is. 7½d., whereas in the United States of America it is 3s. 6d. per pound, and in France, as was agreed in the House only a day or two ago, it is 4s. per pound. Therefore, we find with remarkable clarity the success of the policy of the Minister of Food in keeping food cheap in this country. He is obviously a very fine buyer on behalf of the country, because if we take simply the cost of imported meat we find that it is very much lower than even the average, because it is the cost of the home-produced meat which sends up that average.

If we take the second item, cheese, we find, after taking away all subsidies—and I am taking the latest prices which reflect the recent increases—after taking away all subsidies including the subsidy on milk for the making of home-produced cheese, that the cost of cheese in this country is 2s. 3d. per pound compared with 2s. 6d. to 3s. per lb. in France, and 3s. 3d. per lb. in the United States of America. That is due to the Minister of Food who is none the less being made the butt of hon. Members opposite. They are going to use this Budget, despite all their fine compliments to my right hon. and learned Friend, as unscrupulously as they know how, to whip up once again feeling against my right hon. Friend the Minister of Food. They are going to tell the housewives of this country that, if only they had a Conservative Administration, they would have both a saving on food subsidies and at the same time cheaper food.

I suggest to the Committee that we should expose, once and for all, Conservative policy in regard to this matter, because they know perfectly well that the efficient conduct of the food resources of this country has placed us in an advantageous position with regard to the cheapness of food and one which defies comparison with that of any other country in the world. That has been done by our Minister of Food. Knowing these facts, I suggest to them that, if they really want to keep up morale, if they really are prepared to echo in the country the sort of statesmanlike and patriotic speeches they make here, they should drop once for all this unscrupulous attack upon my right hon. Friend.

9.5 p.m.

Mr. Osbert Peake (Leeds, North)

The Committee has been accustomed on the last day of the Budget Debate to hear from these benches a wise—I think wise—a witty and a graceful summing up of the Budget from our point of view from my right hon. Friend the Member for West Bristol (Mr. Stanley) and I am sorry that indisposition has prevented him from being here this evening and has compelled me to take his place at somewhat shorter notice than I like on an occasion when an important Debate such as this is taking place. I wish he were here, also, because he could reply in person to the attack which the hon. Lady the Member for Blackburn (Mrs. Castle) was able, owing to my generosity in rising a few minutes later than arranged, to deliver upon him with regard to his broadcast last Thursday.

This is the second time upon which we have combined a four-day Debate on the economic and financial situation and I think we may now say that this experi- ment has proved itself a definite success, and that it is very much better to debate our national affairs in this way than to try to debate economics and finance in separate compartments. In this Debate we have heard some excellent maiden speeches from both sides of the Committee. Two of them from the benches opposite, by the hon. Member for North St. Pancras (Mr. Kenneth Robinson) and the hon. Member for Sowerby (Mr. Houghton), were models of restraint and discretion and showed great zeal in following the example of the Chancellor in the hard and narrow way, and the donning of the hair shirt. I must confess that I could not restrain some curiosity as to whether their election addresses had been cast in the same mould. I must confess, too, that I thought my hon. Friend the Member for Orpington (Sir W. Smithers), whom I do not see in his place, was a little unkind to the Chancellor of the Exchequer in producing quotations going back to 1933, or even earlier in the right hon. and learned Gentleman's career.

The right hon. and learned Gentleman's Budget has been praised on all sides—sometimes, I fear, somewhat to his embarrassment, from this side—for its courage. It definitely marks the end of an era. It shows a determination to face the facts realistically and that is what we have advocated from these benches for so long. Pounds, shillings, and pence are no more to be regarded as meaningless symbols. I am sure there can be no song in the Chancellor's heart unless it be that it is "a long, long way to Tipperary," and I do not imagine for one moment that he is prodding on any Government Department to accelerate its expenditure at the present time. I fear we shall never recapture that first, fine careless rapture of the £50 million National Land Fund of the Budget of April, 1946. I must confess that there is a great deal of mystery as to this National Land Fund. The Chancellor of the Duchy, who established the fund, has told us on more than one occasion that it would be used, amongst other purposes, for the establishment of National Parks, a cause which nearly all of us have at heart, but we have had a Bill dealing with National Parks without any reference to the National Land Fund.

I see that the policy of the Socialist Party for the next General Election has been issued to the Press this evening and I culled from its many electoral pearls—and I do not refer to the assurance company of that name—the following: More and more of the stately country homes of Britain will be coming into public ownership as payment in kind of Death Duties and in other ways. It is right that they should be mainly used to give holidays to families who have never been able to afford them in the past. There must be many families who can no longer afford their stately homes, and I feel sure that the possibility of receiving a free holiday in them at the expense of the taxpayers will make a very wide electoral appeal.

The Economic Secretary to the Treasury, who spoke today, and followed in the steps of the Chancellor's Budget speech, also will have a task to perform as a result of this Budget. He will clearly have to bring out a completely revised edition of his book, "The Socialist Case," which was last reprinted in 1946. Of course, he will be able to do that in the enforced leisure which will automatically become his at the latest in June, 1950.

The Chancellor was clearly perturbed—and I think rightly perturbed—at the now once more rising tide of national expenditure. I think it is one of the most important features of this year's Budget that, for the first time since the end of the war, we are definitely faced with expenditure which is higher for the forthcoming year than for the year which is past. Expenditure in the last year of the war was over £5,000 million. It fell to just under £4,000 million in 1946–47 and in the last two years it has been round about £3,180 million. It is estimated that for 1949–50 it will be £3,308 million, and it is, of course, expenditure which is described as "above the line." I think it is a serious matter that we should have come to the end, apparently, of the decreasing figures for national expenditure, and that we should once more be facing figures which, so far as the Chancellor can foresee, are likely to increase steadily in the future.

I particularly welcomed the right hon. and learned Gentleman's evident determination to achieve economy wherever economy can be made. To me the two most significant statements in the whole of the Budget speech were, first, the statement that he could not, or would not, find money for Supplementary Estimates, and was sending out a special notice to Departments to inform them of that fact, and, secondly, the statement that if the National Health Service were abused he would consider imposing a special tax next year to meet its cost. The words of the Chancellor upon this matter were: There is, indeed, a very good argument for imposing some special charge or tax in connection with the Health Services, both to help to finance them and to bring home to people generally the simple fact that they have to be paid for out of taxation."—[OFFICIAL REPORT, 6th April, 1949; Vol. 463. c. 2101.] Why did the Chancellor make that statement? It was quite unnecessary to his Budget proposals. It was only a suggestion that he might have to take some special steps in a year's time. I suggest that the point of making the statement was twofold. First, I think it was to show the red light to the Minister of Health, and, secondly, that it indicated that in the Chancellor's mind there is a possibility of waste, and room for economy, in the social services themselves. How often have we on these benches been reproached for suggesting that economy in the administration of the social services was possible! I think it is a matter of which the Committee should take serious note, that the Chancellor has himself indicated that there is a possibility, to put it no higher, of waste of money in the administration of the National Health Service. I have frequently put forward from this Box, in financial and Budget Debates, suggestions as to where economy could be achieved.

There is a large field quite outside the social services where we still believe that substantial economies could be made. I am by no means satisfied that we are getting the best value for the very large sum which we are asked to spend on Defence in the coming year. I do not think that we are getting value either in effective Defence Forces or in the economic use of manpower, and I ask the right hon. and learned Gentleman whether the Government will not give further consideration to this matter with a view to seeing if we cannot get better defence at less cost to the taxpayer than the figures presented to us.

Then there are items in the Budget totalling £950 million which are not concerned either with Defence or with the social services. I suggest that in that field also there are possible economies to be achieved. I have always been a little disappointed at the way in which my suggestions for economy have been received by the various Chancellors who have answered these Debates in times gone by. My suggestions, if not ignored, have, apparently, been resented, pooh-poohed, and minimised. I should have thought that any Chancellor of the Exchequer would have been grateful to hon. Members for suggestions as to where economies might be made, and I often wish that Chancellors of the Exchequer, when replying to these Debates would pay some little tribute to the work of those two public-spirited Committees of the House—the Public Accounts Committee and the Estimates Committee—which have given valuable time and trouble to studying ways and means by which economies could be effected. I should expect Chancellors of the Exchequer to receive suggestions for economy, from whatever quarter they may come, both courteously and sympathetically.

I want to say one word about the food subsidies. In April, 1946, we had from the right hon. and learned Gentleman's predecessor, the present Chancellor of the Duchy of Lancaster, an estimate that the food subsidies for the ensuing year would cost £335 million, coupled with the statement: We cannot go on doing this indefinitely, regardless of cost. We shall have to reconsider this matter next year."—[OFFICIAL REPORT, 9th April, 1946; Vol. 421, c. 1811.] A year later, on 15th April, 1947, the same right hon. Gentleman estimated the cost for the then coming year at £425 million. With that, he coupled the statement: … it would be necessary to consider very carefully whether we could face any further increases. … Otherwise this element, alone in all the total of our public expenditure, might seem to be passing out of our control."' He added: This would be very unfortunate and ignominious situation."—[OFFICIAL REPORT. 15th April, 1947; Vol. 436, c. 44.] Indeed, it was so, because two years later we are now told by the right hon. and learned Gentleman that the rate of subsidy has risen to £485 million at the present time, and that to proceed with the subsidies at the current prices for the ensuing year—and I believe at a slightly enhanced level of consumption—would cost the taxpayers £568 million.

It is, I think, perfectly clear, to all reasonable Members of the Committee that this situation cannot possibly be allowed to continue. I was rather surprised at the attitude taken -on the first day of our Budget Debate on Thursday of last week by the hon. and gallant Member for Central Hull (Captain Hewitson) and the hon. Member for Houghton-le-Spring (Mr. Blyton). However, the county council elections took place that day, the week-end ensued, and hon. Members returned to the Debates of the last two days in a much more pacific frame of mind. I can only hope that the results of the municipal elections in the first week in May will have the effect of healing the rift in the party opposite over the question of foreign policy.

Let me now say a few words upon a subject on which my hon. Friend the Member for Hillhead (Mr. Galbraith) made a most interesting maiden speech this afternoon—the subject of the Estate Duties. I do not think that any hon. Member has noticed what the Chancellor said in his Budget speech relating to the yield of this tax. The Chancellor anticipated that the yield of Estate Duties for the forthcoming year on the past basis of taxation—on the basis in force for the fiscal year 1948–49—would be £165 million against a figure of actual receipts for last year of £177 million; that is to say, he estimated for a decreased yield of £12 million on the existing basis of taxation. It is only by stepping up the rates very considerably that the Chancellor hopes to raise an additional £11 million in the forthcoming year, and in that million in the forthcoming year, and in that way to restore the yield of the duty to approximately, or just below, the figure he actually received last year in respect of it. It is clear, therefore, that in respect of this duty the law of diminishing returns has already begun to operate, and that this process will be further accelerated by the increased rates of duty.

I do not intend this evening to discuss the increase in the rates upon the broad front. I would say that the simplification of the various Death Duties—the Estate Duty, the Legacy Duty and the Succession Duty—will, I think, be generally welcomed in all parts. However, I think that the right hon. and learned Gentleman should take steps to rectify what I feel sure is a mistake, which was pointed out in a letter to "The Times" this morning from Sir Cecil Kisch. That letter shows clearly that in the range of estates from £45,000 up to nearly £100,000 the Chancellor's proposal will result in near relatives paying much more than they have paid hitherto, and in distant relatives or non-relatives paying very much less than they have paid hitherto. Whilst it may be the design and object of Socialist policy to break up the landed estates and to break up inherited wealth, I do not think that even Socialist policy necessarily demands a fiscal system devised to break up the home as well. I cannot believe it is the Chancellor's intention that the remote lady friend of a wealthy testator should inherit very much more from an estate than the widow would herself.

Sir S. Cripps

They will get the same.

Mr. Peake

I do hope that the Chancellor will look at this point and reconsider the position of near relatives as opposed to non-relatives between now and the Committee stage of the Finance Bill.

I must say a little on the question of the revenue surplus. The Chancellor has estimated what he calls his true revenue surplus for the coming year at £492 million compared with a figure of £684 million last year. In each of these two years, last year and the ensuing year, he budgets for what he calls an "overall" surplus. He seeks to provide by taxation not only for current outgoings on Revenue account but also for current outgoings on the part of the Government on capital account, and he will have achieved in the course of last year and this year to come, if his estimates prove accurate, a true revenue surplus for the two years of no less than £1,200 million. Is it not clear that with some economies, on the one hand, and a somewhat smaller true revenue surplus, on the other, there would be scope for some tax reductions, and should not these tax reductions, which in my opinion could be achieved, be so designed as to give the maximum incentive to production at all levels and in all forms?

The Chancellor of the Exchequer is doing something. He has increased the initial allowance, under the Income Tax Act, 1945, on new plant and machinery from 20 per cent. to 40 per cent., but I suggest that he would have done better to have reduced the actual incidence of tax upon industry, because increasing the initial allowance is merely advancing the date of the remission of tax. I suggest that he might have given some remission to industry in the form of abolishing the Profits Tax of 1s. in the £ on profits ploughed back into industry. There is a very interesting table, No. 6, in the White Paper on National Income and Expenditure which shows that in the year 1948 the addition to reserves of companies totalled £1,215 million, but with provision for tax on these reserves totalling £670 million it leaves less than half, only £545 million, available for industrial re-equipment. I suggest to the Chancellor that he might have considered remitting the Profits Tax on ploughed-back industrial profits.

The difference between the Chancellor of the Exchequer and myself is that the Chancellor of the Exchequer believes in compulsory savings whereas we believe in voluntary savings. The Government, before the right hon. and learned Gentleman became Chancellor, had done much by their policy to undermine the voluntary savings movement, but we believe that the will to thrift and industry can be renewed, reinvigorated and restored. The Chancellor of the Exchequer tells us that we must rely upon increased productivity, and we are all agreed on that, but the restoration of incentives to persons at all income levels is essential to increased productivity, and some risks may still have to be taken if increased productivity is to be achieved.

At the back of the Chancellor's Budget speech, despite his assurance to the contrary, I could not help feeling that there lies the spectre of a possible trade recession and an end to the sellers' market which the right hon. and learned Gentle- man and his colleagues have prophesied for so long. I believe that we can face the future confidently if our finances are handled with firmness, with hope and with trust in our people's traditional virtues. The firmness has been there all right, and we admire it, but for our part we would show greater faith in the qualities of British people.

9.30 p.m.

The Chancellor of the Exchequer (Sir Stafford Cripps)

We have had an extremely good Debate on these two subjects, and I am very glad that the Committee has come to a general agreement that this is really the best and most sensible way in which to handle our problem. Quite definitely, we have dealt with the subject better this year than in our initial attempts at this type of debate on the last occasion. During this Debate we have had a number of maiden speeches. There have been four from hon. Members on this side of the Committee and one on the other side. They were contributions of rather an exceptional quality, which I am sure we are all agreed were of very real value in our Debate, and we all very much hope that those hon. Members will be constant contributors to the Debates of the Committee and of the House.

There has been one factor in the speeches from the Opposition benches which has been slightly irritating to us on this side of the Committee, and that is the orgy of self-satisfied patriotism to which we have had to listen most of the day. I can appreciate that the Budget proposals must have come as an unexpected shock to a number of people. It is one of the disadvantages of a Chancellor of the Exchequer that he cannot forewarn people of what is to be in his Budget at least, not if he wishes to remain Chancellor of the Exchequer. Indeed, I was rather nervous that I might be accused of going too far in what was said in the Economic Survey. Those who wished to interpret its contents accurately to the public found no difficulty whatsoever in doing so, and they were, in fact, remarkably accurate in their forecasts in the Press of what the Budget would contain; but there were others whose purpose it served better to raise hopes of a most fantastic kind in the minds of the people and presumably for the express purpose of engendering the inevitable disappointment which has subsequently appeared in many people's minds.

The right hon. Gentleman the Member for West Bristol (Mr. Stanley), whom we are all so sorry not to see here this evening—I am particularly sorry because there are one or two things I wanted to say to him—made a speech at Sheffield before the Budget in which he said: I have a feeling that the Minister of Economic Affairs is going to disagree with the Chancellor of the Exchequer. We are going to find that out on Wednesday when electoral advantages are going to outweigh financial needs. It has been made pretty clear that it was not on our side that electoral advantage was taken of the Budget. It was, indeed, those who sought to mislead the people as regards the possibilities of the financial situation who have reaped that advantage. It was a most unfortunate factor in the situation that there was so much speculation which anyone who looked at the situation sensibly must have known could not possibly have materialised.

As hon. Members have now come to examine the Budget in its true economic setting and as one of a series of Budgets over a series of years, I think that they have come to realise that there was little else that any responsible Chancellor of the Exchequer could have done without betraying the trust of the people. I certainly should not be prepared to take the chance which the right hon. Member for West Bristol suggested over the wireless that he would have taken, as indeed I think he well might have done, so irresponsible is he in his statements. That is not the spirit in which we should conduct the finances of this country. I must say that I was very surprised both at the irresponsibility and at the falsity of that particular broadcast.

Let me cite just one passage to show how gross was the misrepresentation. This quotation is from the copy issued by the Conservative Central Office: except that he went a good deal further"— that is, speaking of myself— for not only did he say no more increases"— dealing with the subsidies— but he slashed a thousand million"—

Hon. Members

A hundred million.

Sir S. Cripps

I beg the Committee's pardon. It should be: a hundred million off what otherwise we would have to pay and, as a consequence, your food prices went up. … Did he tell you this"— This is a passage a little further on— that the Government were going to cut food subsidies by £100 million? That is a completely false statement. It was exactly the type of misrepresentation which was calculated to create the maximum amount of unhappiness in the people of this country. He knew as well as I knew, having heard it in this House, that in fact what we were doing was not increasing the amount to be paid by subsidy—only at least to the extent of £13 million over what was paid last year—and he represented it instead, as a slash of £100 million. Really, such an irresponsible statement one would hardly imagine would be made by someone representing a serious party.

Then he goes on a little further and says this: and certainly the Chancellor does not trust his present colleagues. Hadn't he only yesterday to send round an order forbidding them to spend any more money on their own? What a perfectly fantastic misrepresentation. The only thing that the right hon. Gentleman knew was what I said in my speech in this Committee. What I said was this: I was sending round a circular asking all Departments to review again the expenditure which is likely to flow from the development of existing policies, so that it can be kept within bounds of what is considered feasible."—[OFFICIAL REPORT, 6th April, 1949; Vol. 463, c. 2092. That is the whole of the statement. To turn that into what the right hon. Gentleman did turn it into was a gross bit of misrepresentation.

Then the right hon. Gentleman goes on to this fantastic passage, when he said that he would take a chance in reducing the surplus: and then I could use all this money to reduce taxes. That is simply irresponsible vote-catching and nothing else. The right hon. Member for the Scottish Universities (Sir J. Anderson) said that he would have made a substantial reduction in Purchase Tax, but he said, truly and rightly, that he would have to offset it by taking off the subsidies and putting up the price of foodstuffs. Not so the right hon. Member for West Bristol. He was going to get all the advantages of taking the taxes off, but I was the wicked person who would be putting the prices of food up. He forgot to tell people in the broadcast that if the policy he was suggesting had been carried out, food prices would have gone up much more than they were going up under the Budget.

This whole question of the increase in food prices has been very largely misrepresented and misunderstood. The facts are quite clear. We are paying rather more in this year by way of subsidy, in order to supply cheap food to the people of this country, than we did last year, but what we have said is that we cannot allow that to go up and up and up. There must come a time when we must stop, and we are stopping it at a rather higher level than we actually paid last year, but the cost of that will be just over 4d. per head per ration.

Captain Crookshank (Gainsborough)

May I interrupt the right hon. and learned Gentleman to try to get this clear because my right hon. Friend the Member for West Bristol (Mr. Stanley) is not here to speak for himself? How does the right hon. and learned Gentleman reconcile that with his attack on my right hon. Friend's broadcast, which said that the view of the Chancellor was: No more increases but he slashed £100 million off what otherwise we would have had to pay. Is the right hon. and learned Gentleman denying the original figure which he gave?

Sir S. Cripps

If the right hon. Gentleman will read the other passage it will be made quite clear: Did he tell you then that the Government was going to cut the food subsidies by £100 million? The right hon. Member for the Scottish Universities suggested in his speech that it would have been much better if this message of moderation, as he called it, had been preached two and a half years ago. I suggest that that is completely to misunderstand the whole position. We know that he was anxious not to increase the social services, but that has never been our position. Our position was to get as rapid an increase as we could up to the limit of our capacity to provide the goods with which to give the services, and that is what we have done. We have created a set of social services in this country without example in the world, and we have done it by the energy of the people of this country. That is something of which we ought to feel immensely proud.

Sir John Anderson (Scottish Universities)

The right hon. and learned Gentleman has made some references to misrepresentation. He has just said that I was anxious not to increase the social services. There is absolutely no justification for that whatsoever. I made the first speech in the House of Commons after the publication of the Beveridge Report, and I made it quite clear that I was in favour of the development of the social services in accordance with those recommendations, but that we had to look at our budgetary position first.

Sir S. Cripps

The right hon. Gentleman has always taken the view that we have developed them too fast. He said so last night. I am pointing out that that is exactly the contrary to our view. We thought we ought to develop them as fast as we could, in view of the production we had, in order to give our people the greatest advantage that we could as early as possible.

If I may come to the speech of the right hon. Gentleman the Member for Aldershot (Mr. Lyttelton), at the beginning of his speech he certainly gave every recognition to the country's great achievement over last year, which is recorded in the Economic Survey. Then, after attempting to find a few points of criticism in the Economic Survey, including a question about one of the photographs in the popular form—which is a perfectly correct photograph of a pit development which is currently taking place—he developed some wonderful theory that we did not want people to know that we were getting E.R.P. Aid in this country. Really it is a most fantastic idea. We have a great exhibition in Oxford Street at the moment in order to show people what we are getting from E.R.P. aid. We have taken the greatest trouble throughout all our publicity over the last year to make people conscious of this fact. I can only imagine that the right hon. Gentleman wants to make a little bit of mischief in America as regards this.

Then he made what was really the main burden of his speech, that there should be greater monetary inducements to the managements if we were to increase our productivity; that is to say, direct taxation should be reduced forthwith. That at least is how I interpreted his statements as regards direct taxation and greater monetary inducements. Now what does that mean? It certainly does not mean that from some vague and incalculable saving, we are to provide these inducements for the managerial class. It means we have to make a direct cut in our taxation and if we do that, of course, if we cut our revenue, we have to cut our expenditure. Now where is the expenditure to be cut? This is the point to which we can never get the answer. The right hon. Member for North Leeds (Mr. Peake) said we might find some economies in the Defence Services. We certainly are looking for them all we can, and if we find that we can get better Defence Services for the money, we shall be delighted to do it, but that will not lead to any saving in money.

Then the right hon. Gentleman suggested that in the £950 million which is not included in the social services or in the Defence Services, but I suppose includes the interest on the National Debt—the Consolidated Fund charges—

Mr. Lyttelton

No.

Sir S. Cripps

It does not include that. I accept that. It can either include it it or not; it depends which £950 million one takes. He says that somewhere there, I do not know where, we can find economies. He asked whether Chancellors of the Exchequer were not anxious to find economies. Of course we are. I should be delighted if anybody would show me where economies could be made without cutting down essential services or without destroying administration. For instance, it is no good having great economies in the Inland Revenue Department where, as the right hon. Gentleman has said, we are so short of staff that we cannot, unfortunately, always counter the ingenuities of the individual who wishes to escape taxation. Therefore we cannot just say, "Cut this" or "cut that"; we have to consider what we can cut.

I should be very glad indeed to get some concrete suggestions of where savings could be made. All I can say is that we have examined it to the best of our ability with the O. and M. Division of the Treasury and with outside experts in order to see where we can economise in the administration. We have done a good deal. We have been able to cut down quite a lot, but on nothing like the spectacular scale which would be necessary if this extra provision of inducement were to be made to the managerial class of which the right hon. Gentleman was speaking. The real question of inducements is this: who is to have them and how are we to provide them? What the right hon. Gentleman and his friends are always looking for are greater monetary incomes for the managerial class. What we are looking for are greater benefits for the workers of this country.

Mr. Gallacher

It is a strange way of getting at it.

Sir S. Cripps

We have been able to do a great deal more than has been done in Russia so far as the workers are concerned. We believe that we have made a good set of social services which, in themselves, form a great inducement to the population of this country to do a good job, and we believe that the evidence of that lies in the record of last year. Not one hon. Gentleman opposite has dared to suggest that last year was not a first-class achievement by the British people. Well, we created the circumstances in which that achievement took place.

In my Budget speech I gave very great credit to the response on all hands to the plea which had been made last year for restraint on personal incomes, costs and prices. I emphasised that we have now just as much need for that policy as we had before. I should like to add my word of praise to those which have already been given to the trade union leaders for the really magnificent fight they have put up over the last year to stop a runaway increase in wages over the whole of the country. Contrary to what might appear to be their interests, or even the interests of their members, they have, because of the necessities of the national situation, done their best to try to restrain this increase of personal incomes. We have the benefit and the reward for that in the improved position that we have now achieved. Although I know that some of my hon. Friends and some of the trade union leaders will be disappointed with the Budget; that they will feel that we are not giving them any more ammunition to help them in the struggle to stop inflation, I want them, nevertheless, to continue if they will in those great efforts which they have made in the past and which, I can assure them, have been of the utmost value to our country.

The right hon. Gentleman the Member for North Leeds (Mr. Peake) asked about the question of Estate Duties. He said my forecast showed that the law of diminishing returns was beginning to apply. That is a complete fallacy, if I may say so. The reason for the decrease in the estimate is because the Stock Exchange prices next year are calculated on a lower basis than those which actually materialised this year. He will appreciate that, in fact, we got f17 million more this year than we had anticipated, because Stock Exchange prices were higher than we had anticipated, and that the amount of Death Duties is very largely dependent upon the current rate of Stock Exchange quotations over the period of time when they are collected. That is the only reason why this downward adjustment has been made, because we do not think that the price level will necessarily hold over the 12 months. Therefore, there is really no argument as regards the Estate Duties showing diminishing returns.

Mr. Peake

Surely, the right hon. and learned Gentleman would accept the Stock Exchange value as a fair value for the estate?

Sir S. Cripps

Certainly; I am not suggesting it is not. But when we are trying to estimate how much we shall get, we have to estimate what Stock Exchange prices will be when the estate falls in, because that is the time at which valuation is taken. Therefore, we think it will be a little lower next year than this year and we estimated accordingly.

As regards the other point which the right hon. Gentleman made, he said he thought that with some economies, and by lowering the surplus, we could squeeze something out in the way of remissions in taxation. Does the right hon. Gentleman—for he is the first person who has suggested this—really suggest that the present Budget is too disinflationary? That is the cardinal question. We cannot just say, "We think the surplus might be less. Let us give something away." We must really make up our mind, in order to keep the stability of our position, "Can we afford to have a smaller surplus?" The right hon. Gentleman has never thought about it.

Mr. Peake

Oh, yes, he has.

Sir S. Cripps

And what is his conclusion? He is alone; I have seen no one in the Press even, except irresponsible papers like the "Daily Express," who has suggested that this is a too disinflationary Budget and that we are allowing too big a surplus and that we ought, therefore, to unbalance it altogether and have a deficit Budget—because we are only in surplus by £14 million and if we go any lower we shall have a deficit Budget. Is the right hon. Gentleman really suggesting that we should run a deficit Budget this year, with all its repercussions on our international position, with all that might be said about the effect upon sterling and its stability and all the rest of it? These things must be taken into account. One cannot casually get up and suggest giving away some millions to reduce the surplus, and it is that kind of irresponsible criticism which really is the worst possible thing for the country and the worst possible advertisement for the party opposite as well.

I should like to say a word in conclusion on a problem which was raised by the hon. and learned Member for Wirral (Mr. Selwyn Lloyd) as regards the Canadian situation. I really do not want to discuss here a problem which is much better discussed with the Canadian Government, and not discussed in public, either in the Parliament here or in the Parliament in Ottawa, but I should like to say this. We appreciate fully the great difficulties of the Canadian situation, and we are most anxious to do everything that lies in our power to assist them in the solution of the difficulties which confront them. We are also anxious that they shall do all they can to assist us, because this problem can only be solved by a two-sided effort—an effort made here to sell more of our goods in Canada and an effort made in Canada to buy more of our goods there. We are already buying nearly three times as much Canadian goods as they are buying British goods, and that cannot persist. We must both make the greatest possible effort to expand our trade from this country to Canada, and, as the President of the Board of Trade has said, that has been one of the main objectives of our efforts.

This Debate throughout its length has stressed the point which I ventured to make in my opening speech. We have done a fine job as a country. Our vigour, our enterprise and our effort is proved by our accomplishments. We have, however, still a hard job to do to overcome our dollar deficit, to continue our own capital development in this country on a standard never reached in earlier days and to complete the development of the great social services that we have created, and the resources for all these

purposes must come from our own production and our own productivity. That is our resource; that is our strength. We must pause now for a moment until we can once again put up our production, so as to give us the extra we need to meet the demands that we have already created. There is no doubt as to our capacity. There is no question as to the wisdom of our policies. We are on the right road. Let us remain on it, and let us go forward to fresh achievements and to greater prosperity.

Question put: That it is expedient to amend the law with respect to the National Debt and the public revenue (other than purchase tax), and to make further provision in connection with finance.

The Committee divided: Ayes, 302; Noes, 3.

Resolution to be reported Tomorrow; Committee to sit again Tomorrow.