Clause 14.—(CHARGE OF INCOME TAX FOR 1949–50.)

HC Deb 23 June 1949 vol 466 cc459-546

3.45 p.m.

Mr. David Eccles (Chippenham)

I beg to move, in page 8, line 4, to leave out "nine shillings," and to insert "eight shillings and sixpence."

I am sorry that the Chancellor of the Exchequer cannot be here this afternoon. We know he has been called away to critical negotiations in Brussels and even he cannot say "no" in two places at once. In view of the heavy pressure upon the £ sterling, we all hope that the issue of those talks in Brussels will be satisfactory to the United Kingdom.

My right hon. and hon. Friends have put down this Amendment to reduce the standard rate of the Income Tax as a declaration of war against the burden of Socialist taxation. I wonder what hon. Gentlemen would have replied if, four years ago, when peace and Socialism arrived together, they had been asked what they expected the rate of Income Tax to be in the financial year 1949–50? I wonder if a single one of us imagined that we should still be paying 9s. in the £? Certainly that was not the view of His Majesty's Ministers, for it is well known that they instructed the Service Departments to work out the post-war scale of pay and allowances upon the basis of an Income Tax of 7s. 6d. in the £.

An Income Tax of 7s. 6d. in the £ after four years of peace was a reasonable expectation and until this last Budget it was possible to go on hoping that one day it would be fulfilled. Now, however, those hopes are dead, for all who heard the Chancellor's Budget speech must have realised that so long as the Socialists do the spending there can be no more significant reductions in taxation. While their fingers are in the national till, the rates of tax falling upon personal incomes and upon the earnings of industry must remain unaltered.

The Conservative Party utterly refuse to accept this kind of penal servitude as part of the British way of life. When we take our stand on that, we are thinking of everybody, for the effort of carrying our present burdens must destroy the prosperity of all classes, whether they pay Income Tax or not. The Committee is well aware just how heavy those burdens are. The combined demands of the rates, taxes and insurance stamps now claim over 40 per cent. of the national income. That is extortion without parallel in time of peace, and if we look round the world we find in no country where freedom is valued are the people asked to carry anything like the British burden.

I can speak only roughly, but to the best of my information the comparable rates are about 5s. in the £ in the United States, and in such different countries as Sweden, South Africa and France, they are between 4s. and 5s. in the £. That compares with our 8s. [HON. MEMBERS: "Nine shillings."] That compares with our 8s., taking the whole range of taxation as a proportion of the national income. The system of taxation by which we succeed in extracting this tremendous and unique proportion of the national income is as complex as any torture invented by the ancient Chinese, but the Committee will agree that among all these wealth-destroying instruments the centrepiece is the Income Tax.

It is the Income Tax which is the heaviest stroke of all. That is why my right hon. and hon. Friends, when they were considering how best to make a plain protest against the gross weight of Socialist taxation, decided to move a reduction in the standard rate of Income Tax. I can hear the Economic Secretary, if he is to reply, say that if the Amendment is carried the Budget will be unbalanced; he will certainly ask us whether we are now in favour of a deficit. When we say that we are not, he will go on to make his stock inquiry, where would we cut expenditure? While I fear that on this Amendment I should not be in Order to answer that inquiry in detail, I hope that by way of illustration I may be allowed to say this.

At some time or other we have all been faced with a situation in which we knew with absolute certainty what it was right to do but had not the particular knowledge to say exactly how it should be done. It happened to me a few weeks ago. I wanted to get the builders out of my house. I had not, as the Committee will readily agree, the skill to do the builders' job for them. The only thing to do was to move in and to chivvy them until they finished and went. The time has come to move in upon these Socialist spendthrifts. For four years we have watched their profligate behaviour and we can now see that if they are left alone they will never economise and never reduce taxation.

The Opposition are not in a position to say exactly how much and what waste can be cut out by each of these spending Departments, but we know for certain that several hundred millions of pounds must go. Therefore, we intend to move in on this Government and, by pressing the Amendment, to shake them out of their complacent extravagance.

Mr. Benn Levy (Eton and Slough)

As the hon. Gentleman confesses that he does not know, and is not in a position to know, where this saving of several hundred millions is to be found, why is he so certain that there is a saving of several hundred millions?

Mr. Eccles

I do not suppose the hon. Gentleman has ever exceeded his income and had to go to his banker and talk to him about it, but if he had, his banker would not be prepared to tell him where he was to cut down; he would simply say, "You have got to cut down." That is the position we are in.

We are certain to be told by the Government that there is no need to be alarmed about the present weight of taxation. Ministers must say, since they impose these taxes, that a standard rate of Income Tax of 9s. in the£is well within the capacity of the country to bear. If the Chancellor were here it would not surprise any of us if the right hon. and learned Gentleman rubbed in the salt by adding that it was good for our souls to surrender so much to the State. That sort of easy view about the weight of taxation sounds well at party conferences but it does not impress the man who has to pay, especially when he learns that he has to find more than half as much again as his opposite number in any of the free countries.

Mr. Beswick (Uxbridge)

What does he get in return?

Mr. Eccles

I am just coming to that. A short time ago the Economic Secretary tried to explain away the unique burden of British taxation by reminding us that the social services relieved our taxpayers of a number of payments which those in other countries have to meet out of their own pockets. To what extent is that argument true? A family which eats subsidised food and which has no school fees or doctor's bills to pay is saved substantial calls upon its purse. If we look at those reliefs from the expenditure side of the National Budget, and especially if we are making a speech from a party platform, it is quite easy to describe them as unqualified blessings. But are they unqualified blessings? If they were, why not have more of them? Why stop until food is completely free and rents are subsidised to the vanishing point?

Of course, the answer is that, mixed up with the blessing of receiving, is the pain of finding the money. We cannot approve the expenditure side of the Budget until we have asked who pays, how they pay, and what effects the payments have upon the rest of their lives. When Ministers talk about the benefits of the vast total of Socialist spending they conveniently forget that the act of collecting the money to pay for those benefits leaves a deep scar upon the taxpayer's efficiency as a producer, upon his ability to save and upon his character as an individual. They forget that the act of collecting the money from industry diminishes the fund out of which plant and machinery can be improved or wages increased.

The truth is that the gathering of the revenue itself sets up a chain of social and economic results that are quite independent of what the Government does with the money. If that was not so there might be an argument, although I should not support it, for raising not 40 per cent., but 60 or 70 per cent., of the national income and returning it to the people in the form of free food and free houses. Since, I suppose, no one in his senses would advocate that course, we have to consider what is the proportion of the national income which it is wise and safe to raise in taxation.

Mr. Fairhurst (Oldham)

Is the hon. Gentleman suggesting that we should wind up the social services?

Mr. Eccles

I am not suggesting anything of the sort, but the hon. Gentleman is on a good point. I am trying to lead up to a rational consideration of how much money we should spend through the State. There will always be disputes about the exact figure. The argument will go on as long as we have representative government and debates upon Finance Bills. On this side of the Committee we are quite clear that the level of taxation imposed by the Socialist Government has already seriously passed the safety line. We do not say that relying upon some obstruse mathematical calculations. My hon. Friends have not much confidence in those sort of paper solutions to human problems. We try to see life in the round and we look about us and observe what is actually happening to the enterprise, the savings and the peace of mind of our constituents. That is the ultimate test of whether taxation is too heavy or not. I would not assert that we on this side alone can take a human view of taxation.

4.0 p.m.

The Committee will recall that during the Debate on the Budget Resolutions we had an important speech from the hon. and gallant Member for Central Hull (Captain Hewitson), who struck home when he said that those whom he represented did not consider that social services and sympathy were enough. He said that they wanted more money to spend for themselves. He might well have added that they wanted more money to save for their families and their old age. There is the real issue. Ministers deny the facts of life when they argue that the exceptional weight of British taxation does not matter because it is a transfer from private to public spending. The truth is that 99 men and women out of 100 prefer to spend their own money themselves rather than to give it to someone else to spend. The exceptional man—and he does exist—is someone like the Chancellor, or the Economic Secretary to the Treasury. They are rare birds and, thank Heaven, they will soon be extinct.

I must deal with a second argument brought against a reduction in the standard rate of Income Tax. Our opponents often say that the post-war taxes have been very high, but they have not had any bad effect upon enterprise and upon the volume of production. That is a serious point which deserves our attention. During the last four years, output, exports, and the revenue have all moved to higher levels. Why, we are asked, do the Opposition continue to cry "wolf" when it is clear by now that the wolf does not exist? Is it not time for the Tories to admit that their forebodings always were wrong and always will be wrong? [HON. MEMBERS: "Hear, hear."] I am glad to hear that that is so.

It is my firm belief that if direct taxation had been lower, British recovery would have been faster and our economy would have been more solidly based and better able to stand up to the fall in world prices. It is not possible to measure with accuracy the harm that has been done by excessive taxes falling upon the costs and capital reserves of industry, but during the Debate on this Clause and subsequent Clauses we on this side of the Committee will produce facts and figures to strengthen our view that the harm has been very great. Nevertheless, it will always remain a matter of argument and, in the opening speech on this Amendment, I want to confine myself to points on which we can agree.

There should be no dispute that there must be some rate of Income Tax which would kill the private sector of our economy. I suppose even the purest Socialist knows in his heart that a standard of rate of, say, 15s. in the £, if imposed today, would be followed by bankruptcies and unemployment. I think it is also beyond question that we must look further than the rate of Income Tax itself. The effect of any particular rate of tax—we are now thinking of 9s. in the £—changes with the changing phases in the trade cycle. What is bearable in a boom becomes intolerable in a slump.

I would not allude to anything so obvious if we had any evidence whatever that Socialist Ministers, when framing their domestic policies, have paid any attention at all to the probable ups and downs of world trade. It appears that they have done the whole of their planning upon the incredible assumption that the post-war boom would go on for ever. If that were not so, how can we account for the folly of saddling this country with a level of expenditure which at the end of the boom demands rates of taxes which, everyone knows, leave no margin for increases? What were the Committee doing all yesterday afternoon and evening? We were discussing the small, desperate efforts of the Chancellor to prevent the revenue falling a few millions in one direction and in another to snatch a few millions by putting halfpennies on match boxes and so on. It is perfectly clear from Part I of the Bill that we have reached the end of the boom and reached the marginal capacity of taxation at the same time.

I hope I have said enough to enable me to turn to the actual rate of 9s. in the £. For the period when prices were rising rapidly even that rate could be borne without disaster. Paper earnings, paper profits rose also and the Revenue automatically increased. The current year's expenditure was taken care of by the previous year's inflation. But how long can that deceptive process go on? It depends on the duration and pace of the upward swing in the trade cycle. Socialist finance begins to resemble the old story of the heavily laden sleigh pursued by the wolves of the forest. Unless a considerable amount is thrown overboard, the wolves will catch us up, pull us down and tear to pieces horses, passengers and driver. [HON. MEMBERS: "Who are the wolves?"] Hon. Members ask who are the wolves. The wolves are the facts of life.

That is the situation of British finances today. Right hon. Gentlemen opposite imagine that because they have clambered on to the driving seat the wolves no longer exist., They have loaded the country with a burden of expenditure that can only be carried if the pace of the boom is maintained. Unfortunately, so excessive is that burden, that a small slackening in trade threatens us with a run on our gold reserves to be followed by an unpredictable increase in unemployment. It is no use shutting our eyes to these facts, which are right upon us now. Are we to wait until the crisis arrives? Are we going to postpone to the next Parliament, because we are so afraid of losing votes, what we ought to do now to deal with this menace? If we do so it will be a very poor act of statesmanship. For the longer we put off cutting out the waste and reducing costs and taxation, the more we shall have to throw to the wolves in the end.

What are the measures that should now be taken? The Amendment to which I am speaking is one of them. It is a small but significant part of the great salvage operation which every sensible man now sees is necessary. On this occasion we are only moving to reduce the standard rate by 6d. That is a token figure which we put forward as a step in the right direction. The Opposition have not the advantage of knowing all the facts of our financial situation. Were we armed with inside knowledge, I do not doubt we could put forward a very much larger reduction. But if we Members of Parliament are in the dark, how much more in the dark are our constituents? I sometimes think that all the economic information the Government have given the public may prove to have done more harm than good because it has been so selective.

What is the general impression about the Budget left by the White Papers and their popular editions? As far as I know it is that there is nothing wrong with the total size of the Budget. There has been no attempt to make the people understand what it means to the country's economy and their own future to take 8s. in the £ of our national income. What has the Chancellor done to rub in the direct connection—it is one of cause and effect—betwen the high level of Government expenditure and the cost of living? He never mentions that. Why has the Chancellor not made it plain that there is an inescapable choice between high taxes and personal savings, and that he has chosen high taxes? Does the right hon. and learned Gentlemen really think that the public understand what is meant by such a phrase as "The marginal capacity of taxation has been exhausted"? The Government have not helped us to make up our minds on the really big issues such as the one raised by the hon. Gentleman opposite of what is the wise and safe proportion of the national income which we can spend through taxes. Yet that is a crucial decision for the survival of democracy.

It is certainly my view that in the days when the Industrial Revolution was changing the face of Britain the House of Commons ought to have urged successive Governments to spend more through the social services. Our predecessors must take some part of the blame for the fact that the pendulum has now swung to the other extreme. I beg hon. Gentlemen opposite to realise that they are putting all their reforms in danger by trying to spend far too much money at once. They are laying upon the British people burdens of taxation which are provoking resentment at all levels in the community. The people for whom the hon. and gallant Member for Central Hull spoke when he said that sympathy does not make a noise in the frying pan are not backward children waiting to be taught by the Economic Secretary how to think and act; they are voicing the old British demand to be allowed to run their own lives.

What happens to Governments which disregard such demands? The lesson of the history book is quite plain. It shows that when taxes are piled too high the most powerful communities lose their vigour and spirit, and their place in the world is taken from them by younger and less handicapped competitors. I have lately been in Rome. The visitor who there gazes upon the ruins of the past must, like Edward Gibbon, ask himself how came that mighty Empire to decline and fall. That tragedy has fascinated the greatest historians. They have offered us many and contradictory reasons to account for the collapse of so great a power, but all those authorities are agreed upon one point: all of them have fastened upon the severity of the taxation. One and all inform us that the increasing weight of the taxes, accompanied by a network of controls and social services, induced a sour listlessness throughout the Empire. Men and women of all classes came to feel that whether they worked or not the State would keep them, and if they did choose to be industrious there was no certainty that their industry would be rewarded. It was the taxation—

Mr. Shurmer (Birmingham, Sparkbrook)

What social services were there in the Roman Empire?

Mr. Eccles

The hon. Member might visit the Baths of Caracalla. It was the taxation which crippled their industry, destroyed their middle class, and with it the Roman virtues of endurance and integrity. While that suffocating process was going on the barbarians from the East were beating upon their gates, but those within, bullied and bled white by the hordes of officials, had not the strength or the will to hold fast. When Rome fell she gave us one of the great lessons of history.

4.15 p.m.

We, too, have an Empire. The barbarians from the East are knocking on our gates. We have not much time to learn the Roman lesson. Before it is too late our universal electorate must grasp what it means to live within the national income, and what readjustments are necessary in the timing of their hopes if we are to make progress towards the fulfilment of them all. I yield to no one in my desire to raise the standard of life of the people, but I am convinced that for that great purpose the first and unbreakable rule is to leave to every citizen a sufficient proportion of his earnings and savings to make him think it worth while to do his best for himself, his family and his country. It is with that rule in mind that I move this Amendment.

Major Bruce (Portsmouth, North)

I should like first to deal with the effect of the Amendment which has been moved by the hon. Member for Chippenham (Mr. Eccles). On the face of it, any proposal to reduce the standard rate of taxation is one which appears to have a considerable ameliorative effect upon the population as a whole; and on the face of it, those reading that there was a proposal to reduce the standard rate of Income Tax by the amount proposed in this Amendment would probably say to themselves that there was a possibility of some reasonable relief in what they paid under P.A.Y.E. when they get their wage packets at the end of every week. Therefore, any proposal of this kind immediately has its attractions.

When we consider the details of such proposals I think it wise that we should examine their effect on various income grades throughout the country. I was a little surprised that the hon. Member for Chippenham, who is usually so very frank with the House, did not feel it worth while to go into those details in the first instance. I appreciate that he went into the overall economic effects, and I should also like to deal with them later. The effect of the proposal before us on a married man with two children, who is receiving £400 a year, would be a relief amounting to the princely sum of 3¼d. a month. That is what the relief proposed by hon. and right hon. Members opposite would bring to the ordinary wage earner who earns £400 a year. A married man with two children who earns £500 a year would receive a relief, as a consequence—

Mr. Ralph Morley (Southampton)

I should imagine that a man with a wife and two children who earns £400 a year does not pay Income Tax at 9s. in the £.

Major Bruce

I was assuming, as I think I was entitled to assume, that the reduction of the standard rate of tax from 9s. to 8s. 6d. would have the effect of reducing the lower rates of tax charged on the first £50 of taxable income and on the next £200.

Mr. H. D. Hughes (Wolverhampton, West)

I do not know why my hon. and gallant Friend should be so charitable to the Opposition. Their proposal does not seem to me to be anything like so progressive as he indicates.

Major Bruce

I am always perfectly willing to take the remarks of the Opposition within the context in which I believe them to be intended. I do not believe they merely intended to reduce the standard rate of tax without at the same time following up its effects on the reduced rates. I am prepared to argue my case, if my hon. Friend will permit me, on the basis of giving the opposition as much as possible, and I think that is the best way of conducting the argument.

A married man with two children earning £500 a year—on the assumption that the standard rate was reduced and that the reduced rates and reliefs were reduced by a comparable amount—would actually save 2s. 1d. per month. A married man earning £1,000 and who had two children would, on a similar basis, actually save a sum of £1 0s. 10d. a month. One could go on up the grades of these various income groups to decide who in fact will benefit by the reform. It is only when one comes right up to the top of the income grades, the people who are earning £10,000 a year or over—of which there are 10,000 in this country at the present time—that we find what would be the effect of this reform upon them. They would get, on average, a relief per annum of something between £450 and £460, or between £37 and £39 per month, or approximately £9 a week. If this is an example of the Conservative Party's "property-owning democracy" we can see exactly which way these things work.

It has always been the case of the Opposition, as I see it, that the working people of our country in particular—and they always address their remarks to the working people—are in need of a considerable incentive at the present time.

Vice-Admiral Taylor (Paddington, South)

Who are the working people?

Major Bruce

The hon. and gallant Member should really learn the facts of life and read his own party literature. The suggestion of the Conservative Party is always that the working people are in need of an incentive; that the existing high rate of taxation prevents them from putting forward their best; that they are really not getting as much out of the social services as they are putting in. That, broadly speaking, is the case of the Conservative Party.

What are the Conservative Party now offering the working people in order to provide them with the incentive which they, the Conservative Party, seem to think they ought to have? The vast number of incomes in this country as a matter of fact are under £500 per annum; that is the overwhelming mass of working-class incomes in this country. The Conservative Party propose to offer them relief at the rate of 3¼d. a month. This is an extremely instructive doctrine from the Conservative Party. It may well be that the Conservative Party do not believe in their own propaganda that the working-class are doing the job. It may well be that this proposal to reduce the tax by 6d. with its effect upon the various income groups is a straightforward admission by the Conservative Party that the working people of our country are doing very well indeed.

Mr. Lipson (Cheltenham)

The hon. and gallant Member has told us what the Conservative Party are prepared to offer to the working people earning below £500 a year. Can he say what the Government in this Budget is proposing to offer them?

Major Bruce

I shall deal with the hon. Member in my own way in the course of my speech. I should like to produce some documentary evidence in support of the contentions which have been put over from this side. I do not think it is generally realised that over the last four years, since the end of the war, far from the working people in this country having slackened—as is always the sneer or imputation of quite a considerable number of hon. Members of the Opposition—the production per man in this country has gone up at a higher rate than in any other nation in Europe involved in the war. If hon. Members wish to have any kind of verification of that I would suggest that they turn to Table IV of the Economic Survey for Europe for 1948. There they will find that if the index of output per man in 1938 stood at 100, the figure in the United Kingdom is 108. There are other countries, Belgium for example, which at the moment stands at about 97. I have no doubt that hon. Members will obtain those figures if they wish.

Those figures do not disclose that the working people of this country, on whom the bulk of our agricultural and industrial effort depends, are slacking. Yet all the Conservative Party propose to do in this world shaking reform—which is presumably the curtain-raiser to the declaration of their Leader on 23rd July—is to offer them a reform at the rate of 3¼d. a month; without at the same time stating exactly where the cuts are to be made in Government expenditure to enable this reduction of taxation to be made possible.

It is quite true that the relief for the purposes of taxation on the middle income groups is somewhat more extensive. I have already said that a married man with two children earning £1,000 a year is likely to benefit by this relief at the rate of £10s. 10d. a month. A person earning £2,000, a married man, with two children would in fact benefit at the rate of £71 5s. per annum, which is no inconsiderable sum. So it further appears that the Conservative Party actually hold the view that the people in our country who are really in need of an incentive at the present time are the people who are earning between £2,000 and £10,000 a year, and indeed over, because those are the people to whom the vast benefits of this reform would in fact go. There are about 165,000 of them earning between £2,000 and £10,000 and about 10,000 which are over the £10,000 a year.

I always thought—I may be wrong—that the praise of the Conservative Party was reserved for those middle income groups, the income groups of over £2,000; that it was the courage, initiative and foresight of this particular class of the community which lay at the base of Britain's industrial recovery; which lay at the base indeed of Britain's greatness, and that everything fundamentally depended on this class. Is it very complimentary to this class of individual—those persons who are already enjoying a very considerable share of the national income—to say to them, "We do not believe you will work unless we give you over 400 times the incentive which we are prepared to offer the people who are earning below £500 a year"? Because that is exactly what this reform offers. It offers to people in the income groups over £2,000 some 443 times the incentive offered to people in the lower income groups. I should have thought that this was rather a veiled insult to the middle-class.

I am perfectly aware, as are all hon. Members on this side of the Committee, of the very great contribution which is made by the management and technicians whose responsibility it is to organise industry. We should be extremely churlish if we did not pay to them the tribute which indeed is due; but who in this Committee would insult this great section of our community by remotely suggesting that if they did not get incentives many hundreds of times greater than those given to the working people then national production would go down and that our productive effort would be stultified? People in this class of the community are well aware of the facts of the situation.

4.30 p.m.

It may be, as the hon. Member for Chippenham (Mr. Eccles) said, that no country has such a high rate of taxation as we have, but he did not say that no country in the world is devoting such a high proportion of its national income to capital investment as we are at present. It would have been a little fairer if the hon. Gentleman had mentioned that. As is well known—I think it has even become appreciated by Members of the Opposition—one of our greatest difficulties, apart from the outside difficulties with which we have to contend in the terms of adverse balance of payments and the extremely adverse terms of trade we have had, is that we face a war against the consequences of war of which this country has had, per head of the population, probably rather a greater share than anybody else.

It was clear to certain Members of the Coalition Government, including some of the right hon. Gentlemen who now adorn the Front Bench opposite, that in the years following the war there would have to be a considerable expansion in capital investment. It is therefore the case that one of the reasons—indeed the principal reason—why so much money is taken out of the pockets of the taxpayer today is precisely because we have to maintain a high rate of capital investment, which is some 22 per cent. of the national production as a whole, not only to deal with the aftermath of war itself but also to deal with a considerable amount of neglect before the war.

The so-called middle-class people in front of whom this carrot of a 6d. reduction in Income Tax is being dangled will appreciate that in matters of this kind there should also be some regard to the moral aspect. I suggest that there will be thousands upon thousands of people who are fortunate enough to have incomes above £1,000 or £2,000 a year who will be very proud indeed as Britons to be able to make a greater contribution to the country's need in aid of the plight of their less fortunate fellows. There are many people who will not be guided by the eternal rapacity with which the Conservative Party continue always to insult them by saying that they will not work unless they have sufficient monetary incentives. There are a large number of people in these income grades who will think in that way.

What would be the result of the reform which the Tory Party suggest? It would cost the Exchequer between £80 million and £100 million. My estimate is as good as anyone's, and I have not the accurate figures. This sum would have to be found somewhere. As the hon. Member for Chippenham indicated, something would have to be dropped from the sledge. We have already had hints about what would be dropped from the sledge by the right hon. Member for Scottish Universities (Sir J. Anderson) who suggested that it was a little early to increase family allowances and old age pensions. There have been a number of suggestions about where economies might conveniently be made. This proposal would have little effect on the vast majority of the working-class population. It would not even have a substantial effect on the income group between £500 and £1,000.

All that it would be is a practical implementation of the policy of the Leader of the Tory Party of what he describes as "setting the people free." In fact it would set free the greedy people to exercise consuming power to the tune of between £400 and £500 more per annum than they are able to exercise now, in some cases by driving around in their cars and getting more sweets than they were able to get under rationing. It would set the greedy people free. That is all that the Conservative Party policy would do, and I invite the Committee to reject the Amendment.

Mr. Spearman (Scarborough and Whitby)

We have heard from the hon. and gallant Member for North Portsmouth (Major Bruce), as we have come to expect from him, a speech which was perhaps more vigorous in manner than thoughtful in content. Later I should like to take up some of the remarks he made. There is a substantial reason for pressing for a reduction in Income Tax because of the hardship which it inflicts upon a very large and deserving portion of the community. I use the word "deserving" deliberately, because the vast majority of people suffering from taxation are people with small fixed incomes who have not acquired those incomes very easily. They have not acquired them by winnings on the race course or from the football pools, but rather by hard work and great frugality, thereby increasing the wealth of the country. That makes a very strong case that they should now have a rather easier time. I think that some hon. Members opposite would entirely disagree with what I have just said. They would say, "We do not like any sort of inequality. Let us not bother about pushing up the income of certain people. Let us get equality somehow or other by bringing incomes down."

I am sure that the Chancellor of the Exchequer would not take that view. I think that he and many of his colleagues on the Front Bench would say, "We sympathise with that. We should like to bring down taxation for these deserving people if it could be done by cutting out any waste, but we just do not see how to do it by any means of that sort." I suggest that if it was not a question of avoiding the hardship on these people but, instead, it was a danger to the country as a whole, the attitude would be entirely different. I suggest that it is a question of avoiding general poverty, hunger and large unemployment.

The hon. and gallant Member for North Portsmouth thought that the amount by which taxation would be reduced by our Amendment was too insignificant to be of any benefit. It may be that the benefit for a man earning £400 a year is very small, but the point of our Amendment is not a small reduction of taxation made on the gamble of a surplus by the Chancellor but rather that the cost should be met by economies made by the Government. If the Government spend less this year, our economy will be in a sounder position and larger reductions can be made next year. If, on the other hand, these economies are not made, we might move into a most calamitous situation in which it is not a question of saving somebody 4d., but of a danger that there will be huge unemployment and a great deal of hunger in this country. I think the present situation—I am not going to overstate it and say that it is immediately alarming—is extremely disturbing. The Chancellor of the Exchequer, on 18th May, was not then of that opinion, because in one of his moments of optimism—which I am glad to say have become increasingly rare—said this: If we continue to follow the policies which we have been following, I believe that we shall continue to have that degree of recovery which up to the present time has made such a remarkable inroad—."—[OFFICIAL REPORT, 18th May, 1949; Vol. 465, c. 571.] He stopped there, through an interruption from my hon. Friend the Member for Northern Midlothian and Peebles (Lord John Hope), that seemed to have shaken the Chancellor out of his optimistic mood, because he never completed the sentence. Perhaps he was bearing in mind at that moment that it was only that very month's "Bulletin for Industry," which is published by his Department, which said this: The dollar deficit for the first quarter was still at a rate of well over £300 million a year, in spite of United States aid, and United Kingdom gold and dollar holdings were £80 million less than when E.R.P. started. It goes on to say that the exports to soft currency areas cannot pay for the wheat, bacon, cheese, tobacco, cotton, timber, non-ferrous metals, machinery and vital food supplies which the United Kingdom must still buy from North America. It says: During the past twelve months, well over two-thirds of such supplies have been paid for out of gifts and loans from the United States and Canada. It goes on to say: The record so far this year is disappointing. First quarter exports to Canada and U.S.A. were both lower than in the previous quarter, and the proportion of total U.K. exports going to these two markets together was less than pre-war.

Mr. Crossman (Coventry, East)

Would the hon. Gentleman explain how a reduction of 6d. in the Income Tax, which presumably will give a greater degree of purchasing power to the people, is going to assist our export drive?

Mr. Spearman

The point I am trying to make is that, when everything is well in the world, the Chancellor will not be so disturbed about the rate of taxation except so far as there is hardship concerning certain people, but when, in fact, the position of the economy of this country is really alarming, then it is vitally necessary to cut down expenditure, whatever suffering it might entail.

Mr. Crossman

Will the hon. Gentleman continue that argument to show how a reduction of 6d. in the Income Tax, which is putting more money with which to buy goods in the pockets of the people, is going to help the export drive?

4.45 p.m.

Mr. Spearman

The whole theme of what may well be an inadequate speech is to make that point, but I cannot do it in one sentence. So far, I have been trying to show that, in spite of the optimistic statement of the Chancellor during the Second Reading Debate on the Finance Bill, the situation of the country today is a very difficult one indeed, and our sunshine period is over. It has been awfully easy for us to export to a starving world which had an enormous pent-up demand resulting from the war, and a world which had no factories working in large parts of many territories. Now, people have filled up their larders with the things of which they were short during the war and they have built up their factories, so that we have now got a very difficult situation with which to compete.

The hon. and gallant Member for North Portsmouth was very pleased with the progress we have made, compared with what has been done in other parts of Europe, but he did not take into account the comparison with those areas which were outside the German occupation. I say to him that it is not only the question of that, but a question, in the era after the war, of having to compete both as regards price and production, instead of only in regard to production, in the very difficult situation which has arisen. We all know that at the present time we are only just meeting the dollar gap and managing to pay for our raw materials and food, because of our exports and dollar aid. We know that dollar aid is to be drastically reduced, and the present trade returns indicate a very sharp fall in exports.

I quite agree that it may be some considerable time before these exports fall to a dangerous level, but the situation is disturbing, and I think we should face it, because if we do face it, we are more likely to get the better of it. The world as a whole just now is a great deal more sensitive than it has been in the past, and if it is true that the trade returns are getting worse month by month, and our gold is diminishing month by month, there are people on the Continent who are saying already that we are heading for devaluation. That will mean that they will be put off buying our goods, and if that happens our exports must fall, not slowly but calamitously, and devaluation will be forced upon us.

Major Bruce

Does not the hon. Gentleman agree that rumours of that kind are being deliberately encouraged by irresponsible statements made by hon. Members of his own party concerning the achievements of his own country?

Mr. Spearman

Indeed, I do not. On the contrary, I think that if only there could be some response to our efforts to persuade the Government to make drastic economies, that would be the answer. In reply to the hon. Member for East Coventry (Mr. Crossman) if we were to reduce taxation by only a small amount coming out of a real economy, it would give a degree of confidence to the world.

Mr. Crossman

What the hon. Gentleman is really asking us is to go again to the American bankers and go through that all over again?

Mr. Spearman

I was not thinking about America, but of the world as a whole. America is helping us enormously, but all over Europe there are people who are now saying—and I have just come back from certain countries in Europe—that they are expecting devaluation. It is for that reason that we should try to create confidence, but we are not going to create confidence by refusing to face the facts as they are, but only by facing the situation and being able to take some action to deal with it. Only a short time ago, the Minister of Supply, speaking at Charing Cross on 1st September, said this: It is now three years since the end of the war, and we are still heavily dependent on outside help. Indeed, if we had been forced to rely on our own unaided efforts, we should now be experiencing widespread hunger and unemployment far worse than anything we knew between the wars. If that is the sort of situation we are afraid of, surely we must avoid it at all costs? What I am urging is that, if we can get a reduction in taxation as the result of economy and steadily reverse that situation, we shall be doing a great deal.

I would like to quote from a very distinguished Socialist, Mr. Colin Clark, who recently wrote for "The Economist." He said: Excessive taxation always leads to a discouragement of production, and it also leads to the expansion of money income, which means inflation. He goes on to say that today we have got excessive taxation in this country; this comes from a distinguished Socialist who has so often been a candidate for Parliament and who is a well-known contributor to the Fabian Society. I therefore ask his colleagues and friends to listen to his views. He said: I believe that the elector is not nearly so enamoured of the Social Service State as the politicians, of all parties, now make him out to be. Tell the elector that in future he will be allowed to keep most of what he earns and get his beer and tobacco at cost price; give help to large families; give social assistance to the genuinely indigent (which means going back to local administration); and I think that under these circumstances the elector would be quite ready to forgo all the other social services and make his own provision for his family's needs. Then he goes on to say, and this is the real crux: After an inflation, it will be necessary to begin again on these lines anyway; it is more sensible to take these steps now, and avoid the inflation and the disastrous loss of real income which it will entail.

Mr. Jenkins (Southwark, Central)

As the hon. Gentleman has been talking about the dangers of inflation, is he now arguing that the Amendment on the Paper to which he is speaking would, in itself, be a direct disinflationary Measure, and would save us from the dangers of inflation?

Mr. Spearman

My argument is that if we had a reduction in Income Tax, a reduction made not because the Chancellor took a gamble, but because he made drastic economies, then that would be a direct incentive to production and a disincentive to inflation. We have to produce much more. The hon. and gallant Member for North Portsmouth was very pleased that we were producing so much and with how much we were spending on capital investment. But I suggest to him that the proof of the cooking is in the eating. Since before the war our production has gone up comparatively little, whereas in America, where there has been an enormous addition of capital equipment, production has doubled. I do not think we have done enough by way of capital investment, but when Government and local government Departments are taking over £4,000 million a year, obviously there is not enough left of the national income with which to re-equip industry in the way we ought.

Secondly, I think we must work harder. I do not agree with patting everyone on the back and saying, "Well done." Let us face the facts. If leisure is untaxed, and if the production of the time spent on work is taxed, then we shall reach the point when people will prefer untaxed leisure. We must reduce taxation in order to get people to work harder. I am not going to pretend that every industrialist is as enterprising as he ought to be, but what incentive is there to an ordinary industrialist to take up a new proposition when, if it fails, he will lose heavily, and, if he succeeds, he will gain nothing? It is heads he loses and tails he does not win. For those reasons, it is vital to reduce Government expenditure and to reduce taxation.

I should like to quote quite briefly from a very interesting article in "The Listener" which is a record of Professor Robbin's speech on the Budget. As many hon. Members know—and many right hon. Gentlemen on the Front Bench opposite know him intimately—he was head of the Cabinet Economic Secretariat for the last three or four years of the war and for the first year or two of the peace. In the article, he says: But for the rest—the Civil Vote, which amounts to little short of £2,000 million—is it really arguable that there is nothing here which we should be willing to see reduced, if it meant a reduction of taxation? Let me begin by asserting a persistent belief in the possibilities of general economy. When I look at these vast totals, I find to hard to believe that there is no scope for marginal reductions, involving no important changes of policy, which, although each fractional in itself, would in the sum amount to something quite substantial. I am confident that, if Ministers and high civil servants would give more of their minds to these matters, they would find quite a lot that they could do without raising major issues of policy. However that may be—and I do not think the argument of Professor Robbins can be ignored—the whole point of what I am trying to say is that if sufficient economies cannot be made in that way, then there must be drastic reductions in Government expenditure. After all, one does not blame the doctor if he cuts off one's big toe in order to save one's leg. It may be a horrible thing to happen, but it is obviously a lesser evil of two. I am quite convinced that Government expenditure at this rate is, in the long run, going to ruin this country. In the words of "The Economist," it will sap energy, enervate initiative and impede development. Unless the price of Government is drastically reduced, the British economy will gradually strangle itself.

Mr. John Lewis (Bolton)

I choose to regard the Amendment on the Order Paper in the name of the hon. Member for Chippenham (Mr. Eccles)—and, the speech that he made—in an entirely different light from that in which my hon. Friends who have already made a contribution to this Debate regard it, and for the following reasons. I am quite satisfied that the hon. Member for Chippenham moved that the rate of Income Tax should be reduced from 9s. to 8s. 6d. for precisely the same reason as the Labour Government prior to the war moved that there should be a reduction in the Estimates for the Armed Forces, not because they were of the opinion that we should not spend that money, but because they wished to draw attention to what they regarded as a matter of principle. I believe that the hon. Member for Chippenham was not really concerned whether this amount was 6d. or 1s., but was only concerned to draw attention to the fact that, in his view, and in the view of his party, the rate of Income Tax is too high.

Therefore, although my hon. and gallant Friend the Member for North Portsmouth (Major Bruce) made a very excellent speech in which he referred to the effects of a reduction in Income Tax by 6d., it might well have been that, without taking into account the consequences of his proposal, the hon. Member for Chippenham was quite prepared to see Income Tax reduced to a much greater extent than 6d. in the £ irrespective of the consequences of such a reduction. That may be the case, and I think it is regrettable that in the course of his speech, with some of which I agree, he did not refer to the fact that Income Tax on the lower income groups had already been substantially reduced by this Government. In fact, the arguments which he advanced in order to prove his point that the present rate of Income Tax bore heavily on other groups might or might not be justified, but the part of his argument to which I attach the greatest importance is that which affects the question of reserves and capital investment, and it is with that argument that I propose to deal this afternoon.

The hon. Member for Chippenham was not prepared to say in what respect he considered that expenditure could be cut. That is nothing new. The Conservative Party have decided that, from their own point of view, it would be wiser not to express any point of view, if in fact, they hold any at all. We do not know. But what the hon. Member for Chippenham did not realise was that we on this side of the Committee are quite well aware what the effect would be if we cut expenditure and lowered taxation. We know full well that if we did that, we should merely be reverting to an economic situation with which this country was faced many years ago. At that time, the Government of the day had little or no obligation to safeguard the needs of the people.

But times have changed. Hon. Members opposite may think we are wrong, but it is one of the prime purposes of the Labour Government's policy to ensure that we take into account, in our administration and in our legislation, the needs of the people, because we are aware that the level of taxation in the old days was, to a large extent, exactly in proportion to the level of human misery. I do not think that this Government will be prepared at any time to reduce taxation if it means that we have to cut vital social services which we are agreed are essential to the needs of the community to whom they have been denied for so long.

I turn now to the question of the effect of the present rate of taxation on capital reserves. I am quite sure that no one will suggest, however much he may be opposed to my right hon. and learned Friend's policy, that my right hon. and learned Friend is not ingenious in his fiscal arrangements. He may be regarded as being ingenious for the manner in which he introduced the Special Contribution. But we are all agreed that he is capable of improvising, and I feel that a certain amount of improvisation will be necessary to enable us to maintain our position in the near future, and I am of the opinion that it is by means of the machinery of differential taxation that it will be possible for us to sell more goods in the dollar markets.

5.0 p.m.

I propose in this respect to outline precisely what I have in my mind. The Chancellor of the Exchequer has made it abundantly clear on more than one occasion, and recently in his speech at Blackpool, that, so far as our dollar payments are concerned, we have to face the possibility of having reached a peak in our exports and of the gap in our balance of payments in the Western Hemisphere becoming larger. That, of course, would be a very serious matter because if, as the trend indicates at the moment, our export markets in the sterling area are becoming more restricted because of import restrictions in those countries and for other reasons, and if there is as a result a widening of the gap in our dollar account, it means that without the slightest doubt we shall have to face increased unemployment. [Interruption.] I may be putting forward a hypothetical case at the moment; I am saying that if that were to take place we should be faced with increased unemployment.

I maintain that the Government have failed to take the necessary steps either to coerce or induce private enterprise to sell goods in the dollar areas. The situation today is quite easy to understand. If a firm wishes to sell its goods abroad, it will do so in the easiest market. It will not go to Canada or South America where there may be difficulties, because in fact there is no incentive for it to do so. We must recognise that the section of private enterprise which is responsible for directing sales policy are the managers or the owners who are responsible for the outlook of their respective concerns. If, in fact, the management of any particular concern does not wish or does not feel that there is sufficient incentive to sell goods in the dollar areas, the goods will not be sold there and it may well be that thousands of men will become unemployed because advantage was not taken of a market which was available if some effort had been made.

In that respect I feel that the Chancellor should introduce the machinery of differential taxation in order to assist our national economy and thus provide some incentive for those responsible for management in industry to sell goods in the dollar areas. That is an alternative to coercing private enterprise, and it is better that it should be done on a voluntary basis by means of incentive. But if, as I have mentioned, we find that the gap in our dollar payments has widened and we in this country are faced with widespread unemployment, the Government will be forced to take other steps, perhaps coercive and however unorthodox they may be, in order to force goods into the dollar areas. I am satisfied that if the Chancellor said to industry, "I am prepared to introduce a differential rate of taxation on profits made from the sale of goods in the dollar or hard currency areas, on the assumption that you will not distribute your profits, which would be inflationary, but will put them to reserve for the purposes of capital investment," that in itself would be sufficient incentive to British manufacturers to go out into the dollar areas to sell their goods.

Mr. Selwyn Lloyd (Wirral)

How much does the hon. Gentleman suggest should be knocked off the standard rate for that purpose?

Mr. Lewis

In the circumstances I have outlined it might be possible to reduce Income Tax on profits made from the sale of goods in dollar areas to say 5s. in the £. If that were done it would give an opportunity to the manufacturer to share some of that reduction with the Chancellor, and reduce the cost of the goods and thus make them more economical in price so that they could be sold in competition with other countries.

Mr. Kenneth Lindsay (Combined English Universities)

I have been following the hon. Gentleman's argument, but I do not understand how he relates it to the Amendment. Is he speaking in favour of a general reduction of 6d. in the Income Tax, or is he speaking in favour of a differential reduction to achieve a particular object?

Mr. Lewis

At the moment I am speaking in relation to a reduction to achieve a particular object. I am taking advantage of this Amendment in order to make these points, as another opportunity may not be available to me at a later stage.

Mr. Attewell (Harborough)

Would my hon. Friend enlighten the Committee as to where we should obtain the additional tax to make up for the reduction which he is proposing?

Mr. Lewis

So far as the sterling balances and our budgetary policy are concerned, these are of insignificant importance compared with the serious menace of the deficit in our dollar account. That is the most serious consideration, and it must come first.

As to the question of the increase in profits which might be obtained as a result of a reduction of taxation in this particular way, I feel that they should not be distributed, but that the reduction in the rate of Income Tax should be permitted on the assumption that any increase in reserves from such profits should be retained for the purpose of capital investment. As to capital reserves, the Government's policy of taxing reserves at the rate of 12½ per cent. after all account has been taken of Income Tax, has the effect of driving firms into the City of London to raise money to carry out investment programmes, and in many cases this has the effect of creating new money. It has the effect of sending people to brokers in the City of London and raising money at great expense, when in fact their own reserves should have been sufficient to enable them to carry out their capital re-equipment programmes. I am not afraid to say this, because I know it to be true.

Whereas I am diametrically opposed to any increase in distributed profits, because I regard it as contrary to the Government's fiscal policy which in the main I support, I am certainly of the opinion that there should be some radical alteration to make it unnecessary for firms who are prepared to put their profits into reserve accounts for capital re-investment, to have them taxed away to that extent that when they wish to carry out an expansion policy which has the approval of the Government they are forced to go to people in the City of London and raise money at expensive rates, utilising all that archaic machinery which should be quite unnecessary. I hope the Financial Secretary will have something to say on that matter.

I am sorry that my hon. and gallant Friend the Member for North Portsmouth (Major Bruce) has left the Chamber, because he voiced an opinion which I think is widely held by hon. Members on these benches, to the effect that the worker is not concerned with incentive or money values but makes his contribution to our common weal, irrespective of those considerations. But I must say this, because I believe that responsible trade union leaders agree with me, that we must face up to these facts and speak frankly about them: it would be quite wrong to assume that, in all respects, there are any sections of the community who are entirely altruistic when at the same time other sections desire to take as much as they can out of the national economy. There are many industrialists who seek to serve the interests of the national economy by conforming to Government policy. The vast majority of workers have done a magnificent job, but in many cases, as I know from practical experience, the responsibility for increased output has not only been due to their efforts but has also been due to the wages system under which they are employed.

In cases where there is a certain level of output, if a wages system which correlates output to a production bonus is introduced then production increases. If workers are earning, say, a basic rate of £7 a week, and get a production bonus of £2 a week, it is no use suggesting that if the production bonus is cut down by £1 a week there will be no drop in production. There undoubtedly will be. I believe the worker is entitled to share in the benefits of increased production because he is mainly responsible for it, but do not let it be assumed that out of sheer altruism people are prepared to make their contribution without some return, because that most certainly is not the case.

Major Bruce

I am sure my hon. Friend would not wish to misrepresent what I said. I did not say anything of the kind. I was endeavouring to say that the financial gain to lower income groups offered by this particular reform was virtually negligible. I was careful to point out that the inducement offered to the middle income groups by this reform was greater, and I made it clear that in a good number of cases they were entitled to amelioration.

Mr. Lewis

If I misrepresented my hon. and gallant Friend's point of view I most certainly apologise, but there are Members in all parts of the Committee who are inclined to the view that only one section of the business industrial community is doing its duty. On the other side it is said that all industrialists are blue-eyed boys, and on this side there are some who say that workers are prepared at all times to make their contribution without any consideration whatsoever to the returns which they get in the form of wages.

I say that the majority of our people are trying as hard as they can to ensure that we get out of our economic difficulties. I speak as one who is in constant touch with the trade union movement and with industrialists. Despite this fact I accept part of the argument put forward by the hon. Member for Chippenham (Mr. Eccles), that the industrialist today has no incentive to increase his output. I will not argue whether that is right or wrong at the moment; it depends on what the Government think is right in that respect. But from my experience the majority of industrialists are seeking to expand production and assist the country in getting out of its economic difficulties without taking into account the fact that they personally, by virtue of our taxation policy, will reap no benefit. That should be recognised, and indeed the Chancellor has made it abundantly clear in his speeches that he accepts this view.

Major Bruce

Does that apply in the cotton industry?

5.15 p.m.

Mr. Lewis

My hon. and gallant Friend is justified in making that intervention. If there is any exception which proves the rule it exists in the cotton industry, where managements have not taken advantage of the facilities afforded them by the Government for consolidation and reaping an advantage on capital expenditure for re-equipment.

I hope no one on this side will be under the impression that by suggesting that there should be a differential rate of taxation on profits earned in dollar areas, as an incentive to sell goods in these areas, that I am suggesting that any distribution of those profits should be permitted by way of dividends or in any other way. My intention is that there should be some incentive to induce people to sell in these markets, and that any additional profits made in this way should be put to reserve for capital investment. I am pleased to see that my right hon. Friend the President of the Board of Trade is in his place. Let us take account of the warnings which come not only from the opposite side of the Committee about an impending slump but from the Chancellor himself who is continually warning us about the serious position with which we may be faced in the future. Something must be done, however unorthodox the methods employed may be, to force goods into the dollar areas; otherwise, we shall be faced with an extremely serious economic position from which we may not be able to extricate ourselves. I believe that goods can be sold in the dollar markets.

Mr. Leslie Hale (Oldham)

My hon. Friend is making a courageous and able speech, but is he really seriously suggesting that if I were a manufacturer, and supplied goods to Melbourne, I should get a bonus for transferring those goods to the New York market?

Mr. Lewis

Yes. Most certainly. Any sales to places in the sterling area which can be transferred to the dollar area are of vital benefit to our economy.

Mr. Hale

I am not trying to heckle my hon. Friend, but is he seriously suggesting that the same policy should apply to the rest of the sterling area, that Australia, for instance, should send her meat products and raw materials to the dollar markets if she can find a market there?

Mr. Lewis

We have a surplus in our balance of payments in the sterling area whereas we have a great deficit in our dollar account. In view of our reliance on goods and raw materials from the dollar areas we must be in a position to continue to import these goods and raw materials or our production must fall. Without increased sales of goods in the dollar areas we shall be unable to do so. I hope the suggestion I have made will be seriously examined by the Government. They should look at this principle of differential taxation to see whether it may be applied so as to induce manufacturers to sell goods by the means I have outlined. Otherwise, I cannot conceive a reduction in Income Tax, or in anything else other than the standard of living being made in the next 10 years.

We are face to face with an economic position which is not of our own making; we are the victims of a world situattion over which we have no control whatever, and our magnificent achievements to date, of which we can be so rightly proud, can be vitiated to a large extent by the happenings of the next few months or years. That will not be due to the policy of His Majesty's Government; it will be due as I have said to world conditions over which we have no control. I ask the Government seriously to consider any proposals, however unorthodox they may be, which will have the effect of increasing our sales of goods in the dollar areas. I believe that British manufacturers would respond to the incentive I have outlined if it were offered, and I trust that my right hon. Friend will deal with these points when he replies to the Amendment.

Mr. Walter Fletcher (Bury)

I almost hesitate to intervene in the brisk Debate which has been taking place on the other side of the Committee, but I think everybody will agree that the speech of the hon. Member for Bolton (Mr. J. Lewis) had in it a very great amount of knowledge and courage. I do not believe that what he is putting forward will solve our problem. I do not believe that the target, at which all of us are aiming at the present moment, can be hit by the means he suggests. What he is really suggesting is an ingenious form of special subsidy, which has to be paid for by somebody else, to force goods into the dollar market. I think one of the difficulties in that argument arises from this fact: it is not the manufacturer who sells the goods. In most cases it is the merchant who goes out as the pioneer and arranges all the necessary means by which the goods can be sold. The intervention of the merchant between the manufacturer and the public, which is very necessary and which is the best and most economical means, rather vitiates the argument the hon. Member put forward.

I shall not, therefore, follow him very far in his argument, which I think he was fortunate to be able to make on this occasion. His argument was a little wide of the point. I will, however, take the beginning of his argument, when he indicated what I think is the correct fact—that this Amendment for tax reduction has been put forward largely to draw attention to the vital necessity to reduce Government overheads. In the end that is the same point as the one at which the hon. Member for Bolton aimed—greater ability to sell our goods throughout the world, whether in the dollar area or in any other area. We must not over-exaggerate the need for selling in the dollar area. There are other areas—hard currency areas and soft currency areas—where we have to sell our goods and from which we receive goods and commodities just as useful as those from the dollar area.

The real question is one of confidence. At the present moment the gap, whether it is the dollar gap or the gap between imports and exports, depends almost entirely upon a dwindling confidence in sterling as the token currency of this country and of the sterling area. That arises very largely from the knowledge in nearly every other country in the world that if there is such a heavy proportion of expenditure on Government services as we have now in this country, that will inevitably lead to what has been seen on many occasions in commercial history in other countries—the collapse which we all wish to avoid.

That problem presents itself time and again to business—the question of cutting down overheads when business becomes more difficult. I venture to say that possibly we stand, on the word of the Chancellor of the Exchequer and of any other informed person, on the brink of very great disaster; possibly it is the brink of a minor recession, but certainly there is the danger of its getting out of hand. Nearly every firm, whether manufacturing or exporting or in whatever line it is, is thinking of the question of cutting overheads. I cannot believe that the extremely obstinate attitude of hon. and right hon. Gentlemen opposite who say this cannot be done, is based in any way on a close study of the facts.

Nearly 25 years ago I was sent to East Africa to go into the question of running a large number of sisal estates there, where overheads were swamping the cost of production of that vital commodity. When I met the staff for the first time, I suggested that overheads were too high and that in six months' time it would be necessary to make a 25 per cent. cut in staff, in personnel and in every other phase of production. I said that in six months' time I would review the matter when I saw who really were the people who would have to go. What was the result? At the end of six months production had gone up to such an extent, there had been such an enormously greater effort of production, that there was no need to get rid of anybody. Production had gone up sufficiently to overtake overheads and we were again sailing on an even keel.

What is quite wrong at the present day is the idea which pervades every Government Department, from top to bottom, that there is not going to be much of a cut. There is no incentive of any sort such as that provided by the idea that a greater effort will have to be made. As long as we have that equanimity on the other side of the Committee, with the feeling that everybody on the other side seems perfectly content, as long as expenditure on the present level is regarded as being quite in order—and really because the figures are so large they are regarded as a matter of congratulation, showing in what a big way Socialism can do things—then we shall not get that effort. Until that idea is brought to an end—let us hope not by dire necessity but, before that, by thought and examination—we shall not restore the position.

What is happening at the present time? For every £100 we are exporting, whether in textiles, in machinery or anything else, we are able to buy, certainly in a good many areas, only about £60 worth of meat or any other commodity. Look at what happened the other day in the Argentine. Look at what is happening in the negotiations which are going on there. This is exactly what is happening: with every £100 we export the price is put up against us to an extent based on the outside world's estimate of the value of sterling, which is not the official rate. We are getting the worst of both worlds. That is all based on this increasing lack of confidence in the value of sterling.

I brought up this question two years ago on the Budget, when our situation was in many ways rather better than it is now. There was then an opportunity to take certain action. Today that action, which should have been taken by our own volition and as a sign of confidence, may be thrust upon us very much against our will and at a very much worse period, as a sign of lack of confidence. That may bring in its train very great disasters.

Mr. J. Lewis

The hon. Member talks about lack of confidence. Supposing there were every confidence in sterling and we had all the sterling in the world; can we, in the sterling area, purchase all the goods we need? Is it not a fact that we are forced into the dollar areas, the hard currency areas, to purchase the goods and raw materials we require?

Mr. Fletcher

That is perfectly true. Confidence is not a thing which can be canalised and retained inside the sterling area. This lack of confidence plays just as big a rôle in the dollar area. If there were greater confidence in the dollar area about sterling, it would be very much easier for us to sell our goods there. One of the main reasons why we cannot sell our goods was instanced in the speech made by the President of the Board of Trade in Canada. One of my friends wrote to me from there saying, "He has come over here and he has criticised the country for having to be brought up to date much more, saying that that would no doubt bring lower prices." What happened in the minds of the buyer?

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

I saw some cuttings from certain sections of the British Press, but has the hon. Member's attention been drawn to the "Manchester Guardian"? Two days later the correspondent of that paper, usually regarded as fairly accurate, who was present at the conference, said there was no foundation for that statement whatever.

Mr. Fletcher

I am delighted to hear that. It may have been quite false and I am only too delighted to accept that, but the fact was that a large section of the community stopped being buyers. We shall not be able to sell in the dollar areas as long as there is no confidence there, because they will think all the time that they will eventually be able to buy the goods cheaper.

The hon. Member for East Coventry (Mr. Crossman), who intervened to ask a question about why we should have this alteration of 6d. to increase the purchasing power in this country, must take this as an answer; if any hon. Member opposite thinks he can divorce the home market from the export market he will have to bring his ideas up to date. At the present moment this country is full of frustrated exports. South Africa cuts off exports and the Dutch East Indies cut them off, too. It is also done by the Pakistan Government. At the moment this country is full of frustrated exports and the President of the Board of Trade knows full well that unless we have a certain purchasing power in the home market to mop up those exports then we have the whole process which leads to lack of confidence, bringing us to the point where manufacturers will not be able to sell their goods anywhere.

Mr. Crossman

The hon. Member's aim now is to increase the purchasing power of the wealthier classes so as to mop up the exports we are failing to sell abroad, and his view is that that will restore the confidence of the world in our ability to balance our trade and close our trade gap.

5.30 p.m.

Mr. Fletcher

I did not say that at all but if the hon. Member likes to hug that debating point to his bosom he may, although this is far too serious a question on which to try to score petty points of that sort.

Mr. Warbey (Luton)

That is precisely the effect of this Amendment which we are discussing. It is to increase the purchasing power of the wealthy.

Mr. Fletcher

Let us see how we can restore confidence. There is a lack of confidence. If we go to France we see that France, which has been in much worse difficulty than this country for several years since the end of the war, has now got back not only her own confidence but the confidence of the world. The French are producing more than we are; they are working harder; they are beginning to make a return to confidence in their own currency. Unless that lesson is learned and applied here no amount of petty taxation, and not the keeping of the present level of taxation, will be of the least effect.

The only answer to the difficult question that faces us is for the world to know that we are going to return to some sanity in our finance. The Chancellor does not wish to devalue our currency. There are very many good arguments why it should not be done. There are some to the contrary. He realises above everything else that chief among the weapons that are put into his hands is power to bring the Government's expenditure into some reasonable ratio with Government income. I am surprised that he, who is fighting so hard to defend sterling now at its present level—whether it be right or wrong—should not know that the first duty he has before him, as it is the duty of other members of the Government, is to cut down the Government's expenditure. It can be done. There is not the slightest doubt it can be done. It will entail hardships, and the hardships must be evenly spread; but until there is that result, and until the world sees that result, ingenious methods of selling more in one area than another, in getting greater production and a proper flow of food and materials, will all be in vain. This Amendment brings forward this fundamental issue of proper finance, which must precede any other way of achieving that return to confidence which we want to see.

Mr. Crossman (Coventry, East)

I am very grateful to the hon. Member for Bury (Mr. W. Fletcher) for bringing the argument back to the Conservative Amendment, which I now know to be a token Amendment. It is interesting to notice what it is that the Conservatives have taken as their token Amendment. One could have selected many tokens to indicate one's desire to find a way to cut Government expenditure. If one were interested in the working class one could have a token reduction of indirect taxation, which clearly affects the living standards of the working class. But, clearly, that does not interest hon. Gentlemen opposite. If one were interested in the middle class one could have a token Amendment concerned with increasing children's and family allowances, according to the Report of the Royal Commission on Population. But hon. Gentlemen opposite are not interested in the middle class either. They have chosen a token Amendment whose overwhelming benefit is to one small class—the wealthy.

Mr. Selwyn Lloyd

Has the hon. Gentleman studied the Notice Paper? Has he seen the Amendments and new Clauses which have been put down to be moved from this side of the Committee?

Mr. Crossman

I am now discussing this token Amendment. Perhaps the hon. and learned Gentleman was not here when the Amendment was moved. It was moved as a token Amendment to define the basic conflict between Tory financial policy and Socialist financial policy, and I am drawing the attention of the Committee to the fact that in selecting this token Amendment the Tories, consciously or unconsciously, reveal the bias—their old bias—in favour of a class in which they are mainly interested. One quarter of the population will not be concerned with this Amendment at all, because one quarter of the population are members of families who do not pay any Income Tax at all.

Mr. Godfrey Nicholson (Farnham)

Is the hon. Gentleman aware that every member of the community is profoundly affected by the level of Income Tax?

Mr. Crossman

We are all concerned with the level of Income Tax, and we here now are discussing which level of Income Tax pays us best. What I am indicating is that the reduction in the standard rate of Income Tax primarily benefits not the working class, not the middle class, but the wealthy class; and that is an indisputable fact.

Viscount Hinchingbrooke (Dorset, Southern)

Does the hon. Gentleman really think that a married couple with £400 a year do not belong to the middle class, and that they will not benefit by this Amendment?

Mr. Crossman

I think the gain for such a family is 3¼d. a month under this Amendment. I would suggest—and I should think that it is incontestable—that a reduction in the standard rate of Income Tax, compared with increases in wives' allowances or in family allowances, primarily benefits the rich and not the poor. However, I am glad that hon. Members opposite now see their mistake in selecting this symbol in their attack on Socialism.

Now I want to turn to the arguments, because this Debate has revealed with fascinating clarity at last the real desires and intentions of hon. Gentlemen opposite. They say to us, "Look, we cannot tell you how sixpence off the Income Tax will help the export trade, but it will win us the confidence—of the bankers." They are always the people they have in mind. The bankers and the financial circles in New York do not trust the Socialists. There are men in France who do not trust the Socialists. There are men in Italy who do not.

Mr. W. Fletcher

Who used the word "banker"?

Mr. Crossman

They are not bankers, then. They are just Very Important People.

Mr. Fletcher

The consumers.

Mr. Crossman

Very important consumers. Very rich men.

Hon. Members

No.

Mr. W. Fletcher

The hon. Gentleman really must not make a travesty of what is said on this side of the Committee in a Debate of this seriousness. We have been talking—as did also the hon. Member for Bolton (Mr. J. Lewis)—about the consumers—rich, poor, or any other sort of consumers. To use the word "banker" is to draw a red herring across the path of the Debate, and that is entirely and utterly wrong.

Mr. Crossman

I am not responsible for what the hon. Member for Bolton said. I think he made a cross-bench speech equal to none. I am now told that hon. Gentlemen opposite mean the consumers. These must be the wealthy consumers, the men who are upset about the cost of the Socialist experiment in Great Britain. I have met some working class consumers in France and Italy, and they have no such concern, nor do they say, "You are spending too much in Britain." On the contrary they have said to me, "Your experiment is all-important to us." So I come to the conclusion that once again we see that what hon. Gentlemen opposite mean by "consumer" is one class of consumer—the class which is worried about the success of the Socialist experiment in this country. The Tories are saying to us, "In order to win the confidence of the men who have reconstructed France, Germany, and Italy"—on the old pre-war model, who have brought back every social evil, who have brought back record size Communist Parties in the course of so doing—"we have to bow to their wishes. We have to win their confidence." And we have to win the confidence of the men in Congress, the men in Congress which is at present an Insanity Fair, producing by every action it is taking the very thing it is most alarmed about—the slump.

Lieut.-Commander Gurney Braithwaite (Holderness)

The hon. Gentleman among others, is living on them.

Mr. Crossman

It is said we have to base our fiscal policy here on the winning of confidence. I have heard that before. It was said before the 1931 crisis. We were told that the important thing was to do something which really hurt the working class. That would restore the confidence of these important "consumers." We would regain their confidence by slashing the social services. And now this great, new, rejuvenated Tory Party has tabled this symbolic token Amendment. It means "back to 1931"—back to the whole of the old system of "curing" a slump, which is to say that when we are in a slump, or before we are in a slump we should cut the Government expenditure and thereby increase the nature and the evils of the slump. The good old-fashioned Tories, who learn nothing, come to us today to tell us to re-win the confidence of the world by cutting our expenditure here on—they do not tell us what: but by just a few hundred millions, as the hon. Member for Chippenham (Mr. Eccles) said—just a few hundred millions.

Mr. Boothby (Aberdeen and Kincardine, Eastern)

Does the hon. Gentleman seriously believe that in our present situation with our present adverse balance of trade, we can spend our way out of a slump in this country?

Mr. Crossman

I am very sorry, but I am concerned with a Tory Amendment which says that we can keep out of the slump by cutting 6d. off the Income Tax, as a token for hundreds of millions of savings—on what? That is the awkward question. I do not think it is on the Armed Forces. I doubt whether hon. Gentlemen opposite feel that hundreds of millions should be lopped off the Armed Forces. I doubt whether any of them who know anything about it think that more than tens of millions can be saved by economies in the Civil Service. If it is neither of those two, what is it? The only honest, open and frank man opposite was the hon. Member for Scarborough and Whitby (Mr. Spearman), who said we must do things which hurt, by which he meant cuts in education, social security and hospitals. He was honest. He said that we cannot afford pensions—

Mr. Spearman

I quoted an eminent Socialist writer, Colin Clark, and said I agreed with his conclusion that we must do things that hurt a little rather than those that hurt a great deal.

Mr. Crossman

I was putting it into plain language so that the electorate understand the full meaning of what the Opposition are saying. They say we should cut the social services which help the people who vote for this side of the Committee, but not those who vote for the other side. That is not very strange. We all recommend what hurts the other side; that is politics, and it is nice to see it coming out now.

What upsets me about this symbolic Amendment is that, after all, hon. Gentlemen opposite have already had plenty of time to see this experiment carried out in three other countries in Europe. This experiment of solving the crisis by cutting the expenditure of the Government, and by having what is called "a moderate return" of unemployment, which is an essential part of the same policy, has already been tried in a country visited by the hon. Member for Chippenham. He went and contemplated Rome, and his mind ranged over the great work of Gibbon. On that I would only say that I wish he had read Gibbon instead of merely talking about him. He suggested that Gibbon told us the Roman Empire declined because of large-scale social services. [HON. MEMBERS: "No."] Oh, yes, he did, and he quoted the Baths of Caracalla as an example of those social services. I would say that the basic reason why the Roman Empire collapsed was the existence of slavery and the maintenance of privilege—the maintenance of a privileged hierarchical society which was unable to keep up with the economic developments of the time.

Viscount Hinchingbrooke

Exactly what you are doing now.

Mr. Crossman

If the noble Lord Lord wishes to join with me in destroying the last vestiges of privilege and developing a genuine community in this country and the world he had better come over to this side to help do it. Taking 6d. off the standard rate and slashing the social services by hundreds of millions of pounds is a very funny way of destroying privilege.

I wish the hon. Member for Chippenham, when he went and contemplated ancient Rome, had looked around at modern Rome, where the exact policy laid down by the Opposition has been in action for two years, with the result that there are three million unemployed. There are for the tourist, of course, wonderful goods in the shops and great activity. But study the standard of living of the working-class; study the size of the Communist Party. Hon. Members opposite would be the best allies of Communism in the world if they were in power because they would try to re-create privilege. Go to Rome, but do not think of Gibbon; rather look at the standard of living there and the size of the unemployment figures.

If the Opposition do not like that, let them go to Germany. In Western Germany the Americans, in conjunction with German reactionaries, have carried out a magnificent experiment in precisely the policy which hon. Members opposite want: cut Government expenditure and give incentives to business. There are now one and a half million unemployed in Western Germany, and almost every worker is on short time. There is no country in Europe where social injustice is more grotesque and horrible than it is in Western Germany, where the Opposition policy is being carried out.

5.45 p.m.

Mr. Boothby

We are not responsible for Germany. You are responsible for Germany.

Mr. Crossman

I fully agree that you are never responsible for Conservative policy.

Mr. Boothby

You are governing Germany.

Mr. Crossman

Let us be frank. This Committee knows perfectly well, as do you—

The Deputy-Chairman (Mr. Bowles)

Hon. Gentlemen must address the Chair. They must not address one another across the Chamber.

Mr. Crossman

This Committee knows well enough that since, unfortunately, the dollar controls Germany today, our influence there has been small and American policy has prevailed. I regret the fact that we have connived at American policy; I regret the fact that certain British officials seem to have carried out American policy; but it is a fact that Western Germany is the perfect experiment in Conservative policy, of cutting Government expenditure and doing what the charming hon. Member for Scarborough calls "making it hurt for us"—by which, of course, he means the poorer people. It hurts the German working-class; it hurts the Italian working-class. But it does not hurt the working-class here so much, because Socialists are in power.

Strangely enough, we are told that the crushing burden of Government expenditure here is destroying our power of recovery. Our recovery as evaluated by E.C.E.—an anonymous and objective body—is greater than that of France, and greater than that of Italy. The astonishing achievement of carrying through a programme of social services and capital investment, combined with a record export drive, has done one thing at least. It has given us a social stability which not one other of the European countries possesses. We are a bulwark against Communism, because it is not worth while for the British worker to be a Communist. But on the Continent of Europe Communism is a permanent menace because the old society has been reconstructed by men whose confidence the Tories want to win.

Let me turn again to the situation across the Atlantic. One of the most outrageous suggestions of the Opposition is that the present drain on our gold reserves has something to do with the weight of taxation here. Let us be perfectly clear what the present crisis is about. Is it really as a result of the amount of money we are spending on social services that the Americans have ceased buying Malayan rubber? What is the real crisis? The Americans, threatened with a slump, are cutting expenditure on wool, rubber, tin and cocoa, thus ruining West Africa and Malaya. I am now told that it is something to do with the weight of taxation in this country. Let us be clear. The crisis which is approaching is the tornado of the American slump spreading over to Europe, and has nothing to do with the issue of taxation in this country. It is a far wider and profounder issue than that. Again I make the point: Study those gentlemen in Congress and it will be found that the speeches made here—fortunately only by the Opposition—are today dominating American policy: "Cut expenditure. Cut Marshall aid if possible. Things are getting difficult, therefore cut Government expenditure."

If we get a slump now it will be because the mentality of this Amendment is the mentality of Congress in America. It creates the slump by its own psychology. Blind confidence in the capitalist system, refusal to plan, refusal to fight unemployment, refusal to learn from John Maynard Keynes. Refusal to learn any of the lessons of planning—that is what will precipitate the world into a crisis. And now hon. Members opposite are asking us to introduce the crisis here by legislation.

Mr. Spearman

Does the hon. Gentleman really think that it is quite unimportant that our cost of production, and therefore the level at which we can sell abroad, is above the world level?

Mr. Crossman

The hon. Gentleman does not answer the question I asked, which was how the reduction in Income Tax would affect the cost of production. I am told it is a matter of confidence, which is either the confidence of the American businessman, who does not believe in Socialism, or the confidence of the British businessman. Apparently we have to make the British businessmen have confidence by giving them purchasing power before we give it to the people who really require it. We are not going to do that. Members opposite have got to get used to the society in which we are now living. Never again will confidence be given to the old ruling class as it was in 1931, by taking away from those whose need is greater than theirs. That is not because the Labour Party is in power, but because the people of the country have come to the decision that that class are effete and will not have them back.

Mr. Osborne

The hon. Member says that the old ruling classes are effete and useless. Is that why he keeps borrowing them and putting them on the Government Front Bench?

Mr. Crossman

It is quite true, of course, and it is one of the reasons why this country is surviving, that there have always been members of the ruling class who see the sense of a new world. If it had not been for that, we should not have had a peaceful social revolution in this country. But that is a long way from this Conservative "symbolic" Amendment.

We are faced with a crisis today. We are faced with a crisis which within six months may make it essential to cut and cut ruthlessly our imports. The real things we have to cut are not the social services but unessential imports. They are the luxuries, and they are the things we cannot afford. We can and must afford education, but there are certain imports which may have to go. We may have to eat less. [HON. MEMBERS: "Oh."] I would rather see food cuts than raw material cuts which would destroy full employment.

Mr. Osborne

In other words, advocating lower rations.

Mr. Crossman

I am taking the words of the hon. Members for Scarborough and Whitby and Chippenham, who both say we are facing a serious crisis but believe we can meet it by reducing Income Tax. We have to meet it by seeing that our exports and imports balance. We cannot face the crisis by the method of giving to those who have and taking away from those who have not. It cannot be done. If we are to tighten our belts, it must be by an austerity of fair shares for all and it will have to be a great deal fairer than it is today. Members opposite who are proposing symbolic Amendments to benefit the rich—[HON. MEMBERS: "Oh."] Surely we are all agreed on that. Let us realise that, when the crisis hits us, we shall not only have to balance our exports and imports but have a greater levelling of personal incomes than we have at present, if we are to keep our people loyal and working. But to ask the nation in this crisis to accept a cut in the standard rate of Income Tax is an insult to its intelligence, whose recklessness shows that nothing has been learnt by Members opposite since 1931.

Mr. Boothby (Aberdeen and Kincardine, Eastern)

I had not intended to intervene in this Debate, but I must say that the speech to which we have just listened makes me feel that I must offer one or two observations. It was, without exception, the most reckless and mischievous speech I have ever listened to in this House. The hon. Member for East Coventry (Mr. Crossman) went out of his way to insult, in words which may be reported all over the globe, because he has a considerable international reputation, the Americans, the Italians, the French and the Germans.

Mr. Crossman

No.

Mr. Boothby

If the hon. Member will examine his speech in the cold light of HANSARD tomorrow he will see just how insulting he was to all the Western democracies, upon whose close co-operation in my judgment, and in the judgment of a great many members of his own party, our main hopes now depend.

Mr. Crossman

It depends with whom we are co-operating. I did not insult those who live in Italy, France or Germany, but the forces which lead them. If we in this House are to be told it is improper for us to expose the evils and social scandals of modern Germany and Italy, it is a sad time for freedom of speech in this House.

Mr. Boothby

Does the hon. Member deny the large participation of Social Democrats in the present Italian Government and in the present German Government, as far as Germany has been allowed to have a government at all by the hon. Member's own Government; or in the present French Government? Does he deny the participation of Social Democrats, such as Signor Saragat, in Italy? He certainly insulted both the French and Italian Governments; and he went on from that to insult the Germans in every shape and form, giving, as it were, a kind of by-pass insult to the United States, and denying any responsibility on the part of the present administration in this country for the conditions in Western Germany. We know that that is not true.

I say that the present Government have a very heavy responsibility for the present conditions in Germany. For months and years, as the hon. Member well knows, they spent most of their time blowing up Western Germany. That was the policy of the hon. Member's Government, supported and advocated by the Foreign Secretary; and, having done that, the Minister responsible suddenly found himself sacked and came down to the House to make an impassioned speech opposing the whole policy, root and branch, which he had been carrying out. Is the hon. Member also repudiating Sir Brian Robertson? He says we have no responsibility at all for the administration of Germany, that we have now handed it over entirely to the dollar economy of the United States, and that Sir Brian Robertson is merely a cypher, doing what the dollar tells him to do.

Mr. Crossman

If charges are to be made across the Floor of the House, it is important that the hon. Member should also be careful. I said that the economic policy prevailing in Germany today, when we have two-thirds of the import-export Board (JIEA) American controlled, means that the export-import policy is in fact American policy. The decision to have currency reform without the Soziale Lastenausgleich was because the Americans would not have a capital levy which was the only way to make the currency reform socially just. I am only stating the facts. I stated them more than a year ago, and it is important to remember them now when they have become true.

Mr. Boothby

The hon. Member knows as well as I do that the decision to have a currency reform rescued Germany from the total economic collapse brought about by the policy of this Government.

The hon. Member went on to say that we ought to adopt the policy Keynes advocated in 1931, but he knows as well as I do that conditions today are diametrically opposed to the conditions which prevailed in 1931. If he does not know that, then he ought to. The hon. Member knows that Keynes was then advocating a policy designed to counter an acute world deflation, in which the main problem confronting this country and the world was a glut of commodities due to the lack of purchasing power.

Can it be said that today we are suffering from a glut of commodities? As my hon. Friend the Member for Chippenham (Mr. Eccles) rightly pointed out, if we try to spend our way out of this economic crisis we shall aggravate the crisis of the balance of payments to a point where it will become absolutely unendurable, and which can result only in a drastic cut in our standard of living. The hon. Member knows perfectly well the conditions in 1930–1 were fundamentally different to the conditions which prevail in the world today, when we cannot possibly count, as we could then, on an adequate supply of food and raw materials at very low prices. Then it was possible to spend our way out of the crisis, but now it is not.

6.0 p.m.

Mr. Sydney Silverman (Nelson and Colne)

Would the hon. Gentleman explain what is the difference between the slump and its causes now threatening in the United States of America and that which happened in 1929–30?

Mr. Boothby

First of all, the conditions in 1930–31 were entirely different, because they were caused by a great excess of commodities not merely in the United States but throughout the world, and also becouse of lack of confidence and of purchasing power. I am not denying that the United States is threatened at the moment, internally, with a surplus of commodities; but I am denying that there is any threat to this country of a glut of commodities of any sort or kind, and it is with this country and this country alone that I am dealing.

Mr. Silverman

The hon. Gentleman always addresses himself realistically to any argument. I suggest that he is missing the point. Surely what my hon. Friend was saying was that a slump in the United States caused domestically, will produce a further glut of commodities, and that the Americans are still attempting to apply to that situation methods which they so catastrophically applied to a similar situation domestically in America, in the slump of 1929–30.

Mr. Boothby

I do not know what remedies they are going to apply, because they are not yet apparent. Nor do I admit that there is a major slump in the United States. We have yet to see whether this is a temporary recession, due rather to a healthy growth of competition in the United States, or not. We do not know, but what I do know is that until quite recently hon. Members on both sides of the Committee were agreed that a fall in the price level in the United States was desirable from every point of view. The point is whether that fall is going to develop to such an extent as to become a slump or not; and I submit that that is not yet apparent.

That has nothing to do with this Debate, or with this country. I am not denying for a single moment that it will be very unpleasant for us if there is a major slump in the United States. I am only saying that it is not yet apparent. I am also arguing that, between the time when Keynes put forward his theories in 1931 and today, there has been a second world war, which has resulted in the impoverishment of this country and of Europe and in the doubling of the productive capacity of the United States; and that makes a very considerable difference. I do not think that the hon. Member can seriously argue that our way out of this crisis is to spend our way out. Incidentally, to spend what?

The hon. Gentleman was not very flattering to the United States. He has just been there. I have read some of the interesting articles and observations he has made; and he was not half so ungenerous in print as he was this afternoon in the House of Commons. He implied that the United States were pursuing a ruthless, selfish policy, without regard to any other State; and he described Congress as "Insanity Fair." When we are anxious to get a renewal of Marshall Aid I do not know whether it is wise to describe the people who are going to give that aid to us, and are giving it us just now, as "Insanity Fair." It is hardly a deft piece of diplomatic activity on behalf of this country—

Mr. Crossman

It happens to be true.

Mr. Boothby

The hon. Gentleman says that it happens to be true. Perhaps Congress will take note of that, and I am afraid it will. I hope it will also take note of the fact that there are other Members in this Committee who do not think so. The hon. Gentleman knows that the Congress of the United States has imposed substantial additional taxation upon the people of the United States in order to aid Europe; and it did not do it merely for its own advantage, but quite simply to aid this country and Europe.

Mr. Crossman

They are trying to cut it.

Mr. Boothby

"They are trying to cut it" says the hon. Member, with indignation, as though we had any right at all to demand it.

Mr. Crossman

If the hon. Gentleman is trying to heal differences he is doing it in rather an odd way. Hon. Gentlemen opposite are pressing for cuts in British taxation, while we on this side are opposed to it in our country and regard it as unwise in America. The Tories want a cut in taxation here while encouraging the Americans to pay.

Mr. Boothby

I can only say that if the hon. Gentleman thinks that the United States believes that the present level of taxation in this country is satisfactory from the economic point of view, or provides an inducement to invest money in this country or in the sterling area, he is very much mistaken. He knows perfectly well that the present level of direct taxation in this country is the main reason for the lack of confidence in sterling at the present time all over the world. The hon. Gentleman goes on talking as if we had a right to demand permanent Marshall Aid from the United States of America. We have no such right.

Mr. Crossman

In whatever way we may differ and disagree, we ought not to attribute things which have no resemblance to what has been said. I did not claim that we have a permanent right to Marshall Aid. On the contrary, I think it is absolutely essential for this country to get into its head that it has got to be independent of America as soon as possible. That is why cuts in Income Tax are insane. To do this is to reduce purchasing power at a time—

Hon. Members

Sit down.

Mr. Boothby

If the hon. Gentleman for East Coventry would allow me to intervene for a moment, I would only say that if he reads his speech tomorrow he will see that he has said things which are even more monstrous than I have suggested; and I hope he will withdraw them in public print at some later stage. I do not think he knew what he was saying.

We have put down this Amendment for a trifling reduction in Income Tax, because Income Tax is the key of our whole tax structure. It hits everybody—the middle classes, the workers, and the wealthy classes. I do not know whether we can talk about the "wealthy classes" today. We can admit, however, that this tax also hits the few wealthy men who still exist in this country today, though they are not a very large number. Income Tax remains the key tax. The only remark that the hon. Gentleman for East Coventry made which had any contact with accuracy at all was when he stated that we put down this Amendment as a protest against the general weight of taxation in this country; and, of course, of Government expenditure.

Mr. Warbey rose—

Mr. Boothby

No I am not going to give way, because I intend to sit down very soon. I am going to say this in conclusion. The national income of this country today does not justify either the present level of Government expenditure or the present level of taxation. We cannot go on indefinitely under these conditions. No economy whether capitalist, Socialist or Communist can survive indefinitely the present level of taxation. We are taking over 40 per cent. of the total national income in taxation. It is too much for any economy to sustain; and I challenge anybody to deny that it is an enormous disincentive throughout the whole range of industry. Our productivity is not large enough, in every sense of the term, and it cannot sustain for very much longer our present standard of living. This country has got to learn in either the easy or the hard way, that our productivity is not sufficient to sustain our standard of living at the present moment; and that the only thing that enables us to do it is Marshall Aid, which is derided by the hon. Member for East Coventry.

Many of us have ideas about how we may be able to build up a new economy in Western Europe. Not very much is being done at the present moment. The Chancellor of the Excehquer is now in Brussels fighting to defend our gold. I do not object to that, but why is he in that position? It is because there is no confidence in the stability of the British economy, because the foreigner has not now got adequate confidence in sterling. I am sure we will all support the right hon. and learned Gentleman in his efforts to prevent any further losses of gold or dollars, because we cannot afford them. Nevertheless, a major factor in our difficulties is the present crushing burden of taxation, which makes itself felt on every section of industry, and which impinges on the life, livelihood and standard of living of every family in this country, from the poorest to the richest.

It is no good hon. Gentlemen opposite saying that we are out to champion only the very well-to-do. Another of the reckless observations of the hon. Member for East Coventry was that we did not even care about the middle class. We know jolly well that the middle class count a lot in this country, and that they are, to a large extent, the backbone of the country. We also know that they are now largely merged with the working class. The hon. Gentleman drew a sharp distinction; but I am not clear which is working class and which is middle class. Perhaps one has to be a Wykehamist in order to distinguish between these two classes.

The Government of this country have explicitly laid the responsibility for production and for the maintenance of our export trade, as to 80 per cent., upon private enterprise and private industry. They cannot do that, and at the same time tax it indefinitely at the rate of 9s. in the £. That is our simple proposition, on which we shall stand and which I believe will be accepted in the country. It is a proposition on which I hope that we shall vote in a few minutes.

Mr. W. T. Williams (Hammersmith, South)

In spite of some confusion, I think the issue has been clearly enough put in the Debate. What is clear is that out of this Debate has come a very definite difference of principle with regard to what is to be given and what is to be taken away from the different sections of the community that make up the population of Britain. Hon. Gentlemen opposite have at last made it clear that they are arguing a case that depends for its validity upon premises which we on this side of the Committee cannot and will not accept. These premises are simple enough. It has been said that the present system is one of penal servitude, that it results in a reduction of enterprise and of production, that if it were reduced our recovery would be quicker and sounder, and that if Income Tax is not reduced quickly by 6d. in the £ ruin waits for us around the corner.

All that was clear in some of the speeches, particularly the speech just made by the hon. Member for East Aberdeen (Mr. Boothby), which revealed itself as special pleading in its most mischievous form. We have been invited by that hon. Member, who accused one of my hon. Friends of being mischievous and not having regard to the effect of his speech upon world opinion, to present the world with an invitation to have no confidence in Britain, in Britain's policies or Britain's economic stability. During the whole of the Debate, hon. Members on the other side of the Committee have been guilty of the same kind of special pleading, having little regard to the facts and wandering from modern France to ancient Rome in what one can only call a picture of history written by Walt Disney in glorious Tory technicolour. It would seem that the people who make our prosperity are only those who now feel the pinch. It has been suggested that we could increase their purchasing power, which would result in the creation of confidence in the world in respect of this country, and that those are the only conditions in which confidence can be created.

6.15 p.m.

Without attempting in any way to minimise the contribution of the salary earners or such rentiers as remain in the country, I think the Debate has clearly revealed a conflict about a way of life. It is important that hon. Members on this side of the Committee who have strong and definite views, should say categorically that the premises to which we work are different and that the conviction that inspires our legislation is that for many millions of people this is the first escape they have ever known from penal servitude which has been inflicted upon them in the ages past by the people who sit now on the benches opposite and who are tasting for the first time the fruits of loss of office. We believe that it is now our duty in this time, to ensure that there is a minimum standard below which we shall not allow our people to go.

The greater part of Government expenditure is on the social services. We know that to cut that expenditure would mean hardship for the people whom in the main we represent. We know that all these things have to be paid for and that they can be paid for only by such taxation as the Government are able to produce. We believe that it is right, when the world and our country in particular are facing an economic crisis, that the cost of a standard of living which we believe to be right and proper should be borne by the whole community. We have no doubt about the fact that the masses of the people in the country would not have reacted as they have done, and rocketed production to levels which are unprecedented in modern history, unless the social services which they enjoy had been introduced.

It is not only improper but it is untrue to suggest, as has been suggested both directly and by inference by hon. Gentlemen opposite, that our recovery is anything other than phenomenal. France has been cited. I love France and have spent as much of my time there as I could. I know it to be true in many parts of that country, from my own experience, that there is no comparison between the standards of living of the ordinary people of this country and of the ordinary people in France. When hon. Members opposite sink to the level of saying what they want to believe rather than what they know to be true, it is time that some sort of recognition was brought home to them that we do not live in a vacuum. So many of the things which they have asserted as facts are arguable, while we maintain what we believe to be indisputable. Without the Government which has been in power, Britain would have been faced with widespread unemployment and with industrial strife.

It may be true that there is need for relief and that some of the acts of the Government bear hard upon some sections of the people, but surely if we are to have a protest against that kind of austerity the protest ought to have been made at some other point than in relation to the present level of Income Tax. If there is need of relief, it is not there. If the Government were persuaded, as I am confident they will not be, by the appeals and by the attacks which have been made by hon. Gentlemen opposite, to reduce Income Tax by 6d. in the £, they would betray the principles on which they were elected.

Viscount Hinchingbrooke (Dorset, Southern)

I am glad that the Debate is now taking place in a quieter atmosphere which is perhaps natural after our labours early this morning. We have heard a great deal of violent polemics. The hon. Member for East Coventry (Mr. Crossman) was not here last night to take part in the wearing-down process in which most of us were involved, and he got away with a speech which, as my hon. Friend the Member for East Aberdeen (Mr. Boothby) implied was, even for him, unusually demagogic. I will take the opportunity of bringing the Debate back again to its central theme as set by my hon. Friend the Member for Chippenham (Mr. Eccles), with his usual wisdom and skill.

Our object here is to centralise our whole complaint against the burden of taxation and Government expenditure in what has rightly been called this token or symbolic Amendment. It is symbolic of the desire of the Conservative Party steadily to get away from the planned economy, the regulations and controls backed by the force of the police [HON. MEMBERS: "Oh."]—from the great Cripps freeze upon wages, profits, dividends, rents and currency and upon the passage of goods into and out of the country. This Amendment states in legislative terms our desire to restore what we understand by the progressive free society of Britain.

We have moved to reduce the Income Tax by 6d. this year. I hope that next year it will be 1s., and 1s. more after that. This is not a class or particular income group Amendment. [HON. MEMBERS: "Oh."] As we have repeatedly explained, it symbolises our main theme. Hon. Gentlemen will find on the Order Paper various Amendments designed, in association with this, to assist other sections of the community. I have one relating to dependants' allowances. The hon. Member for East Coventry chided us with doing nothing for the lower income groups. The Chancellor has removed that possibility by not allowing any reductions in Purchase Tax to be moved, which we should have liked to do. In my Budget speech I said I hoped that we would be able to put down an Amendment to reduce the duty on beer by 2d. instead of 1d. and on cigarettes by 6d. There is every kind of disposition on this side of the Committee to do things to reduce the pressure on all sections of society.

We must do everything we can at this very grave time for the future of the country to break the power of the collectivist State before it breaks us and ruins the spirit and individuality of everyone in the country. We should do it traditionally and constitutionally by refusing Supply and refusing Ways and Means. We ought now to reverse some of our thinking. The war taught us to do a lot of things first and to pay for them afterwards, and bureaucracy has done nothing but inherit the mood of the Armed Forces of the Crown in the war. I serve on the Estimates Committee with other hon. Members on both sides of this main Committee. We all know how impossible it is adequately to cover the whole field of Government expenditure. When we are able to bite upon any single item, we reveal most disturbing figures and trends. Hon. Members opposite know it and say it not only privately but now, fortunately, publicly in no uncertain terms, as the Reports come out.

What we are finding out is that, in spite of the period which has gone by since the end of the war, when there ought to have been a gradual decentralisation and demobilisation of the whole collectivist bureaucratic machine, the tendency in departments is still to proliferate in expenditure and still to branch out with new items and new designs of thought. No one under the Socialist Government is working within a strict budget. All down the line staff are being taken on—Departments at home, sub-departments, the British Council, the Arts Council, Embassies, and Colonial establishments are now filled with people who are doing jobs which were never done before in peacetime. [HON. MEMBERS: "Hear, hear."] Those jobs are not comparable with any jobs done by other States which are much more frugal and at the same time much livelier than we are.

The taxpayer exerts absolutely no control over the trend of events. On the contrary, control is exercised exactly in the reverse direction. The Treasury is much too weak to resist the spending Departments of the State, and the taxpayer is too weak to resist the Treasury. The taxpayer today is at the complete mercy of every bureaucrat with an idea, just as during the war, with much greater justification, the taxpayer was at the mercy of every engineer or every soldier with an invention. The secrecy and complexity of government are used today by the Socialist Government as a deliberate shield to prevent the taxpayer, who is, after all, the author of all fiscal power, from seeing whether what he is writing is making any kind of sense. As I said before, the only organisation that we have in this House which can touch upon these events in passing, the Estimates Committee, is quite incapable of lifting the veil of secrecy adequately, so that our constituents may see what is going on.

I therefore plead that this Committee should make a conscious decision to vote on this Amendment in order to resist the trend of events, to limit the growth of expenditure and to give deliberate instructions to the Treasury that they are to budget Departments strictly and restore to the taxpayer some of the power of which he has been deprived. If we do not do that, I suggest to the Committee that we face a very serious precipice, just as every country behind the Iron Curtain is facing it today and as even the United States faced it in the days of prohibition. That precipice is a very grave change in the moral character of our people.

I am very seriously concerned, as every hon. Member must be, at the widespread evasion of the law. There must be countless thousands of persons in this country, all the way down from high financiers to lowly traders, who are evading Income Tax illegally. Many more people again are suffering a moral deterioration of character through using their capital savings, whether earned or inherited, as income without any thought at all of future generations and their welfare. Excessive taxation leads them to do this. The great economist, Mr. Colin Clark, has referred to that trend and has also stated that excessive taxation actively promotes inflation. I will quote a short passage from his letter to the "Economist": Excessive taxation acts on real income through an economic process of disincentives with which we are familiar, and at the same time"— here is the point about the deterioration of moral character— expands money incomes through the less familiar socio-political process of weakening those forces … which can normally be relied on to resist inflationary pressure. 6.30 p.m.

So from that we see that economics and sociology combine in this period of Socialism to destroy personal standards. It is a grave charge against the Government that it should actively teach its citizens to explore the techniques of moral collapse, and that is what the Chancellor of the Exchequer is doing. He is, I believe, a good man and a Christian, but if he thinks that by austerity and high taxation he can compel people to be good and Christian he is terribly wrong. What he is compelling them to do is to turn their thoughts away from their work and their normal way of life towards devising by every means possible ways of overcoming him and his legislation; in other words, society in a period of excessive taxation turns introvertedly upon itself and becomes self-destroying. A generation ago, and again now, Europe experienced their terrible process.

The Population Report shows that classes of persons of great value to society today are being denied the means to express themselves and to give their lives and activities to the State out of the comfort and grace of home life. It is quite true that there are certain classes which the Socialists have actively aided. The coalminer, the engineer and other sections of society have risen in status, but other sections have fallen severely in the last few years—clergymen, teachers, retired Service officers, elderly spinsters, widows and university professors. These and many others are in poor circumstances today, and the mother of children is the most harshly hit of all. There never has been a Government which has acted with so little restraint against liberal-minded and educated people. [HON. MEMBERS: "Oh!"] Oh, yes, and the very people on whom we most rely to preserve and exemplify the moral force and stature of the country.

Mr. H. D. Hughes

Will the noble Lord allow me to interrupt for one moment?

Viscount Hinchingbrooke

Let me finish my point. Again there never has been a Government which has aided quite so blatantly as this Government have their own friends, most of them strong materialists. We see these prototypes rising today above the general standard, singled out by the Socialist Government for special treatment—the scientist, the electrician, the engineer, the coal miner, the nationalised board executive and the trade union boss.

Mr. Hughes

If the noble Lord will allow me, since he has mentioned education, he may or may not be aware that this Government is spending far greater amounts on university development than ever before in peacetime in this country; and also expenditure on scholarships and allowances at the universities is some 13 times what it was in the 1930's.

Viscount Hinchingbrooke

I am not at this moment talking about how many people are being paid by the Government for undergoing a course. I am not talking about whether the standard of education is low or high, and on the whole I believe it to be deteriorating. What I am talking about is the quality of living of some of these people—not necessarily what they are doing in paid work, but in their leisure hours and holidays in the home and out of the home.

Mr. Ronald Chamberlain (Norwood)

May I interrupt for one moment?

Viscount Hinchingbrooke

I cannot give way. The point may well be made that the whole community pays Income Tax on the general scale laid down, but I believe that the principle of equal burden for all is being vitiated by the generous allowances and benefits given to selected classes of society; allowances and benefits ranging from canteens for coal miners and engineers to travelling, living and entertaining expenses of those whom Socialism thinks ought to be particularly privileged.

I have a number of family budgets here of people who fall just inside and just outside the class covered by this Amendment. Because it might be said that a number of them do not pay Income Tax—though they suffer terribly from indirect taxation—I do not propose to detail them to the Committee. However, there are comments made upon them such as "We have drawn out all our savings to help us." "We cannot afford anything like football pools, dog racing, the cinema and other entertainments"—comments of that kind throughout this correspondence make most distressing reading. Indeed I sympathise at times with the hon. Member for Central Bradford (Mr. Webb) when he wants to make conditions of living much easier for these people, for these weekly budgets, with the letters accompanying them, tell heartrending stories.

I ask what is to become of the life and power of Britain if, through Socialism, every single private reserve of energy is taxed to the full? What marathons shall we run in the future? What victories shall we win? How shall we find the self-refreshing inner spirituality, in the life which the community is today forced to lead through the activities of the Socialist Government? How are we ever to find the inner harmony which will sustain us in perhaps five or 10 years when we are threatened with some crisis? The high strategy of the Chancellor's statesmanship in economics is gravely at fault. He is not thinking sufficiently about creating a reserve of energy and inner spirituality in our people for the tide of events that may befall us in some years' time. When the right hon. and learned Gentleman returns from Brussels he should give deep thought to this in the midnight hours to see whether he cannot open his heart to Christian charity and goodwill.

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

We have had an instructive and wide-ranging Debate, including a number of imaginative references to both ancient and modern Rome. However, what this Amendment proposes is a reduction in the standard rate of Income Tax from 9s. to 8s. 6d. That would cost £73 million in the present financial year and £83 million in a full year. Some of the reductions in taxation suggested by the noble Lord, running several years ahead, would cost nearer £800 million than £80 million.

Viscount Hinchingbrooke

No, exactly £200 million.

Mr. Jay

But even £80 million would convert the overall surplus of £14 million, for which we have budgeted this year, into a deficit, with all the injurious and inflationary consequences that we would have unless, of course, at the same time hon. Members opposite proposed to make large reductions in food subsidies and social services or other expenditure. Obviously a reduction in the standard rate of Income Tax is something we should all like to make when we can afford it, and when the resources of the country permit. Indeed, if our general campaign for higher production and productivity continues to succeed, it should be possible in time to raise a given total revenue with lower rates of tax. However we do not mean to achieve heavy tax cuts by means of heavy reductions in social expenditure, which would be necessary if it were to be done this year as proposed by the Amendment.

The Commitee should be under no misapprehension about the heavy financial commitments, from the Budget point of view, which these growing social services will entail. But the people of this country have voted for these services because they ensure a fairer distribution of income. They are still voting for them, and that is one reason why, after four years of agitation, the Opposition have not yet won a Parliamentary by-election. These services have also given us the finest system of social services in the world. The hon. Member for Chippenham (Mr. Eccles) said that our level of taxation was tremendous and unique—those were his words; he did not tell us that our system of social services is also tremendous and unique.

What separates us, therefore, from hon. Members opposite is that we are determined not to achieve financial economies by cuts in social expenditure, which would entail the gravest social hardship and injustice. Indeed, if there were £70 million of revenue which we could afford to give away this year, a reduction in the standard rate of Income Tax is not the first claimant. As my hon. Friends the Members for North Portsmouth (Major Bruce) and East Coventry (Mr. Cross-man) quite rightly pointed out, such a reduction would benefit mostly the bigger taxpayer and the company, and would have the effect of materially reducing the taxation on company profits. I suppose that that is one reason why hon. Members opposite want to make such a reduction.

We take the view that the earner of a small income has a better prior claim. It is for that reason that since 1945 we have steadily made large concessions in Income Tax; including increases in the single and married persons' allowances in 1945; a rise in the children's allowance in 1947 from £50 to £60; a rise in the earned income allowance from one-tenth in 1945 to one-eighth in 1946, one-sixth in 1947, and one-fifth last year; a rise in the wife's earned income allowance and the extension, also last year, of the reduced rate to the married woman's earned income. Altogether, since 1945 we have relieved nearly 4 million people from payment of Income Tax and have given concessions totalling £581 million in the full year.

We do not believe that this is the moment for a material reduction in the tax on profits. At present the Exchequer is taking from 50 to 60 per cent. of the profits of every company.

Mr. Frederic Harris (Croydon, North)

It is nearer 60 per cent.

Mr. Jay

The hon. Gentleman is right—it is nearer 60 per cent. That, in our view, is the most real and effective system of profit-sharing and co-partnership by the workers in industry, because those sums are paid out again to the workers in food subsidies, family allowances, the health service and other benefits. Indeed, in this way the State has become a large shareholder in practically every business in the country, although many people on both sides of the Committee have not, perhaps, noticed this peaceful revolution. If the party opposite were sincere in their belief in profit-sharing, co-partnership and a property-owning democracy, they would support us in retaining this tax on profits and would not be putting forward the Amendment.

Mr. W. Fletcher

In co-partnership, should not there be some right to choose one's partner?

Mr. Jay

There is freedom in this country to choose one's employer.

Mr. H. D. Hughes

Except in John Lewis's.

6.45 p.m.

Mr. Jay

Hon. Members opposite have argued their view, although not with much conviction, that the present rate of tax on profits is injurious to enterprise and production. If it were true that the present taxation on company profits were a serious brake on production, I agree that there would be a strong case for bringing down the tax; because nobody should underrate the difficulty and gravity of the production and overseas payments problem now facing us. In this connection, I noted the practical suggestions of my hon. Friend the Member for Bolton (Mr. J. Lewis); we shall sympathetically consider them—as, indeed, we have done already—as well as others. But the practical evidence is not to the effect that high taxation is having any effects of that kind.

The hon. Member for Chippenham said that we should judge by life in the round. The remarkable fact is that in the past year we have had the highest rate of taxation on profits in our peacetime history; and that at the same time we have had the highest production, the highest exports and the highest rate of investment. I am the first to say that one reason for that has been the Marshall Aid payments which we have received by the generous and statesmanlike action of the American Government; and I should like to dissociate myself from the remarks of the hon. Member for East Coventry (Mr. Crossman) on the subject of the United States Congress and the United States Government. His views are not the views of the British Government.

Mr. Bramall (Bexley)

Is my hon. Friend dissociating himself from the remarks of the hon. Member for East Coventry relating to those people in the United States Congress who are trying to cut down Marshall Aid?

Mr. Jay

I meant exactly what I said. Let us also remember, when we are considering the effects of taxation on work and enterprise, that there used to be once in this country a number of persons who lived idly on independent incomes and who have now been induced to work by the present level of taxation. Let us also remember, above all, that one of the greatest incentives to work for the great mass of wage and salary earners today is their knowledge that with the present levels of taxation income is more fairly shared than ever before.

I noticed that hon. Members opposite—apart from the noble Lord the Member for South Dorset (Viscount Hinchingbrooke), who always carries things to extremes—have hardly tried seriously to argue that the £80 million which would be involved by the concession they propose could be found simply by economies in administration. The fact is that at the Treasury we have saved and are constantly saving as our normal duty and function, which the Chancellor has recently intensified and redoubled—

Mr. Nigel Birch (Flint)

Three years late.

Mr. Jay

—hundreds of thousands—indeed millions—of pounds; but the idea that tens of millions of pounds can be saved by administrative economies without changes in policy is sheer moonshine. Not a shred of evidence has been produced today by any hon. Member opposite that that could be done. If it could be done, surely the Public Accounts Committee and the Select Committee on Estimates, of which the noble Lord spoke, which have ample facilities for examining these things and include representatives of the Opposition, would by now have discovered some of these big economies; but, in fact, they have not done so. Indeed, no independent inquiries, any more than the normal working of the Treasury system itself, have ever been able to discover these large economies which could be made without changes in fundamental policy. It is significant that the only times when sweeping cuts have been made were at the time of the Geddes and May Committees, when great changes in policy were made and savage cuts carried out, with the consequences which we all remember.

What this Amendment really proves—as did the speech of the noble Lord, and as do the posters which Lord Woolton seems to be able to pay for so lavishly all over the country from the resources behind his financial iron curtain—is that if the Tory party really had the chance, it would make cuts in food subsidies and social expenditure at the expense of most of the people, as it has always done in the past. The hon. Member for Chippenham said that I would ask what he would do. I will go further and tell him what his party would do. As they resolutely refuse to tell us their policy in public, we do not know for certain whether all the cuts would fall on the food subsidies, on old age pensions, or family allowances or some on one and some on the other.

But the Committee and the country are entitled, by way of illustration, to know what in fact this would mean. If this £80 million cut, to take it at the lowest without the embellishments of the noble Lord, were to fall on the food subsidies, it would involve a rise in retail prices to the housewife of 1s. 5d. a pound on butter, 4½d. on margarine, 8d. on tea and 4d. on cooking fat, all at the same time. The hon. Member for Chippenham said that the people generally wanted more money themselves to spend. They would not get more money that way, but less as a result of a rise in prices.

If the cuts were to fall on family allowances, they would be more than wiped out. If they were to fall on war pensions they would be wiped out almost completely. That is the measure of what hon. Members opposite, are proposing. Whatever those hon. Members say or think in private, the country should know, on the evidence of this Amendment and of the posters displayed by the Tory party proposing cuts in expenditure throughout the country, that this is the sort of thing the Tory party would do if they got the chance. The hon. Member said that this Amendment was a declaration of war. We are exceedingly glad to accept this challenge and we earnestly hope that today the Opposition will not run away from it, as they did from their challenge on the Health Estimates.

This Amendment proves that the Tory party are insincere in their support of the idea of profit sharing, co-partnership and a property-owning democracy, and also makes clear to this Committee and the country that another Tory Government would mean large cuts in food subsidies and other social services. For that reason, we are very glad to accept the challenge and go into the Division Lobby on it tonight.

Mr. Oliver Stanley (Bristol, West)

The Economic Secretary has made a characteristic speech. In fact, I think every time I hear that speech he makes it better, but I must confess it was more effective when he made it before the Chancellor of the Exchequer made his Budget speech. The propaganda as to what the Tory Party would do to the food subsidies and what the Tory Party would do to the Health Service was very much more effective before we knew what the Chancellor of the Exchequer has done to the food subsidies—

Mr. H. D. Hughes

He has increased them by £13 million.

Mr. Stanley

—and what he has threatened he may have to do to the Health Service. We do not accept, and none of the evidence of the valuable Committees to which the hon. Gentleman referred leads us to accept, the view that there are not still economies to be made—

Mr. Tolley (Kidderminster)

Where?

Mr. Stanley

I can tell the hon. Member one of them. Would it not have been better if we had not spent £20 million on growing 1,000 tons of groundnuts; would it not have been better, instead of that, to spend a few hundred thousand pounds on buying an engine and a couple of trucks to carry 1,000 tons of groundnuts which were lying rotting at Kongwa?

We have had a very long Debate and are just as anxious as the hon. Gentleman to get to the Division; therefore, I am only intervening for a very few minutes.

Mr. Shurmer

Tell us where the £60 million are to come from.

Mr. Stanley

The hon. Member for Sparkbrook (Mr. Shurmer) carries on a running conversation during a whole sitting and all I can do is to appreciate the patience of the Chairman and the terrific fortitude of the hon. Member's throat. I have only one regret, and I think it is a regret shared by the right hon. Gentlemen opposite, in regard to this Debate. I am sorry that it has had a result, which I do not think any of us could have foreseen, of giving an opportunity to the hon. Member for East Coventry (Mr. Crossman) to make his speech. The Front Bench opposite must feel that he is even more dangerous to them when supporting them than when, as is more customary, he is opposing them. The object of this Amendment and of the discussion which it has provoked was to establish and bring before the Committee certain principles upon which we can differ, but which, if we are really to meet the economic problems facing us, it must be possible to discuss as economic problems without heat and with some attempt to understand differing points of view.

The first proposition we tried to establish is that the present level of taxation, a level which takes 8s. in the £ of the national income, is an intolerable burden and, if continued, will lead, through processes of disincentive and oppression, to falling production and even an increased burden of taxation. No one can sweep that aside as a wholly partisan view put forward by one political party off its own bat with no serious basis. Hon. Members behind me have already quoted Mr. Colin Clark and Mr. Lionel Robbins. They are not people who can be dismissed as party hacks merely putting a party case. We believe that the present level of taxation, if continued over a period, will be found to be intolerable and to have inflicted the gravest injury on our national economy. In fact, hon. Members opposite, in their hearts, agree with that proposition. They have accepted the present Budget, but they and many of their supporters have given a pretty good indication that they are only accepting it for this year, and that if this burden continues they, too, will find it intolerable.

The second proposition was a sincere belief that in the existing circumstances a reduction of direct taxation—I am not saying the amount or the particular form which it should take—should have a priority, if not the greatest priority, in any tax reduction. One which might share it, and in my view would certainly share it, would be the Purchase Tax, but that, owing to the trickery—I call it that—of the Treasury we are not able to discuss on this Finance Bill. [Interruption.] I call it trickery; I repeat, trickery.

7.0 p.m.

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

What is the trickery?

Mr. Stanley

The trickery was that an innovation was introduced into the Finance Bill, the effect of which was to prevent discussion of the Purchase Tax. That was an innovation of importance which was obviously a matter of great interest to the Committee. Everybody knows that at that period of the Budget Debate we are not looking at the details of drafting but at the main principles concerned. It would have been perfectly easy for the Chancellor of the Exchequer, in his Budget speech, to have drawn the attention of the Committee to this complete innovation he was making, and to have explained to us at the time the reasons for making it. It was because he hoped it would slip through unnoticed that I call it trickery.

Mr. Jay

The right hon. Gentleman knows perfectly well that the Budget Resolution, which was before the Committee for four days had included in it plainly the words "except Purchase Tax." They were commented on during the Debate by one of the right hon. Gentleman's own back benchers. I think it rather hard when, owing to incompetence, the Opposition did not notice it, to call the incompetence of the Opposition the trickery of the Treasury.

Mr. Stanley

The hon. Gentleman also knows perfectly well that it happened that that was the one Budget Resolution left open, and to have voted against that in order to protest against that one matter would have been voting against the Budget as a whole, and would have been represented as such in the country.

Mr. Jay

If that is so, will the right hon. Gentleman say why it was that his right hon. Friend the Member for North Leeds (Mr. Peake), in winding up the Debate that night, after one of his own back benchers had pointed out the fact, made no reference whatever to this point?

Hon. Members

Leave it alone.

Mr. Stanley

Yes, I will leave it alone. I have described what I sincerely believe it to be, and I will leave it at that.

I was saying that one of the objects of this Amendment was to establish the fact that a reduction of direct taxation should have priority—shared perhaps by that other subject which in the circumstances I have described I am prevented from discussing—in the reduction which we believe must be made in this intolerable burden of taxation. I really thought that the time had passed when it would be thought necessary to discuss any proposed reduction of Income Tax wholly on the basis of class differences, wholly on the basis that we who proposed a reduction in Income Tax are doing something merely designed to benefit the rich. I cannot see how that proposition can now be sustained by hon. Members opposite in view of the fact that it was only a year or two ago that their own Chancellor, the predecessor of the present Chancellor, reduced the standard rate of Income Tax not by 6d. but by 1s. Was his object, as we have been told today is our object, only to benefit the very rich?

I advise hon. Members opposite who have either used that argument or fallen for it to read the issue of HANSARD concerned, and see how the present Chancellor of the Duchy of Lancaster himself described the objects of a reduction in direct taxation, and the benefits which he expected to accrue. I did hope that after that we should be able to discuss a question of this kind free from mere political prejudice of that kind. Indeed, I think in one of the more Dr. Jekyll moments of his speech, most of which was obviously the product of Mr. Hyde, the hon. Gentleman himself gave every support to my view, because he started by saying that this reduction in direct taxation was something that we should all like to make. I am sure he would not have expressed that view if the only effect would be, as one might be led to suppose from some of the speeches made by hon. Members behind him, merely to help the very rich.

We put forward this proposal as one of the first priorities of any reduction in taxation because we sincerely believe that a reduction of direct taxation will, perhaps more immediately than any other, have its effect upon production and prices, and, as the hon. Gentleman himself said, that is our urgent problem of the moment. The hon. Gentleman attempted to meet the cogent arguments which were put forward by hon. Friends behind me with what I thought was rather a non sequitur. He said, in effect, "It shows how wrong you are because last year, when we had the highest taxation, we also had the highest production and the highest export figures." If it is as simple as that, we need not worry about the impending crisis which we see before us. All we have to do is to increase taxation still more and up will go our production and our exports. The hon. Gentleman knows that he was relying on an unsound argument. He knows that what gave the fillip to production and to exports was the Marshall Aid which we received. There is no knowing whether, had the burden of taxation been less, production and exports would have been higher.

In one particular, I do not think that the hon. Gentleman treated the economic problem quite as seriously as it demands. I refer to the effect of direct taxation, whether it be Income Tax or Profits Tax, on the ability of companies to build up adequate reserves. I think he said that he would not do anything which would remove taxation from company profits because in some curious way he thought that was bringing about partnership between workers and industry. Is he really satisfied that under the present burden of direct taxation of all kinds, companies are able to put to reserve sums sufficient to cover not only normal replacement of existing plant, but what is surely the most important matter for the future, to provide the new machines and new developments which alone can bring down our costs, increase our production, and, therefore, give us any confidence in the overseas balance battle? It is on company reserves above all, that our case with regard to direct taxation can be based.

There is a second category, the incentive. I believe that in all ranks of industry, as the hon. Member for Bolton (Mr. J. Lewis) so truly said, incentive still is a necessity. I believe that in many of those ranks, and some of the most important, reductions in direct taxation can give that incentive. Finally, there is the incentive to save. No one, surely not the right hon. Gentleman, can be satisfied with the position of private savings today, and it is the burden of taxation which has largely brought that about.

The Chancellor of the Exchequer the other day described hon. Members on this side of the Committee who appeared to prophesy any difficulties at all in the future as "Dismal Jimmies." If he had been here tonight and listened to some of his own supporters, including the hon. Member for East Coventry, he would not describe us as "Dismal Jimmies." I am not blaming them, I am blaming only the Chancellor; because I think it is right that all of us should be prepared to face the dangers which can be coming upon us. I do not think there is anyone—certainly no one I know, and no one I would want to know—who welcomes the idea of approaching economic difficulties,

or indeed disaster, because he thinks that out of them he will get some political advantage. We do not.

I do assure hon. Members opposite that when we talk about the dangers ahead of us it is not through any desire to see them come, because by that means we might change over from this side of the House to the other. It is with a deep anxiety as to what, if they come, they will bring in their wake; the anxiety of whether, if they come and we are incapable of solving them, there will be any point in changing, or any possibility of changing in future from one side to the other of this democratic House. Although many hon. Members opposite may disagree, I hope they will disagree on a basis of belief in each other's mutual sincerity. As we try to do with them, let them try to do with us. We have brought forward this Amendment today because we honestly believe that it is a contribution to meeting the difficulties which we have to meet in the next few months. So far as we are concerned we would sooner have the policy of our party to cut the Income Tax before that disaster comes, than the policy of the hon. Member for East Coventry to let the disaster come and then cut the food of the people.

Several Hon. Members rose—

The Parliamentary Secretary to the Treasury (Mr. Whiteley) rose in his place, and claimed to move, "That the Question be now put."

Question put, "That the Question now be put."

The Committee divided: Ayes, 276; Noes, 136.

Division No. 171.]	AYES	[7.15 p.m.
Acland, Sir Richard	Bing, G. H. C.	Cobb, F. A.
Adams, Richard (Balham)	Binns, J.	Cocks, F. S.
Albu, A. H.	Blenkinsop, A.	Coldrick, W.
Allen, A. C. (Bosworth)	Blyton, W. R.	Collick, P.
Alpass, J. H.	Bowden, Fig. Offr. H. W.	Collindridge, F.
Anderson, A. (Motherwell)	Braddock, Mrs. E. M. (L'pl, Exch'ge)	Colman, Miss G. M.
Attewell, H. C.	Braddock, T. (Mitcham)	Corbet, Mrs. F. K. (Camb'well, N. W.)
Austin, H. Lewis	Bramall, E. A.	Corlett, Dr. J.
Awbery, S. S.	Brook, D. (Halifax)	Cove, W. G.
Ayles, W. H.	Brooks, T. J. (Rothwell)	Crawley, A.
Ayrton Gould, Mrs. B.	Broughton, Dr. A. D. D.	Crossman, R. H. S.
Bacon, Miss A.	Brown, T. J. (Ince)	Cullen, Mrs.
Balfour, A.	Bruce, Maj. D. W. T.	Daggar, G.
Barnes, Rt. Hon. A. J.	Burden, T. W.	Daines, P.
Barstow, P. G.	Burke, W. A.	Davies, Edward (Burslem)
Barton, C.	Butler, H. W. (Hackney, S.)	Davies, Ernest (Enfield)
Battley, J. R.	Callaghan, James	Davies, Haydn (St. Pancras, S. W.)
Bechervaise, A. E.	Carmichael, James	Davies, R. J. (Westhoughton)
Bellenger, Rt. Hon. F. J.	Chamberlain, R. A.	Davies, S. O. (Merthyr)
Benson, G.	Champion, A. J.	Deer, G.
Berry, H.	Chetwynd, G. R.	Delargy, H. J.
Beswick, F.	Cluse, W. S.	Dobbie, W.
Dodds, N. N.	Leonard, W.	Rogers, G. H. R.
Donovan, T.	Levy, B. W.	Ross, William (Kilmarnock)
Driberg, T. E. N.	Lewis, A. W. J. (Upton)	Royle, C.
Dugdale, J. (W. Bromwich)	Lewis, J. (Bolton)	Scott-Elliot, W.
Dumpleton, C. W.	Lindgren, G. S.	Segal, Dr. S.
Edwards, W. J. (Whitechapel)	Lipton, Lt.-Col M.	Shackleton, E. A. A.
Evans, Albert (Islington, W.)	Logan, D. G.	Sharp, Granville
Evans, John (Ogmore)	Lyne, A. W.	Shawcross, C. N. (Widnes)
Evans, S. N. (Wednesbury)	McAdam, W.	Shawcross, Rt. Hn. Sir H. (St. Helens)
Fairhurst, F.	McAllister, G.	Shurmer, P.
Farthing, W. J.	McEntee, V. La. T.	Silverman, J. (Erdington)
Fernyhough, E.	McGhee, H. G.	Silverman, S. S. (Nelson)
Field, Capt. W. J.	McGovern, J.	Simmons, C. J.
Fletcher, E. G. M. (Islington, E.)	Mack, J. D.	Skeffington, A. M.
Follick, M.	McKay, J. (Wallsend)	Skeffington-Lodge, T. C.
Foot, M. M.	Mackay, R. W. G. (Hull, N. W.)	Skinnard, F. W.
Forman, J. C.	McKinlay, A. S.	Smith, H. N. (Nottingham, S.)
Freeman, J. (Watford)	Maclean, N. (Govan)	Smith, S. H. (Hull, S. W.)
Ganley, Mrs. C. S.	McLeavy, F.	Snow, J. W.
Gibbins, J.	MacPherson, Malcolm (Stirling)	Sorensen, R. W.
Gilzean, A.	Mallalieu, E. L. (Brigg)	Soskice, Rt. Hon. Sir Frank
Glanville, J. E. (Consett)	Mallalieu, J. P. W. (Huddersfield)	Sparks, J. A.
Goodrich, H. E.	Mann, Mrs. J.	Steele, T.
Gordon-Walker, P. C.	Manning, C. (Camberwell, N.)	Strauss, Rt. Hon. G. R. (Lambeth)
Greenwood, A. W. J. (Heywood)	Marquand, Rt. Hon. H. A.	Stubbs, A. E.
Grey, C. F.	Mathers, Rt. Hon George	Sylvester, G. O.
Grierson, E.	Mellish, R. J.	Symonds, A. L.
Griffiths, Rt. Hon. J. (Llanelly)	Messer, F.	Taylor, H. B. (Mansfield)
Griffiths, W. D. (Moss Side)	Middleton, Mrs. L.	Taylor, R. J. (Morpeth)
Guest, Dr. L. Haden	Mitchison, G. R.	Taylor, Dr. S. (Barnet)
Gunter, R. J.	Monslow, W.	Thomas, D. E. (Aberdare)
Guy, W. H.	Moody, A. S.	Thomas, George (Cardiff)
Hale, Leslie	Morley, R.	Thomas, I. O. (Wrekin)
Hall, Rt. Hon. Glenvil	Morris, Lt.-Col. H. (Sheffield, C.)	Thomas, John R. (Dover)
Hamilton, Lieut.-Col. R.	Morris, P. (Swansea, W.)	Thurtle, Ernest
Hardman, D. R.	Mort, D. L.	Titterington, M. F.
Hardy, E. A.	Moyle, A.	Tolley, L.
Harrison, J.	Murray, J. D.	Turner-Samuels, M.
Hastings, Dr. Somerville	Nally, W.	Ungoed-Thomas, L.
Haworth, J.	Naylor, T. E.	Vernon, Maj. W. F.
Hobson, C. R.	Neal, H. (Claycross)	Viant, S. P.
Holman, P.	Nichol, Mrs. M. E. (Bradford, N.)	Wallace, G. D. (Chislehurst)
Holmes, H. E. (Hemsworth)	Oldfield, W. H.	Warbey, W. N.
Horabin, T. L.	Oliver, G. H.	Webb, M. (Bradford, C.)
Houghton, A. L. N. D.	Orbach, M.	Wells, P. L. (Faversham)
Hoy, J.	Paget, R. T.	Wells, W. T. (Walsall)
Hubbard, T.	Paling, Rt. Hon. Wilfred (Wentworth)	Wheatley, Rt. Hon. John (Edinb'gh, E.)
Hudson, J. H. (Ealing, W.)	Paling, Will T. (Dewsbury)	White, H. (Derbyshire, N. E.)
Hughes, Hector (Aberdeen, N.)	Palmer, A. M. F.	Whiteley, Rt. Hon. W.
Hughes, H. D. (W'lverh'ton, W.)	Pargiter, G. A.	Wigg, George
Hynd, J. B. (Attercliffe)	Parker, J.	Wilkes, L.
Irvine, A. J. (Liverpool)	Parkin, B. T.	Wilkins, W. A.
Irving, W. J. (Tottenham, N.)	Paton, Mrs. F. (Rushcliffe)	Willey, F. T. (Sunderland)
Janner, B.	Paton, J. (Norwich)	Willey, O. G. (Cleveland)
Jay, D. P. T.	Pearson, A.	Williams, D. J. (Neath)
Jeger, G. (Winchester)	Peart, T. F.	Williams, J. L. (Kelvingrove)
Jeger, Dr. S. W. (St. Pancras, S. E.)	Popplewell, E.	Williams, Ronald (Wigan)
Jenkins, R. H.	Porter, E. (Warrington)	Williams, Rt. Hon. T. (Don Valley)
Jones, D. T. (Hartlepool)	Price, M. Philips	Williams, W. T. (Hammersmith, S.)
Jones, Elwyn (Plaistow)	Proctor, W. T.	Williams, W. R. (Heston)
Jones, P. Asterley (Hitchin)	Pursey, Comdr. H.	Willis, E.
Keenan, W.	Randall, H. E.	Wills, Mrs. E. A.
Kenyon, C.	Ranger, J.	Wilmot, Rt. Hon. J.
Key, Rt. Hon. C. W.	Rankin, J.	Woodburn, Rt. Hon. A.
Kinghorn, Sqn.-Ldr. E.	Reid, T. (Swindon)	Wyatt, W.
Kinley, J.	Rhodes, H.	Yates, V. F.
Kirby, B. V.	Richards, R.	Young, Sir R. (Newton)
Lang, G.	Robens, A.	Younger, Hon. Kenneth
Lavers, S.	Roberts, Goronwy (Caernarvonshire)
Lawson, Rt. Hon. J. J.	Robertson, J. J. (Berwick)	TELLERS FOR THE AYES:
Lee, F. (Hulme)	Robinson, Kenneth (St. Pancras, N.)	Mr. Joseph Henderson and
		Mr. Hannan.
NOES
Agnew, Cmdr. P. G.	Bower, N.	Channon, H.
Amory, D. Heathcoat	Boyd-Carpenter, J. A.	Clarke, Col. R. S.
Assheton, Rt. Hon. R.	Braithwaite, Lt.-Comdr. J. G.	Conant, Maj. R. J. E.
Astor, Hon. M.	Buchan-Hepburn, P. G. T.	Corbett, Lieut.-Col. U. (Ludlow)
Baldwin, A. E.	Bullock, Capt. M.	Crosthwaite-Eyre, Col. O. E.
Birch, Nigel	Butcher, H. W.	Crowder, Capt. John E.
Boles, Lt.-Col. D. C. (Wells)	Butler, Rt. Hon. R. A. (S'ffr'n W'ld'n)	Cuthbert, W. N.
Boothby, R.	Carson, E.	Darling, Sir W. Y.
Bowen, R.	Challen, C.	Davidson, Viscountess

Digby, Simon Wingfield	Keeling, E. H.	Rayner, Brig. R.
Dodds-Parker, A. D.	Lancaster, Col. C. G.	Roberts, Emrys (Merioneth)
Donner, P. W.	Langford-Holt, J.	Roberts, H. (Handsworth)
Dower, Col. A. V. G. (Penrith)	Legge-Bourke, Maj. E. A. H.	Roberts, W. (Cumberland, N.)
Drewe, C.	Lipson, D. L.	Ropner, Col. L.
Dugdale, Maj. Sir T. (Richmond)	Lloyd, Selwyn (Wirral)	Ross, Sir R. D. (Londonderry)
Duthie, W. S.	Low, A. R. W.	Scott, Lord W.
Eccles, D. M.	Lucas, Major Sir J.	Shepherd, W. S. (Bucklow)
Elliot, Lieut.-Col. Rt. Hon. Walter	Lucas-Tooth, Sir H.	Spearman, A. C. M.
Erroll, F. J.	MacDonald, Sir M. (Inverness)	Stanley, Rt. Hon. O.
Fletcher, W. (Bury)	Macdonald, Sir P. (I of Wight)	Stewart, J. Henderson (Fife, E.)
Foster, J. G. (Northwich)	McFarlane, C. S.	Stoddart-Scott, Col. M.
Fraser, H. C. P. (Stone)	Mackeson, Brig. H. R.	Strauss, Henry (English Universities)
Fraser, Sir I. (Lonsdale)	McKie, J. H. (Galloway)	Stuart, Rt. Hon. J. (Moray)
Fyfe, Rt. Hon. Sir D. P. M.	Maclean, F. H. R. (Lancaster)	Sutcliffe, H.
Gage, C.	Macmillan, Rt. Hn. Harold (Bromley)	Taylor, C. S. (Eastbourne)
Galbraith, Cmdr. T. D. (Pollok)	Maitland, Comdr. J. W.	Taylor, Vice-Adm. E. A. (P'dd't'n, S.)
Galbraith, T. G. D. (Hillhead)	Manningham-Buller, R. E.	Thomas, J. P. L. (Hereford)
Glyn, Sir R.	Marples, A. E.	Thorneycroft, G. E. P. (Monmouth)
Gomme-Duncan, Col. A.	Marsden, Capt. A.	Thornton-Kemsley, C. N.
Gridley, Sir A.	Marshall, D. (Bodmin)	Touche, G. C.
Grimston, R. V.	Marshall, S. H. (Sutton)	Turton, R. H.
Hannon, Sir P. (Moseley)	Mellor, Sir J.	Wadsworth, G.
Hare, Hon. J. H. (Woodbridge)	Molson, A. H. E.	Wakefield, Sir W. W.
Harris, F. W. (Croydon, N.)	Morris, Hopkin (Carmarthen)	Walker-Smith, D.
Harvey, Air-Comdre, A. V.	Nicholson, G.	Ward, Hon. G. R.
Head, Brig. A. H.	Noble, Comdr. A. H. P.	Webbe, Sir H. (Abbey)
Hinchingbrooke, Viscount	Nutting, Anthony	White, J. B. (Canterbury)
Hogg, Hon. Q.	Odey, G. W.	Williams, C. (Torquay)
Hollis, M. C.	O'Neill, Rt. Hon. Sir H.	Willoughby de Eresby, Lord
Holmes, Sir J. Stanley (Harwich)	Osborne, C.	Winterton, Rt. Hon. Earl
Hope, Lord J.	Peake, Rt Hon. O.	York, C.
Howard, Hon. A.	Peto, Brig. C. H. M.	Young, Sir A. S. L. (Partick)
Hudson, Rt. Hon. R. S. (Southport)	Pickthorn, K.
Hulbert, Wing-Cdr. N. J.	Ponsonby, Col. C. E.	TELLERS FOR THE NOES:
Hutchison, Lt.-Cm. Clark (E'b'rgh W.)	Poole, O. B. S. (Oswestry)	Colonel Wheatley and
Hutchison, Col. J. R. (Glasgow, C.)	Prescott, Stanley	Lieut-Colonel Bromley-Davenport.
Jeffreys, General Sir G.	Price-White, Lt-Col. D.

Question put accordingly, "That the words "nine shillings" stand part of the Clause."

The Committee divided: Ayes, 282; Noes, 135.

Mr. Birch (Flint)

I beg to move, in page 8, line 5, to leave out "total," and insert "taxable."

The effect of this Amendment is to levy Surtax on taxable income and not on total income over £3,000, as is now the case. The present law involves an anomaly. Surtax, after all, is the higher rate of Income Tax, and is so described in this Bill. Income Tax itself is levied after earned income relief, after children's allowances and after marriage allowance and so forth, but Surtax is levied on the surplus over £2,000 without taking into account individual circumstances. I do not know whether it is anti-social or not, for Ministers have over £2,000 and Members of nationalised boards also have it. It may be anti-social; I do not know, but, in any case, there is a very considerable anomaly here.

To a man earning between £1,900 and £2,000, the effective rate of tax is 7s. 2d., whereas if he earns between £2,000 and £2,100 the tax jumps up on the surplus to 11s. in the £. We get a very sharp jump directly the income goes over £2,000, because the earned income relief stops at £2,000, and, so far as Surtax is concerned, no account is taken of any individual reliefs. This matter was discussed very shortly last year in this Committee, and I am emboldened to pursue it today for two reasons. The first is the Report which came out yesterday or the day before of the Royal Commission on Population. In that report, there is a passage which is very relevant to this matter, and, in paragraph 658, the following recommendation is set out: (3) that the ordinary economic deterrents to parenthood are aggravated in the higher and upper-medium income ranges by an unfair incidence of taxation, and that parents in these income ranges are entitled to such further tax reliefs as can be justified on grounds of fiscal equity. That is the first quotation from that paragraph, and the second I should like to make is from sub-paragraph (7) which is as follows: (7) that in computing the income chargeable to income tax, the deduction made from the income in respect of each dependent child should be either £60 as at present (as a minimum); or one-tenth of the earned income in excess of £1,000, subject to a maximum deduction of £150. If hon. Members will work that out, they will find that it gives relief up to an income of £2,500.

The Economic Secretary to the Treasury, who has just now given us the benefit of his opinions, is very fond of introducing the maximum degree of class prejudice and hatred into his remarks, following the example of his master. I hope he will be very careful, because the Commission whose recommendations I have quoted include a lady who was an ornament to that Commission and who happens to be the wife of the Economic Secretary. Though she made a memorandum of dissent at the end, it did not cover the point with which I am now concerned, and I think the hon. Gentleman should be very careful not to abuse his wife in this matter, because it may very well get back to him.

The second reason why I am emboldened to raise this was the sparkling answer which the Financial Secretary to the Treasury gave to my right hon. Friend the Member for the City of London (Mr. Assheton) when he raised this matter on a previous occasion in this House. During the Committee stage of the 1948 Finance Bill, the Financial Secretary then said: Logically there is an excellent case"—

Mr. Glenvil Hall

No, a good case.

Mr. Birch

No, the right hon. Gentleman said an excellent case, and I am quoting from HANSARD. He said: Logically there is an excellent case for giving these allowances in respect of Surtax in the same way as they are given in respect of ordinary Income Tax. The right hon. Gentleman sees no logical flaw of any sort in that argument, and he went on to say that the reason why he was not giving this concession was that other Income Tax concessions had been given in that Budget for married men, but that, of course, is not the case in this Budget. The right hon. Gentleman said: I personally can foresee the time when conditions are different from now and when some sort of concession might be given along the lines suggested."—[OFFICIAL REPORT, 2nd June, 1948; Vol. 451, c. 1076–7.] The conditions perhaps are not very different, but there is one condition that is different, and in that connection we have had this report, which I would have said is wholly in line with the Amendment which we are proposing. It appears to be an anomaly, and I very much hope that we may have a good answer—even a better answer than before—and that the hon. Gentleman will not only say that we are right, but will admit that we are right by accepting the Amendment.

Mr. Erroll (Altrincham and Sale)

I think that we are entitled to some measure of explanation on this matter. Either the Government are pursuing a policy of pure expediency and are not just prepared to admit the logic of our case, or they are using a continuation of the present injustice as a further means of reducing large salaries and large incomes. If this is indeed just a question of expediency, perhaps we must bear with the Government and show some sympathy, because the Finance Bill is riddled with expediency. Occasionally, there are blinding flashes of principle as, for example, when the Mechanical Lighter Duty goes up in sympathy with the Match Duty. But when we go a little further on and come to the Pools Duty, we find expediency rearing its ugly head once again.

From the reply we received last year, it was plain that this was a matter of expediency, that the Government liked having the tax this way because it yielded a little more revenue at a time when they were hard pressed for revenue, and I have no doubt that the same argument could serve again this year when the Government are even harder pressed than they were last year. But I think we are entitled to an explanation on quite different grounds. It is time that the Socialist Government came out clearly into the open with their policy towards large salaries and large incomes. Are they against large salaries and large incomes which still exist? All their acts, their behaviour, and their sneers would seem to indicate that. On the other hand, they continue to pay their own Ministers salaries of £5,000 a year, and of course, they pay the chairmen and members of nationalised boards salaries ranging from £2,000 to £8,000 a year.

We on this side of the Committee believe it is necessary and right to pay large salaries to men of outstanding ability and brilliance, and that they are entitled to a big reward for their exceptional qualities and for the drive and determination they show in applying those qualities for the benefit of the organisation which they serve. But it is surely wrong to take away the advantage of those large salaries by excessive rates of Surtax. It is surely wrong, particularly, to have such a steep step at the £2,000 a year level, because the effect of the law as it stands at present is to introduce a very steep increase in the effective rate of tax at the £2,000 a year level. Our Amendment would eliminate the steepness of that step, and would enable salaries and incomes of £2,000 or £3,000 a year to be more effective in the pockets of their possessors. It would, in short, be a better reward, taxed as they are at present, to those for whom higher rewards are justified, as we believe them to be justified.

On the other hand, it may be that the Socialists do not think that anybody should have an income of over £2,000 a year. If that is really the case, however, let them come into the open and be honest about it, and say that they do not think any man should have an income in the Surtax range at all, and that if they have the chance they will steadily bring incomes down to that level. If, however, it is really their intention to reward ability and brains, then let them rectify this injustice and rely no longer on a policy of expediency as their sole justification.

7.45 p.m.

Mr. Jay

May I first make clear that in contributing to this Debate I am expressing the opinions of His Majesty's Government and not those of the Royal Commission on Population, though I am very glad to hear that the hon. Member for Flint (Mr. Birch) has read that report, including the dissenting note. In the lively Debate we had just now, when we on this side said that the Opposition were wishing to make a reduction in the standard rate of Income Tax and that that would mainly benefit the wealthy classes of the community, we were told by the Opposition that they had other Amendments down which would, to some extent, adjust that. But what we find, when we come to the first of these Amendments, is that it is, in fact, a proposal to reduce the Surtax. What this Amendment proposes is that Surtax should be charged on taxable incomes in excess of £2,000 instead of on total incomes. At present, of course, the personal allowances and reliefs are only given against the standard rate of Income Tax and are not a deduction for Surtax purposes.

I agree that there is a theoretical argument as between one Surtax payer and another for a change of this kind. One would, perhaps, naturally expect a Royal Commission to put forward a theoretical argument, but, in practice, it has always been held up till now that if these personal allowances were granted for incomes under £2,000, then we were providing in the law for the worst hardship and for the cases of most onerous family responsibilities where they fell on people with the lower incomes. Therefore, as I say, I think that some theoretical case can be made for doing this at some time, but certainly not in the present situation of the country, and when those with the smaller incomes today have to face the very great difficulties in connection with the cost of living.

This Amendment is, in effect, a proposal for a cut in Surtax which would actually concede £15 million a year to certain Surtax payers. It would, of course, be most inequitable in present circumstances because it would—as compared with the three-farthings a month which one of my hon. Friends pointed out would accrue to the £400 a year married man with two children, in the proposal to reduce Income Tax by sixpence—give a married man with two children who was earning £5,000 a year a concession of as much as £157 10s. It would give the corresponding married man with £10,000 a year a relief of £262 10s.

Mr. Erroll

Is that per month or per annum?

Mr. Jay

It is per year.

Mr. Erroll

Surely, it is rather unfair to compare the monthly rate of the lower income with the yearly rate of the higher income?

Mr. Jay

I thought that the hon. Member with his well known mental agility would be able to multiply by 12. One has only to multiply the monthly figure by 12 to arrive at the yearly figure. In our opinion, a relief to Surtax payers of £15 million a year in present circumstances would be far too heavy and quite out of balance with the rest of our Budget proposals. Therefore, we do not think that this concession should be made in present circumstances.

Mr. R. A. Butler (Saffron Walden)

Can the hon. Gentleman explain why he gives an estimate of £3 million more for a full year than the Financial secretary gave in the Debate last year?

Mr. Jay

Presumably, because Surtax payers' incomes have risen since then as a result of higher profits and their relationship to the national income.

Mr. Butler

Perhaps if I put down a question to the hon. Gentleman he will give me an answer?

Sir William Darling (Edinburgh, South)

He is a bold man who rises, even in this empty Chamber, to defend the Surtax payer, and I make a claim to boldness in this respect. I am encouraged by His Majesty's Government and their representatives. Labour marches on, Socialism progresses. Last year the Financial Secretary told us that logically there was a good—or an excellent—case. It was either "good" or "excellent"; I am not going to quarrel as to which it was, but I am quite satisfied with the lesser qualifying adjective. I am happy to rest on the admission of the Financial Secretary that there is a good logical case, especially when it is reinforced tonight by the Economic Secretary who says that we have a good theoretical case. If I have got both logic and theory on my side, Mr. Mathers, you will understand how encouraged I am to take up the case of the Surtax payer. What else is required to help the argument, I do not know; these are powerful contributions, and they do not come from this side of the Committee.

I think there is something to be said for encouraging the Surtax payers. They are persons who, by a combination of luck and ability—and I put luck as high as hon. Members opposite care to put it—are able to acquire annually a large and substantial income. This income is taken from them by the State. I am inclined to think that those persons who have the genius and the ability to acquire this purchasing power, which is acquired by serving the public in some way or another, are likely to distribute it more ably than His Majesty's Government. Earlier today we heard from the Economic Secretary a most ingenious argument which he dare not mention in any factory or works. That argument was on the previous Clause, but it is relevant to this one. The argument is that the workers in the factories feel that the present heavy taxation which is imposed upon them and others is a form of co-partnership. The Economic Secretary put forward the view that the workers in a large factory would rejoice and say "Hip, hip, hooray, this is real profit-sharing, this is real co-partnership; we prefer our dividends in the form of wigs and spectacles which we cannot get."

I do not think the Government are good spenders of hard-earned money, and I put the view that it is to the public advantage to allow the Surtax payer to enjoy a large measure of his lawful gainful earnings; the Surtax payer who has been fortunate in acquiring those earnings is likely to be more fortunate in their expenditure. I know a great many Surtax payers. The great things in this country were the creation of Surtax payers. Our libraries, museums, the permanent achievements and lasting advantages of our country were made possible by men whose accumulations were spent more wisely by themselves than if they had been taken from them and spent by the State. Who will tell me that the great work of Andrew Carnegie, for example, would have been as well done by any Government or local government department? I belong to the effete school of economic thought which believes in persons. I believe that governments do very few things well. In fact, I have yet to learn what they do well. I believe in systems which encourage people.

There are very few people in this country who come in this qualification. I believe we should encourage those men and women to do the best for themselves, because they cannot do the best for themselves without doing the best for others. I believe in the uniqueness of the Surtax payers. They are unique persons who cannot be replaced. There is one, Henry Cotton. If we dispose of Henry Cotton, we will not immediately find someone to take his place. There is only one Financial Secretary. If he were disposed of he could not easily be replaced. I say to the Government: I beg you to nourish and cherish those magic men who are irreplaceable in the same sense as the two examples which I have given.

We do not like it. Humble, plain men like myself are always jealous of abler men and men of greater ability. It is natural for a democracy to be jealous of its great and able men, and to try and bring them down to one's own immediate level. I do not believe in an egalitarian society. As Lord Balfour once said, we cannot have a steeple without a foundation. While I agree that the foundation should be sound, I want more steeples. I want more men on the Surtax levels. It is impossible for them to make these large incomes without benefiting the community. What can a Surtax payer do with his extra money? He does not wrap it up in his napkin. He puts it to good purpose. He increases the national wealth by his activities and genius.

While I plead for the Surtax payer, I am also pleading for the common man, the ordinary man, whose living, work and future depend upon the creation and encouragement of abler and better men than we are able to find today. I hope this Amendment will receive the support of the Financial Secretary who believes there is a good logical case, and of the Economic Secretary who believes there is a good theoretical case, Logic and theory are with me. I hope the Government will be with me in the Lobby, too.

Amendment negatived.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Colonel Dower (Penrith and Cockermouth)

I feel there is one criticism of this Clause which should be made. I refer to the special hardship which, under the present Income Tax, married couples have to face. Time after time we have seen legislation, and in this Finance Bill there is even more legislation, which has the direct effect of penalising married people. In this Bill we find a continuation of the same injustices which have existed for so long. I have in mind the system by which the incomes of a husband and wife are coupled together for the purpose of levying taxation.

I should like to give three instances to show the effect on three different ranges of income. In the case of a man and wife who each have £500 a year—I am taking £500 as being the generally accepted income of working people—they have to pay a tax of £324 instead of £260 which they were paying before they got married. In other words, the State has inflicted upon them, because they have embarked upon the honourable state of matrimony, an increased tax of £64 per annum. Let me now take the highest range of the ordinary Income Tax payer, but not yet amongst the wealthy; I refer to the man who earns £2,000 per annum. In the case of two people with £2,000 each, before they are married they pay £1,610, but from the moment they get married they have to pay £1,961, which is an additional £351 a year. Lastly, let me give an example of two wealthy people who each have £5,000 a year. Before they get married they have to pay £5,336 between them, and from the moment they get married they have to pay £6,561, or a penalty of £1,225 more of tax from the moment they are married, which is at the rate of nearly £3 a day.

8.0 p.m.

I see the Financial Secretary questioning me; I should be pleased to go through the Table with him, which I have in my hands. In view of the Report of the Royal Commission on Population, which says that it is to the interest of the country that many more people should marry and have children, our present system of penal taxation should be re-examined with a view to ensuring that those who do marry do not have to pay more taxation than they did before they reach this honourable state. Just before you took the Chair, Mr. Mathers, your predecessor, pointed out that this was not a Bill which dealt with morals. I say that this continuing hardship is having a bad moral effect.

Mr. Houghton (Sowerby)

Is the hon. and gallant Member suggesting that people would rather live in sin than pay tax under the present system?

Colonel Dower

No, but I do not see why the tax on virtue should be so high. Because people do the right thing, and marry and have children, I do not see why they should be forced to meet extra penalties in the form of increased taxation.

Mr. Houghton

The hon. and gallant Member suggested that the present system was having a prejudicial effect on morals.

Colonel Dower

No, but quite a large number of people might prefer to remain single, instead of getting married and having children. They might not wish to incur a further burden of taxation by getting married.

The Financial Secretary may say that the State cannot afford to lose revenue, but I am getting a little tired of that argument every time these questions of taxation are raised. A tax is either good or bad; if it is bad it is up to the Government to find an alternative source of revenue. It has often been said, when a particular tax has been defeated on grounds of conscience, that the Government could not afford to forgo the revenue. We cannot accept that argument indefinitely. I know the right hon. Gentleman will give me a stony answer, but I felt the point ought to be raised because if there is one thing which the country wants more than anything else it is more marriages and children.

Mr. Houghton

What the hon. and gallant Member has been saying relates to the wife's unearned income. Under existing arrangements, earned income relief and differential rates of tax apply to a married woman with earned income, as they do to an unmarried woman with earned income.

Colonel Dower

I am pleased to hear the hon. Gentleman say that, because it appears that the Government have started to admit the principle of what I am saying. The days of the Married Women's Property Act have gone by. Now, married women have their freedom, their own estates and, in many cases, their own businesses and careers. There are women Members of Parliament, and the other day we read of a woman being made a King's Counsel. Some may not approve of this new development, but it is occurring. Because a woman is married she is no longer regarded as being the property of her husband yet, for the purposes of taxation, she and her husband are considered as one.

Mr. Glenvil Hall

The hon. and gallant Member for Penrith and Cockermouth (Colonel Dower) has given us the example of two people getting married, each fortunate enough to have an income of £5,000 per annum. As single people they kept, I assume, separate establishments, and their individual incomes were subject to tax as such. When they married they set up a joint home, and their incomes became a joint income. Allowances are made to married people against the total income that accrues to them—in this case, £10,000. If the wife wishes she can have the joint income separated and herself assessed separately, but what the Inland Revenue will not do, and quite rightly, is to forget that if she does that, the income is still a joint one for herself and her husband. The common-sense reason is that if that is not done it would be possible for the husband and wife so to divide up their incomes and pretend—I use that word in no invidious sense—that a certain amount was the wife's and a certain amount was the husband's when, in fact, the whole of the money was the husband's.

Colonel Dower

I was not referring only to people with incomes of £5,000 a year. I gave an illustration of £500 a year. Why grant an allowance in the case of a married woman earning her own living?

Mr. Glenvil Hall

We are all anxious that women who are able should work, and to help them my right hon. Friend the Chancellor of the Duchy of Lancaster, when he was Chancellor of the Exchequer, increased the special wife's earned income allowance to £110 to induce them to go out to work because it was found that when their incomes were added to those of their husbands the Income Tax which had to be payable was a deterrent.

Clause ordered to stand part of the Bill.

Clause 15 ordered to stand part of the Bill.