FINANCE BILL

HC Deb 18 May 1949 vol 465 cc435-582

Order for Second Reading read.

3.25 p.m.

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

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

The Bill, of course, is founded on the proposals made by my right hon. and learned Friend the Chancellor of the Exchequer in his Budget statement on 6th April. Those proposals have met with a very mixed reception. Although they have undoubtedly been approved by a very large section of the community, they have been criticised in other quarters as unduly severe. The criticisms, both in this House and elsewhere, are, I think, based either on a failure to realise the extent of the difficulties this country has yet to overcome or of a misconception of the proposals of my right hon. and learned Friend. In addition, the public, looking for tax reliefs, have tended to forget what has already been achieved; for this Bill should not be considered in isolation. It is the sixth of its kind introduced by this Government in less than four years and must be judged in association with those that have preceded it.

I for one, therefore, am glad to learn that the Economic Information Unit of the Treasury, in collaboration with the Central Office of Information, have produced a 16-page illustrated pamphlet entitled "The Budget and your Pocket," which shows in popular form the effects of the Chancellor's proposals on the pockets of ordinary people. This pamphlet will be on sale in a few days' time—in fact, before the end of this week. It will, among other things, explain how taxes are raised and how the money is spent, and will show the relationships that exist between taxes and prices, and prices and incomes. It will also contain a section dealing with the need for savings to finance the Government's investment programme. It should help people to a better understanding of the nation's economic situation and its bearing on their everyday life. For this reason, if for no other, it is to be hoped that it will be widely bought and studied.

Mr. R. A. Butler (Saffron Walden)

What is its price?

Mr. Glenvil Hall

I think it will be about sixpence; it might even be less.

Throughout the whole of the time this Government has been in office the paramount need has been to ensure above all else that exports, visible and invisible, were lifted to such a level as to provide, within a given period, the necessary currencies, particularly dollars, to meet imports. In this task taxation has played its part. It has been used to keep internal costs and prices relatively stable; to provide incentives to producers, managements and workers alike; and, not least, as a bulwark against inflation. There can be no doubt that in pursuing this policy the Government have followed the right path.

As my right hon. and learned Friend pointed out when presenting his Budget, the year 1948 was one of great achievement for the British people. Production has been greatly expanded in all the critical sectors of our economy. Our overall balance of payments position has been improved and great strides forward have been made with home production in agriculture. So real, in fact, has recovery been that it has been possible to take off controls over a wide range of items, and the rationing of bread, jam, clothes, footwear, confectionery and other consumption goods has been ended.

The large measure of success achieved has led some people to believe that the struggle was largely over, and that we were now passing from a period of inflationary pressure to one of deflation and that, this being so, there is no need for the Chancellor to budget for revenue sufficient to meet below the line commitments. The truth, however, is that, although inflationary pressure is undoubtedly less than it was, it is still present, as my hon. Friend the Economic Secretary demonstrated during his speech on the Budget Resolutions. Since he spoke, the April figures of unemployment have been issued and underline what he then said. Unemployment, as no doubt the House has noticed, is now less than 1.7 per cent. of all insured persons, whereas in March, 1939, it was as high as 11.0 per cent.

If the House approves, as I think it must approve on the facts, the decision to provide this year for an overall though small surplus, it surely follows that the critics can only object to the total taxation to be raised or the way in which it should be spread.

Mr. Scollan (Renfrew, Western)

Is my right hon. Friend aware, when he quotes a figure of 1.7 per cent., that the total effect of the policy he has outlined has left Scotland with 3.2 per cent unemployed?

Mr. Glenvil Hall

Those who complain that expenditure on some items should be reduced should say definitely which, and by how much, they should be cut. It is true that during 1949–50 an additional £160 million will be spent on housing, the Health Service, National Assistance, National Insurance, Family Allowances and food subsidies, but all these increases, including the increase allocated for food subsidies, are I believe generally approved—at least I hope so—in every quarter of the House. Our social services today provide out of taxation for every average household something like 27s. 6d. a week and food subsidies add another 14s., making a total of more than £2 provided by the Exchequer. This means that the Exchequer are finding in cash and in kind more than £26 million per week. This is undoubtedly of the utmost benefit to the great mass of the people.

The increase of 4d. per person as the result of the ceiling placed on the food subsidies has been more than offset for the housewife in reductions in prices of green vegetables. Therefore I hope that this House and the public outside will put these matters in their right perspective. When, in addition, I remind the critics, as I think I am entitled to, that previous Finance Bills introduced by this Government have taken about 3,750,000 people, particularly wage earners, out of the Income Tax paying class altogether; that reductions in Income Tax already amount to £570 million a year; and that Purchase Tax reliefs to the tune of £60 million have been given mainly on household requisites and other essential articles, or on items of benefit to the deserving classes of the community, and that ranges of utility goods not subject to this duty have been greatly widened, the stabilisation of the food subsidies at the increased and very substantial figure of £465 million can hardly be looked upon as unreasonable.

I should perhaps say a word or two in reply to the charge that the Government have acted unfairly by so drawing one of the Budget Resolutions as to prevent Amendments on Purchase Tax being moved in Committee. The Chancellor of the Exchequer made it quite clear in his Budget Statement that in this Bill he could not contemplate any changes in the Purchase Tax schedules. He not only made it clear, but the phrasing of the Resolution itself underlines what he said. The Chancellor was advised that it would have been possible to exclude purchase tax from the scope of the Bill by a form of words which did not expressly refer to it, but the form of words actually used was definitely adopted in order to draw attention to the point at the earliest possible moment.

It has been said that whilst it is agreed that the limiting words were included in a Resolution, they occurred in one of the Resolutions passed at the end of the first day's sitting before hon. Members had an opportunity of studying the text. That, of course, is not so. They occurred in the final Resolution, which was kept open during the whole course of the four days' Debate. In fact the hon. Member for Moseley (Sir P. Hannon) referred to this matter in his speech and the right hon. Member for North Leeds (Mr. Peake), who wound up shortly afterwards, made no reference whatever to the point his hon. Friend had raised. I think it grossly unfair for anyone in the House to charge my right hon. and learned Friend, as I think some have done, of engaging in sharp practice.

Mr. Piratin (Mile End)

While I think the House recognises that the Chancellor of the Exchequer has not done anything underhand in this matter, and that it was clear to the House although many overlooked it at the time, is it not the case that although the Chancellor said he could not consider any reduction in Purchase Tax, it is for the House to decide whether the £19 million to be saved from beer could not be saved from Purchase Tax? In that respect I think he should have put it before the House in the Finance Bill.

Mr. Glenvil Hall

That has little or no bearing on what I have been saying. Of course it is open to the House to decide these matters and during the Budget Resolutions the House had every opportunity of studying the Resolution and thereafter acting upon it in order to alter the suggestion made by my right hon. and learned Friend that when we reached the Committee stage, as he felt he could do nothing to lighten the incidence of that duty, the matter should not be discussed.

During previous discussions on this matter in the House, particularly by hon. Members opposite, we have been informed that these discussions on Purchase Tax changes are somewhat undignified. The right hon. Member for West Bristol (Mr. Stanley), certainly on one occasion, referred to the Committee stage on the Purchase Tax as a kind of Dutch auction. It would be rather absurd during the Committee stage of the Bill to engage in a Dutch auction of that kind, if the only person present with any money to spend in that connection indicated that he was not going to spend it.

Mr. Lipson (Cheltenham)

Can the right hon. Gentleman tell the House whether there is any precedent for a statement in a Finance Bill that a particular tax shall be excluded from reconsideration?

Mr. Glenvil Hall

I think there have been precedents. I think there was one in 1932, but perhaps it was not on a Finance Bill; I am not sure about that. My right hon. and learned Friend now tells me that it was on the Finance Bill in that year, when discussions took place on the Import Duties.

Lieut.-Commander Gurney Braithwaite (Holderness)

Quite a different case.

Mr. Glenvil Hall

All cases are different.

Captain Crookshank (Gainsborough)

It is no precedent at all.

Mr. Glenvil Hall

I turn to the Bill itself. The changes made this year are neither numerous nor complicated, and I apprehend that it is not necessary for me to say much at this stage in amplification of the Bill's contents. There is, however, one proposed change in which I know the Opposition take an interest and perhaps some reference to it will not be out of place, particularly as there appears to be some misconception as to what is proposed. I refer to the proposal relating to Death Duties. There are at present three duties chargeable on death—the Estate Duty, the Legacy Duty and the Succession Duty. It is now proposed to merge the Legacy and Succession Duties into the Estate Duty and at the same time to lift the combined scale to produce an additional £20 million of new revenue in a full year.

Some people have assumed that the whole of the increase in the rates is attributable to the consolidation. That, of course, is not the case. The increase in the rates reflects both the consolidation and the proposal to raise the additional £20 million of new revenue. The reasons for the consolidation were fully explained by my right hon. and learned Friend when he made his Budget statement. It has been argued that the consolidation of the duties prejudices the widow and children, who paid Legacy and Succession Duty at only 2 per cent., and benefits relatives and strangers, who have been liable at 10 per cent. or 20 per cent. This differentiation, as a matter of fact, existed only in the cases of Legacy and Succession Duties and it extended therefore to a very small part of the total duty payable. It has never existed with the Estate Duty, which accounts for nearly 90 per cent. of the total yield.

Moreover, the intention of this differentiation has largely been defeated by testators themselves who normally leave prior legacies "free of duty," which means that the Legacy and Succession Duty is in fact paid out of the residue. With most of the bigger estates, which are those affected by these proposals, it is very rarely the case that the whole of the property is left to the widow or children; there are usually prior legacies to friends and relatives. All we are doing, therefore, is to give statutory effect to what most testators already do, namely, to put the whole charge of duty on the estate itself and by doing this we are saving a great deal of unnecessary work both for the Revenue, and for executors and their professional advisers.

In the case of the smaller estates, namely those below £17,500—and between 98 per cent. and 99 per cent. of the people who die each year leave less than £17,500—we are retaining the existing Estate Duty scale. This means—and I wish to emphasise this—that these estates will pay no extra duty, either on account of the consolidation or on account of the increase in the scale of the duties which is to bring in £20 million in a full year. I would remind the House that where the estate is left to the widow for life, no Estate Duty is charged on her death. This very valuable concession to the family will continue in being. The net increase of £20 million in the total Death Duty charged is designed to reduce somewhat the very great inequalities in the distribution of property which still exist. Of the 550,000 people who die each year only 10 per cent. own more than £2,000, but those 10 per cent. between them own 90 per cent. of the total property.

In the course of the Budget discussions the right hon. Gentleman the Member for the Scottish Universities (Sir J. Anderson) referred to the taxation under Part IV of the Finance Act, 1948, of benefits provided for directors and high officials of industrial concerns. He agreed that it was necessary to check the undoubtedly grave abuses that had grown up, but felt that the Revenue authorities were going too far in their administration of the new law in its application to such benefits as lunches provided in industrial canteens or under some arrangement of an equivalent character. I am glad to say that my right hon. and learned Friend has looked into this matter and has come to the conclusion that the exemption which the law gives for meals in a canteen may properly be given where lunches on a reasonable scale are provided for directors and high officials on the business premises if lunches are provided for the staff generally, whether on the premises or elsewhere.

May I briefly refer to one or two other criticisms which have been made, both in this House and in the Press? Why, it has been asked, should we cut beer duty instead of, say, reducing Purchase Tax? Although the price of beer has been reduced by 1d. a pint, only part of this, I would remind the House, is due to the cut in the duty. The rest is to be met, to the extent of £4 million a year, by the brewers themselves out of their profits. I would add that the cost of beer enters into the cost of living index figure, and is often a substantial item in the family weekly expenditure.

Captain Crookshank

Not in Ealing, West.

Mr. Glenvil Hall

Those who remember the Debates we had last year when the price of beer was increased by 1d. will remember that there was then a widespread feeling in this House, on both sides, and the statement was made in a good number of speeches, that this in fact was a serious addition to the burden falling on the family budget. Some of the critics therefore who today think that the reduction is worth little forget the impassioned speeches that they or their friends made last year on this subject.

Why, say some other critics, cut the duty on table wines? The answer, of course, is that in the past these duties have been so high that Exchequer receipts from them have fallen. They have also restricted the trade with France and with the Commonwealth, particularly with Australia and South Africa. Cutting the duty will, we hope, help European recovery and Commonwealth trade and will, we also hope, not lose any appreciable revenue which can be used for other purposes.

Another criticism which has been made refers to the wear and tear allowance given to industry. Is not this, say some of our critics, a free gift to the employers? The answer, of course, is, "No." Its object is to assist the re-equipment of industry and therefore lead to higher production. It is not a gift to industrialists. Over the years it will not put an additional single penny into their pockets. It is merely a bigger allowance in the first years when the machinery, or the piece of equipment, is bought, and smaller allowances in compensation will be given in the years that follow.

I commend the Bill to the House as embodying proposals which, in spite of criticisms which have been made are, I think, sound and reasonable. Though they may do no more than hold fast to the gains which have been achieved during the lifetime of this Government, such gains have been well worth while and are well worth continuing. I, however, believe that the proposals will do something more than this. They will materially assist in the work to which this Government has set its hand, namely, to redistribute more fairly the national income and to promote the welfare of this country both at home and overseas.

3.50 p.m.

Mr. R. A. Butler (Saffron Walden)

This Debate on economic and financial matters follows upon the Debate recently held on the Budget and on the economic situation, but I think that it is appropriate, in discussing the Finance Bill, to consider whether this Bill enables us to maintain for the coming year a high and stable level of activity. If I may be excused for saying so, I think the very cursory summary which has just been given by the Financial Secretary hardly gives us confidence that this Bill will achieve that object. In fact, the whole of his tone was completely apologetic, apologising for points raised in the country and for criticisms made. He gave us no picture of the manner in which the policies which are supposed to be contained in this Bill will get us through one of the most difficult years this country has ever had to face.

It is clear that we must discuss this Bill with the realisation that when it is passed it leaves our economy jammed right up against a wall. We have an unprecedented level of expenditure and a hitherto unknown level of taxation. There is little or no room for manoeuvre. The Chancellor of the Exchequer has tried to scramble over the wall by telling the public the undoubted truth that extra sacrifices must come from their own pockets. I hope that when they read this document to which the Financial Secretary referred, "The Budget and Your Pocket," they will be satisfied that the holes already burned in their pockets can in some mysterious way be repaired.

The fact is that the so-called idle rich, to whom the right hon. Gentleman made reference, will very shortly not be there to pay out. The fact is that the whole burden of national expenses is going to fall upon the pockets of the working people. In the process of trying to explain this fact to the country, which the Chancellor of the Exchequer did in his Budget speech, and in the process of scrambling over the wall up against which he has jammed us all, he has had the greatest difficulty in saving his limbs from being torn asunder by the ravenous wolves. Fortunately, he has been wise enough to take a Roman holiday before being butchered. We propose to continue this process, and we welcome him home as a "sacrifice" of which we propose to take full advantage.

The Debate on this Bill will take place in an atmosphere of a changing economic situation to which I wish to refer and which we have constantly predicted. If I introduce some serious arguments, I hope I may have the sympathy of the House, because these matters are really very important for us to consider as a preface to the Committee stage later. Since the war, it has seemed to us that the exports problem of this country is one of producing right and sufficient goods and making them available at reasonable delivery dates. We all know that it is due very largely to the private enterprise system that we have achieved a remarkable success in the export drive up to date. Hitherto, the imports problem has been that prices were high and that traditional sources of supply in soft currency areas were not always forthcoming. However, we have constantly warned the Government that their policy was not being directed towards the situation which would arise if prices began to go down.

First, we thought—and we have warned this House and the country—that we in this country would not feel the benefit of reduced prices for some time owing to the manner in which the Government have bound us by their long-term contracts and bulk buying. Secondly, we thought that this decline in world prices and the consequent decline in world purchasing power would result in an extremely fierce competition when we came to sell our exports, and that is what we are beginning to experience. We looked for Government policies to meet this problem ahead.

Taking my first point on the subject of being tied by long-term contracts and bulk buying, we have now in our possession many instances of the effect of bulk buying, and our fears have been fully justified in the result. I refer particularly to an answer given by the Minister of Supply yesterday on the subject of base metals, when he said that over £4,693,000 was paid in hard currencies between 1st April and 7th May for metal previously ordered and mostly shipped in March and April. If it had been bought at the date of delivery, it would have cost some 15 per cent. less.

We have similar information on the subject of maize. Let us take the question of Russian maize. The price agreed for Russian maize was about £29 a ton f.o.b. The price for Argentine maize is believed to be about £27 a ton f.o.b. This was at the beginning of 1948. By the end of 1948 the world price was no more than £20, and the maize coming to Britain in January and February, 1949, is maize bought under the Andes Agreement for at least £27 a ton. We think those losses are due to not using ordinary private methods and purchasers who are acquainted with the changes in the market. We have not been able to buy those commodities at the right and proper prices for our economy. The position can equally be illustrated on the subject of molasses, with which I believe the right hon. and learned Gentleman is familiar.

Without going into further detail, I think I have shown the House that we have not only consistently warned the Government about the dangers of bulk buying, but that we now have active illustration of the losses and difficulties which arise when world prices begin to fall. This process has now begun, and the cost structure of British industry is being kept at an artificially high level by the Government's devotion to their bulk buying policy. For example, in spite of the recent cuts in base metal prices which have just been made, up till now our prices are far above the world prices for similar commodities. The same is the case for copper, lead and zinc. The sooner British industry is allowed to buy its raw materials at world prices the better. Therefore, we appear not only to be up against a wall in our economy, but to be tied by a leg.

Taking our second point, already there is abundant evidence to show that our competitors are reducing their prices, and that our export trade is getting into grave difficulties. The prices of our goods, in some lines at any rate—and this applies particularly to those most specialised lines such as electrical gear and so forth—are not proving competitive in the markets to which we send them. No doubt some of us have already seen a recent report which results from an inquiry by the Trinidad Chamber of Commerce into the prices of certain consumer goods from the United Kingdom as compared with quotations from the United States and/or Canada. The conclusion of that inquiry is that we are now unable to compete in that market owing to the cost question.

If I might make a slight digression here, I think it is an undoubted fact of our present situation that the changes in prices and in the terms of trade have a far greater significance for our economy since the war than even the loss of all our foreign assets. For example, I have calculated that we have needed a 22 per cent. rise in our exports to make up for the 20 per cent. extent to which the terms of trade have turned against us since 1938. We have needed 8 per cent. more in our exports to balance our loss from investments. Therefore, even to bring our exports up to pre-war volume, we have needed a 30 per cent. increase in those exports, and we are aiming, as we all know, at an even higher percentage, an unheard of percentage, and also at the same time we are trying to balance our economy, meet our commitments and save ourselves.

As far as I can see, and perhaps the right hon. and learned Gentleman will give us further enlightenment if he speaks later in this Debate, there was nothing to show in the Debate which took place before he went away, that we have in any way solved our dollar problem. I am one who believes that although we are naturally diverting our energies away from the hard currency to the soft currency markets, at the same time we must continue to trade with the dollar area if we are to be saved, not only for sentimental but also for practical reasons. I wish to ask the right hon. and learned Gentleman whether there is any hope in President Truman's fourth point about developing the undeveloped sources of the world and whether, if that be so, and if in fact there is dollar investment in our overseas territories and in the undeveloped parts of the world, that may give us a wider sphere for dollar transactions and help us in this extremely difficult situation.

There is one further consideration on the subject of the terms of trade, and that is to remind the House that the extent of world trade enjoyed together by Germany and Japan before the war was approximately 24 per cent. of the whole. That total is at present 4 per cent. of the whole, and, whether we like it or not, that percentage is going to increase, not only from Germany but also from Japan, and we have to consider its possible result on our textile trade, on the position of Lancashire and on our whole economy.

Mr. Stokes (Ipswich)

May I interrupt the right hon. Gentleman and ask him to explain? When he says 24 per cent. of the whole, does he mean both raw materials and manufactured goods?

Mr. Butler

I mean the total.

Our proportion has increased, but can we hold our position until we are in a position to compete? In view of all these rather serious matters which I put before the House, and which are perhaps known to hon. Members already, in which case I apologise, it is not surprising to find that the President of the Board of Trade on 9th May said at Birmingham: April has shown us the beginning of some of the difficulties which some exporters in this country have known we have to face some time. The conclusion of what I wish to say by way of introduction is that the essential objective in any discussion of the Finance Bill or in any further discussions which we might hfave is to reduce the costs of production, thereby reducing prices in a keenly competitive world.

Mr. Ellis Smith (Stoke) rose—

Mr. Butler

I propose, after a short digression on the next matter to which I want to pay attention, to cover the position in this light. Perhaps if the hon. Gentleman will listen a little longer, he will be satisfied. I want to take up what the Financial Secretary said about the title of the Bill. If we start at the beginning we can then move on to the more economic questions later. The Financial Secretary devoted a considerable part of his speech to making apologies and excuses for having adopted what I still maintain is sharp practice in regard to the drafting of the Title of the Bill.

Mr. Glenvil Hall

I hope I did not indicate that I was making apologies, because nothing was further from my mind. I was explaining, for the benefit of hon. Gentlemen opposite, what the facts were.

Mr. Butler

I can only give my interpretation of the right hon. Gentleman's speech, as I am sure, this being a free country, I am entitled to do.

What is the position? First of all, the Chancellor, in his lengthy speech on the Budget, the quality of which was referred to by my right hon. Friend the Member for Warwick and Leamington (Mr. Eden), never once referred to this proposal to eliminate from our discussions on the Finance Bill one of the most important taxes which interests our constituents most at the present time. It is true that Resolution 31 was before us, and it is also true that that Resolution was placed at the top of the Order Paper and at the top of the column in HANSARD when we read it the next morning after our discussion. It is also true to say that the hon. Member for Moseley (Sir P. Hannon) did himself mention this matter, but the Financial Secretary has twitted my right hon. Friend the Member for North Leeds (Mr. Peake) for not having mentioned it in his speech. I want to ask the Chancellor why, if he failed to mention the matter in his opening speech, he also failed to mention it in his winding-up speech at the end of the Debate, because, leaving aside all questions of procedure and even acknowledging that this matter ought to have been dealt with more than it was at the time, what we have here is a question of vital constitutional principle.

This latest tendency to keep certain matters away from discussion in this House in my view is undermining the constitutional liberties of the British people. One of the vital features of our constitution is that we can have free speech in Parliament. We have had the Guillotine, by which the Iron and Steel Bill, lacerating one of our most noble and successful industries, has been passed without proper discussion inside this House. That has been scandal enough, but we now come even nearer to the secret of the constitution, with a question of eliminating discussion on a particular tax during the passage of the Finance Bill itself.

We can now go back to our constituents and say that we are no longer free in this House to discuss all aspects of taxation. We can go back to them and say that the Government not only propose taxation, but dispose of all argument on taxes. They maintain levies without the representatives of the people being allowed to speak. The extension of such a procedure lost us the American Colonies and King Charles his head. We can only tell the right hon. Gentleman that before very long such a procedure will lose his party their seats at the next election.

I now propose to consider the main proposals of the Bill in the light of my introductory remarks, which were concluded shortly before the interlude through which we have just passed. It is here that, if we are to save our economy, we must make every effort in reducing costs. If we accept the gross level of expenditure as being unalterable, which we do not accept, we must agree that the Chancellor has made a spendthrift's repentance and has in the Budget done the wrong thing in the right way. We are now coming to see that in legislative form in the Finance Bill. Let me remind the House that, as a result of the crushing expenditure which it is now necessary to raise—£3,632 million in taxation, which is more than three times as much as was found necessary in pre-war years, and is far greater taking the total of all taxes than during the war years—in two years, taking the total of national and local taxation, there has been an increase of no less than £655 million or an 18 per cent. rise.

This is at a time when the people of this country were expecting some relief after the struggles of wartime. The current rate of taxes takes 40 per cent. of the national income, or on an average 8s. in the £ of every gross income, taken for local and national purposes. It is our view but this must do lasting harm, destroy the ability to save, kill incentive, as it is killing it now, and must frustrate enterprise. The main way to reduce this hampering burden and to give incentives and encouragement is to avoid all waste and to reduce expenditure. That is our main belief at the present time.

I was horrified to see that, in his winding-up speech in the last discussion on our economic position on 12th April, the Chancellor, in answering the Debate, twitted my right hon. Friend the Member for Aldershot with being solely interested in getting incentives for management, and used this phrase: What the right hon. Gentleman and his friends are always looking for are greater monetary incomes for the managerial class. What we are looking for are greater benefits for the workers of this country."—[OFFICIAL REPORT, 12th April, 1949; Vol. 463, c. 2769.] I say that the Chancellor was absolutely wrong to make a statement of that sort. No Chancellor of the Exchequer should try to divide up the country into classes, and no Chancellor of the Exchequer who is worthy of the name ought to do other than try to encourage incentives, whether for the boss, the manager or for the workers on the floor of the shop. We take the view that the measures of encouragement necessary for the success of our industrial future must and will depend upon their being of a truly national order and on the preservation of national unity. We maintain that we cannot give incentives in the way we desire to give them, that is, incentives to management and to work people, unless we can somehow relieve that crushing burden of taxation by saving where we can and eliminating all waste. We in the past have hammered home examples of extravagance. We have been fairly successful, for example, in drawing attention to the waste in the German Section of the Foreign Office, in the Foreign and Imperial Services, and in the Board of Trade commodity services.

It was thought to be surprising when we devoted three days to the Supplementary Estimates of £300 million, which accounted for 2s. on the Income Tax. Indeed, in by-elections we were held up as people who were going to cut every sort of essential service, and our whole view was travestied. What do we find now? We find that the Chancellor of the Exchequer, in his death bed repentance struggling for breath, says that there are to be no Supplementary Estimates at all next year. Why did he not tackle this expenditure before? Why did he not, in some approach, try to moderate the immense amounts in the Supplementary Estimates so that we could have been saved our anxiety and the need for the crushing burdens he has placed upon us? The temperature is to drop from 300 to zero. This is indeed a crisis treatment of pneumonia on the classic line; this is indeed a slashing treatment with which the Opposition is usually charged in the course of irresponsible Debates in this House.

I have not the opportunity this afternoon, if I am not to stand too long between hon. Members and the opportunity of speaking, to go into great detail, but I can only recommend hon. Members to read the two excellent volumes by the Comptroller and Auditor-General on the "Appropriation Accounts" and "State Trading" to indicate where losses can be saved. To take one simple example, if we saved 5 per cent. on our total expenditure by eliminating waste, while yet retaining the essential services, we shall have £165 million available for tax relief, and if we do the same at 10 per cent., we shall find that we have £330 million available. Even if we take into account the obvious needs of defence and the need to save the vital services, I think there is opportunity, over and above what the Chancellor has led us to hope, of reducing this great burden of expenditure.

I do not propose to devote very much time to the tax on beer except to say that it illustrates the tendency which we notice in indirect taxation for demand to slack off and for diminishing returns to the Revenue to result. We believe that this tendency—which will later be reflected in direct taxation, because taxes on industrial profits are paid somewhat in arrear—may very likely catch the Chancellor between the inexorable shears of diminishing revenue and fixed expenditure. On the question of Income Tax, I think we can leave this very important matter until a later stage of our discussions. I remember that every time I had an opportunity of a discussion with the late Lord Keynes, he said that nothing would do so much to encourage enterprise in any way than a straight and even small reduction of Income Tax.

I now come for a few minutes to the question of depreciation allowances, to which the Financial Secretary referred. This is an intricate subject which we shall have to handle with great care at a later stage of the Bill. I thank the Chancellor for establishing an inquiry into this matter. I realise that this is intended to benefit industry, but the Financial Secretary was quite right in saying that this was no free gift to the industrialist or capitalist. It is not an additional allowance; it is an anticipation of allowances normally spread over the life of an asset.

Therefore, unless the rate of taxation happened to fall in the intervening period, this would, in fact, be no gift to industry. To a certain extent, it will benefit those who are capable of spending fairly large sums today. It will also benefit those who are prepared to expend their own money and, in the end, see the whole scheme work out. But this new allowance will not benefit firms who have not got substantial funds unless they go on the markets to obtain them. It therefore helps the big unit with funds rather than the small unit without funds, but the need for replacing plant is just as important in the small unit without readily available funds as it is in the big unit.

It does not tackle the problem of working capital. Those with stock in trade as capital will not benefit, and it does not—unless we have discussions on this matter at a later stage with success—cover buildings which are already covered by the principle of allowances as such. Therefore, leaving this matter with those general observations, I will only say that we shall have some constructive proposals to suggest to the Chancellor which will deal with the real problem of industry, that is, the drain of capital which is the general experience of productive enterprise in this country.

We have welcomed the Chancellor's statement that he is abolishing the tax on bonus issues, and we now appeal to him to consider the abolition of the tax on undistributed profits which will itself be the straightest and the soundest way, not of encouraging this person or that, but of fortifying British industry in the task of re-equipping itself, in dealing with the cost position in the world and enabling us to compete at competitive prices. I will say, in passing, to the Chancellor that we are greatly obliged that lunches can now be had without eliciting the odious attention of the tax collector.

Before I conclude, I wish to answer what the Financial Secretary said on the question of Death Duties. The right hon. Gentleman fancies himself as a "tidier up." Perhaps it has been too much to expect him, in the efforts he has recently made, to indulge in a greater simplification of our taxation system, but I can only say that, despite the small clearings up of Land Tax, and so forth, which the right hon. Gentleman has achieved in this Bill, there remain intense intricacies in the British taxation system which one day or other will have to be cleared up. We have studied these matters in detail, and have our views about them which it would take me too long at the present moment to expound.

The right hon. Gentleman has cleared up the Land Tax, the Succession Duties and the Estate Duties. The position we now see is that the Chancellor claims that this is administrative simplification and that he has indulged in a moderate lift in the rate of Death Duties. Our objection to this portion of the Bill is that it is not conceived in the principle of encouraging or helping home life. I shall try to illustrate by a few figures that the right hon. and learned Gentleman appears to be departing from his most fundamental beliefs in the sanctity of family life, which he ought to hold as an ardent supporter of the Marriage Guidance Council, in taking away from widows and children the preferential treatment which they received before and giving favourable treatment to distant relatives and what may be euphemistically described as "outsiders."

An examination of the figures shows that the biggest proportional lift in this new Death Duty rate is on estates of moderate size. The new scale will make widows and children worse off after the £17,500 level than they were before. It will not hit brothers and sisters until the £45,000 level is reached, and it will not hit outsiders and make them worse off until they reach the £75,000 level. To take an example of the increases, under the old scale, on a £52,000 estate, a widow or child would pay gross, with Legacy Duty, about 25½ per cent. On the new scale the total would be 35 per cent. which is a great deal more than a moderate lift—an increase of almost £5,000; that is £18,200 instead of £13,270. In this case the stranger or outsider is better off paying £18,200 against £20,380, while the widow is £5,000 worse off.

It seems to us that this is a direct blow against family life for the sake of administrative convenience, and this seems to me to represent and to sum up all that is worst in the philosophy of the party opposite and in the philosophy of the right hon. and learned Gentleman in introducing this provision—"Save the bureaucracy, the women and children can swim." We say in all seriousness to the right hon. and learned Gentleman that we look to the Committee stage to ask him to restore some of those moderate differences to which the Financial Secretary deliberately drew attention, which were in existence before in our taxation system, and which have always been part of our taxation system, in the allowances to children and so forth under Income Tax.

I have said nothing on the main policy of raising Death Duties. We have been told frankly this afternoon by the Financial Secretary that it is the policy of the party opposite to redistribute wealth. Everyone is in agreement with the view that if money is wasted, whether public or private, that is not in the national interest. I hope we are all agreed also that it is good for a young man or a young woman who succeeds to an estate to stand on his or her own legs, because that brings out the best in character. Therefore, I hope that we have no cause for disagreement on these fundamental principles on the question of wealth.

I myself have always been inspired by the words of Burke, that a man is entitled to his "legitimate expectations," and one of the most cherished of these is that he should pass on his life's work in the shape of a business or a strictly administered estate or property to his son. Not all property or all wealth is administered licentiously. Strangely enough, much of the best tradition in English estate management is to administer things in the public interest. The public are now beginning to realise that many of the shocks and expenses of life will fall on their own pockets as a result of deliberately mulcting a section of the community, who, due to taxation or otherwise, can no longer be counted upon to help lighten public expense.

This Bill should make the public realise the truth of this assertion. The Government's spendthrift habits and deliberate destruction of private sources of wealth have put the whole burden of our economy on the shoulders of the modest taxpayer. Questions which used to be reserved for economists and speakers in Second Reading Debates are now of interest—and this is a good point—to every man and woman in the country. Everyone must now understand that with export markets becoming more and more difficult, we must increase our home skills and reduce our costs if we are to buy the food on which we must live.

Our own kith and kin in Canada are becoming seriously anxious at the effect of these policies which we have to adopt. We have been obliged to consider deals with other countries of a bilateral character which must harm international trade without which we cannot live. We must check these tendencies, increase our production and lower its costs. No single step can do more to strengthen the pound sterling. The more we save in expenditure, the more we can relieve taxation and encourage efficiency. The present proposals will not achieve this end. They will just keep us hard up against the wall, wondering how to get by. This Bill will, no doubt, get a Second Reading—that is to say, if the recent disciplinary measures among the party opposite have had effect. But our "legitimate expectations," that we are saving our standard of living and assuring the coming generation of prosperity, have not yet been fulfilled.

4.25 p.m.

Mr. Diamond (Manchester, Blackley)

When I heard the earlier part of the speech of the right hon. Member for Saffron Walden (Mr. R. A. Butler), when I noticed how widely he was traversing our economic situation, it occurred to me for one moment that he was in the same difficulty as I myself—that having prepared his notes for a speech on the Budget and not having been successful in catching the Chairman's eye, he was nevertheless determined to make use of those notes, and gave us a speech which was welcomed in many parts but which perhaps would have been more appropriate during the Budget Debate than during the Debate on the Finance Bill.

Be that as it may, I hope that I may answer one or two of the remarks which he made during this rather wide discourse. He brought up the old question of bulk buying and long-term contracts. Surely, it is fairly obvious to everybody that if we have a long-term contract and prices fall at one stage, we are buying above the world price. If we have a long-term contract and prices rise, then at one stage we are buying below the world price. The whole purpose of the long-term contract is to ensure what I should have thought every hon. and right hon. Member on either side of the House wanted—stability, so that we should know where we are, so that our producers and manufacturers who have to have these raw materials at fixed prices should know where they are, and so that the food producers, particularly the Dominions, whom we want to assure of some stability, should also know where they are.

In those circumstances, I should have thought that nobody on this side of the House would be at all impressed by the right hon. Gentleman's argument. Nor would I have thought that they would be impressed by the right hon. Gentleman's claim, frequently repeated on the Opposition benches, that whereas the remarkable achievements of this country in terms of our export trade reflect the greatest credit on private enterprise exclusively, nevertheless the fact that we are now running into difficulty because of high prices and competitive markets reflects the greatest discredit on the Government exclusively. Surely the fact—and we all know it—is that each has its proper sphere. The Government have been most helpful in encouraging private enterprise to play its proper part, and private enterprise has decided, although somewhat belatedly, to swim with the current instead of against it, and, as a result, while using the same energy to produce more, has achieved, with the help of the Government, extraordinarily satisfactory results for which the thanks of everybody in all quarters of the House ought to go out.

We all know that one of the particular tasks of private enterprise is so to organise production processes and so to organise the direction of men that goods can be produced at the lowest possible cost. That is one of the particular responsibilities of private enterprise, and therefore I should have thought that the fact that we are now going into the stage where goods can only be sold in a competitive market was a challenge to private enterprise which it would welcome.

The right hon. Gentleman went on to refer to the fact that we are having taken away from us about 40 per cent. of our gross income and that is being spent by the State. That is a fact which I welcome. It is a fact which is continued in this Bill, which admittedly provides for the continuation of extraordinarily high rates of taxation. I welcome these very high rates of taxation because I believe in the form of co-partnership which I thought was most welcome on the Opposition benches—a form of co-partnership whereby we all contribute our 40 per cent. so that this money may be spent for our common benefit. I, as a taxpayer, am satisfied that I am getting good value for money out of that expenditure.

It is, of course, right that where any waste occurs it should be pointed out. We have our machinery in this House for achieving that. We have our Select Committee on Estimates; we have our Select Committees to look into all these matters. Of course, we are assisted by the Auditor and Comptroller-General. But when an individual case is built up into an enormous principle and when a quite fictitious figure of 5 per cent. is produced, we have an impossible argument. Of course, as the right hon. Gentleman went on to say, if you try 10 per cent. you get double the amount. "Audited and found correct," is the only comment I can make on such a remark. I do not know why he did not continue it even further.

Perhaps I might refer to the exclusion of Purchase Tax and of all reference to Purchase Tax from this Finance Bill. Had I been more fortunate in my attempt to catch the eye of the Chairman in the Budget Debate, this is the very thing for which I should have pleaded from the Government. I am delighted, therefore, to find that by the Title of the Bill my right hon. and learned Friend has determined not to have this most unsatisfactory Debate on Purchase Tax later in our proceedings. Perhaps I may say why. First, I will give the arguments which might appeal to hon. Members on this side of the House and later those which might, perhaps, appeal more to hon. Members opposite.

First of all, dealing with those on this side of the House, as we know, Purchase Tax is very largely a distribution of income in such a way that the most needy section of the public, the most needy people, are assisted by the revenue from Purchase Tax, and the revenue from Purchase Tax is derived by the cost falling on those who purchase mainly luxury goods, and, to a certain extent, semi-luxury goods. Any alteration in that distribution, unless it were a complete reduction of taxation and a void left in its place—and we cannot contemplate a void—must have the effect of increasing the share of the burden which is borne by the most needy. From that point of view, therefore, I should have thought that Purchase Tax having settled down in its present form, should not be disturbed.

The arguments which I think will appeal to hon. Members Opposite are these. The Purchase Tax, which was a most excellent fiscal instrument, has been utterly ruined by politicians. Every year we have had a Debate and we have made it perfectly clear to the buying, wholesaling and manufacturing public that if one was interested in a particular commodity, all one had to do was to get hold of one's Member of Parliament, who would be very glad, at the appropriate time, to raise the matter and to ask whether some reduction in the Purchase Tax could not be made.

Mr. Scollan

Reverting to the hon. Gentleman's first point, the argument which he adduced about the Purchase Tax seemed to imply that the people who would get the most benefit out of the tax are the very poor people who pay the Purchase Tax to get the benefits of it. Obviously it is so; it would be those who buy the clothes and other things.

Mr. Diamond

I hope my hon. Friend will not think that because he has not followed the point I was making, the whole of the House has similarly been unable to follow it.

Mr. Wadsworth (Buckrose)

Surely it is the duty of Members of Parliament to ascertain the wishes of their constituents, and this is the only method by which they can bring them before the Chancellor.

Mr. Diamond

I am not disputing that it is the duty of Members of Parliament to ascertain the wishes of their constituents, but I should have thought that most hon. Members were faintly aware of the fact that most of their constituents would prefer a reduction in taxation, anyhow. I should have thought that was a principle we might assume. I am not dealing with that point, however. I am dealing with the point of the responsibility of a Government to see that manufacturers have regular production lines, that wholesalers have regular quantities which they can budget for, and that shops have regular stocks which they know will come in and go out, and it is that responsibility which this Government is discharging by preventing politicians from talking about the Purchase Tax in such a way as to interrupt this free flow and to raise false hopes.

Everybody knows that for months before the Budget Debate this year, the ordinary purchasing public had stopped buying for the very good reason that they did not want to be caught out and that, as they had every reason to believe there would be some reduction in one item or another of the Purchase Tax, they stopped purchasing. Goods started to mount up in the wholesalers' stockrooms; manufacturers found themselves without orders and some manufacturers, to my personal knowledge—and my experience must be extremely limited—had to reduce the number of their employees. Others, in order to avoid that reduction, built up enormous stocks, and used all their working capital so that they were unable to pay their Income Tax.

Mr. Douglas Marshall (Bodmin)

I want to be perfectly clear about what the hon. Member is saying. Is he suggesting that in future on no occasion should this House ever discuss the question of Purchase Tax and its reduction?

Mr. Diamond

I am coming to that point; I have it well in mind, if the hon. Member will allow me to get there. What I am dealing with at the moment is the wisdom of the Government in putting an end to this what, in perhaps an adequate phrase, I would call a "Dutch auction" because, as I have explained, until the public are satisfied that they cannot reasonably expect minor alterations, little fiddling alterations, here and there in the Purchase Tax every year, we shall have this shocking interruption in the trade of the country which does nobody any good.

Mr. R. A. Butler

I want to put a serious point to the hon. Member. Would he think it wrong for us to discuss removing Purchase Tax from materials which go into the manufacture of goods, because if we were able to remove Purchase Tax it would have the effect of increasing manufactures in this country and helping trade.

Mr. Diamond

If I may say so, with all due deference to the right hon. Gentleman, it is not a serious argument to suggest what you are going to remove, unless you suggest at the same time what you are going to put in. We have to look at the whole problem, and I am dealing with it entirely on the basis that the total amount of revenue has to be found. If it is not found out of Purchase Tax it has to be found out of something else. I am trying to express what I should have thought would be quite an acceptable point of view to the benches opposite, that the present position, which has been brought about by the over-sensitivity of the public to Purchase Tax, is a very unsatisfactory position indeed.

My own experience has been, for example, that one day after the right hon. and learned Gentleman's Budget speech one shopkeeper was saying to his customers, "Of course, there will be another Budget halfway through the year and Purchase Tax is likely to be reduced then." So ingrained are the public with the view that the Purchase Tax would be dealt with in bits and pieces at every one of our annual "Dutch auctions" that the Government realised that the wise course is that Purchase Tax should no longer be used in that way. I, therefore, suggest to the right hon. and learned Gentleman the Chancellor of the Exchequer that until he discovers some method of raising an equivalent amount of revenue which will not have this disturbing effect upon trade, it is far better to leave the Purchase Tax completely alone. He must find some alternative method such as a small sales' tax, spread over a much wider area of goods, which would be so small in its incidence as not to affect the purchasing public.

Mr. David Eccles (Chippenham)

I agree with the hon. Member that Purchase Tax creates a very great deal of feeling in the country, but that seems to me to be a reason why we should discuss it in principle once a year. Would he not agree, therefore, that the Chancellor's right course would have been to say, "This year I will accept no Amendments on the Purchase Tax, but I will not exclude a Debate in the course of the Committee stage upon the principle of the Tax"? Such a Debate could easily have been achieved by putting down something which would have been a peg. Have not the public a right to have a discussion upon the principle of the Purchase Tax once a year?

Mr. Diamond

I really cannot follow the hon. Gentleman. That is exactly what is happening at the minute. Here is my peg: it is the Title of the Bill. It is my right hon. and learned Friend's saying to the House, "You shall not discuss the Purchase Tax except in principle." You, Sir, have been good enough to allow that discussion on principle to proceed. I do not know what more the hon. Gentleman wants than that. That is the very point I am trying to make—that we should discuss it in principle but not in detail, and not on individual cases.

Having put my view on Purchase Tax, with only limited success, it seems, let me deal with another point raised by the right hon. Member for Saffron Walden, the question of depreciation allowance. Nobody can say at this stage, when we are giving present encouragement to industry at no present cost, that it is a bad thing. We are giving present encouragement, and the cost this year is nil; the cost next year, I think, will be £40 million, and it will be some £70 million later on. However, one has to look at it further, and I want particularly to deal with the right hon. Gentleman's arguments, because those arguments have been pressed from many responsible quarters, and will no doubt be heard much of in the future; and I dare say that there will be considerable pressure put on my right hon. and learned Friend to increase those allowances—which I hope he will not do.

The arguments the right hon. Gentleman addressed to the House are, in my submission, invalid in two fundamental respects. They are based first on the assumption, which I reject, that business has an inherent, natural right to expand. That is accepted as a principle in every speech in all responsible circles of those who appeal for these allowances and greater allowances. In my view, there is no basis for it at all. Of course, it is right for business to make its profits. Of course, that is an inherent right under our system. It is not, however, an inherent right for business to expand—except, of course, by bringing in additional capital. It is not a right that with a constant share capital, a constant number of owners, a business should have the right to expand. I come to the second point, in which I suggest the right hon. Gentleman's statement is quite invalid.

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

Will the hon. Gentleman allow me? Would he define what he really means by "expansion"? Does he mean in terms of volume? With increasing prices for the replacement of plant, a business with the same volume will have to pay more to replace its plant, without any expansion at all. Consequently, the argument is not based on the conception of constant expansion, and holds goods without that.

Mr. Diamond

I am not dealing with expansion in terms of volume, nor was the right hon. Gentleman. The right hon. Gentleman was basing his argument on the fact that many smaller businesses—I think he said smaller businesses, not the larger units—had not sufficient capital to replace their plant. He went on from that to say that, therefore, there should be additional allowances. It is purely on the question of capital expansion, therefore, that I am speaking. The second point on which I say that the right hon. Gentleman's speech was quite invalid was the assumption that depreciation allowances for Income Tax purposes are a method of ascertaining profits. They are no such thing. They are a method of collecting taxation, which is a very different thing indeed. I entirely agree with my right hon. and learned Friend that there are many defects in the logic of our Income Tax calculations as laid down by the statutes, and I welcome very much his statement that he will have these matters looked into.

But having said that, we come back to the point that these depreciation allowances are merely a method of arriving at the Income Tax and other forms of tax which a company is called upon to pay. It is the responsibility of the directors to see that, having paid whatever is due by them to be paid in the form of their normal outgoings, including tax, they manage their financial affairs in such a way that their company's capital is kept intact. If the directors of a company, by distributing too much profit, have not left sufficient behind to replace plant as it becomes obsolete or wears out, that has nothing whatever to do with the practice of taxation.

Let me illustrate my point. The right hon. Gentleman knows, for example, that in all leasehold properties the leasehold is an asset which disappears over the life of the lease, and on these no allowance for Income Tax purposes whatever is given. No responsible director in this country would dream of drawing up a balance sheet in such a way that he made no provision for this depreciation, which inevitably takes place on his lease. No director would say to his shareholders, "The Chancellor of the Exchequer is not allowing me anything for depreciation of my lease. Therefore, I am not going to make any provision myself. Therefore, I am going to distribute the whole of the rest of the income as dividends to my shareholders." No responsible director would say that. Why, therefore, when we come to the question of plant, is the argument not equally valid? I suggest it is. I suggest, further, that the clamour—perhaps, I should not use such a strong word, though I think it is a fair word—against the limitation of dividends is completely irreconcilable with the clamour for increased depreciation allowances. I cannot understand why the same bodies are putting forward these two claims at one and the same time.

I feel I have already detained the House far too long. I want to thank my right hon. and learned Friend for bringing in this Finance Bill. I want to assure him that he has the support of all Members, I am sure, on this side of the House. I want, if I may say so with all modesty, to assure him of my support, particularly on that part of the Bill which deals with bonus tax. I want to say to him that I feel, as he does, that we have reached a happy stage in the amount of inflation which we necessarily wish to have in purchasing power. I am one of those who believe that the wheels of progress travel the more readily when they are adequately inflated. Just as we do not want too great a measure of inflation, which may lead to the burst of a tyre, we nevertheless do not want to have that saggy sort of feeling which we get when bumping along on a soft tyre. I hope, therefore, that he will see to it that we shall keep in this stage, which I regard as a very happy stage, between over-inflation and under-inflation.

I am very conscious of the fact that we have done in this country an extraordinarily good job this year. I hope we are all prepared to pay tribute to my right hon. and learned Friend for the way he has led us and the whole of the nation in this way. We do not always get compliments from the benches opposite; we do not always get compliments from our own people; that is, perhaps, because of the natural modesty of all Englishmen. However, we have been having some very charming compliments from America, and I particularly like that in which it was said that we in this country have "hoist ourselves up by our own braces." I thought that a very telling and appropriate phrase. In doing that I think we have relied very much on my right hon. and learned Friend's braces. I hope he will look to the content of them, because in the coming year we have to remember that one of the greatest needs of this country is flexibility and elasticity.

4.49 p.m.

Mr. Godfrey Nicholson (Farnham)

I am very much interested in having the chance to follow the hon. Member for Blackley (Mr. Diamond), because he is a large and respected employer of labour in my constituency. I am sorry to have to add that, although he used to live in a part of Surrey which I hope to represent after the next Election, for it is to be joined to my constituency, since he heard that I was likely to be his representative in the next Parliament he left the neighbourhood. I hope he may, perhaps, come back.

I am also very much interested to follow him because I have seldom heard a speech which, to my mind—and I try not to say it offensively—showed a more complete lack of a sense of reality. I will touch only upon two points in it. I want to make the comment about Purchase Tax which has already been made by my right hon. Friend. It is the constitutional right of the Commons of this country to propose and vote for, if necessary, a reduction of taxation. It is not our right to impose taxation upon the subject. It is our right to vote to reduce taxation on the subject. I think that it is a dangerous constitutional innovation when, by a subterfuge, the Chancellor of the Exchequer removes that right from the Commons of this country. I think that every constitutionally-minded Member of this House should protest against that with full vehemence.

Secondly, I was much interested in what the hon. Gentleman said about his delight in the fact that 40 per cent. of the national income is now being taken by central and local taxation. I wonder whether he read what the Chancellor of the Exchequer said in the Budget speech when he made a very guarded reference to this subject, and whether he has studied the recent articles in the "Economist," or compared our position with that of the United States. We have 40 per cent. of our national income taken by central and local taxation, and the United States, which is the next highest, has only 25 per cent. taken. I wonder whether he considers that there is any link between that 40 per cent. and the grave economic dangers in which we stand today. I think that if he realised all this, the claims of reality might percolate through to his acute mind and charming nature.

I want to refer also to the speech of the Financial Secretary to the Treasury in introducing this Bill. I was amazed at the tone which he employed. One might have thought that one was listening to the chairman of a small grocery store explaining why the sale of biscuits had gone down or why the mice had got into the candles. I wonder if it is news to the Financial Secretary and to hon. Members opposite that many informed and experienced people take the most sombre view possible of the economic position in which we as a nation are placed. I feel that I should not be doing my duty in this Debate if I did not call the attention of the House to the extraordinary gravity of the position in which we stand and say to hon. Members that, although they may not agree with my views, the evidence that I shall produce at least merits consideration and deep thought.

Possibly and, in my opinion, probably, we are rapidly approaching another crisis worse than that of 1931. It will be a worse crisis because in 1931 our external position was not threatened. It was chiefly our internal affairs that brought about that Crisis. [HON. MEMBERS: "Rubbish."] It may be rubbish, but I am stating my view, and I think that it is a view which is widely held. What I do say is that now our external and our internal economic position is very rocky indeed. I propose to give reasons for saying that and to draw certain deductions.

First, as to our external position. We are faced with certain knowledge that it is daily becoming more difficult to sell our goods abroad. It appears most unlikely that we shall be able to attain the 1949 export targets. The export figures have already started falling. The sellers' market has disappeared in almost every country in the world. Most countries are seeking to restrict the importation of necessities and to expand the export of luxuries. Nineteen hundred and forty-eight is held up as a fine year. In 1948, which was the first year of E.R.P., according to the Chancellor of the Exchequer he had a gold and dollar deficit of £358 million. I ask every hon. Member opposite: Does he honestly in his heart of hearts believe that the export position this year is easier and better and holds out rosier prospects than it did in 1948?

There are other factors coming into play. We are getting back to a state of reality in world affairs. Germany will soon be a redoubtable competitor. In a year or more Japan will be recapturing markets on a vast scale, and an even more grave threat is that when the United States home market is saturated, they may attempt to dump goods at derisory prices in our export markets. I do not think that anyone who takes a calm and dispassionate view of the situation can feel happy over our balance of payments prospects and the future prospects of our export trade. I confess that I take a view that is darker than that taken by most people. I do not think we shall see any improvement in the export figures for this month or next month, and I think we shall see that the export figures for July will be very bad indeed. That is certainly a possibility. I do not ask hon. Members necessarily to agree with me in saying that it is bound to happen, but I ask them to go so far with me as to say that it is a possibility that must be borne in mind, and to have regard to the effect which that will have on our export policy.

Mr. Austin (Stretford)

The hon. Gentleman is making out a case for a reduction of the cost of products in this country—

Ms. Nicholson

I have not started making out any case so far, except that for the consideration of these grave possibilities. If the hon. Gentleman will contain himself, he will hear my conclusions later. The plain truth is that international trade cannot flourish under conditions of artificial restrictions and, sooner or later, the exchanges must be free. I do not propose, for reasons of public policy, to say much about devaluation beyond saying that when devaluation does come it must be no half-measure. It must be a complete freeing of the pound sterling to find its own natural level. Any attempt to fix the pound sterling at three or 3.50 dollars would only be putting off the evil day and making the inevitable disaster worse when that position has to be abandoned.

I ask hon. Members to consider whether they are happy about the prospects of our export trade. It is hardly necessary to point out that unless we solve this problem, and if we lose our present measure of exports and continue with our present expenditure on imports, there is only one fate to which we shall be submitted, and that is a lowering of our standard of life for an indefinite period of time, and, possibly, the total loss of our liberties in the process.

There is this to be said about the internal position, that the causes which brought it about are perhaps more under our own control. The basic fact is—and here I come into head-on collision with the hon. Member for Blackley—that we have to teach every elector that not only shall we be unable to raise the standard of the life of our people, but we shall be unable to sustain the present standard of life, so long as 40 per cent. of the nation's real income is taken by central and local taxation. That view is held very strongly by the majority of economists, business men and statesmen of this country. Unless drastic steps are taken, we shall not be able to hold the position of even 40 per cent. What would the hon. Member for Blackley suggest was the figure at which he would begin to feel anxious. Would it be 41 per cent. or 45 per cent.? Will he spend an occasional sleepless night when it is 50 per cent.? Is it perhaps his view that it should be 99 or a 100 per cent.? I should be very much interested if he would say.

Mr. Diamond

The answer is simply 100 per cent. In the case of some married couples the man spends everything and in other cases the husband gives to the wife the whole amount of his income to spend on their common benefit. It is immaterial whether the husband spends it or the wife spends it, so long as it is for the common benefit.

Mr. Nicholson

That is quite simple; that is the economic case for the prison or the slave plantation. I, personally am horrified, as I think are most people in this country, that every man and woman of this country works for the Government for two days out of every five; but the hon. Member will not be horrified if they work for the Government for five days out of five. I am glad he has now come out into the open, for it shows exactly where he would lead us. We, however, believe in a free State; we do not believe in the slave State. We do not believe that everybody should work as slaves of the State, handing over to the State their produce and the products of their labour and getting food, wigs, spectacles and so on in return.

An exact analogy is that of Father Christmas. The hon. Gentleman's party first tell the electors that the State is a Father Christmas with a bottomless sack of presents; then the Chancellor tells the children that the sack is not bottomless; we now have the hon. Member for Blackley telling the children that not only is the sack not bottomless, but that they themselves have got to pay for the presents. He does not, however, point out that the cost of maintaining Father Christmas is rather expensive, that it is rather expensive keeping reindeer, or a whole State organisation to run people's affairs, to take their products from them and give them back mythical benefits. The hon. Gentleman and I are in head-on collision, and I should be very glad to hear whether he represents the official view of his party. To the hon. Member for Blackley my words cannot appeal, and I shall not think it discourteous of him if he leaves the Chamber.

I make my appeal to people who are horrified by the fact that our expenditure is increasing and is bound to increase, that we are committed to heavy increases of expenditure, and that our yield of taxation, even at the 40 per cent. level, is becoming less. I do not know how many hon. Members listened to or read the Budget speech. Some of the most interesting parts of it were where the Chancellor outlined the inevitable increase of expenditure which will fall upon us during the coming years. I do not know whether hon. Members or the Financial Secretary have recognised that taxes are daily yielding less. I do not know whether they realise that the recession has already come upon us, that luxury goods are ceasing to sell even half as well as they did a year ago. I can tell the Chancellor that in the trade in which I am interested, the spirit trade, there will be a vastly reduced yield of revenue during the current year.

Mr. Jenkins (Southwark, Central)

Bring the price down.

Mr. Nicholson

I do indeed wish that the Chancellor would bring the price down. If he halved the duty he would get more than double the yield in revenue. It is merely the law of diminishing returns cropping up once again.

I wonder if hon. Members who read the "Economist" read a very interesting letter written by Mr. Colin Clark, who is Financial Adviser to the Queensland Treasury, and was three times a Labour Party candidate in this country? With the permission of the House I should like to read two sentences from that letter, in which he says: So far as can be judged from the available evidence taxation on anything like this scale"— he there refers to the 40 per cent.— will end in inflation, not only in the course of historic time … but in two or three years. If tax collections are not reduced, then money national income will rise till a reasonable ratio is restored (while real national income remains stationary or falls). He goes on to say: Excessive taxation acts on real income through an economic process of disincentives with which we are familiar, and at the same time expands money incomes through the less familiar socio-political process of weakening those forces (alike among governments, electors and private employers) which can normally be relied upon to resist inflationary pressure. I think I have said enough to convince the House that our economic position, from both the external and the internal point of view, is one of extreme gravity. Hon. Members may not agree with me that a crisis is literally inevitable, but I do claim that the situation I have outlined is one which demands careful attention from all who have the interests of this country at heart.

In normal times there are certain natural safety valves and natural indicators which show when we are approaching a crisis. Under a free economy there are many signs and symptoms which enable one to recognise the imminence of a crisis, and enable the Government to deal with it. We are not now living in a free economy. It is like driving a motor car with all the dashboard indicators pasted over; it is like driving a steam engine with the safety valves screwed down. Natural forces and economic forces can be dammed up for a very long time, but the longer they are dammed up and the longer we sit on the safety valve and paste pieces of paper over the dashboard indicators, the worse the crash and the greater the devastation when the crisis comes.

I admit that I do not know when it will come. I take the view that it will come soner rather than later. It would never surprise me if in a very few months we were up to our necks in a crisis of the utmost gravity. I do say, however, without fear of contradiction, that when the crash comes it will come suddenly. One day we shall wake up living in cloud cuckoo land, a few days or weeks later we shall find ourselves submerged. What are the reasons why we shall find ourselves in this position? Some causes are mainly external and are beyond our control. But many of them are within, and I think we on this side of the House are entitled to ask how much the Government can be blamed; how much, when the crisis comes, we shall be able to say to the electors that it is the fault of the Government; and how much the Government will be entitled to say, "It arose from causes outside our control." We shall have many valid detailed points of criticism. We can point to the fact that nationalisation schemes have placed an added burden on our resources. We can point to such things as bulk purchasing. But I regard those as, in a sense, minor counts in a very important indictment. I believe that the major capital charge is that the Government have shut their eyes to realities and misled and hoodwinked the people.

The Chancellor has been praised for a courageous Budget speech, because he told the Labour Party that their leaders had been misleading them, and that they had been misleading the people. He told us, with some originality, that we could not eat our cake and have it; he told us that we could not go on spending 40 per cent. of the national real income in taxation; he told us home truths such as that the beneficiaries now have to bear the full burden for the benefits they receive at the hands of the State. But the Chancellor knew all these facts last year. If the Government do not know the facts and if the Chancellor does not know the facts, who does?

That is what I regard as the major capital charge against the Government and against the Labour Party. While they have been playing party politics, the lifeblood of our economy has been running away. It reminds me of one of the few reported sayings of a Greek philosopher named Bion, who said: "Boys throw stones at frogs in sport, but the frogs die in earnest." The Labour Party has been playing party politics in sport, but this country has been dying in earnest. It is a grave charge, and I do not envy them their responsibility. For party ends they have corrupted the public mind, and they have bid in the electoral auction with things which we cannot afford to lose, which we cannot afford to have spent in that way. My last word on this subject is to say that I do not envy them next year's Budget, if they are still there to introduce it.

So much for criticisms. What remedies and what steps can we take to set the thing right? First and foremost we have all got to tell the people the truth. It will not be very much easier for us than for Members opposite to do that; it will not be very easy for any party to tell the people that they have been misled by generation after generation of politicians. No party, particularly the Labour Party, but even to some extent my own party, has had the courage to tell the people that there is a limit beyond which taxation can rise only to the detriment of the standard of living of the people. I hope that all Members will have the courage to tell the truth, because our people will respond as they always do to truth and courage. Secondly, some great effort must be made to reduce expenditure. I admit quite frankly that I should have liked to have voted against this Budget, but I see a logical argument against it, in that as a Member of this House I have agreed to the Estimates, and having done so it is illogical to vote against the methods proposed for raising the money with which to pay for them.

We must reduce expenditure on a large scale. There must be no tinkering, but a reduction next year of expenditure to the tune of at least £500 million. [HON. MEMBERS: "How?"] I will answer that in a minute. The time has come when a committee representing all the interests in the nation, not only composed of Members of Parliament, should be appointed with the charge laid upon it to prepare proposals for a reduction of expenditure by at least £500 million. Not unnaturally Members opposite ask under what headings I should reduce expenditure. It is not the function of a back-bench Member of the Opposition, or, indeed, of the Opposition, to outline under what headings expenditure should be reduced. I am here as the guardian of the people's purse. I regard myself as being in the position of a bank manager who tells his client that supplies are running out and he cannot allow an overdraft. If the client asks, "How can I reduce expenditure? Would you have me dismiss my gardener or become a teetotaller?" I should say: "That is not my business, but if you call me in as a professional adviser on how to run your household I will tell you." I am simply stating the incontrovertible fact that money and supplies are running out.

Before I sit down, I want to say a word to the Chancellor of the Exchequer, who I am glad to see has returned to the House. A very great deal depends on him and upon his baffling and dual personality. He has to recognise that if he is to render great service to this country, which I have no doubt he wishes to render, he cannot ride two horses at the same time. He has two horses in his stable, both very powerful horses, one called "Conscience" and the other called "Old Adam." He likes riding "Conscience" and gives "Conscience" a smart gallop, and he does heroic and noble deeds. But when "Conscience" gets back into his stall, it is "Old Adam's" turn for an outing, and he jolly well has it. I do not see how the Chancellor of the Exchequer can combine obedience to the dictates of his conscience with playing the role of party political demagogue. If he obeys his conscience, he may well do this country a great service.

Take, for instance, the Budget. The Chancellor made a belated repentance— There is joy in heaven over one sinner that repenteth. It needs courage, even if it is belated. He made a speech in which conscience was the predominant motive, but he wound up the Debate by making an exactly opposite sort of speech. No doubt in the Cabinet he undertakes brave and noble deeds, but he then goes round stumping the country like any street-corner demagogue, with sneers and half-truths, raising feelings of bitterness and hatred. No man can serve two masters, and no man can ride two horses. I appeal to him, in the interests of the country, to let "Conscience" have more exercise than "Old Adam." He knows as well as anyone about the crisis. Is he the Philip Snowden of our days, or is he planning to swing round the whole of his party and save them from coming disaster? I do not care twopence what he does as a politician, but if he does yeoman service as a statesman he will earn the undying gratitude of all of us and of posterity.

I do not know whether Members opposite agree with what I have been saying, but I believe that one of the great testing times in our history is upon us, not only for us, but for Parliamentary democracy as a whole. The choice lies between a policy of national unity—by which I do not mean a coalition, but unity in spirit—of courage and realism, or a catastrophic decline in our standards and the loss of our constitutional liberty. We shall not be the first if we fail to cope with this problem. History has other examples of great empires that have fallen because they failed to deal with the problem of inflation and the problem of how to persuade free and independent citizens from taking too much out of the national resources by way of State expenditure. Ancient Rome lies in its glorious ruins before us as an unforgettable example of that very problem. I say that the people do not know the truth, and that none of us are telling them.

5.15 p.m.

Mr. Donovan (Leicester, East)

I always read these Finance Bills and the Acts which are subsequently born out of them with gloom and depression, and sometimes with complete incomprehension. If I were sitting on the other side of the House the customary gloom and depression would certainly not have been lessened by the long speech to which we have just listened. I am almost feeling in need of a small dose of that spirit with which the hon. Member for Farnham (Mr. Nicholson) confessed he had some connection. He said that he did not believe in a slave State, and I am glad to hear it; but I remember the degradation and suffering which were inflicted on the working population of this country during the industrial revolution and for which the political ancestors of the Party opposite cannot escape entire responsibility. The only difference between those people and slaves was that the slaves were very often much better off.

The hon. Member also said that we had corrupted the minds of the electors, but the political ancestors of the Conservative Party corrupted the bodies and souls of the working people. They did not, however, corrupt their minds, and that is why we are here today in a position of power.

I would say to my hon. Friend the Member for Blackley (Mr. Diamond) that I was always brought up to believe that: To tax and to please, no more than to love and to be wise, is not given to men. He has convinced me, and so indeed has the hon. Member for Farnham, that that saying is now out of date, and I am sure that the Chancellor of the Exchequer will take some comfort from the fact.

I propose to be the first person so far in this Debate to make a short speech. I gather that Second Readings are intended for the discussion of principles. In the case of the Finance Bill the cynic might perhaps be forgiven if, having said that taxation was a necessary evil, he felt that he had said all that was necessary on the issue of principle, and moved on. But in that part of the Finance Bill which re-imposes Income Tax, one ought I suggest, to observe the further principle that Income Tax is supposed to be a tax upon income. It is not meant, ordinarily at any rate, to be a tax upon money which one borrows and which has to be repaid. That principle, in the absence of explanation, is violated by this Bill. The marginal note to Clause 21 says: Borrowings against life policies to be treated as income in certain cases. Clause 21 has so far received very little attention. Why should loans be treated as taxable income? In the past, if a sober, industrious and thrifty person, a typical Labour Party supporter, had managed to save out of his wages a certain sum, he might in the evening of his days be minded to buy himself an annuity for the rest of his life. Supposing that he had saved £500. He would go to an insurance company and buy himself a life annuity. Let us assume that having regard to his age, the insurance company were willing to pay him £70 per annum for the rest of his life. Everybody knows, law apart, that if he lived his exact expectation of life, he gets back his £500 by instalments, with interest. So when in the past, the Inland Revenue proceeded to tax this gentleman on his £70 per annum, the annuitant would very understandably say, "This is merely my £500 back, with interest. I am willing to pay tax upon the interest but why should I pay tax on the instalments of the £500, which merely represent savings out of taxed income in the past?" The answer of the Inland Revenue always was "Because of the legal effect of the contract into which you have entered. You have parted altogether with your £500 and bought an income with it, and when you buy income you buy Income Tax. We are very sorry but there it is."

That answer being perfectly sound as a matter of law, an annuitant recently changed his form of contract. He put down his £500, and in return he got, first, a small annuity of £7 a year, and second, the right to receive a capital sum to be paid to his estate when he died. That sum was to be £4, multiplied by the number of months which the annuitant should live after the contract; so that if he lived for 125 months he would get back his £500 exactly, but if he lived less he would get less, and if he lived more he would get more. In any event he secured a capital sum when he died. So far, the Inland Revenue had no objection.

Then the insurance company said to this annuitant, "Every month you live increases by £4 the capital sum payable at your death. If you like, you can borrow in the meantime up to £4 every month, and if you do that we will deduct from the capital sum payable at your death the amount which you have borrowed." The annuitant replied "Thank you very much, I will," and he did. To that, the Inland Revenue took very strong exception. They said, "These loans are not really loans, they are income, you do not have to repay them." The annuitant replied "Oh, yes, I do. I repay them out of the capital sum payable at my death." The Inland Revenue said, "We do not agree, please pay Income Tax on these loans." The annuitant refusing, proceedings were begun against the insurance company on the ground that the company should have deducted tax when they paid over these loans.

The insurance company resisted the claim, the matter went to the courts and went right through to the House of Lords, where it was decided that these loans were loans and that one does not pay Income Tax on loans. The insurance company was the Wesleyan and General Insurance Company. Perhaps I had better say that their counsel was the hon. and learned Member for East Leicester, but they do not know that I am raising this point, and they have not asked me to do so. The House is now being asked to reverse that decision by legislation. If we agree, this new kind of contract will be killed, and that is the obvious purpose of the Clause. But there is no purpose in assassination for its own sake. If by passing this Bill with this Clause in it, we should divert insurance business into the sort of contract which yields Income Tax there would be an understandable purpose behind the Clause.

By penalising this new form of contract, however, we do not rid the ordinary form of life annuity contract of its disadvantages, which are such that, according to my information, the average amount payable on life annuity contracts in this country at the moment is no more than £70 per annum. All that we shall do if we pass this Bill, with this Clause in it, is to stop persons entering into a perfectly legitimate transaction with no consequential benefit to the Inland Revenue. Certain of our Dominions are more enlightened about this matter because they have exempted from their Income Tax that portion of a life annuity which really represents the return of capital invested. Cannot we do something similar by leaving this kind of contract alone?

Not so long ago the Chancellor of the Exchequer and I fought the Inland Revenue together: I must say that he was extremely good. That case went to the House of Lords, and again the Inland Revenue were defeated. But the House of Commons was not then asked to pass a Clause to rob us of our victory. On the contrary it was asked to pass a Clause which extended the benefits of that victory to other taxpayers who for technical reasons were not within its scope. If I mention the words "South Shields Corporation" to the Chancellor he will remember the case. If the Chancellor is not prepared to emulate that example, I hope that he will at least spend two minutes of his reply tonight telling us why Clause 21 is in the Bill, and what good he thinks it will do.

5.29 p.m.

Mr. Boothby (Aberdeen and Kincardine, Eastern)

I know that the hon. and learned Member for East Leicester (Mr. Donovan) will forgive me if I do not follow him in the argument which he has addressed to the House, and to which we have listened with great interest. I do not follow him because I know how quickly and how far I should be out of my depth if I attempted to do so. But I hope that he wins his case in this final court of appeal as well.

It is now almost exactly a year since I asked the Chancellor of the Exchequer to remember that the English are fundamentally a bucolic race, and to fill his room at the Treasury with engravings by Hogarth, just to encourage himself to take a more genial and expansive view of our prospects. I hoped he would abandon austerity in its bleakest and most rigorous form, and go ahead with a policy of increasing production by encouraging enterprise, and even with a little gaiety. It was a vain hope. This Bill is a further instalment of the Chancellor's fixed and determined policy—to make this country a completely independent and self-sufficient economic unit by 1952. I do not think he will succeed; and I propose, as briefly as possible, to give my reasons for thinking that he will not succeed.

My first reason is that the Chancellor has imposed upon this country an economy which is absolutely rigid. All the indicators of the free market economy—prices, wages, interest rates and exchange rates are more or less frozen. The first two—prices and wages—can go up, but they cannot come down. The last two are fixed; and fixed without any real consideration for, or knowledge of, the governing factors. This means that all the economic adjustments that have to be made in this country can only be made by the method of direct physical controls of one kind or another. I think that is just possible in a sellers' market; but I do not believe it will be possible in a buyers' market.

The Chancellor has staked everything upon a still greater increase in exports, particularly to the dollar area. That is really the basis of his entire policy. I do not believe that his expectations will be realised. I believe the sellers' market has definitely come to an end, and that the buyers' market is at hand. The Chancellor categorically, and even dog-matically, ruled out devaluation in a statement he made to the Press in Rome the other day. He is always very anxious to fit facts and events into his own predetermined theories and policies, but it cannot always be done. What is the alternative? It is a reduction in costs; and we have heard very little from the right hon. and learned Gentleman or from any other Member of the Government about how this is to be achieved.

I have just returned from a visit to the United States. Their production has doubled in the last eight years; ours has not. I am sorry to have to say to the House that, whatever else they may want in the United States, they are not searching very energetically for manufactured goods. Moreover, their costs are going down; ours are increasing. On several occasions while I was there prices were lowered. Twice in five weeks the price of automobiles came down. In those circumstances what shall we export to them, with our present level of taxation, wages and costs, and our rigid price structure?

Motor cars? They regard our motor cars as amusing and expensive toys, which it was good fun to buy when they could not get many of their own. But now they can get plenty of their own. Whisky? That has been a great dollar earner, although I was surprised and distressed to learn that the amount of Scotch whisky sold in America is only 2 per cent. of their total consumption. I think we could do better; but not if the Chancellor persists, as he persists in the Bill, in killing the whisky industry in Scotland by penal and punitive taxation, thus completely knocking out the home market. In the long run we shall not be able to sustain a great export if there is no home market as a basis for it. We shall no doubt have an opportunity of discussing this particular point on the Committee stage.

High-grade specialities? Up to a point, yes; provided the quality is good enough, and prices are sufficiently attractive. Here, we come back again to the question of costs. About three years ago the "Economist" which, I know, is not a very popular newspaper with Members opposite, published a leading article, from which I will quote the following very pregnant sentences, because they are now true; they were not altogether true then, but they are absolutely true today: Wherever else the Labour Government may be able to escape from the operation of the law of supply and demand—that law of the jungle, that Socialist orators are so fond of denouncing—they will have to face it in export markets. However much they may succeed, in the domestic market, in substituting the welfare of the producer for the service of the consumer as the test of economic efficiency, they cannot do so in exports. They can only hope to solve this problem by adopting the principle from which the Trade Unions shy away as the devil from holy water, the principle of cutting costs of production to the lowest attainable figure. That is true of the export trade; and it is upon a great and continued expansion of our exports that the Chancellor now places his greatest hope. I want to know how he proposes to reduce the costs of production. I shall have a word or two to say on the subject of capital investment, which is one way in which it might be done, but which this Bill makes it much more difficult to carry out on an adequate scale. With a rigid economic structure such as we have in this country today, both as regards prices and wages, how shall we cut our costs of production to obtain this great expansion in exports?

I come now to my second reason: the Chancellor has imposed, and continues to impose, a burden of taxation—over 40 per cent. of the total national income—which no country, Socialist, capitalist or Communist, can indefinitely sustain. This is the real issue between the two main parties in this House, or at least a fundamental issue. The hon. Member for Blackley (Mr. Diamond) put his finger on this point. He said, "I welcome this rate of taxation. I think it is a good thing to take over 40 per cent. of the income of the country and redistribute it among people as we think best in their interests." We take a different view. We think it is a good thing to take less from our people in the form of taxation, and to allow them to spend what they can earn themselves as they like, and not as the Chancellor tells them. It is a fundamental issue which will be fought out at the next Election—and I have an idea that we shall win. I think people are "fed-up" with being told what to do, and how they should spend their money.

If we take no account of indirect taxation, a man earning £10 a week now works for 12 weeks a year for nothing. A man earning £5,000 a year works six months of the year for nothing. It is a long time to ask a man to work for nothing, however passionate his zeal for the common welfare may be as a citizen. The unskilled manual worker is, I am ready to admit, better off than he was before the war; but everyone else, including the vast army of black-coated workers, is worse off. Amongst these are the executives, the managers, the craftsmen, the creative men upon whom, in the final analysis, the productive capacity and greatness of our country must depend.

There was a very interesting article in the "Daily Telegraph" a few weeks ago by Mr. Colin Coote, an ex-Member of this House in which he said that we are living in a salarial Bedlam wherein education, skill and enterprise are not rewarded but are actually fined. That is profoundly true. Add to this the absence throughout the whole period of the Government's administration of any constructive wages policy, and we get a system now in which individual rewards have ceased to bear any relation to effort, skill or the relative importance of the work done. Can we wonder that in these circumstances there is a colossal increase in gambling? The money that we win on the 2.30 race is the only money which the Chancellor allows us to keep. The rest is taxed away.

I submit to the House that the worst feature of all is the present level of direct taxation on earnings. The man who made or inherited his money before the war has at least a chance. At best he can make more money by speculation which he is allowed to keep if it goes right; and in the halcyon days of Daltonian inflation, anyone who had a bit of cash had only to stick it into anything, and it went up and he got a clear profit. At the worst, he can, of course, live on his capital, as many people who made money or inherited money before the war are now doing. But the man who today tries to earn his own living has no chance. He cannot save. No one in this country can save today on any scale which makes it worth while.

Let us consider the effects of the present level of taxation. Let us consider, first of all, the psychological effect upon the middle class as a whole. I believe that the middle classes of this country are subject to constant and gnawing anxiety about their dependants. They wonder what will happen to them when they stop earning their living. They are unable to put anything by. I do not believe that this is having a good effect on their psychology and efficiency, and that it is beginning to tell now.

Then there is the economic effect, which is the worst feature. It is caused by lack of incentives and lack of savings. The essential requirement, the late Lord Keynes told us, of a stable and prosperous economy is a steady flow of funds into capital investment. I do not think that that will be disputed; but what the Chancellor of the Exchequer has done is to make capital investment a monopoly of the State. He has taken it from private individuals, who used to provide the capital for investment, and from companies who were able to plough back money out of profits. He has created in the Treasury and the Bank of England a vast investment monopoly.

In other words, anyone who wants to raise money on a substantial scale in this country to start a business or an enterprise of any kind has now to go cap in hand to the right hon. and learned Gentleman and say, "Please, give me some cash, and what are your terms?" The Chancellor then makes whatever terms he likes. There is no incentive for anyone to go flat out or to risk capital. This is the death of enterprise. I know hon. Gentlemen opposite do not like private enterprise.

Mr. Benson (Chesterfield)

If that is so, why is it that in industry three times as much has been spent on plant in recent years as was spent between the wars?

Mr. Boothby

Very largely under the auspices of the right hon. and learned Gentleman. I admit he has made a slight concession in this Budget in respect of company taxation; nevertheless, it remains true that by and large private saving and investment, and particularly risk investment, has come totally to an end.

My third and final reason for thinking that the right hon. and learned Gentleman will not succeed in the policy he is imposing upon us is because, in his relentless drive towards economic and national self-sufficiency, he is driving us towards a goal which I believe to be unattainable in the modern world. This Bill is a direct consequence of that drive. I know I am supposed to be very unorthodox—a believer in bulk purchase, long-term contracts, bilateralism, and goodness knows what else. It is quite true that the cost of State trading, which has to be met by this Bill, is very great indeed. But I confess that I have never seen any reason why long-term contracts should be elevated into an article of political faith. I think it is a question of doing what seems to pay best at the moment; and I confess that, during the period of the sellers' market, I thought it would have paid us to negotiate reciprocal, long-term contracts with the Dominions and Colonies for the purchase of wheat, meat and sugar against our manufactured goods; not only in order to expand our trade with the Empire, but also to give us at any rate some assured sources of supply and some assured markets for our goods. That phase is passing. We are now going from the sellers' into the buyers' market; and the arguments in favour of long-term contracts and bulk purchases are on that account greatly reduced. We may very easily get the wrong end of the stick.

To bilateralism I am altogether opposed. I was against the attempt on the part of this Government and of the Government of the United States to return to free multilateralism after the war, because I knew that, in a world of chaos and of fundamental economic disequilibrium, it could not possibly succeed, and must inevitably lead to increased economic nationalism. That is precisely what has happened. While paying lip-service to the principle of multilateralism the Chancellor has, in fact, chosen autarcky. He is choosing this path more and more all the time. He knows he has been criticised in the United States and throughout the Continent of Europe on that account. This Bill is a grim result of that policy.

I do not believe that the material basis of our national economy is adequate to maintain in isolation our present standard of life or anything like it. I think that the estimates and prophecies which the right hon. and learned Gentleman is so constantly giving to us are all grossly optimistic, and will be falsified by events. With the United States as a potential competitor in all the markets of the world, how can the right hon. and learned Gentleman seriously believe that the Marshall countries can achieve and sustain a rise of 40 per cent. over their prewar exports? I do not believe that it can be done. I am convinced our best hope of recovery lies in integrating our economy with that of the Empire and the countries of Western Europe; and in developing regional trading areas by means of reciprocal trade and payment agreements. This involves preferential arrangements, and the abandonment of the doctrine of non-discrimination. The present position is deeply alarming for this country. I do not share the view of some hon. Members that the United States are going into a sharp recession. I do not think they are, but what is happening is they are feeling the breeze—and a very effective and healthy breeze it is—of competition, which is lowering their costs and prices. I would remind the right hon. and learned Gentleman that wage levels over there are very much higher than here.

The failure of convertibility in 1947, which everybody but the then Chancellor of the Exchequer foretold, has led the right hon. and learned Gentleman to precipitate retreat towards undiluted bilateralism and to cuts in imports and capital investment when our supreme need is expansion of trade and increased capital investment. I suppose someone has directed the attention of the right hon. and learned Gentleman to the Economic Survey of Europe for 1948. It gives him some pretty good biffs from time to time. It draws attention to the productivity of labour in European industry as compared with the productivity in American industry. European productivity is less than one quarter of the comparable American figure, and of European agricultural labour, the proportion is only one-sixth that of American agricultural labour. The Report points out that the main cause of this is the low rate of capital investment which, in 1948—this is really startling—amounted to 12 dollars per head of the population as against 65 dollars in the United States of America.

The Chancellor of the Exchequer (Sir Stafford Cripps)

The hon. Gentleman is not suggesting that these are comparable figures for this country?

Mr. Boothby

No, but they include this country. I am merely drawing attention to the fact that the Report says, and says rightly, that lack of capital investment is one of the main causes of a low rate of productivity. That argument applies to this country, in a slightly less degree, just as it does to the other European countries.

My complaint is that this Bill reduces capital investment in this country by imposing penal rates of taxation. The Report goes on to call attention to the dangers of increasing economic autarky, and to the narrow nationalism of the investment programmes which have been formulated—this is a direct reference to the programme of the right hon. and learned Gentleman— with a view to securing a balanced development in industry within national boundaries rather than a balanced development for Europe as a whole. The Chancellor's policy continues to be limited by the rigidity of his own mentality. He will try to force facts and events into the pattern of his own preconceptions. That is why he said so categorically that there would be, and could be, no devaluation of the £ sterling. He knows very well that he has been recommended to devalue by the United States. But he said it with confidence, because he believes it. Why? Because he thinks that he can himself control economic forces of the greatest magnitude.

I am not recommending devaluation at this moment, but I am pointing out the kind of arrogance, or—if that is a nasty word to use—the fantastic self-confidence with which the Chancellor talked in Rome, in face of the difficulties that are confronting us today; and suggesting that it had a slightly irritating effect in this country, and in America. It may have irritated the Italians a bit, too. The fact remains that no serious attempt has yet been made to co-ordinate the national economic systems, or the monetary and fiscal policies of any of the countries of Western Europe. The right hon. and learned Gentleman is never tired of talking, in the round and in the vague, about Western European economic co-operation; but exchange rates continue to be fixed, without any kind of monetary co-operation.

Last, and not least, the sterling balances continue to hang like a millstone round our neck. Nothing is done about them, except that an occasional payment is made, but according to no plan or principle of which we can conceive. We know very little about what is paid out, or why. It seems to me that we are getting into a frightful mess over these sterling balances. We have no guiding principle at all; and I do not see how the right hon. and learned Gentleman can now extricate us.

When I was in the United States I read a very interesting essay by an eminent American economist. Mr. Frank Graham, of Princeton University. I commend very strongly to the Chancellor one passage from this essay, because I think it deserves his serious consideration. He says: We have not yet learnt that we must either forgo fixed exchange rates, or national monetary sovereignty; that any attempt to keep exchange rates fixed while the internal value of national currencies, and therefore the relationship between national price levels, is independently determined and constantly changing, must result in a monstrous distortion of trade, and a consequent disequilibrium in international accounts. … Unco-ordinated national monetary policies, non-discriminatory multilateral trade, and exchange rates fixed even provisionally, cannot be made to mix. I believe that to be unanswerable.

I really do not think that the right hon. and learned Gentleman can go on like this very much longer without putting this country into immense jeopardy. We are heading, it seems to me, for a great national economic disaster. We can no longer spend our way out of a depression, as hon. and right hon. Gentlemen opposite think we can, if it hits us. That technique depended upon assured and ample imports of food and raw materials. Those days have gone. The producers of the world now call the tune. They are no longer willing to supply this country with the fruits of their sweated labour at below the cost of production. My hon. Friend the Member for Chippenham (Mr. Eccles) rightly said the other day that if we now wanted to try to spend our way out of unemployment we should spend ourselves straight into a foreign exchange crisis of the first magnitude. That was not true before the war.

I am therefore greatly opposed to the policy which is now being pursued by the Chancellor of the Exchequer. I am opposed to it on the ground that it is rigid, that it is punitive, and that it is narrowly nationalistic; which is funny, in a policy coming from an alleged international Socialist. I suppose that, having got his fingers on to the lever of economic power in this country, the right hon. and learned Gentleman cannot bear the thought of sharing the power with anybody else. Anyway I do not believe that a combination of austerity and rigid bilateralism is the way out for us.

I believe that the acid test of State intervention and action in the economic field is whether it promotes or curbs enterprise, increases or diminishes output, raises or lowers costs. Judged by that test, the policy of the right hon. and learned Gentleman falls completely to the ground. It should be reversed. I say that taxation in this country has to be substantially reduced, and that our expenditure has therefore got to be substantially cut. That is the real clash between the two parties. The present national income is not big enough to justify either our present rate of taxation or our present rate of expenditure.

There is, as a result, a universal sense of frustration in this country at the present time. The natural genius, energy, and enterprise of our people are being stifled. There are far too many physical controls at the lower levels of power; and some of them are actually being operated on the basis of pre-war production. You cannot keep a pig in this country unless you kept a pig in 1938. The thing is absolutely ludicrous.

Mr. Stokes (Ipswich)

I keep a pig.

Mr. Boothby

The hon. Member is very lucky. But supplies of essential materials are still related to pre-war output. And there is far too little imaginative and constructive planning at the highest level. The truth of the matter is that we cannot rely on the capitalist system for 80 per cent. of our industrial production and try to sabotage it at the same time. We cannot rely on it to produce resources for the heaviest tax burden ever imposed upon a free community, and at the same time kick it around from morning to night. If individual effort, enterprise and savings are to provide 80 per cent. of the means of our National recovery, as we have been told by the Chancellor of the Exchequer that they are, then it would be better if they were directed by a Government which frankly believes in them, and is prepared to encourage them, rather than directed by a Government which never ceases to disparage them, threaten them, and insult them.

5.58 p.m.

Mr. Messer (Tottenham, South)

I feel that I shall be echoing what every hon. Member thinks when I say that we have been listening to a characteristic speech by the hon. Member for East Aberdeen (Mr. Boothby). I have heard him make speeches since 1929 and, whether there was a Tory Government, a National Government, a Coalition Government or a Labour Government he has always been a prophet of woe.

Mr. Boothby

Rightly.

Mr. Messer

It is difficult for me, as a simple and humble student, to know just how the Tory Party would propose to carry into effect the things that they say. For instance, the hon. Member for Farnham (Mr. Nicholson) said that we had to reduce expenditure. When I challenged him as to how much, he bluntly and easily said: "Five hundred million pounds a year." I wonder what effect that would have on the social services when we are repeatedly told that 40 per cent. of the national income goes in taxation? We ought also to remember what the Financial Secretary said that on an average each household each week receives 27s. in social services and 14s. in food subsidies. It is not true to assume that the taxation is simply taken out of people's pockets and that nothing goes back.

Therefore, when the non. Member for Farnham says, in that easy generalisation, that expenditure must be reduced by £500 million next year, I want to know how that is reconciled with the claims of the Tory Party in the recent local elections. It was said that the Tory Party was responsible for children's allowances and also for the Health Service. It seems to me that the Tory Party must be very largely responsible for the taxation which they now want to reduce. They cannot have it both ways. If they are to claim that taxation must be reduced, we have a right to ask what the Tory Party proposes to slash. It is evident that if we reduce taxation the social services will have to suffer.

Mr. Drayson (Skipton)

Why?

Mr. Messer

Unless the Tory Party tell us how it proposes to cut, we have a right to assume that the only way it can reduce taxation is by not spending it on the social services.

Mr. Drayson

By not wasting it.

Mr. Messer

Can the Opposition tell us where £500 million a year is being wasted?

Mr. Sidney Shephard (Newark)

I can give one example. During the last three or four months many controls have been removed, and yet the numbers employed by the State are the same as they were last September—694,000. That is an instance where some saving could be achieved.

Mr. Messer

In the first place, I am advised that the figures are not correct, and in the second place, that does not represent anything like the amount which it is claimed it is necessary to save.

Mr. Shephard

That is just one example.

Mr. Follick (Loughborough)

Yes, and an incorrect one.

Mr. Messer

It would be unfair to pretend for a moment that taxation does not matter. It is important. I am not one of those who subscribe to the view that taxation can mount to any height and it will not affect the prosperity of the country. The important thing is how that taxation is spent. I agree with the Chancellor's statement that the standard of life of the people of the country depends on the effort they put into production. We cannot get any more out of the country than is put into it. We cannot draw out more wealth than is there. Having said that, I would remind the Opposition that if it is true that the rate of taxation in this country is high, it is also true that the standard of life of the people is relatively high.

Mr. Boothby

Thanks to American money.

Mr. Messer

If it is thanks to American money, the Americans are not so blind as not to know that they have a good investment. The truth is that American money would not be coming to a Labour Government in this country unless the Americans had faith and confidence in it. The truth is that America has more confidence in this country than some of the patriotic Tories have. The story of woe in the future which we hear will not help this country. One cannot help recognising that we are approaching a difficult period. It would be wrong to blind ourselves to that. Economics is not a law which we can create; it is there and we have to work within its limitation. What the Chancellor has done in this Budget—perhaps in a way which many people do not like—is to show a measure of courage which many people regard as almost the point of foolishness.

I rose to speak about the social services. I am not so sure that our method of financing the social services is a wise one. No one would agree that the social services should be static. They are expanding and they must expand. If they are to expand, they will cost more money. If they are to cost more money, does that mean that we shall reach the limit of taxation and that we cannot have the social services which the people want? A hint was dropped by the Chancellor, to which some encouragement might be given, of special taxation for certain social services. When social services run into the region of £300 million, there is no finer target for a Tory Chancellor of the Exchequer. I would rather see the social services removed from the possibility of becoming the object of a Chancellor's desire for economy. Even if we had a special tax for a certain social service, I should hate to think we might have a Chancellor who could do what has been done before. I remember a certain Chancellor who raided the Road Fund and drew it into general revenue. I wonder whether the direct financing of the social services by the Treasury is a good thing for the social services. We cannot have the Treasury controlling finance unless it controls policy. We cannot have the Treasury controlling the financing of social services without those social services being affected by Treasury principles and policy.

There is a case for considering taking the social services completely out of the control of the Treasury. Taking the Health Service as an example, would it not be better if those who are administering it were precepting authorities having a grant from the Treasury to make up the balance of the amount required to run the Service? I am concerned about this. It will not do for us to pretend that we have a free health service; the service has to be paid for. The question is which is the better way of paying for it. If we had a supposedly free health service which is of an inferior standard to that of the service for which we would be prepared to pay, we would have a right to question whether the change is a good one. I suggest that consideration might be given to having a special tax so that the bodies administering the service will have the knowledge that they will not be hampered in planning the service by virtue of their inability to foresee whether or not the money will be there when they want it for the materialisation of the plan. My main reason for rising was not to deal in general with the Finance Bill, but to express the hope that we might hear something in regard to this important aspect of our social life.

6.10 p.m.

Mr. Wadsworth (Buckrose)

This Bill, and the Budget which is complementary to it, are not now merely instruments for raising money for the Exchequer but for directing the social life that we enjoy. Therefore it is my intention, in the remarks I shall make this evening, to deal to some extent with economic trends and, in particular, to take advantage of the opportunity to remind this country and this House, although we are to some extent aware of it, of the really grave economic perils that lie ahead.

The Chancellor of the Exchequer in his Budget Speech, and in other speeches I have heard recently, does not appear to be a happy man. It does not strike me that he has a song in his heart like the previous Chancellor; in fact, it is rather a dismal dirge, for the reason that he is fully aware of the difficulties which lie ahead. I am concerned because there is too much complacency in the country. After all, the party opposite have had a sharp reminder of that complacency in the recent elections and the blame for that disaster, I think quite unfairly, has been directed against the Chancellor.

The party opposite, and their supporters, claim that this "No concession" Budget gravely disturbed the people after they were led to hope that there would be some relief in the lifting of the weight of taxation from their pockets and souls, as a result of which we are becoming a cheerless race, and that at election time people naturally take it out of the Government in power. The Budget speech of the Chancellor was probably one of the most important speeches made in this House on internal matters because it showed the country the shape of things to come. It was realistic because it showed with cold realisation that the natural laws which were discovered by sages centuries ago, but are inherent in human nature, are now beginning to manifest themselves after being held back by controls. These natural laws which do not favour Liberals, Conservatives or Socialists show that we cannot take out of the nation's purse more than we put in; that if we destroy incentive, which has been the driving force in society up till now, man, being a lazy animal, does not work as hard as he should. And incentive to a great extent has been destroyed in our industrial life.

Part of the message in this Bill is the corollary that all individuals in the nation must share the burden of the cost of running the State, even if they do not like it, as they show from time to time, for the rich man, on a net income basis, has almost disappeared, and we cannot now tax merely the rich as was the custom years ago. In his recent speeches the Chancellor has said to the people, "Work or want. Pay for your social security or do without it." He has pointed out that the State has no bottomless purse and the people, judging by the recent elections, do not like the truth.

What is the truth of the present economic situation? Why is it that many hon. Members of this House share with me a fear of the future? Why is it that they believe that unless we as a country put more effort into our work, we shall suffer in the near future grave economic distress? Here we are, a nation of 50 million people with a great tradition behind us, depending not only on our own efforts for our standard of living, but also on a great contribution from the American taxpayer. I stress that, that it is the American taxpayer who is paying part of the income of everybody in this country.

Are we fully aware that our export figures today are only inflated because we are not meeting competition from Germany and Japan? Reference is often made to our rising export figures in this House and we take great pride in them, but there has been a great void in the world of consumable goods, and both Germany and Japan are out of business for the time being. Let us remind ourselves that before long we shall have to face the competition of those two countries, and so it is essential that we should watch our costs of production, before it is too late.

In drawing the attention of this House to the economic difficulties ahead, I want to remind hon. Members that we did not balance our overseas trading position even before the war. There was a deficit of £50 million a year in 1936, 1937 and 1938. If we add to that the £200 million that we have lost from the interest on our overseas investments and then double it, to bring it somewhere near the prices ruling today, it means that we have to sell £500 million of exports to balance our position. So it is obvious, from everything that has been said by the Chancellor and other hon. Members, that we have to raise considerably our target figures for exports.

Are we seriously taking into consideration the fact that this country is not as well equipped as we think it should be? When Germany and Japan enter into competition, particularly in the case of Germany, they will have the advantage of new equipment and new buildings, whereas we shall be competing with old equipment, in many cases badly housed. Are we in this country sufficiently aware that unless we maintain our exports above their present volume, we shall not be able to buy even the same amount of food and raw materials that we are purchasing now? I know the tremendous sacrifices made by this country during the war. We are justly proud of our efforts, but we must at the very earliest opportunity stand on our own feet, and be determined not to place ourselves in a position in which we owe anything to anybody.

I speak not only as a Liberal but as a business man, and having shown, I think very clearly, evidence of the economic perils that lie ahead, I hope as a business man to suggest some of the remedies. I hope that they do not hurt too much. I look upon this country very much as an old-established firm selling a line of goods with a high reputation, but rather old-fashioned in administration and having never put streamlined methods of production into operation. The bank has given this firm a loan for a period of three years so that it may re-establish itself. I think that that is a reasonable analogy.

As a business man I should first want to know something about the costs of production. We are always told that we cannot sell unless our price is right, and our price will not be right unless our costs of production are very much lower than they are today. Indeed, a great deal of attention has been directed from all sides of the House, and particularly from my own party, about the cost of living in this country. The cost of living, now considered very high, is, after all, related to the costs of production. Therefore, as a business man, my first step would be to find out whether the costs of production were satisfactory. That is why I say that our present situation is a challenge to every section of the community—to employers, employees, trade unions, and particularly to the Government—to see that our costs of production for all manufactured goods are as low as possible.

Mr. Sargood (Bermondsey, West)

If the hon. Gentleman made that inquiry and found that the costs of production were not satisfactory, how would he suggest reducing them?

Mr. Wadsworth

My immediate intention is to make a general appeal to various sections of the community and to show how they themselves can influence the costs of production; that is the main theme of my remarks this afternoon. The present situation is a great challenge to the trade unions. My party have always supported the trade unions; in fact the unions owe a great deal to the Bills enacted by my party to support and assist the trade union movement. But the trade unions, particularly in the dangers ahead of us, need to rewrite their charter. Up to now they have been a protective organisation, protecting their members from the bad employers. Today there is no need for that. The trade unions should do what I believe is being done in America and concentrate their attention on raising wages by increasing efficiency and increasing production per man hour.

Is it unreasonable to ask at this stage that the trade unions should shoulder greater responsibilities? It has been customary for them to oppose piece-work and incentive bonuses, yet it is by incen- tive bonuses that we can best increase wages, increasing at the same time the efficiency of the nation. The trade unions, with their present-day power and strength, should have no difficulty as far as I can see in ensuring that any incentive bonus would be fair to employees as well as, as they must be, fair to employers. In that direction the unions can do a great deal in raising efficiency and reducing costs of production. There is certainly a challenge to the trade unions to stem any advance in wages, because any new wave of wage increases would mean that in a short time nobody would be any better off; in fact, everybody would be worse off. We all know that wages are added to the costs of production; a general advance in wage levels, therefore, would result in higher prices. As a direct consequence, workers would be much worse off by reason of those increased prices.

A more serious aspect of the suggestion that trade unions should stem any increase in wages is the question of devaluation. In his, I hope, very pleasant holiday in Italy, the Chancellor stated emphatically that there was to be no devaluation of the £. But if wages should rise, because of their influence upon the price of goods, and particularly those for the export market, the Chancellor would be compelled to devalue the £; otherwise we should not sell our commodities except in diminishing quantities. Devaluation in those circumstances, even though it would be a bad thing for the nation, might assist exports by cheapening our goods in terms of other currencies; but since we in this country have to import two-thirds of our food we should have to pay very highly for our imports of food and, of course, raw materials also. On balance, I should strongly disfavour any attempt at devaluation.

Our present economic position presents a challenge to employers and to all who believe in free enterprise. This great nation was built up in the nineteenth century on free enterprise, but in the last 25 years free enterprise has lost a lot of its freedom and a lot of its enterprise. In the last 25 years dividends, not efficiency, have been the target, for in this period we have seen an amazing and unhealthy growth of monopolies, price rings, cartels, and so on which have protected the shareholder and his dividends at the expense of efficiency and the pockets of the people. My colleagues and I passionately believe in free enterprise. [HON. MEMBERS: "Where are they?"] Whether they are here or not, they believe in free enterprise.

The exponents of free enterprise cannot look upon the record of the steel industry without shame; a steel industry which is alleged to have been run by free enterprise but was, in fact, a private monopoly. According to the Iron and Steel Federation, 40 per cent. of the steel furnaces and 30 per cent. of the blast furnaces were completely obsolete. That is not a record of which free enterprise should be very proud. I know something of the machinery employed in many industries in this country and say emphatically that very much of it is out of date. Are the exponents of free enterprise particularly pleased with the machinery found in Lancashire today? It is 25 years and more behind America. Some of the finest automatic looms in the world have gone out of the country to help other nations to compete with us which could have been used in our own factories. This question of efficiency in our mills and the use of obsolete machinery is a real challenge to private enterprise. I say to those who believe, as I do, in private enterprise and free enterprise, "Let us put our own house in order and see that in this country we have the finest equipment in the world." Then we need not mind about competition from any other country and can put our industries on a much better basis.

There is also a challenge in the present position to our workers to stop all restrictive practices, whether they be supporting the closed shop principle, resisting the introduction of new labour saving devices, discouraging a fellow worker from producing more than a minimum, or insisting on redundant workers when labour saving devices have displaced certain labour. There was the case of the new crane at Dorman Long's Cleveland Iron Works which caused an unofficial strike, the new equipment at Messrs. Lyle's sugar warehouse at London Docks, and the case of a man at Dunstan-on-Tyne Foundry who wrote to the employment exchange: This is to certify that D. G. Cooper is leaving our employment on account of the attitude of other moulders in the foundry complaining of his over-producing castings. Those are examples of the sort of restrictive practices I have in mind. But I do not want to exaggerate the position. They exist because of the system which divides employer and employee into two well defined groups. Such a system is out-moded and creates a deplorable lack of understanding. I think the system should be replaced by a new democratic conception of industrial democracy based on co-ownership—not co-partnership, but co-ownership.

There is also a challenge to the Government in our present position. Are we doing all we can to streamline Departments of State? Are we satisfied that we could not run the State machine on a lower basis? Are we satisfied that we could not do without some of the State Departments such as the Ministry of Supply? Are we satisfied that a considerable number of men are not redundant? Such changes would help to reduce taxation to a great extent. Are the Government doing enough for the re-equipment of industry? I appreciate that the Chancellor has improved the position in regard to wear and tear allowance, but it seems extraordinary to retain the 10 per cent. tax on undistributed profits. From my knowledge of many firms today I would assure the right hon. and learned Gentleman that they are finding it very difficult to find the capital to re-equip their industries. It is true that that thas been given as an excuse in the past, but taxation has been so high in the last 10 years since the beginning of the war, that today many industries are finding it very difficult. The only money they can use for re-equipment, unless they appeal for funds from outside their own firms, is the money left in the firm and not distributed. I certainly have no quarrel with the policy of the Government in taxing distributed profits, but I object to what I think is an extraordinary disincentive to tax undistributed profits left in firms.

Are the Government doing sufficient to assist the exporter in still charging the contract price for raw materials which they use in export orders? The policy of the Government should be to charge the world market prices, whatever they are, particularly now that we have a falling world market, and the Government should take the loss themselves. Taking losses on a falling market is nothing new to the private manufacturer. I remember having to do it after the first great war. When prices have been inflated during wartime, after a few years there is a falling market on the world market of raw materials. That, of course, would cost the Exchequer, or Departments directly concerned, several million pounds, but it is far better that the Exchequer should sustain that loss now and pass on the raw materials which are used in export orders to the manufacturer at world market rates. The manufacturers still have to face competition in the export market from other firms in other countries who are buying their raw materials at world market prices.

My final challenge to the Chancellor is to press on him to investigate the whole antiquated system of the collection of taxation. I would remind him that there is a Liberal pamphlet on this subject. The Liberals have been concerned because of the disincentive in the pay-as-you-earn method of collection. Although it is not my intention to explain the system we suggest it would be quite interesting to have the pamphlet explained. It has a very good basis, being a Liberal basis, but I cannot explain it fully now. It imposes a standard tax on each pound earned and all the reliefs, instead of being given in the wage, are paid by the Post Office as relief in the same form as the old age pension. When a tax is charged in this method it does not act as a disincentive to the man who works overtime.

I would like to indicate the method by which I think we could assist in making a happier and more co-operative spirit in industry. This could be done by creating a new co-operation between employers and employees who today are too widely divided. There must be more of the team spirit in industry. This could only be accomplished by giving labour some share in the management and ownership of business. As a Liberal, I am pledged to fight for the new system of co-ownership—I stress that it is co-ownership, not co-partnership in industry—in which the worker will enjoy the fruits of his efforts and play a part in assisting management. This is not the time to elaborate, but through the co-operation and good will of each and everyone in industry, we would secure that financial independence and economic security to which our great nation is justly entitled.

6.40 p.m.

Mr. Austin (Stretford)

Nobody on this side of the House can quarrel with the major principles advanced by the hon. Member for Buckrose (Mr. Wadsworth), who spoke on behalf of the Liberal Party. There was one matter mentioned by him which I would like to expand a little further, and that was his reference to restrictive practices. I was very glad he laid strictures both on the trade union element and the employers in this regard. I think it only fair to say that all of us who are concerned with the welfare of our country and its economy, do admit and condemn restrictive practices on both sides, whether they be trade union restrictive practices or whether they be on the side of the employers.

It enables me to make a point which I have wanted to make for some time in regard to the restrictive practices of the cotton spinners in Lancashire. We depend very largely on the export of cotton which could be boosted and increased tremendously; but we are being hampered in this important objective by the restrictive practices of the cotton spinners in Lancashire who are not taking advantage of the handsome subsidy of 25 per cent. offered by the Government under the Cotton Spinning (Re-equipment Subsidy) Act. That subsidy expired on 1st April of this year, and had to be extended for another year, because the response was absolutely negligible. I hope that I can enlist the support of the hon. Member in trying to rouse the cotton spinners into a greater sense of their responsibility to the country to increase cotton production by putting into their antiquated mills new and up to date machinery to increase the exports needed for the country's purchase of food, etc.

I am sorry that the Chancellor of the Exchequer has left the Chamber. He could not possibly have had any foreboding of what I wanted to say. I am going to be critical of the Chancellor without, I hope, being acrimonious. It is only fair to say that we in this country shared with people all over the world the need for courageous and resolute leadership after the dreadful ravages of the war. After almost four years of government by a wise and resolute Socialist administration I believe that the people of this country, the Government of this country and the economy of this country are the envy of the whole world. One has only to look across the Channel and see the conditions of the people on the Continent to realise what we have avoided by putting into power in this country a strong social democratic form of Government. Indeed, one may look across the Atlantic and see the deficiencies in administration there, and the lack of social services, and realise how right we were to elect a Socialist Government to give the country the wise and beneficent leadership which it needed.

I think it is important to refer to the reasons and motives which led the Chancellor to frame the kind of Budget which he did. I consider it is a good Budget, in keeping with the character of the right hon. and learned Gentleman, and certainly in keeping with the economic position of this country both in its transition from Capitalism to Socialism and from a war-time to a peace-time economy. But I believe that this Budget is lacking in an essential ingredient. The Chancellor, without in any way detracting from his principles, without in any way undermining the economy of this country, could have sweetened the pill more than he did. The Chancellor was, as we all know, perhaps the foremost lawyer in this country. He added to his laurels by becoming an expert economist and guiding the destiny of this country in the economic field. In my view it now remains for him to take a course in mass psychology. Because he is a little bit aloof and remote from the people, I believe that he does not assess what is needed by the general public, and that accounts for the austerity of his Budget. We know that the Chancellor has a natural ascetic quality and I for one thought that would touch on certain aspects of the Budget and our social strata; but I did not think it was going to envelop the whole Budget and the way it was framed as it has done.

Again, obviously, as the Opposition never fails to make us aware, we are indebted to the American people for aid; and the Chancellor could not very well he too lavish in his remissions of taxation when the American people are having to help us. Of course he had to have an eye across the Atlantic, and I appreciate that. Here I wish to make a major point and I want to acquit the Chancellor before I say it. I hope he will not take it as being meant offensively. The Chancellor has the disadvantage of not being of the working class, and therefore he cannot in any way realise what is the position of the working class housewife in regard to budgeting for her weekly food in the kitchen, in the larder and in the shopping queue, in an effort to make ends meet for her family. However much he may try in theory to put himself in the place of the housewife, he just cannot possibly do it.

If I may tender a word of advice on this point to the Chancellor, that seems to me to be an admirable reason for the setting up of an advisory council to advise the Chancellor on the Budget so far as it affects the working class housewives; in the same way as when he was President of the Board of Trade he appointed an advisory council to advise him on the needs of the working class in relation to clothing and clothing coupons. I feel that there would be a great advantage gained by the Chancellor, and the country, if he had the benefit of the advice of some working class people, not working class delegates or representatives of trade unions, but a few representative housewives to tell him what are their primary needs and to advise him without in any way tying him down to any particular remissions. I know that hon. Members opposite may laugh at that. They think they have a number of economists in their ranks, but I would remind them that many hon. Members on this side of the House believe that the best study in economics is the difference between a full and an empty belly.

There was another factor in the framing of the Budget and that was the effect on the Chancellor of the baiting by the Tories over the question of his possible courting of electoral popularity. Because of that, and because he was sensitive to that baiting, he has, in my view, bent over in the other direction, and has courted electoral disaster as we had evidence in the recent local government elections. I do not think that the Chancellor was surprised at the reaction of the public to his Budget but he should be made aware of this fact. If the people of this country were led to expect remissions in the Budget they were not led to expect them only by the public Press or by certain spokesmen in my own party. They were led to expect remissions as a matter of course by the Chancellor himself; because earlier in many speeches he had patted the people of this country on the back for the achievements of 1948. He said that we must pay tribute to the magnificent achievements of all the people of our country, whether they be owners, managers or craftsmen. In doing that he led them to expect some sort of reward for the achievements of 1948. I would say this to the Economic Secretary who disagrees with me, that one cannot pat the people on the back at one moment and kick them in the pants the next, as the Chancellor has done in his Budget.

I want to impress upon the Chancellor the point mentioned by the hon. Member for Buckrose. In present day life we still need incentives. We are not yet completely altruistic and unselfish, all working without reward for the goodwill of the community. One day in a Utopia for which we hope that we are laying the foundations today, we may have men working selflessly without any idea of reward, but that day is not yet. We are still creatures of gain and reward. The Chancellor does not seem to realize that. Whilst he can exhort the people to greater effort and preach to them about the need for their common betterment and for them to pull together in a spirit of teamwork, I appeal to him not to forget the carrot which is most necessary in these days of transition from Capitalism to Socialism.

It is only fair that in making this criticism I should ask myself what suggestions I have to make. How could the Chancellor have shaped his Budget? I ask him therefore whether our economy would have been endangered by tax remissions of various kinds. Was it not his duty to look about him to see what sort of remissions he could have made to help to lift the burden of austerity a little more from the shoulders of our people? I believe that he could have made some gesture. Some time ago the Co-operative Party approached him and asked him to make certain remissions not on luxury items but on essential items. They asked for remissions of Purchase Tax on such essential commodities as sewing machines, cycles, mangles, floor covering, stationery, school bags, needles, toys, curtains and cutlery. It says a good deal for the probity, integrity, and honesty of the Chancellor that he refused to make concessions at the behest of the Co-operative Party. Indeed, he has also refused to make them at the request of the T.U.C. But it says very little for his sense of public well-being and public psychology. The list of items I have read out are not luxury articles. If he had made remissions in Purchase Tax on those articles and given some sort of spur and stimulus to the people, he would have got a greater return from them in the way of increased production than he would get by all the exhortation in the world.

Again, when I look about for other fields for remission, I consider that the time is ripe for some small concession as a gesture in respect of Post-war Credits. Either he could have remitted to the people, many of whom desperately need the small amount of capital which is tied up in Post-war Credits, the first year1942–43—or he could have remitted Postwar Credits on a basis of lowering the age limit from 65 to 60 for men with an equivalent reduction for women. A gesture of that nature would not have cost very much, but it would have meant a great deal.

I now approach a subject which will not win applause from hon. Members opposite, though that will not deter me. I believe that the Chancellor is very wary about taxing the rich. He feels that we have still left 80 per cent. of productivity in the hands of private enterprise and, therefore, he wants to play ball with them as much as he can. I appreciate the common sense implicit in that argument. At the same time, I believe that there is still great scope for further taxing the rich. When we tax the rich and the middle classes—who can still afford it—we hit them in their pockets. That may mean that they have to reduce the level of their standard of living. When we impose further burdens on the wage earner at the lower level—as was pointed out recently by my hon. and gallant Friend the Member for Central Hull (Captain Hewitson), a member of the N.E.C. of the Labour Party in a critical speech—we are not hitting them in their pockets but we are hitting them severely in their stomachs. Also we are hitting their children in the stomach, which perhaps is the worst possible crime.

There is still scope for taxing the rich. Indeed, the point was admitted by the Economic Secretary to the Treasury in a recent Debate when he said that we had not yet finished with our examination of the possibilities in regard to Death Duties. I hope that augurs some renewed taxation in connection with Death Duties. But I consider that one item in particular could bear a further increase without difficulty. I speak not as a working-class critic of business, but as one who has emerged from the working class and become a director of a business. I am still a director and the business, in the post-war boom, is doing very well. I have no controlling interest and I have not a great deal to do with its administration but, as far as I am aware, it is doing very well. [Laughter.] I am afraid that the point of amusement has escaped me. I have my relations with the firm in connection with its administration, and I am reasonably certain that what I am saying is true.

Two years ago the then Chancellor increased the tax on distributed profits from 12½ per cent. to 25 per cent. There were complaints by the City and by businessmen all over the country. There were complaints from the benches opposite, but I have not noticed any adverse effect on industry because of the doubling of that tax. As a director of a company, I still believe that that company, and many others, would not be affected very much, if at all, if the tax on distributed profits were raised by another 5 per cent. or 10 per cent. I hope that the Economic Secretary will impress that point upon the Chancellor. The thriving and healthy industry which we have today can still afford to pay to the Exchequer another slice of their profits by way of taxation.

Mr. Wadsworth

The hon. Gentleman has mentioned distributed profits. Would he care to indicate his opinion of the tax on undistributed profits?

Mr. Austin

Earlier the hon. Gentleman and another hon. Member opposite asked for some remission in the tax on undistributed profit. I do not agree. I believe that that tax is a form of reserve, a form of guidance by the Chancellor to businesses to create reserves for industry. At this juncture I certainly would not interfere with that.

I should like to suggest one or two other small ways by which the Chancellor could have further increased taxation in such a way as to avoid increasing the cost of living for people at the lower wage-earning level. We have a growing number of motorists and I believe that most of them would not have objected if 1d. had been put on the price of petrol. That suggestion might shock some hon. Members, but I would point out that a great deal of motoring is done for pleasure. If the price of petrol had been increased by 1d, to the pleasure driver—not to the commercial user—a great deal of revenue would have accrued to the Exchequer without arousing too much public resentment. There is one other small item. I believe that people who have motor cars on order would not object very much if they had to pay a slightly increased rate of Purchase Tax for their cars. Most of them are very anxious to obtain a new motor car and would not be deterred from taking delivery of it if they had to pay a slight increase in Purchase Tax.

There is one final point I wish to mention, and I am sorry the Chancellor is not here. I hope he will have some second thoughts about this Budget. While I have expressed concern about its effect and its repercussions throughout the country, there is another aspect of it which is worrying me very much. Because of the stringency of our economy today, the Chancellor is asking the various Ministries not to put in any more Supplementary Estimates, and the one with which I am most deeply concerned is that in relation to health.

I have read reports touching various parts of the country about the threat to hospitals generally. In my own Division, there is the Stretford Memorial Hospital, about which a Tory alderman recently launched a rumour that it was going to be closed down because the Minister of Health had asked for a reduction in the expenditure of the area hospital board. I hope the Chancellor will have regard to this very important issue. It is quite fantastic to take over, under the National Health Service, all the hospitals in July of one year, and to consider closing some of them down in the next year for lack of money. To the best of my ability, I have refuted this dreadful slander which I believe is being spread by this Tory alderman in my Division, and I hope the Chancellor will come to my aid in a practical measure and refute it completely by making the necessary money available to the Minister of Health for the maintenance of all the hospitals necessary for the welfare of our people.

7.2 p.m.

Mr. Sidney Shephard (Newark)

The hon. Member for Stretford (Mr. Austin) mentioned that he had not seen any ill effects of the raising of the Profits Tax. I wonder whether he has heard the story of the man with the donkey who thought that, if he gave it a little less to eat, it would still do the same work. He did so, and on the first day he got the work all right; and so he continued with the process, giving it less food each day, until eventually he reached the stage when he gave the donkey nothing at all to eat, and on that day the donkey died. I think that is what would follow if the suggestion of the hon. Gentleman were carried out.

Each year on the Second Reading of the Finance Bill we have criticism of the Opposition from the Government benches—this year from the hon. Member for South Tottenham (Mr. Messer), and last year from the Financial Secretary. We are asked to state where economies in Government expenditure could be made. Hon. Gentlemen opposite are always hoping that we shall say that we would make cuts in the social services, but they have not had that answer yet and they will have to wait a long time before they get it. On one occasion, when I gave an instance where I said the Government could cut down, I was told that my information was inaccurate. I said last September that the number of persons employed in the Civil Service was 690,000 and I have since checked that figure and found that in the latest edition of the Digest the figure is 688,000, so that it is less than the figure I quoted.

Since then, we have had the removal of a good many controls—clothing, jam, bread and confectionery—and we have had in addition what the President of the Board of Trade has described as two very big bonfires of controls. In spite of that, the number of people employed in the Civil Service is 694,000 according to the latest figures, so that the number has gone up, not down. Surely, that is one direction in which the Government might look to see where economies could be made. I can only assume that, when these controls are taken off, jobs are found for these people in some other Government Department. That is all I can assume, because obviously they would be redundant now in the jobs they were doing.

The other day I raised the question of how it is that, in our desperate state, we can afford to provide foreigners coming into this country with free dentures and spectacles. I want to know how we can afford to do that. Then, again, let us look at the amount of money the Government are spending on public relations and propaganda services—£15,500,000. Is it all necessary? Then there is the advertisement which was mentioned in the House only the other day which cost £3,000. We could multiply such instances a good many times until they represented a very substantial amount. The advertisement was issued by the Ministry of Food asking parents not to buy sweets. Is it really necessary to waste money in that way? Dare any business firm spend money on that scale? I can assure hon. Members that it would not.

I want to refer to two Clauses in the Bill. The first is Clause 10, which increases the tax on football pools from 20 to 30 per cent. and is expected to bring in an extra £6 million. Quite frankly, I do not think it would deter anybody from carrying on their weekend recreation even if it were 50 per cent., because the majority of our people like a gamble, particularly a cheap one. I am not sure whether I am in Order in suggesting to the Chancellor what I want him to do. Two years ago my hon. Friend the Member for Ashford (Mr. E. P. Smith) and myself raised the question whether the Government could not organise an international State lottery, sponsored by the Government, with tickets sold all over the world. We produced a scheme for the Chancellor showing that, in our estimate, something like £2,000 million could be raised annually, and, after paying the prize money and expenses, £950 million would be available to the Exchequer, a lot of it from hard currency countries. The suggestion was turned down, and I suppose it was turned down mainly on moral grounds. Since then we have had a tax on betting and on football pools, and, quite frankly, on the moral issue, I can see no difference between raising money by taxing football pools or betting and the State giving its blessing to a scheme of this sort. I hope the Chancellor will look at the matter again, because it would be a very useful way of augmenting the revenue.

There is one small point which I should like to raise on Clause 16, and which is perhaps more suitable for the Committee stage. It concerns the wear-and-tear allowance, which is increased from 20 to 40 per cent., but which does not operate until the Income Tax year 1950–51, so that it will not be until then that its benefits will be received by industry. As the Chancellor is budgeting for 1949–50, I wonder whether he will redraft the Clause in order that that relief can be given for that year.

The main question posed by this Bill is whether, at the present level of taxation, we can expect greater production and at such costs that we can sell our goods in competition with other countries. I think there are few people who believe that we can. I think the hon. Member for Blackley (Mr. Diamond) is quite an exception. He says that he is satisfied with the 40 per cent. of taxation which is taken from the national income. I am open to contradiction, of course, but I doubt whether there is any other country in the world which is taxed at such a high rate as we are. If there is, I am sure that hon. Members on both sides of the House would like to know which country it is. My right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler) mentioned that our taxation today is three times what it was in the years before the war. Expressed in percentages, it is 80 per cent. of the 1938 national income. It actually works out at 7s. 5d. in every pound of this year's national income. To put it in another way, if a man is working 45 hours a week, he is working 16 of them for the Government.

Mr. Colin Clark, who is a very eminent statistician, once worked it out that 25 per cent. of the national income was the maximum tax level that people would tolerate without losing heart. But here we have raised the figure to 40 per cent., and I maintain that we have lost heart. Many people are sitting back and are not prepared to expand their business because it is not worth their while. The Economic Survey for this year says: Our recovery can never be complete unless we can develop a keen and adventurous spirit in management. How can we expect a young man to have a keen and adventurous spirit? What chance has he of becoming a Nuffield, or of building up a big business? Very little compared with when I was a young man. [An HON. MEMBER: "What chance did he ever have?"] Many hon. Members in this House have done it. It always amuses me nowadays when I hear the President of the Board of Trade talking, as he so often does, about the merchant adventurer spirit which he wants to see revived, which he wants to see spring to life. Those words conjure up the vision of Elizabethan days and the Spanish Main. But let me remind the right hon. Gentleman and every hon. Member opposite that in those days, although the risk was great, the prizes also were great. What are the prizes today? They are booby prizes. Last year's prize was the capital levy, and this year's is the increase in the Death Duties. I have not the slighest doubt that if the present Government are in office at the time of the next Budget there will be another booby prize for those who have adventured. In his Budget speech the Chancellor said: We have done our utmost, as a Government, to encourage both sides of industry to drive forward for greater productivity …"—[OFFICIAL REPORT, 6th April, 1949; Vol. 463, c. 2077.] If he means by exhortations, yes, but we must realise that people are tired of exhortations and of posters telling them to work harder. They want taxation reduced, and they are not going to put in that extra effort until it is.

During the war years we willingly submitted to all the financial strain placed upon us, but surely, four years after the end of the war, we are entitled to some relaxation. I do not believe that the people want the State to look after so high a proportion of their housekeeping; I am sure the individual can get far better value if he spends the money himself. Let me quote to the House what the Minister for Industry in the Eire Government said last year: The Government believe that the most significant contribution it can make to secure a reduction in the cost of living is to reduce taxation. No amount of specious argument, no smokescreens of empty platitudes can hide the obvious truth that individual members of the community can themselves spend their income to greater advantage than the Government can spend it for them. The Chancellor said that to allow the individual more to spend for himself by reducing taxation could only be done at the expense of the social services, or of our defence, and that the individual load of taxation could only be diminished in proportion as our national wealth grew. We on this side of the House do not agree with that. As I pointed out in my opening remarks, we think that great economies could be made if only the Government would tackle the job properly. It is quite impossible for us on this side of the House to say what exactly should be done to effect these economies because we have not access to all the details, but I am quite sure that if the Government would tackle the matter, as they may have to do next year, it could be done. What is going to happen if the nation's income goes down, if there is a slump, which is quite likely? Then the Government would have to tackle this matter, but I would much rather see them do it now.

7.16 p.m.

Mr. Albu (Edmonton)

I wish to follow the hon. Gentleman in that part of his argument in which he referred to what he thinks are the reduced incentives to business enterprise. First, I will make a glancing reference to the statement attributed on two occasions during this Debate to Mr. Colin Clark, to the effect that we have now exceeded the limit of taxation which is possible in an industrial society. I am sure that my hon. Friend the Economic Secretary will forgive me if I say that economists are of many opinions. I remember that when Mr. Clark was a lecturer on statistics at Cambridge he was generally referred to as "Take 10 per cent." That presumably referred to the margin of error of his calculations, and probably the margin of error of the calculations of some hon. Gentlemen opposite.

If we are going to examine this question of taxation and incentive, we have to get in our minds the actual procedure by which the incentive operates. The pressure exerted on the Chancellor, particularly before his Budget speech, by the Press, through the trade associations, and in speeches by bank chairmen and others was, first of all, to make an increase in depreciation allowance to cover the inflated cost of replacement of plant and machinery caused by the special occasion of the frustration of replacement of such plant and machinery during the war years. Company reserves had to be held and could not be spent. Costs went up, the reserves fell in value, and, therefore, the demand has risen for an increased allowance. I think that the Chancellor has been generous because, in fact, an additional allowance is made on costs incurred at the present time when prices and taxation are high.

The right hon. Member for Saffron Walden (Mr. R. A. Butler) seemed to infer in his speech that he did not think that taxation would ever come down, whereas I think it may very well come down, in which case, of course, the additional depreciation allowance will be a gift.

Mr. Stokes

No, it will not.

Mr. Albu

Yes, if the level of taxation is reduced in future years, then the amount allowed as the initial allowance is a gift. But I do not want to dwell too much on that point.

Mr. R. A. Butler

May I remind the hon. Gentleman that the Financial Secretary stated the true position when he said that this was not a gift to industry?

Mr. Albu

Assuming the same level of taxation. I think it is a good thing that the Chancellor has set up a committee to examine this whole problem of taxation of business profits. This is not a purely technical matter, and I hope it is not going to be looked at in that way because it involves very great differences between the two sides of the House on economic and social policies. Because that is behind the demand for increased depreciation allowances, and for reduced taxes on profits. There is, in fact, a completely different argument. I believe that there is no case for continuing a reduction on business profits purely on the ground that business is unable to replace its plant and equipment out of reserves. There is certainly no such case at the present time. After all, businesses buy new plant and equipment at current prices presumably out of current profits, and the situation in normal times, even in conditions of slight inflation, cannot be compared with what took place during the war.

During the Budget Debate my hon. Friend the Member for Central Southwark (Mr. Jenkins) quoted statistics which I think are conclusive. The additions to company reserves increased from £170 million in 1938 to £425 million in 1947, and £545 million in 1948. This is a rise from 3.66 per cent. to 5.6 per cent. of the national income. Presumably, therefore, full account is taken therein of increases in prices, and it looks as if there has been a considerable increase in the real value of company reserves.

Mr. Shephard

The hon. Member said that companies that were re-equipping were doing so either out of past profits or out of reserves. That is not really so. Today, if the hon. Member looks in his daily newspaper, he will frequently see a company asking for more capital from the public in order to re-equip, because of the high cost of machinery as compared with its pre-war cost. Companies are having to appeal to the public because their reserves are not sufficient.

Mr. Albu

I doubt if that is the case. I shall deal with that point in a minute. I grant that there may be some case for some special once-for-all measure, like this increase in the depreciation allowance, to deal with the frustration of company reserves during war time. What I said was that in normal times plant and equipment were replaced out of current profits, and this situation does not then arise.

What is behind this demand, and what is always muddled with this demand whenever a company chairman makes a speech or articles are written in the financial Press, is the demand to which my hon. Friend the Member for Blackley (Mr. Diamond) referred, that business should be entitled to expand out of its profits, and the two things are mixed up. It is perhaps not entirely surprising that they are mixed up, because it is very often difficult to separate replacement from expansion. If one buys a new piece of plant or machinery, one should not buy the old plant or the exactly equivalent piece of plant or machinery. What one buys is a piece of plant or machinery which enables one to produce more and cheaper. There is inevitably some expansion. The right hon. Member for Saffron Walden suggested that we should abolish altogether the Profits Tax on ploughed-back profits. But this relates to the right of business to self-investment and the right to continue to expand out of profits.

On this matter I cannot do better than quote the leading article in "The Times" of 23rd March this year. The article says: What is asked for is special relief for a specific hardship. They were referring to the case of the frustrated reserves built up in the course of the war. This must not be confused with the wider claim, sometimes voiced by industrialists, that businesses have also a special right to save money free of tax for their own capital development, a claim which as a general proposition has little to commend it. There is no reason why shareholders or proprietors of businesses should enjoy any collective rights to tax-free saving, which is denied to individual wage or salary earners or professional men.

Colonel Hutchison

I think that same article went on to point out how industry was being penalised by not being able to accumulate reserves for replacement.

Mr. Albu

That was the question of replacement. I have already said that there may be a case, and I think the Chancellor has met the case, for a once-for-all measure to deal with what I call the frustrated reserves of wartime.

In this country over two-thirds of the capital of joint stock companies is held in public companies—more than twice the amount in private companies. During the Debates on the Iron and Steel Bill hon. Members opposite made great play with the great diffusion of shareholdings in public companies. It is true, according to some interesting articles in the "Financial Times," that there are 1,250,000 shareholders in public companies, but I would point out that 52 per cent. of these shareholders, each with less than £100 nominal capital value, own altogether a total of 6.8 per cent. of the shareholdings in these public companies, while 2.15 per cent., each with over £10,000, own 32.3 per cent. Nearly a third, and probably half, of those are individuals. These are the people who would benefit from the right of business to self-investment. Do these shareholders control the companies or play any part in the management and working of these companies whatsoever?

The arguments used by hon. Members opposite during the Debates on compensation on the Iron and Steel Bill, especially those arguments which were adduced by hon. Members who are distinguished controllers and directors of companies, must have been made with their tongues in their cheeks. When the right hon. Member for Aldershot (Mr. Lyttelton) said in the Committee stage of the Iron and Steel Bill: What the shareholders are giving up is not individual shares but the complete undertaking …"—[OFFICIAL REPORT, Standing Committee C, 2nd February, 1949; c. 715.] I wonder whether he really meant what he said or whether he expected us to believe that there was anything in his argument. These shareholders are like absentee landowners. They play no part in the undertaking. They do not control it, they play no part in its policy; they do practically nothing at all.

Mr. Shephard

The hon. Member says that shareholders do not control the companies. Surely he must be aware that at the annual general meeting of every public company every shareholder has a vote, and that if the number of shares owned by the shareholders is sufficient they can do exactly as they will with the company. It is nonsense to say that they do not control it.

Sir William Darling (Edinburgh, South)

Withdraw.

Mr. Albu

I do not think the hon. Member will expect me to withdraw when he has heard what I am about to quote.

Mr. Shephard

Is the hon. Gentleman going to quote facts?

Mr. Albu

I am prepared to bow to the experience of the gentleman I am going to quote. I shall quote from the noble Lord who is the Chairman of the Conservative Party. This is what he is reported to have said at a meeting of the Royal Statistical Society in 1947: Shareholders were within their rights in attending meetings and asking for information, but the policy of no well-directed company was determined at its annual meeting of shareholders, nor was it controlled by the shareholding at all.

Sir W. Darling

Would it not be correct to say that if a shareholder is dissatisfied with the policy of the company of which I am chairman, he has his remedy? He sells his shares, and if a sufficient number of persons do that they quickly change the constitution of the company.

Mr. Albu

I think the hon. Member really does agree that the idea that the shareholder in a public company plays any part in the control of the policy of the company does not bear looking at, although it may occur in a small minority of cases. The truth is that the managers and directors of companies are responsible to no one, and the legal position of the shareholder—that he is the owner of the company and is entitled to all the profits—is in complete contradiction of the classical economic theory that profits are the incentive for the workers and management. This is where many of the arguments used by hon. Members opposite on the taxation of business profits seem to me to fall completely to the ground.

In fact, it was recognised over 100 years ago by Adam Smith, before we legalised the joint stock companies, that what would probably happen would be the growth of bureaucracy and a lack of enterprise on the part of those managers who were not in any way connected with ownership. We have seen this in the years between the wars, in the growth of the tendency among managements to "play safe." This has been recognised in speeches made by hon. Members opposite who have demanded lower taxes as incentives for the managerial classes, and by the right hon. Member for Aldershot who in the Budget Debate, made such a pathetic plea for a reduction of taxation or higher returns to the management in industry.

What are we to do about this; how can we really get back to what hon. Members opposite are always claiming used to take place in the good old days? I think we may have to make a distinction between small private businesses, managed, controlled and worked by their owners, on the one hand, and our large public companies, on the other hand. We may perhaps have to allow a greater amount to be ploughed back by the small business man who endeavours to build up his business to the point of optimum productive size. If he continues to build up his business he will no doubt continue to be as he has been in the past, fairly abstemious in doing it; he takes great interest in it and builds it up by the sweat of his own brow; and he will buy one machine after another. Nobody suggests that the shareholder of a public company buys one machine after another, and tenderly nurtures it and looks after it. But the small business man, of course, does do that, and I think we should allow him to increase the value of his business to such a time as he may feel it necessary or desirable to sell the shares on the public market and to turn it into a public company. When he does that, of course, then he reaps the benefit in a considerable accretion of wealth.

I do not think my hon. Friends on this side of the House will object to that sort of wealth increase. What we do object to, I am sure, is the automatic increase of wealth that goes to shareholders of public companies out of capital appreciation and out of this suggested policy of continued self-investment. I think we must see the public company as a social and a socially-responsible entity. Some business managers have actually gone on record as saying that they manage their companies in the interests of the community. The process has even gone so far that that vast company, the American Telegraph and Telephone Company, has actually stated that whatever is the legal position they consider themselves not simply as managers for the shareholders but as responsible both to the consumers and to the workers as well as to the shareholders.

I think we should look on the Profits Tax in future in the same way as we look on the development charge on land. We no longer allow single individuals to reap the benefit of the increased value of land due to the actions of the community and I think public companies should be treated in much the same way. The Profits Tax should be treated as a development charge. Of course, the shareholders would be entitled to continue to receive their due return for their money, the ordinary shareholder receiving rather more, because of greater risk than the debenture holder or preference shareholder, but no company would be allowed an increase of wealth leading to capital appreciation. I expect that hon. Members opposite are all waiting to rise to ask, "Where is the investment for industry coming from?" Of course, that is a real problem in our new society where incomes are more equally distributed and where it will no longer be possible to raise finance for industry from individual persons.

As a matter of fact, the Government at the present time determine the level of investment as a whole by budgetary policy. One of the ways in which we might in future find the money, when we have rather more available for investment—although the level of investment is higher than it has ever been—is to put all or some part of the Profits Tax into an investment fund or an investment bank. We know we could vary this fund through the Budget surplus; we could have a Budget surplus and use it for investment or we could have a Budget surplus and not use it, according to the state of industry in the country. We could put the proceeds of the Profits Tax into an investment fund and distribute it through various institutions. I do not think that it is necessary or desirable, as one hon. Member suggested, that the whole should be distributed through one Government source. The credit made available could be distributed through some of the existing financial corporations, even perhaps through those vast investors, the insurance companies, given proper public control.

These bodies, provided they were given general policy guidance, could be used as a medium for financing industry. Some special bodies might be set up in special industries or for special areas of the country and thus a great variety of opinion and expertise could be brought to the problem of industrial investment, but always subject to general policy guidance by the Government. In that way, in continuing the Profits Tax in the same way as it is at the moment, and perhaps at an even higher rate if necessary, more and more of the profits of industry would be distributed to the advantage of the community because the return would go back into the national Exchequer; but—and I believe this is equally important—instead of the present irresponsible control by managers who are not responsible to anybody we should find, as is very necessary, that our investment programme and investment policy were more and more subject to general Government direction in accordance with the national economic plans.

7.36 p.m.

Colonel J. R. Hutchison (Glasgow, Central)

I should like to follow the hon. Member for Edmonton (Mr. Albu) on a number of the points he has made, but at the outset may I congratulate him, for, if he has been connected with any company as a director, then he has been connected with a company which must have prospered exceedingly. In support of his view, which is completely false, he read certain words suggesting that shareholders have no power over the conduct or policy of a company, but the operative words in what he read were the words "well directed." Those words appear in the quotation. Of course, when a company is well directed, the shareholders who turn up at the annual general meeting or the special general meetings are content to leave things as they have been going on, but when things go wrong it is a different matter. I will instance the famous case of Richard Thomas and Baldwins. Then, when the shareholders entered their kingdom, in fact they controlled the whole of the policy of the concerns in which they had a majority share.

Mr. Albu

I believe I am right in saying that in that case it was a bank which was the main shareholder; in the majority of public companies there is no majority shareholding or anything like it.

Colonel Hutchison

There must always be a majority shareholding in any company. One has only to get enough people to combine to have a majority—then one has a majority shareholding. It is quite a simple thing which happens continually in industry.

I may touch, in the remainder of my remarks, upon certain other points which were made by the hon. Member for Edmonton, but it is mainly to the weight and burden of taxation upon industry at the present time that I want to refer. The economic situation of this country has been camouflaged in two main ways during the post-war years—first, by a strong sellers' market and secondly, by American financial aid. Both of these camouflages are now growing thinner and the real situation is beginning to show through. Through the ephemeral and fictitious post-war period we have been spending money wildly. During a war, of course, we spend money without thought of cost and without consideration of the future, but when one gets back to normal times one has to take stock of one's position and cut one's coat according to one's cloth. We are still spending money extravagantly and wildly, and even now we are borrowing on our good will, our capital having already been mortgaged. The Lord President of the Council, in fact, used words to this effect—and very sage words they were—"We have drawn vast cheques on the future."

There are only two courses open, unless the weight of taxation and expenditure is reduced. Those two courses are either to reduce the standard of living, and with that to accept unemployment and to accept diminished social services or social services put into cold storage; or alternatively to allow industry to be competitive in world markets. One of those choices is inevitable, whether it be made by a rich nation or by a poor nation. For a time a rich nation can continue in an artificial situation without facing that desperate choice, but we are no longer a rich nation and that choice is in fact facing us. Of course, the alternative which every sane man would accept is the alternative of making our industry competitive in the world's markets.

What steps, then, can we take so to do? There is a growing realisation—and it has been apparent in a number of speeches on both sides of the House today—that we are in many areas no longer competitive. The Chancellor of the Exchequer the other day, speaking on Anglo-Canadian trade, used words to this effect, that there was a disappointing response from Canadian buyers. When there is a disappointing response from a buyer it is nearly always the seller's fault—the fault of the seller or of the goods he has to sell. Only the other day the Parliamentary and Financial Secretary to the Admiralty furnished me with figures, which some hon. Members may have noticed, showing in what a disastrous way orders for the building of ships in this country have fallen away in the last six months. I ask the House to remember that when we sell a ship we sell much more than a ship. We sell refrigerating plant, we sell furniture, we sell linen, we sell linoleum, and countless other things which go to make up an equipped and furnished ship, and which are the products of many industries. There are many other examples which are cited and can be cited to show that the seller's market is drying up. It is drying up partly because the post-war hunger for goods has been satiated, and partly because our prices are no longer right.

Why are we not competitive? There seem to be two main reasons why that is so. The first main reason is the continuance of unenlightened restrictive practices, occasionally by employers, more often, in my view, by trade unions, and which will sooner or later have to be alleviated and, in many cases, have to be removed. There is at the present time a committee sitting, set up by the President of the Board of Trade, I understand, to investigate these things. I for one await its report with impatience, because they constitute one of the main contributory factors towards keeping the cost of our production up. The other main contributory factor is Government action. That, in its turn, seems to divide itself into two spheres. The first sphere, which we have heard spoken about a good deal, is the policy of bulk buying. Here industry is struck two blows. The first is that it has to pay through taxation for the wages and salaries and administrative costs of a large number of officials; and the second blow is, it has—and for some time has had—to pay excessive prices for its raw materials. I shall not instance again the extra prices we have had to pay for zinc, lead, copper, and many other things.

The hon. Gentleman the Member for Blackley (Mr. Diamond), in a most suave and attractive speech, said that, of course, the advantage to industry was that it got stability. No industry wants permanent stability at top prices. However, we are not even getting stability, because only two days ago the Ministry of Supply reduced the prices of, I think, all those non-ferrous metals on the same day, so that they are following American prices, but lagging behind. An industry with which I am concerned, the manufacture of linoleum, has always been—recently, at any rate—behind world prices for one of its ingredients, linseed oil.

We cannot load upon the shoulders of industry these quite unnecessary burdens. So, as I say, industry is being dealt a double blow; it has to pay for the officials through taxation and is prevented from buying its ingredients at world prices. That right and left which is struck upon industry may well floor it.

The second point and the most contentious—and here I want particularly to refer to the views of the hon. Member for Blackley and those of the hon. Member for Edmonton—is this vexed question of depreciation taxation allowances. I think I can illustrate the argument best by giving an example of the sort of difficulty I myself have had to face. A piece of machinery, a printing machine, which before the war cost £2,000 now costs £6,000. During the war there was the Excess Profits Tax, which prevented one from creating reserves out of which one might have been able to find that extra £4,000. The present taxation allowance system allows one to write off for that bit of plant only £2,000 by the end of the day. It allows one to put into reserve, before paying tax, £2,000 to renew that bit of plant. But all plant has gone up in that way, and as one of the journals—the "Financial Times" or the "Economist"—said the other day the number of companies which have not been able to accumulate sufficient reserves to be able to modernise their plant is very serious indeed. I can assure hon. Gentlemen that that is a fact, and it is not the slightest good to pretend that there is no increasing difficulty confronting us from that direction. The Chancellor has admitted it. He has already made some provision, but provision which does not go nearly far enough.

The hon. Member for Edmonton has put forward one of the suggested cures. It is a cure to which France has devoted herself. Because of the depreciation of the franc her situation was even more acute than ours, and prices had gone up astronomically. She has allowed industrialists to re-value their plant at the new French prices, and to proceed to depreciate them on that new value—a once for all system. I think that that is probably the soundest way to tackle the problem, but the problem is there, and it is not of the slightest use for the hon. Member for Blackley to pretend it is not. He has a theory that a concern should never expand. How in the name of heaven is a country to increase its exports if the existing concerns are to be pinned down to their existing output? Some will go out of existence, and the net result will be a continuous reduction of output. This limited relief has been given, but, as my right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler) said, there is no gift in this: it is a mere anticipation of what industry would have had anyhow; and sooner or later something more drastic will have to be done, and I believe that the Chancellor recognises that fact.

The first thing that should be done is to abandon the tax on undistributed profits which is neither morally nor economically defensible. Then there is the ridiculous increase in telephone charges, which, in its small way, will further burden industry. What justification can there be for the Post Office which already has a surplus of £19 million, to increase its charges in order to stop industry's demand for essential apparatus and essential services in order that the Chancellor of the Exchequer shall have another £8,500,000 flowing into the Treasury? That is a very serious theory to be allowed to come into the national accounts, namely, that a trading Department should be used to inflate its profits and so draw off more funds into the Treasury. We have direct taxation, we have indirect taxation, and now we have most indirect taxation.

I want to draw attention also to the cumulative effects on incentive—the hon. Member for Edmonton mentioned incentive—of Surtax, Income Tax, and Death Duties which, in my view, are palsying endeavour at the present time. Human nature may work for a short time without but it does not continue to do so indefinitely. We know it is so in the case of the trade unions, and we know it is so in the case of Members of Parliament, who, I have no doubt, find £1,000 a year more agreeable than £600. We have to realise that if the machine of enterprise is to go on turning there must be the hope of some form of gain. Positions of authority and importance involve responsibility, and responsibility involves risk. Hon. Members have only to look at the Iron and Steel Bill, or at any other of the nationalisation Measures, to see the risks to which officers of companies expose themselves in that direction alone. In order to compensate for those responsibilities and risks, salaries are now having to be raised to extravagant heights. The "Economist," if I may quote that eminent journal again, said of that problem: Proof of this is found in the frequency with which the State itself is finding it necessary to remunerate public servants by expense allowances. So now salaries do not count as much as pickings, and pickings are becoming a priority, and honesty and morality are becoming undermined.

In Death Duties also another blow is struck at incentive. It is one of the natural instincts of a man to wish to provide for those for whom he cares. That is one of the reasons perhaps why Death Duties have been imposed; imposed so as to take from one class of society money to be able to provide for the future of another class of society. Ethically that may be right. But I want hon. Members to notice what happens when we do that. Those who lose the incentive and lose the money say, "What is the use; it is taken from me anyhow," and those who get it say, "What is the need; it is coming anyhow," and so you destroy incentive on both sides.

I ask the House also to note that in industry the majority of the concerns are small, and small concerns do not have a liquid capital position. It is difficult to be able to sell an interest in a small concern. It is quite different when you have enormous concerns like Imperial Chemicals or Distillers. When it is a small concern and one wants to sell one's interest in it, it becomes a difficult matter, and anyone who has experience of trying to sell the shares of a deceased's estate knows what sacrifices have to be made when one sells those shares. So what happens? Someone comes to an individual and says, "Will you risk £10,000 in this venture. I have a good patent and it ought to go well." The individual approached has to consider what will happen. Here is a risky concern which, if it succeeds, will be taxed up to the hilt, and on which, if it loses, he will get nothing back; and, if he dies, his successors may be unable to liquidate his holding without great sacrifice. Therefore, the man frequently says, "In the interests of my family I dare not take this risk. I would rather have my money invested in Imperial Chemicals or Distillers where the position is certainly liquid."

I have tried to show some of the evils of excessively high taxation. I know that hon. Members opposite always say, "How would you put it right?" Our retort is equally valid. Without access to Government Departments and the facts and figures it is an extraordinarily difficult question to answer; and when it was answered last year by my right hon. Friend the Member for North Leeds (Mr. Peake), all the instances which he gave—and important ones—were laughed at as being trivial. Surely, all expenditure is made up by the sum of a lot of trivialities. When a man is spending too much he does not say, "I am not going to eat any more"; he says, "I am not going to eat any more at the Savoy" or changes a taxi for a bus. When we give a number of instances of the direction in which taxation can be saved, the accumulated effect of a lot of these can be very big indeed. But I want nevertheless, to try and assuage this thirst for information as to how I think it possible to reduce taxation. The Chancellor in his speech seemed to be in a considerable amount of doubt whether we were in an inflationary period or a disinflationary period, and, on balance, he came down on the side of needing still to curb inflation, although not with so sharp an accent upon the urgent need to check inflation. He ended by saying, of the Budget on the true revenue basis it shows a disinflationary contribution of some £492 million…"—[OFFICIAL REPORT, 6th April, 1949; Vol. 463, c. 2086 and 2107.] These are enormous figures and in other times would have caused far more comment than they do today. That £492 million cut in half or reduced by £100 million would give considerable alleviation in taxation.

I suggest that we could curb inflation by the bank rate, and that the bank rate could be used as an adjunct to this compulsory form of saving through taxation; that the £492 million could easily be reduced and alleviation given to taxation. The system of taxing for one year under the Budget is rigid; the system of using the bank rate and its effect on reducing the demand for money is flexible. I do not suppose that hon. Gentlemen opposite will find this particular suggestion attractive because they have become wedded to the theory of cheap money which has become a shibboleth with them. How did the money system work in the past? When there was an excessive demand for money—which the Chancellor of the Exchequer wanted to stop—a rise in the bank rate either temporarily, severe or limited, tended to stop that demand for money. I do not mind wagering that a concern which might have to pay a little more for money on loan would be prepared to do it if it knew that it would have alleviation in taxation, particularly in the matter of taxed profits. When hon. Members say, "How would I reduce taxation," I would certainly give the old methods which worked in the past another try. I would use a method which is flexible, and not a clamp on the shoulders of the nation for another year these extravagant, rigid and excessive taxation demands.

7.56 p.m.

Mr. Pargiter (Spelthorne)

I do not intend to follow the hon. and gallant Gentleman the Member for Central Glasgow (Colonel Hutchison) in his remarks on the problems of taxation. I should like to say a word or two in general about the Finance Bill. I suppose that at some time in the future a Chancellor of the Exchequer will produce a Finance Bill which will at least please the whole of his supporters. When that day comes, I do not suppose that he will be here to follow it through the House; he will have gone straight to heaven, like Elijah. Meanwhile we shall continue to comment on the sins of omission and commission in Finance Bills from time to time.

Many people will be disappointed that the Bill contains no reference to any reduction in the Purchase Tax. Some people regard the Purchase Tax as a pernicious tax. I, personally, regard all forms of indirect taxation as pernicious. I think that all forms of taxation should be direct and that the earner would find himself better off than he does now under the present system of indirect taxation. If indirect taxation is to remain, it should bear less heavily on those who can least afford to pay it. There are considerable anomalies which ought to be cleaned up if this form of taxation is to be continued.

I want to mention one of the methods of calculating Purchase Tax which has gone on since 1940. It may have been all right during the war, but I see no reason why it should continue. Instead of the calculations for Purchase Tax, in the case of sales of goods direct from the manufacturer to the retailer, being on the price which is charged to the retailer, there is a notional uplift. In other words, a charge is made at a figure higher than the figure at which the goods are sold, which corresponds to what it might have been had there been a wholesaler in possession between the manufacturer and the retailer. I can see no logical reason for that sort of thing continuing. All that it does is to increase the price to the consumer at a time when the Chancellor of the Exchequer has suggested that prices to the consumer ought to be reduced. I hope that matter will receive attention.

I should also like to refer to Clause 8, which deals with the duty on mechanical lighters and the increase of duty on those lighters. I have in my constituency a firm which manufacture a cheap reputable lighter which they tell me retails at the present time, or before the increased tax, at 6s. 6d. The manufacturing cost is 1s. 6d., tax 2s. 6d., 3d. for the agent's profit, 6d. for the wholesaler's profit, and 1s. 9d. for the retailer's profit, making a total of 6s. 6d. It is rather interesting to see how the manufacturing price builds up by the time the article reaches the consumer. Under the new system, which merely adds the same rate of tax to any lighter, whether cheap or expensive, the price of that same lighter will be 12s. 6d. because it appears that both wholesaler and retailer take an additional profit because of the increased tax; in other words, they take the same proportion of "rake-off" but at a higher level, which increases the price to 12s. 6d.

I ask the Chancellor whether he will consider introducing a proposal to permit the production of a utility type of lighter such as was produced at one time, at a reduced rate of tax, otherwise the cheap lighter will go out of production and the average working man will be unable to afford a lighter, whereas the more expensive lighters, which can absorb a good deal of tax at their much higher level of profit, will continue to appear on the market. It was nice to receive a sample of the firm's goods, and as I also happen to have in my constituency the manufacturers of one of the more expensive type of motor car I am wondering whether they, too, will send me a sample in connection with the proposed reduction of Purchase Tax on motor cars, although I am not so hopeful about that.

I also wish to deal with what I consider to be omissions which are still fairly evident in connection with prices and profits, with increasing capital values, and with the continued failure of the Chancellor to do anything about taxing them. It is obvious that as the field for private investment is reduced, as the State takes over more industries, the pressure to invest in a reduced field will be increased. The automatic effect of that is to increase the capital values of those undertakings, because the demand for the shares goes up; consequently higher prices are demanded, although there is no increase in the business as such. That field still remains, and in spite of what hon. Members opposite say about the crushing level of taxation on industry, it is interesting to study some of the returns of profits which have recently been made, which show that in spite of this high and harsh taxation, as it is described, the general level of profits continues to rise. It may be that firms are not at this moment distributing those profits, but the general level of profits continues to rise in spite of Profits Tax and other devices which the Chancellor produces in order to keep them down. This must obviously be reflected in the prices charged for the goods, and when we are told that it is becoming increasingly difficult to compete in world markets, perhaps we can ask that hon. Gentlemen opposite should examine the profit level before asking the Chancellor for reductions in profit taxation.

That is being followed by something rather pernicious, because there seems to be increasing pressure from industry for the distribution of bonus shares; in other words, to plough money back into reserve because it cannot be distributed under the general arrangement not to increase profits to a higher level. All this trouble about re-investment in industry and buying plant appears to go by the board, in view of this desire to issue bonus shares. What effect bonus shares will have towards increasing the productive capacity of industry, I do not know. They will in the end increase the total burden which has to be borne and the profits which have to be made in order to make the additional profits on the bonus shares.

Sir Peter Bennett (Birmingham, Edgbaston)

No.

Mr. Pargiter

Certainly that will be the ultimate result.

Sir P. Bennett

Nonsense.

Mr. Pargiter

Well, when we find an undertaking like Vickers, who I understand propose—I do not know whether they have received approval, although it is suggested that they will—to issue a large amount of capital in the form of bonus shares which is part of their reserve and should be going towards the rehabilitation of their plant—

Sir P. Bennett

It is already spent.

Mr. Pargiter

—on the excuse that they had to reduce their capital very heavily during the inter-war years—capital which had been largely inflated during the first world war—one wonders how the case is made out for the contention that the rate of taxation is too heavy for industry to bear. It would be rather interesting to find out in that instance where the bonus shares will go to when they are issued. I recollect that during the war years a large number of workmen in various Vickers undertakings were invited to invest their savings with their employers, Vickers. Most of that went up the spout in the inter-war years, and as unemployment followed, the men were glad to sell their shares for anything they could get. I am wondering whether it is the intention of the Vickers organisation to compensate those poor people for their losses, or whether the money will go to the existing holders of the shares who bought them up cheaply. Those are the things to which we ought to be turning our attention when we are told that industry cannot bear the rate of taxation that it is being called upon to stand at present.

I am of opinion that the limit of taxation of the wealthy has not been reached. We can see ample evidence that people can still find plenty of the wherewithal to live at quite luxurious standards, which I am sure this country cannot afford, and those people are certainly not doing it on their ordinary income after the Chancellor has finished with them with Profits Tax, Super-Tax, and so on. It must come back to this: they are getting it in other forms—in the form of capital appreciation and so on. They are living very well without doing very much for it, and I hope the Chancellor will before long give attention to some of those problems.

On the whole, the important thing about this Finance Bill is the fact that it is a realistic approach to the problem with which we are faced today. We may express disappointment at some of the things which are in the Budget; we may express disappointment at some of the things which are not in it, but which we think ought to be in it; but by and large I think that most of the people of this country, after the rather sharp disappointment of the first day or two following the Budget, accept it as a courageous effort designed to assist in the rehabilitation of the country, and, as such, as generally deserving the commendation of all the people who matter.

8.8 p.m.

Sir Peter Bennett (Birmingham, Edgbaston)

I did not intend to mention the subject, but the hon. Member for Spelthorne (Mr. Pargiter) seems to have such a hazy idea of bonus shares that before I deal with anything else I must enlighten him. Bonus shares are not issued because there is money about, and therefore money which will disappear. A bonus share is issued when the money is not there. The money has already been spent and invested in the business, and it is not available for any other purpose. The example of Vickers is a very good case in point. During the depression they wrote down their shares by half the value. They now intend to write them back again. No money will be passed, and the fact that it is done means, not that an extra dividend is being paid, but that the money is spread over a wider range. It is of considerable advantage on the Stock Exchange to have shares which are of approximately the real value instead of shares which are a great deal higher.

Mr. Pargiter

Is it not a fact that the history of a company will show that when they issue a bonus share for every share held, they halve the rate of dividend the following year; and that they endeavour to maintain the same rate, and almost invariably do?

Sir P. Bennett

Different cases can be found covering the whole range in which the number of shares have been doubled and the dividend halved. There are other cases where, instead of raising dividends, bonus shares have been given to spread the money over a wider range. The point is not the percentage but the amount of the dividend. It is much preferable to have shares nearer their real value. One of my hon. Friends mentioned the case of a trustee of an estate disposing of the shares. It is very much easier to dispose of the shares when they are nearer to their real value than when they are highly priced.

The point I really want to refer to is this matter of depreciation. I am glad that the Chancellor of the Exchequer is here again, because this is a matter in which I know he is interested. My right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler) explained that the doubling of the depreciation allowance is not such a big present as some seem to believe. It is a case of giving the allowance in advance. Industry gets 40 per cent. to write off in the first year, but it does not get as much as it would have had in future years because the amount to be written off will be correspondingly reduced. I do not say we are getting nothing—what it really amounts to is an interest-free loan. The hon. Member for Blackley (Mr. Diamond) seemed to have some very strange views on this matter. He said that there should be no extra allowances for depreciation so long as dividends remain. In other words, he does not worry about depreciation so long as there are dividends. He seems to think that so long as there are dividends expansions should be financed out of new capital, but if we do not pay dividends we do not get the capital.

I know that Members opposite think the present structure should be changed but time is the essence of the contract and we have not the time to reconstruct the whole of industry. This question of depreciation is one of the main difficulties industry is facing at the present time, and it arises as the aftermath of inflation. Our plant is written down at a certain precentage over the years, and we are allowed a certain allowance for depreciation by the Inland Revenue. Therefore, we accumulated funds to replace the plant at its original cost, but today that plant costs 100 per cent. or even 200 per cent. more to replace. Consequently, the amount allowed by the Inland Revenue is at best only half the amount necessary to replace the plant, and the question arises from where the rest is to come—is it to come out of reserves, profits or new money?

To give an example, a company with which I have been connected was in the habit of depreciating its plant 10 per cent. per annum. That meant that in 10 years the company had accumulated sufficient to replace the plant. But now, when we come to replace plant, we know it will be double the price, so we say that we have to be prudent and put on one side at least 20 per cent. instead of 10 per cent. for depreciation. But the Inland Revenue then come along and say that the second 10 per cent. is not allowable and has to come out of profits. As profits are taxed at 10s. to 11s. in the £, it means putting on one side 30 to 33⅓ per cent. to cover the replacement of plant. Therefore, companies throughout the country are running short of money.

The attention of the Chancellor of the Exchequer has been drawn to this, not only by organised industry but by many companies which are experiencing these difficulties, and there is going to be a jam very shortly. All companies will be coming on the market for additional money because of this problem of depreciation. Reserves are being used up. In industry this is a first-rate problem. It has only been helped a little by the Chancellor, and it has not yet been finally settled. As the years go by, the problem will become increasingly difficult if we are to keep our plant up-to-date and not be accused of letting people on the other side of the waters get ahead of us in replacements, which is a stone that is so often thrown at us.

Again, the question of raw materials is a very serious one. It has already been pointed out that the terms of trade are against us. I suggest to the Chancellor that the day is coming when the whole buying system of the Government must be revised. The conditions of today are totally different from the conditions which prevailed during and immediately after the war. Today we are starting to fight for our very lives. But what do we find? We have these non-ferrous metals bought by the Ministry at much higher prices than the present world prices. They are now being sold to industry at prices considerably above world prices, while at the same time we are being asked to keep our costs down and increase our business against growing American and Continental competition.

The hon. Member for East Aberdeen (Mr. Boothby), like myself, has just come back from the United States. He talked about the demand for small British cars in America and rather made fun of them. I do not think that is fair. Although they are smaller than the American cars, and the Americans look upon them with a certain amount of wonder, a large number of Americans would buy them because of their small size, economy and manoeuvrability. But they will only buy them at a price, and the trouble is that our prices do not compare with the American prices. British manufacturers, with their higher costs, are not able to quote prices sufficiently attractive to get into the American market on the scale we should like. Recently, at a great sacrifice, our prices were cut in America and the demand started again to go up.

People sometimes laugh and say that we shall never be able to get into the American motor car market and compete with the Americans, but no one wants to. The Americans make five million cars a year, whereas we make, including commercial vehicles, something like 500,000. With the Americans making 10 times as many cars as we are, they will not go to the trouble of providing tools to produce what is to them a very small quantity of cars, whereas if we can send over a limited number of our cars it is very good business and good dollars. I had a statement prepared for me last week, not for the purpose of this Debate, to show the cost above world prices to our Birmingham group of factories for these nonferrous metals, and it was estimated that for the next 12 months the amount would be £700,000.

Mr. Molson (The High Peak)

Who were paying?

Sir P. Bennett

My companies would, we estimated, be paying £700,000 more than the world prices over the next 12 months.

Mr. Harrison (Nottingham, East)

This is rather an important point. Is the hon. Member's suggestion that the disparity between world prices and home prices of non-ferrous metals has existed sufficiently long for us to see the effect on the price of cars which we are at present selling on the American market?

Sir P. Bennett

I was giving an example. We are told, as we were told in this House the other day, that the cost of the equipment for motor cars, was unduly high. All the mickles make a muckle, they are all added together. One cannot specify a single article, one has to add them together I am giving absolute facts about what are the biggest amounts of equipment bought by the manufacturer in one lot. A very large quantity of non-ferrous metals is involved.

As I say, last Friday the estimated cost above world prices for the next 12 months to that group in Birmingham would be just over £700,000. On Monday morning there was a price drop, a very acceptable drop, but the price will still be £500,000 above the world price in regard to these metals if the price is not further reduced during the next 12 months. Metal represents a very large part of the cost of the articles which the motor industry uses, and that is true right through the industry. If we could all reduce our prices the cost of the vehicles would come down. I am giving precise facts as to why it is that certain equipment is costing the British motor car manufacturer more than it might do. I am sure that the day will come when we shall get the prices reduced. It is no use, however, urging people to reduce their prices if they have to carry this extra handicap. The struggle is difficult in any event without our having to pay more for our raw material than our competitors overseas have to pay. We are fighting against competition overseas, and I am giving an instance in one field of home production which happens to provide the nearest price comparison in this country to corresponding American products. The aggregate quantities are the greatest in comparison with those produced in America, although the ratio is, as I say, 10 to one.

I conclude by a reference to the Purchase Tax. I mention it because the Chancellor has left the problem untouched this year. I hope that it is being studied for the future, and that we shall not have to settle down with Purchase Tax in its present form for ever. That would be ghastly. The Chancellor knows my views on this subject. He knows that I think it is a bad tax and that it works unevenly in its incidence. I am not blaming him; he did not introduce it. I am saying now what I have been saying for years. The Chancellor inherited it. The people who imposed it heard my views at the time. It was a bad tax then; it is still a bad tax in its incidence, and the method for getting rid of it is even worse. The Chancellor has told me, year after year, that all the brains among his official advisers cannot find a way of ridding us of it. I ask him to have his boys working on the job between now and next year. The problem has to be considered, and I hope that between now and the time when the tax is again before us and we can once again debate it, some scheme will be worked out for getting rid of it altogether, and if necessary putting something else in its place, as I urged at the time when it was introduced.

8.25 p.m.

Mr. Stokes (Ipswich)

I find myself in unusual agreement with the hon. Member for Edgbaston (Sir P. Bennett), at least in so far as that I agree with him about the Purchase Tax. I have always thought it a bad tax and always shall do; and it will continue to be a bad tax until it has gone altogether. I disagreed with much of what the hon. Member said before he dealt with Purchase Tax. I do not intend to go into the details about the writing off of equipment, etc., but I do not believe that the hon. Member is correct when he says that we are behind the Americans in the rate of allowance for depreciation. I do not know the precise figures, but my impression—and I speak as a producer of heavy engineering equipment—is that we are now at least as fortunately placed as regards depreciation and replacement allowances as are American manufacturers. I think that the hon. Member is wrong in thinking that the reverse is the case.

I could not follow the hon. Member's argument about bonus shares. I understand the claim that there is no money involved, but I agree with my hon. Friend the Member for Spelthorne (Mr. Pargiter) that if one capitalises and issues as bonus shares one's reserves, and if one keeps dividends at the same level, one pays more out to the shareholders, and therefore in bad times—and this is the evil point about it—the workers as a whole have to produce more global profit in order to maintain the dividend. That is a point which my hon. Friend made, and he made it perfectly clearly. I am sure he is right. I have never understood why it is necessary to issue bonus shares. I see the attraction. I can see that it would be very attractive to me to get one bonus share for each share that I held and pay nothing for it, but I cannot see the equity of that. I think it militates very much against the interests of the workers as a whole.

The hon. Gentleman spoke about the rate of depreciation not having been doubled, with particular reference to this new equipment allowance of 40 per cent., but he cannot get away from the fact that that has been doubled. My attitude to it—and I do not altogether agree with the Chancellor about it—is that it would be magnificent if one could get equipment, but there is not enough to be had because it is going for export. If we took it for ourselves it could not go for export, for which it is wanted, I agree. I regard the method adopted as a rotten way of dealing with the question. I would sooner that the Chancellor considered the proposal which I put before the Economic Secretary to the Treasury that there should be a general adjustment of the real capital assets on more or less today's value and an allowance of a higher total amount for depreciation which, pending the time when equipment can be bought, would build up in the reserves of companies so that machinery could be bought when it was not so urgently required for export.

Sir P. Bennett

That is what the French have done.

Mr. Stokes

I did not know that. It seems to me to be a preferable way of dealing with the question. Perhaps I should preface my remarks by assuring the Chancellor that for once on a Finance Bill I do not intend to tackle the land question. I can promise him an early return to the subject as soon as I am free to do so, but in view of the nature of the work on which I am engaged, I cannot deal with it at the moment. Whether my views have changed at all is a closely guarded secret.

I wish to take up an argument which was used by the right hon. Gentleman the Member for Saffron Walden (Mr. R. A. Butler) at the beginning of the Debate. He referred to what he termed the evils of bulk buying. I must say that I am in some doubt about this question of bulk buying unless we are bulk buying with people who play the same game. It seems to me that bulk buying is O.K. in the Commonwealth and certain other countries, but when we are dealing with a lot of foreigners who cheat, it is extremely difficult to conduct it successfully. I do not go further than that. I think that the right hon. Gentleman was entirely wrong when he said that we should have had far greater and more satisfactory results in our dealings with the Argentine if private enterprise had been allowed to tackle the job. Argentina began the bulk selling of meat and grain long before we started bulk buying.

Mr. Selwyn Lloyd (Wirral)

No.

Mr. Stokes

They did. If the hon. and learned Member does not agree with me, he had better go there and find out. I have been there and seen for myself, and I am sure that is the case. The situation there today certainly is that there is bulk selling, and we shall not get away from that situation or make matters any easier in dealing with the Argentine by trying to transfer the job to private enterprise.

The right hon. Gentleman also stressed the importance of the whole export trade problem and said that it was urgent that we should have sufficient goods of the kind that were wanted in the oversea markets, and at an early date. I entirely agree with him, but he made no mention of price. I agree that goods have to be offered at the right price, but I want to tackle the price issue of the export trade gap from the other direction. I want to ask the Chancellor of the Exchequer a question. I have asked it of him before and I have not been really satisfied yet with the answers I have received. I want to know from him whether we are getting enough for some of the goods that we export. By and large, the capital goods that we send abroad today bring us in about twice as much as we got before the war, but for many of the things that we are getting from the countries in exchange for those goods we are being charged from three or four times the prewar price. Something ought to be done to put that point right. We are never going to close the export gap except through capital goods, steel and coal. I should like to deal with the question of capital goods.

I do not think that our exporters are either being told that they ought to charge more for their goods or are being encouraged to do so. I would agree that we do not want to fleece the foreigner except in so far as he fleeces us, because that is the only way to keep the balance right, but I think we are entitled to get more for some of the very valuable capital goods that we send abroad, and of which we have very great need ourselves. The situation is now so serious that exporters of capital goods ought to be told, either privately or publicly, that they have to get as much for them as they can.

Mr. Harrison

They do that.

Mr. Stokes

Pardon me, but they do not. I know of cases where goods could be sold at a much higher price. I have known of instances myself where people buy goods in one market and sell them off into other markets at a higher price. Manufacturers do not do it, because they do not want to charge more than they need. They want to keep a good market in the export trade, against the day when exports drop off. The cheaper they are able to sell their goods, the better their future prospects. Suppose they were highly patriotic; suppose they said: "We know we can get 50 per cent. more"; what would happen? There is today a terrible stigma attaching to making a profit. [Laughter.] Hon. Members may laugh, but let them wait until I have finished.

The emphasis is laid in the wrong direction, and I say this to my colleagues behind me. In regard to export business, people ought to be encouraged to make more profit on their goods, and the stigma on making profits ought to be removed. The stigma ought to be put, and ought to be emphasised, on how the profits are distributed. I see no harm whatsoever in making larger and wider margins. I would sack any managing director who was not making twice as much profit today as he did before the war. If he is an exporter he ought to be encouraged to do it today, but it does not encourage him when he has done it to tell him that he is a bad boy. The exporter will not do it unless someone tells him publicly from very high quarters that for these essentially valuable capital goods he should get the highest price that can be obtained, commensurate with decent dealing, so as to help to fill our dollar gap.

The second specific thing is the price of gold. As I understand it, the situation in regard to gold in the sterling area is absolutely and fantastically ridiculous. Before the war, gold was, I think, 85s. per fine ounce. Under the Bretton Woods Agreement, gold produced in the Empire goes, I think I am right in saying, at 172s. per ounce to U.S.A. The world price is 462s. per ounce. Something ought to be done to put that disparity right. Curiously enough, it is impossible to discover the total amount of gold involved. Whether it is upon instructions from the Treasury, or whether it is because of the bashfulness of the Governments concerned, the exporting countries no longer fill in the column on the return showing the amount of gold they send abroad. We cannot tell exactly what the figure is but it must be something considerable. We are now selling gold about £15 an ounce less than it should be. It is worth while drawing the Chancellor's attention to that.

The third specific thing in relation to which the Chancellor could get a very much increased revenue or return in dollars is whisky, with great respect to my hon. Friend the Member for West Ealing (Mr. J. Hudson). I have just been wandering round South America and it absolutely staggered me to find that, roughly speaking, this is what happens. A case of whisky in Lima costs £7 10s. delivered to the wholesaler.

Mr. Follick

How many bottles is that?

Mr. Stokes

Twelve bottles in the case, one gallon to six bottles. All the wholesaler does is to pass it on to the retailer, charging him £15 in order to make a profit of £7 10s. The retailer sells it to the public at £22 10s. which is about £2 a bottle. All we get this end is 5s. a bottle. That is ridiculous. We should have not the least difficulty in selling it in South America if we charged 10s. The same applies to the United States. The figures there are prodigious.

Mr. Nicholson

I am not an exporter of whisky but I do know something about the whisky market. I can assure the hon. Member that selling whisky in America is not so easy as he thinks.

Mr. Stokes

All I can say is that they seem to drink it very quickly. They get six million gallons a year and there does not seem to be any trouble about it.

Mr. Nicholson

I should remind the hon. Member that most of what they drink is home-produced whisky. I can assure him that selling whisky in America might tax brains even of his capacity.

Mr. Stokes

I do not understand the argument. What I say is that we send six million gallons of whisky a year to America at 5s. a bottle, which is £3 a case, when it would not make the slightest difference to the consumption in America if we charged £6 a case.

Mr. Nicholson

The answer is quite a simple one. Scotch whisky has to compete with the home-produced commodity and if it is very much more expensive it does not stand half as much chance of being sold. There have been times when it was easy to sell all the Scotch we wanted to sell in America, but now it is not selling so easily.

Mr. Stokes

Do not tell me that if we put the price of whisky up a dollar it necessarily follows that the consumer would have to pay the whole of it. Figures given in this House by the Minister of Food last year showed that in America the margin of the retailers is 18s. 1d. a bottle, whereas the margin here is only 3s. 1d. The increase need not be passed on. At any rate, I do not mind if the consumption drops. I should be glad if we exported only half the amount if we doubled the price, because then we should get the same amount of dollars and more whisky would be available here. I believe—this may be why some hon. Gentlemen are a bit sensitive on the matter—that there is a tie-up between the distillers in this country and the distributing trade in America. [Laughter.] Hon. Gentlemen may laugh, but I believe that is so. I commend this to the Chancellor. I believe that there would be no difficulty at all if we raised the price of a case of whisky from £3 to £6. That would bring no less than 45 million dollars extra a year into his dollar pool.

Mr. James Hudson (Ealing, West)

If we can sell the whisky in America, will it not at least have the advantage that it will stop the people here poisoning themselves? One is sorry for the foreigners, of course, but there might be an advantage in letting them have the whisky.

Mr. Stokes

I am trying to strike a happy balance between my hon. Friend, who would give the stuff away to get rid of it, the distillers who now sell it too cheaply and still make a profit for themselves, and the Chancellor of the Exchequer who ought to make them sell it for more to get more dollars. I am only suggesting that the price should go up 5s., of which half should come from the distributors, and if something goes on the price that is all right, although my hon. Friend the Member for West Ealing would not be pleased. However, I did not raise the matter to please him. In fact, I wish he were not here to hear me.

Mr. Boothby

How could the distillers make a profit by selling an article more cheaply?

Mr. Stokes

That is only a bit of clever debating. What the distillers do not want to do is to be forced to sell at a higher price. The hon. Member for East Aberdeen (Mr. Boothby) does not believe it, but that is what I believe to be the fact.

Sir W. Darling

Does the hon. Gentleman not think that the distillers know their own business perhaps better than he does?

Mr. Stokes

I am sure they do, and that is why I am asking for a little investigation to see what this link-up is.

Mr. Nicholson

Is the hon. Gentleman aware that whisky sold to America is not all sold to the distillers' companies, and he is making charges of dishonourable conduct against a great industry of this country which he ought to substantiate.

Mr. Stokes

I do not make any charge of dishonourable conduct. If I have shares in a distributive trade in America, I am perfectly entitled to use that distributive trade for profit to help me to avoid making too much profit here. I am not complaining about it, but I am wondering why it is that we cannot get more for our whisky. It is no use hon. Members saying it cannot be done. In Argentina they are paying four quid a bottle—

Sir W. Darling

They do not make Argentine whisky.

Mr. Stokes

Nor would the hon. Gentleman drink it if he pulled the cork out. It would blow his head off. It is what they call "athletic" alcohol.

I commend these three ways to the Chancellor, and I pass to another part of the Empire, Canada. I got laughed at by high and mighty people in this House when I inquired why Canada does not accept sterling for the goods we buy. The answer I received was perfectly clear and correct. Canada accepts sterling to the extent of what she buys from us, but the gap has to be made up in dollars. I suggest that the Chancellor should do something about it. Imports from Canada last year were £216 million and exports to Canada were £71 million. They have got a bad habit over there, and I am glad that the President of the Board of Trade has gone over to persuade them to do something about it.

There is an abundance of machinery particularly in this country which could be sent to Canada and which Canada ought to buy. They have got this nasty habit of buying from America. I have been trying to sell them machinery for over 20 years, and I have not yet succeeded. There is no reason why Canada should not get a hit of a squeeze from the Commonwealth family to make the Canadians see they have got to come into the sterling area. My right hon. and learned Friend scratches his head. I am not complaining about his scratching his head, but I was in Peru the other day, and I was surprised to find that he had roped Peru into the sterling area. If the Peruvians can be got into the sterling area the Canadians can, too. It should be made clear to them that unless they buy more from us there is going to come a day when they will have to sell their surplus produce to America, and that is going to be mighty hard to do.

Several hon. Members have spoken on the importance of economies, and I should like to touch on one thing—the groundnuts scheme in Tanganyika, where an enormous amount of money has been spent. I am not going into the details, for I am not a great believer in inquests except in so far as they lead to better things in the future. I do not think there is any use bewailing the past. I would only reflect, in passing, that we should realise exactly what the extent of this thing may be. It is a magnificent scheme, no doubt, from our point of view if and when it works to full capacity, but as a very eminent food expert and nutritionist of world-wide fame said to me the other day, "When it is working to capacity it will produce just enough to meet the nutritional needs of one year's increase of population in the Continent of Africa"—that is all. I am not belittling the scheme, but let us get it in the right perspective.

What I am complaining about is that we go on and on, with one promise after another, and things do not happen. What is wanted now is a real and thorough investigation of the organisation at the head. I believe the fault is here, and I commend to the Chancellor the suggestion that he should have a proper inquiry into the capability of the board of management in this country. That is where I believe the root of the evil is. Meanwhile, he is going on allowing millions to pour down the drain without inquiries of that kind being made. It is no earthly good the Minister of Food going out to Tanganyika to find out where and why the groundnuts are held up. They will pull the wool over his eyes, as they always do. I do not mean the present Minister in particular, but anybody who goes on a short trip is pretty well bound to get his leg pulled.

My concluding remarks concern taxation and the National Debt. The hon. Member for East Aberdeen made the remark earlier that a reduction of taxation is now absolutely necessary. I think I would agree with him, although I do not suppose my method of reducing taxation would be the same as his; I should do it in an entirely different way. I suppose he meant, although he did not say it—I have said it before—that taxation has now achieved such a height that it is itself inflationary. What is happening as a result of people having overtaxation—for want of a better term—and insufficient purchasing power is that fewer consumer goods are being purchased; therefore, fewer are being produced, the cost mounts up and price rises follow and so we go round and round the vicious circle. I think that taxation must come down.

But that is not to say that direct taxation ought to be relieved. I suppose the whole thing is all muddled up in the silly, old-fashioned idea of paying for the war; but I hope it is not so. My right hon. and learned Friend the Chancellor of the Exchequer in his earlier days, when he was not occupying the heights to which he has now risen, once made a very celebrated speech, a copy of which I cannot now find; it is amongst my gems somewhere, but there are so many of them; it is a museum piece. He made it quite clear what he thought of the 1914–18 war. He said, 'We have spent millions fighting in the war, and now the workers are told they must pay for it," As far as I remember, he said, "There is only one way you can pay for a war. It is paid for by the people who fought at the time, whether in the workshop or on the battlefield."

What surprises me, therefore, is that when the Chancellor gets a very substantial Budget surplus he should devote it to the reduction of the National Debt—War Debt. I would commend the whole of the National Debt to his attention. I am not going into a lot of detail on this tonight. That might or might not be proper. But clearly there is a great amount—I would put it at between £3,000 and £5,000 million—of the National Debt which has been what I call fraudulently created and is a burden round the necks of all of us for ever and ever amen. I should like to see that lopped off also. People should realise the amount being paid in the service of the Debt. Added up, it would come to something of the order of £600 million a year, which is a tidy sum—the equivalent of about two million men's work for 50 weeks in paying for it. It is fantastic.

I do not think the Chancellor has gone far enough in his control of money in consequence. There are too many reactionary, out-of-date people at the Treasury. That is really what I am trying to say. It is about time the deadheads were thrown clean out of the way. I do not mean that they are old or dead, but that they are not abreast of the times. They are living way back of beyond, always looking over their shoulder, always doing something else for fear the right thing may be wrong. That is no use. I should love to get at the Treasury. Here we have this £400 million, and what happens? The Chancellor was borrowing it at half per cent., and now gives it back to the banks, thereby in effect cancelling it. In the Debate on the Budget Resolutions as the hon. Member for South Nottingham (Mr. Norman Smith) said, the banks having destroyed it will re-create the £400 million and lend it out to industry again at 4 per cent.

I have never understood the rubbish about money. I understand perfectly that if I go to hon. Members opposite and try to borrow £10,000, if they have got it, I have to pay interest for the accommodation provided me. They have something I have not and I say, "I will pay so much for your credit." But what happens to the nation? In effect, when the Chancellor goes to the bank he is asked, "What is your credit?" To which he replies, "I will pledge the assets of the whole nation." That is the nation's credit, not the bank's credit! The bank has not got any credit. It is curious, silly nonsense for the bank to state that they lend their depositors' deposits. They merely say this and everyone believes them. It is utterly untrue and the sooner it is realised that money is not a commodity in itself, but only a 'bus ticket—

Mr. Boothby

A what?

Mr. Stokes

—a 'bus ticket, the better. If the hon. Member for East Aberdeen ever buys a 'bus ticket, the fact that it is in his pocket does not take him to the end of his ride. He can put it on the pavement and sit on it all day and he will just go on sitting there! All it does is to give him the right to a seat in the 'bus and to the use of the driver and petrol to get him there. Surely the whole money machine should be used to keep sufficient money in circulation to keep pace with the productive capacity and power of the people. But, with a £400 million surplus, what does my right hon. and learned Friend do? He commits the mortal sin, against which I have been preaching for about 25 years, of saying, "Here is something you created out of nothing" and hands it back to the bank. People in every constituency will bear me out in this. Men are earning money and being taxed for doing so. Their complaint is that although there is more stuff in the shop windows, they have not the money to buy. I would not, as presumably the hon. Member for East Aberdeen would do, relieve direct taxation. The Chancellor in his wisdom should have taken off the Purchase Tax. He could have taken the whole of the Purchase Tax off. That would have been a tremendous fillip to the workers. But instead of that, he has cancelled the money in order to allow the bankers to continue their swindle. If, as I hope he will, he has a big Budget surplus this year, I hope he will use it in the right direction and knock Purchase Tax out of the whole of our financial organisation once and for all time.

8.53 p.m.

Mr. Gerald Williams (Tonbridge)

We have heard a very involved speech from the hon. Member for Ipswich (Mr. Stokes), with interesting interludes about whisky. I felt that I must be full of his subject when I heard him say that we should charge more for what we sell overseas but that we should not fleece the foreigner and then he asked why industrialists do not charge more and proceeded to give about four reasons why they should not do so and finally admitted that he did not do so himself. Nevertheless, it was quite an interesting speech.

I want to add a few words to those of other hon. Members on the high taxation from which we suffer at present. On discussion of the Budget Resolutions, the Chancellor appealed to us, saying that we must have more productivity in this country. But, just after that, he produces a Finance Bill which gives no hope of an extra incentive. The days of appeals are over. We have been asked to save more and to waste less, we have been asked to wash more and also to use less water. Appeals do not go down, but Conservatives know that incentives do produce more. I believe that hon. Members opposite also know that if they have some incentives to produce a little better standard of living for their wives and children, workers will surely produce more. Hon. Members opposite do not like any idea of high profits, but, with the high taxation we now have, every hon. Member knows that no one earning more than £6 a week is very keen to do any overtime or to earn more. In the same way one of the "boss class" who is perhaps earning £2,000 a year does not want to take on any further responsibility, because he knows very well he will only get more worry and trouble, and will keep very little of the amount of extra money he is able to earn. So it affects all classes.

The Chancellor of the Exchequer told us that we must not ask for concessions unless we are prepared to produce some extra revenue to take the place of the alleviations for which we are asking. I am asking him to reduce Income Tax. I believe that in return the wheels of industry will go so much faster, from the very fact that Income Tax is being reduced, that he himself as Chancellor will receive in his turn a great deal more from Income Tax. So I believe that if he helps us by reducing Income Tax he will at the same time help the Budget. If he will not grant this concession surely he can go so far as to give us a further allowance on earned income. When I say earned income I am referring also to the earnings of those who pay Surtax; the great experts who are able to affect our exports by their ideas on new and better methods of production which will eventually reduce the cost of living for people in this country. Those people who are earning big money and are the brains of industry are disinclined to carry on let alone do more with such high taxation on the incomes which they are actually earning. I believe that if he could make some addition to the earned income allowance he would encourage the small man and the big man at the same time and give a great stimulus to exports.

Instead of that the Chancellor has given us a reduction of duty on light wines. I would ask him, how does he think that that is going to produce a ton more of anything, or help industry or the working man? We all know why he has done it—because the Minister of Food has very large stocks of Algerian wine on his hands. But it is pretty bad if we have to frame a Finance Bill just because the Minister of Food plays poker with bulk purchase. It seems to me that that is what it amounts to. Instead of giving incentives he puts up our telephone rates. That is no more or less than a tax on efficiency and rapidity in business. It is a tax on the benefit which a modern invention has bestowed upon us. I am wondering if next year he will tax our typewriters and our dictaphones and other aids to running our businesses more efficiently.

If I had the time I would like to say a good deal on the initial depreciation allowance for machinery, but I will say only that we are grateful for the help he has given us over this initial allowance. But we want something more. We want to be able to replace our machinery in a shorter time. I am thinking particularly of ships which now cost three times as much to replace as they did in the old days. Ships are needed for defence and to earn dollars by their invisible exports. Our competitors the Norwegians and the Danes treat their shipowners very much more favourably than we do. The Belgians actually have a special way of helping shipowners by allowing them an extra depreciation allowance. I believe it is not past the wit of the Chancellor to exempt from taxation money earmarked especially for a rebuilding programme which would help to keep our merchant fleet up to date. If it is beyond the wit of the Chancellor to do that, I would ask him to go and speak to the Belgians, who will tell him how to do it. I would remind the Chancellor again that tonight I have asked for no concessions. I have asked only for a lowering of Income Tax and a help to industry to replace its machinery, both of which are economic propositions. If he lowers Income Tax I believe he will get more revenue in return.

9.1 p.m.

Mr. Houghton (Sowerby)

I am glad that the Liberal benches are almost fully occupied again, because I want to say to the hon. Member for Buckrose (Mr. Wadsworth) that one of the most encouraging features about British political life is the cheerfulness and optimism of the Liberal Party. His buoyant speech was in striking contrast to those to which I have listened during the last four hours from the hon. and gloomy Members on the Conservative benches. Throughout the whole of that time they have been preaching alarm and despondency and trying to tell us that the British workers are lacking in incentive and suffering from frustration. Quite candidly, I do not think that hon. Gentlemen opposite know the heart and spirit of the British people as well as we do. This I will say. The people and workers of Britain are in much better heart than hon. Gentlemen opposite make out. As we cry "Forward," they cry "Back." They preach the gospel of adventure and opportunity without disclosing to us that the whole of their doctrines means going back to the adventure of unemployment and the opportunity of short time.

I criticise very strongly the general tenor of the speeches that we have heard from the other side of the House. They quoted to us on more than one occasion a statement alleged to have been made by Mr. Colin Clark as to the limit of taxation that the British people will stand without losing heart. I am led to understand that Mr. Colin Clark is not even in this country at present to judge for himself the temper, mood and determination now being shown by British workers in this striking contribution towards recovery. I will concede at once that a part of the reduction in the casts of production must be a stemming of recurring demands for wage increases. It is frequently alleged that it is impossible to tax the working classes and that any tax they may appear to pay, either direct or indirect, is actually thrown off by means of claims for increased wages.

As the secretary of a trade union, I want to assist in every way to stem the pressure for wage increases, because we all know that they are merely the beginning of another turn of the spiral, and even though we may succeed in getting wage increases at a given time, we find ourselves demanding further increases later because the advantage of the early one has been lost by a corresponding increase in prices. I suggest that there are two ways in which we can assist in the trade union movement to hold demands for wage increases. One is by wider and more enlightened education of our membership as to the perspective of the burden of taxation at the moment. I am thoroughly in accord with the desire of my right hon. Friend the Financial Secretary to see that this little booklet, "The Budget and your Pocket" is more widely read and distributed among everybody in Britain. Hon. Gentlemen opposite who may be in control of industry have an opportunity of spreading this gospel with part of the cost paid for by the Exchequer if they will only put it down in their profit and loss account as "printing and stationery." The importance of education in connection with the distribution of the Budget burden is that at present we have as part of our taxation what is really a social services contribution. May I give one or two examples?

The cost of the Health Service, for instance, is wholly paid for by the yield of the Purchase Tax. The family allowances are wholly paid for by the Entertainments Duty and the taxes on betting and football pools. The whole of the State contribution to the National Insurance benefits is paid for by the yield of the taxes on beer, wines and spirits. There, we have in a grand total of over £700 million a year in what is in effect a social services tax, or as I prefer to call it a social services contribution. I echo the words of my hon. Friend the Member for South Tottenham (Mr. Messer) in his suggestion that the time is coming when there should be a distinction between taxes for social services and taxation for the general administration of the country's affairs and, in particular, defence.

If the social services' contribution is leading, as I believe it is, to a shifting of the general emphasis of taxation, I think there is greater need for distinguishing it and separating it from the general run of taxation, because the onus is being shifted from direct to indirect taxation. Whereas between the wars, and even at the height of wartime expenditure, direct taxes yielded about twice as much as indirect taxes, today direct taxation is only about one-third more than indirect taxation. In fact, 56 per cent. only of our total revenue is the yield from direct taxation, as against 42 per cent. from indirect taxation. We have over £1,000 million of revenue at present coming from indirect taxes on tobacco and alcoholic liquor out of a total yield from indirect taxation of £1,500 million.

We on this side of the House have always criticised the incidence and regressive nature of indirect taxation, and there were many authorities in the past on the principles of finance and taxation who have criticised the change of emphasis from direct to indirect taxation. Even Pitt said that one can tax the last rag from the back and the last bite from the mouth without anyone murmuring against heavy taxation. All one does is to tax a large number of articles in general use, and the tax will be passed on in the price of the article, and, though people will grumble about high prices and hard timts, they will never know that the hard times are caused by heavy taxation. That principle holds good today. I suggest to the Chancellor that he should carefully watch this tendency to shift the emphasis of taxation from direct to indirect taxes, and that one way in which he can check that emphasis is to make the machinery and administration of direct taxation more effective and efficient than it is. There are directions which I have mentioned on earlier occasions, and there are others which I would explain to the House had I not promised to be brief.

There is in the whole field of Property Tax a substantial deficiency in the yield which should be obtained from Property Tax if owner-occupiers, and in many cases owners of rented properties, were paying Income Tax on assessments made under Schedule A on the full annual value or rental yield of their properties. I am perfectly certain that there are few owner-occupiers paying tax on Schedule A assessments today which represent even the rent restricted annual value of their property. I know that in the adaptation of Pope: Whoever hopes a faultless tax to see, Hopes what ne'er was, or is, or e'er shall be. I think that, without looking for fresh means of indirect taxation, or of increasing the level of direct taxation, there are effectual means for tightening up the efficiency and yield of the tax that we have. That is the thought that I want to leave in the mind of my right hon. and learned Friend.

9.11 p.m.

Mr. Selwyn Lloyd (Wirral)

As I am the last speaker from this side of the House before the right hon. and learned Gentleman is to speak, may I repeat that we are extremely glad to see him back again, looking so well after what, I understand, has been a mixture of business and pleasure? I hope he will not consider it any discourtesy to himself if he is not able to catch your eye Mr. Speaker, precisely at the time he hoped to do, because I have caught your eye just 10 minutes later than I hoped.

I think we can start from all sides of the House with a measure of agreement. So far as this Bill is concerned, we all desire that it shall strengthen the country in face of its present difficulties, and contribute to the health and happiness of all its citizens. Thus far, I think, there can be no disagreement. Is it possible to continue that common ground a little further, and, looking upon the right hon. and learned Gentleman as a doctor who is prescribing for a patient, can we decide whether the patient is sick or not? One of the defects of the party system is that both the Government and the Opposition cannot be quite impartial on that issue. The Government are bound, I think, to say that the country is doing well, and the Opposition are bound to point out how much better it would be doing if they were in control. That is an admitted defect of the party system, but, discounting that bias, what are the facts of the situation?

First—and to some extent this answers what the hon. Member for Sowerby (Mr. Houghton) said—I believe that a great many people in this country are doing a very fine job of work at the present time. I also think that they did very fine jobs of work in the past. For example, I think that between 1931 and 1939 the workers, the managers and the employers in the iron and steel industry did a magnificent job of work, raising production from five to 13 million tons. It has been done in the past, and some of our people are doing it at the present time. I believe that they are doing it in spite of the Government, and not because of the Government, but I acknowledge that that is not a matter upon which the supporters of the Government will agree with me. Nevertheless, in spite of all the efforts being made, I consider that the country is in an extremely serious position. I should think it very difficult, when a patient is receiving blood transfusions, to suggest that there is nothing wrong with him at all. During the past four years we have been receiving blood transfusions from Canada and the United States of America, and I think it was a little ungracious of the hon. Member for Stretford (Mr. Austin) to criticise the blood donor as he did.

Mr. Austin

The hon. and learned Gentleman is misquoting me. On the contrary, I paid tribute to the Americans for the generous aid we have been receiving from them.

Mr. Selwyn Lloyd

Then the hon. Member went on to point out how much better the Americans should manage their own affairs, which I should not have thought was the proper approach of this country to the United States at the present time. But, leaving that on one side, what are the facts at the present time upon which I think there will be general agreement? The first is that the sellers' market is showing signs of reaching its end; secondly, that industry has insufficient resources at the present time to maintain its productive capacity.

Productivity is not what it could be, and if any hon. Members opposite who challenge what I am saying examine the right hon. and learned Gentleman's Budget speech they will find substantial support for the points which I am making—not as points of difference but as points of common ground. There are great arrears of capital works crying out to be done. As far as the standard of living is concerned—and this is not a point upon which I expect hon. Members opposite to agree with me—I believe that 90 per cent. of the people of this country have a lower standard, from the food point of view, than they had before the war.

Mr. Messer

Ridiculous.

Mr. Selwyn Lloyd

I do not dispute that the hon. Member is entitled to his opinion. I am seeking to give my opinion, and I have stated that it is my opinion that I am giving.

Mr. Messer

Where does the hon. and learned Gentleman get his evidence for his figure of 90 per cent.?

Mr. Selwyn Lloyd

As to housing, we are a great deal further off giving everyone a decent house than we were in 1939, largely owing to the war and the great damage, and deterioration that has taken place during the past 10 years. Also I think the building costs at present are crippling our hopes of achieving decent homes for everybody in the country.

I am trying to list what I think are the factors which point to this country being in a serious position. We have this heavy and unforeseen armament expenditure to face. Last and by no means least—a point which I think needs to be driven home constantly—during the past two years we have been liquidating our assets and our reserves. My hon. Friend the Member for Flint (Mr. Birch) in his speech on the Budget gave some of the figures for 1947 and 1948. I think he was speaking of the sterling area. He pointed out how we had absorbed gifts amounting to £169 million, United States and Canadian credits amounting to £889 million, a gold loan from South Africa amounting to £80 million which we are repaying, of course, how we had used our iron ration from the International Monetary Fund amounting to £75 million, how we had spent from our gold and dollar holdings £207 million, and how we had sold foreign assets such as Argentine Rails amounting to £201 million, making a total in two years of £1,621 million, which I think is a terrifying total.

There is no alarm and despondency about this. I think it is very much better that people should face the fact that we have a grim prospect; that should be the challenge to our people at the present time. To be fair to the right hon. and learned Gentleman, I admit that there has been a slight change in tempo over the past 18 months or so. When his predecessor, the present Chancellor of the Duchy of Lancaster, was in charge, the ship of State was going steadily towards the rocks with the Chancellor of the Duchy whooping from the bridge, "Full speed ahead." Since the right hon. and learned Gentleman has taken his place, the speed, I admit, has been substantially reduced, but he has mustered all his passengers and crew on deck; I do not quite know what duty the Chancellor of the Duchy is doing up aloft, but nevertheless the right hon. and learned Gentleman is lecturing the crew and the passengers on the facts of economic life in terms which are about as original as my metaphor.

What are some of those terms?—"We cannot have our cake and eat it"; "Expenditure must unflinchingly be paid for out of revenue"; "It is an unpleasant fact that the social services must be paid for"; "We must moderate our advance in extended applications of existing social services"; "It is the role of the House to defend the taxpayer." Those are admirable sentiments, but would it not have been a great deal better if those sentiments had been rubbed in rather more during the past four years? I do not see the Government Chief Whip here, but I understand he has been having certain difficulties today over Parliamentary Private Secretaries and other persons. I suggest that those "boys" with whom he has not dealt very severely should at least be made to write out these maxims 500 times. In spite of the wisdom of the right hon. and learned Gentleman in pointing out these facts, if I may say so with great respect, I do not think he has laid sufficient emphasis on the deterioration of our position or upon the increased momentum of the tendencies which may bring us down.

It is against that background, I think, that we have to examine this Finance Bill. I would not dream of saying the sort of things about the right hon. and learned Gentleman as were said by his hon. Friend the Member for Stretford. The Chancellor was fortunately out of the Chamber. I would not dream of making all those suggestions about his being wholly out of touch with everybody and most things, but I suggest that this Finance Bill is not good enough; although it is not nearly as bad as it could be, it is not good enough, and for these reasons; first of all, I think it includes a series of pinpricks which are psychologically bad; secondly, I think it does little to reduce the costs of industry; thirdly, I think it does nothing to promote public or private thrift; and fourthly, it offers very little hope or encouragement to those who should be creating wealth.

I will take those points one by one, and take first the pinpricks. I will not elaborate the point about the Purchase Tax, but I think that if the right hon. and learned Gentleman intended to take this course he should have told the Committee so during the Budget Debate. I simply leave the point there, except for adding that I think it was rather unworthy of him to treat the House in this way. The second point is with regard to excluding from tax proportions of the insurance contributions—Clause 20. I am told that the alterations will involve a great deal of unnecessary work in amending Income Tax tables, will involve apportioning almost infinitesimal sums in the case of small traders and professional people and will involve a feeling of grievance because many people will have to pay that proportion without getting it excluded for tax purposes while knowing that in all probability they will derive no benefit.

Next, there was the point made by the hon. and learned Member for East Leicester (Mr. Donovan) about Clause 21. Then there is the increased duty on matches. Then, if it were in Order, I should mention the telephone charges under this head. Finally, there is the point to which my right hon. Friend referred, the increase of duty on estates left to near relatives. My figures are not quite the same as his. I am told that if an estate of £50,000 is left to a son he pays £15,500 as compared with £11,780—in other words, an increase of £3,720. If it is left to a home for distressed Chancellors of the Exchequer or distressed Chancellors of the Duchy, they pay £3,300 less than before. I think that at the present time that is psychologically a bad thing.

I turn to my second point of criticism, which is that the Bill, to my mind, makes no real contribution to this question of a reduction of costs. We are a high cost producer and I was very surprised by the statement made by the President of the Board of Trade the other day when he said that our difficulty in North America was not really one of price. The reasons for these high costs are various. I do not propose to discuss all aspects of them but it seems to me that the ways in which the Chancellor of the Exchequer could have brought relief are as follow. First of all, as my hon. Friend the Member for Edgbaston (Sir P. Bennett) pointed out, the method of purchasing raw materials could have been altered, and by that I mean the abandonment of State trading; secondly, he could have reduced the standard rate both as an incentive to the individuals and as a relief to the corporate bodies; thirdly, he could have eliminated the Profits Tax on undistributed profits; fourthly, he could have simplified the whole system of taxation to save administrative overheads; fifthly, he could have dealt with depreciation allowance.

I am not going to say any more about State trading, but will take the other items one by one. So far as the Profits Tax on undistributed profits is concerned, there has been no argument put forward today for these rates, except the argument put forward by the hon. Member for Edmonton (Mr. Albu) and the hon. Member for Blackley (Mr. Diamond), that it was unreasonable that an industry should expect to expand out of profits. I think that at the present time that is a fantastic doctrine. I should have thought that the one thing we did want industry to do was to practise thrift and build up reserves which could lead to further expansion. If we are to fix a straitjacket on industry and say, "You must not expand out of profits," it will not be in the public interest. So far as the simplification of tax is concerned, I am told that the new Sixth Schedule will add greatly to the various headaches of industry.

On depreciation allowances, I should like to speak in greater detail. The right hon. and learned Gentleman's proposals, as I understand them, are to set up a small independent committee to inquire into the methods of computing nett trading profits so as to clear the ground for a comprehensive inquiry into the incidence of tax and its effects upon risk bearing. Those, I think, are more or less the right hon. and learned Gentleman's words. He went on to say that because current depreciation allowances on machinery bought at prices much lower than those now ruling are not sufficient to allow replacement at existing prices he proposed to double the initial allowance in respect of plant and machinery purchased on and after 6th April, 1949. I welcome these proposals so far as they go and for these reasons. First of all, they involve the recognition of a very important fact, that profits are not earned until the cost of maintaining the existing means of production has been met out of current revenue, and that if the figure of profits is struck before adequate depreciation allowance has been made, then the taxation amounts to a drain upon capital. That, I think, is a very important proposition that has been agreed by the Chancellor.

Mr. Diamond

I was going to ask the hon. and learned Gentleman the simple question, What on earth has the computation of profits to do with depreciation allowance for Income Tax purposes? He is confusing the two again.

Mr. Selwyn Lloyd

I hesitated at first to give way to the hon. Gentleman, and I think it was a sound judgment that influenced me, because I was going to give an illustration of my argument. Let me quote some figures to clear up the point. In the case of Horrocks, Crewdson and Company the actual replacement value of the parent company's assets is £5,800,000. The annual sum required to maintain the capacity of the business is £150,000 and that is calculated at the rate of 100 years for buildings and 40 years for plant and machinery. I do not think that that can be regarded as an excessive computation. The depreciation allowance for taxation purposes is £30,000. That means a balance of £120,000, which has to be paid out of profits taxed at the rate of 10s. 1d. in the £, that is to say, the standard rate plus the tax on undistributed profits. It means earnings of about £250,000 have to be devoted to the extra depreciation. I suggest that that example vitiates a good deal of the criticisms we have heard from hon. Members opposite about profits. It is quite clear that profits are not profits in the usual sense of the term, available for distribution to the shareholders, when such a great proportion as that has to be devoted to maintaining the productive capacity of the concern.

I suggest that the right hon. and learned Gentleman's proposals do not go to the root of that problem. What he is doing is to adjust existing allowances, and to accelerate a proportion of them. That will be a help, but because it is not retrospective—there will be no benefit until 1950–51, and the problem is at least four years old, and probably older—in fact it will be of very little value to industry in the near future. Although there is to be this committee which is to lead on to the comprehensive inquiry, I think it will be a very long time indeed before industry gets any benefit. In the meanwhile, capital is being steadily drained away from these concerns. With regard to that, I think "too little and too late" is the proper method of describing it.

The third point which I wish to put before the House is that there is no encouragement to thrift in the Finance Bill. Speaking at the Mansion House last October, the Chancellor of the Exchequer said that which many hon. Members behind him do not seem to realise. He said that voluntary savings were not sufficient to meet the capital investment programme, and he would much prefer to have more voluntary savings and so require less by way of Budget surplus. Lord Catto, in whose honour the function was taking place and whose opinion, as head of a nationalised undertaking, will therefore be the more acceptable to hon. Members opposite, made this reply: He said that he agreed with the Chancellor of the Exchequer on the necessity of increased savings, but would remind him that he could not have it both ways. Even a Scotsman could not save and also pay existing taxation. Personal savings must come, in future, in ever greater degree from a wider section of the community whose salary cheques and pay packets were already eaten into by direct and indirect taxation to a point that denied thrift and made saving almost impossible.

The Chancellor, in his Budget speech, admitted that the national savings movement was falling below expectations. Figures which have been given prove that conclusively. In 1938, the personal disposable income was £4,517 million; personal expenditure was £4,296 million, and gross personal savings were £221 million. In 1948, the personal disposable income was £8,224 million; personal expenditure was £8,004 million, while gross personal savings were £220 million only. There was a substantial drop in percentage of gross personal savings. Of those figures, in 1938, the sum of £78 million was drawn off by direct taxes on capital so that the net figure was only £143 million. In 1948, there was £214 million drawn off in direct taxes on capital, leaving a net figure of £6 million. Therefore, in spite of the increase in the national income, the total amount of personal capital was barely maintained.

I submit that that is a disastrous state of affairs, the full consequences of which should be realised by every one. The reasons for that fall in savings are simple, the high level of taxation—Lord Catto pointed them out as the reasons—and the limitation of yields on capital. Hon. Members opposite do not seem to realise that if there is rigid dividend limitation for ever and ever, one of the incentives to saving has gone. I know that the Economic Secretary believes that there should be no unearned income and that capital should ultimately be nationalised, or so he said in his book in 1938. If that happens, we cannot expect people to save. They will only save if they are to get a return for their savings. I suspect that Socialists do not really like thrift. If people are thrifty they get a stake in the country and they are then less vulnerable to agitation.

Mr. Stokes

Rubbish.

Mr. Selwyn Lloyd

They are less at the mercy of the State in their declining years. I do not believe that we shall get our economy right until we recreate the belief that thrift is worth while.

What are the real remedies which the Chancellor could have applied? The first is a reduction in the present level of national expenditure. The minute one says that one expects hon. Members opposite to ask where we would make that reduction. I would say first of all that we desire to preserve the present range and scope of the social services. [Interruption.] When hon. Members opposite say something I give them the credit of believing that they mean it and when I say what I have just said, I mean it. We also desire to provide for adequate Defence. Even so I believe that great economies are possible; first of all, in the field of State trading; secondly, there is a wide field for the elimination of extravagance, such as my hon. Friend the Member for Newark (Mr. S. Shephard) mentioned; and, thirdly, we need a complete review of the methods of public administration because the whole organisation of the country is becoming overburdened with administrative overheads.

The hon. Member for South Tottenham (Mr. Messer) spoke about the hospital services of which he has great knowledge. We have now four tiers. We have the Ministry, the regional boards, the area management committees, and the house committees. The clerical expenses of one hospital which I know were £350 a year before 5th July last year and now those expenses are running at the rate of £1,200 a year. At another hospital the expenses have trebled. Here is another homely example. One man used to come and read both the electricity meter and the gas meter but now two people come to do it. Whereas one bill used to be sent in, now two bills are sent in. That is happening in every sphere of public administration. This is a point on which hon. Members opposite have the same interest that we have. It is essential to cut down this colossal burden which is making the whole thing top-heavy.

In addition to a reduction in the general level of expenditure, we want a change of heart towards capitalism, thrift and the profit motive. I fully accept that this is a dilemma for the Chancellor. His movement has been built up on the detestation of Capitalism and "Labour Believes in Britain" talks in its third paragraph of seeking freedom from the enslaving material bonds of capital. The hon. Member for West Renfrew (Mr. Scollan) said in the Budget Debate: The capitalist system is effete, useless and dangerous and ultimately will create absolute chaos."—[OFFICIAL REPORT, 6th April, 1949; Vol. 463, c. 2151.] [Interruption.] That view is shared, as one can hear, by a number of hon. Members. On the other hand, the President of the Board of Trade talks about private enterprise producing at a vastly greater scale under Socialism and says that it cannot function at its best unaided and that it needs all the help which the Government can give it. He outlined a long list of the measures which the Government would undertake in order to assist private enterprise.

Which is it to be? The first or the second? The Chancellor of the Exchequer is like a trick equestrian in a circus ring riding on two horses. He has one foot on each and the horses are mutually incompatible. The horses are drawing apart and the Chancellor has to decide to which one he will transfer his weight, otherwise there will be a very painful physical reaction. Judging by "Labour Believes in Britain," the Socialist Government are going on swallowing up industry after industry, and by this Bill and by the speeches of hon. Members opposite it is quite clear that they complacently accept a level of taxation which makes thrift, enterprise and risk-taking just not worth while.

I believe we have got to create the conditions under which qualities like ambition, pride in performance and the desire to improve one's lot and that of one's family should be given a chance to earn reward, and in doing that to create the wealth which the nation needs. If this level of taxation continues it is bound to lead to disaster and widespread unemployment. I would describe this Bill in one word—a disincentive Bill, which is just not equal to the needs of the times.

In view of what was said by the hon. Member for Sowerby (Mr. Houghton) about the Opposition trying to preach alarm and despondency, may I end on a less controversial note? We on this side of the House would like to make it quite clear to the right hon. and learned Gentleman that although we have these many criticisms to make of his Finance Bill, nevertheless, we appreciate that we are entering upon very critical times with diminishing resources, and there are many people in the world who are not too anxious to see us overcome our difficulties. With great trepidation I should like to Quote some lines from Tennyson which seem to me to be apt to the present time: Though much is taken, much abides and though We are not now that strength, which in old days Moved heaven and earth, that which we are, we are One equal temper of heroic hearts Made weak by time and fate, but strong in will To strive, to seek, to find and not to yield. It is in that national strength of will which transcends our political difficulties and our economic controversies, to which all parties and classes of individuals have their contribution to make, that the real hope of this country lies. So we reaffirm our determination to do everything we can to see that this country shall come through its tribulations, and emerge steadfast and strong.

9.42 p.m.

The Chancellor of the Exchequer (Sir Stafford Cripps)

This has been a somewhat discursive discussion this afternoon running over a very wide range of subjects, very few of which are mentioned in the Finance Bill, but nevertheless it has been an interesting discussion and has rather had the flavour of a number of speeches which unfortunately were shut out of an earlier Debate. I should like, therefore, in starting to reply, to say one or two words on the more general aspects of the economic situation which have been put forward.

The right hon. Gentleman the Member for Saffron Walden (Mr. R. A. Butler) opened with what I can hardly call an attack upon the Finance Bill; it was a commentary perhaps. It was largely contradicted and almost completely controverted by the hon. Member for East Aberdeen (Mr. Boothby) a little later on, whose argument incidentally had already been destroyed in advance by the right hon. Gentleman the Member for Saffron Walden, who made what I think might be called a good old Tory speech. It was composed on the theory, as he told us, that every man was entitled to his legitimate expectations. We all agree with that, but it depends on what is legitimate. This assertion, as it was put forward, of the right of each individual to such a share of the national income as he could get by hook or by crook, unencumbered by any charge to the community, is quite out of date. Indeed, it denies the whole modern conception of social responsibility. We believe that all individuals in the community must bear some responsibility for the common services that the community demands through its elected representatives and that, in order to provide those, people must pay a portion of their earnings or income in the form of taxation. It seems to be that theory which is denied very largely by the Opposition in the speeches they have put forward on this Finance Bill.

But the generally pessimistic attitude of the Opposition, foreboding all kinds of evils; saying how impossible it is for people to work under existing circumstances; how, without incentive, nothing could be done; how today there were no savings and no capital investment in this country; all these things are purely figments of the imagination of the Opposition. Any examination of the facts of the situation shows that they are completely and absolutely wrong. In fact, our production today is greater than it has ever been in this country before; in fact, our people are making the most magnificent effort, both managements and workers; and in fact we are investing more in capital investment in this country either than we have ever done before or than is being done in the United States of America as a percentage of the gross income.

So that when the hon. Member for East Aberdeen, for instance, in order to try to make a gloomy picture, quotes the figures of the whole of Europe, which he implies are the same for Great Britain, of course he really is doing something which is most undesirable and dishonest. It is attempting to give people in other countries an impression that this country is not making any effort. He knows that that is not true; that it is not helpful to this country to make that sort of speech; he must particularly know that in view of the fact that he has recently been to America. I hope that if he wants to quote figures, which no doubt will be reported on the other side of the Atlantic in view of his constant visits there, he will quote figures which are properly comparable between this country and America, and not figures which are vitiated by a number of other European countries which have had less opportunity to recover after the war, perhaps, than we have had, and which are certainly not able, for one reason or another—perhaps because they have free, and not planned, economies—to make the sort of investment that we have been able to make in this country.

The right hon. Member for Saffron Walden made some criticism of bulk contracts. This is a very common subject matter—although the hon. Member for East Aberdeen told us he approved of them—for discussion and comment by the Opposition. The Opposition always seem to forget that when anyone has a bulk contract there is one period generally during which it is very favourable and another period during which it is not so favourable. In fact, it generally evens out if it is a fair contract for both sides. The desirable thing is to have that evening out rather than great fluctuations. Take what is by far the most important bulk contract we have had—the wheat contract with America. Does any hon. Member opposite say that that is an unfortunate deal for this country? Quite obviously, it has been an extremely favourable deal for both countries. It has provided Canada with a stable market at a very reasonable price, and us with a price much more reasonable than some of the prices which those who bought casually at spot prices in other markets had to pay at the same periods of time.

Nor is it right to imagine that private enterprise always purchases at spot prices; in fact, they purchase forward quite a lot. In good businesses they purchase a great deal forward, to try to get a certain security. Therefore, the prices ruling today are not the prices which they would be paying for the raw materials they are using today; they would have bought those forward six months ago.

Mr. Selwyn Lloyd

Having insured against fluctuations of a future market?

Sir S. Cripps

Not at all; possibly in cotton, but not in other goods. It may be so sometimes, but sometimes it is not so, and it is chancy whether one does it or not. Some firms do it and some do not. In cotton it is done and always has been done as a regular rule of the market, and it is done today in the same way. It is always assumed in making these comparisons that bulk buying is buying in advance whereas private enterprise will always be buying at the spot price at the moment of which we are talking. The hon. Member for Edgbaston (Sir P. Bennett) called it the world price. I am not sure what he meant; he may have had in mind the American price.

Sir P. Bennett

The American price is the world price at the moment.

Sir S. Cripps

They are very different things, the American price and delivery price in Great Britain, especially on present freights, as the hon. Member realises very well. One could not buy at the world price for delivery in Birmingham. Of course, the prices are different and, indeed, the industries with whom this question of prices was discussed before the actual reductions were made expressed themselves as quite satisfied with the reductions. The hon. Member as much as said the same today in this House. I only say that to dispose of this complete fallacy as regards bulk purchase.

Mr. R. A. Butler

Can the right hon. and learned Gentleman honestly say that he is satisfied with the advance purchases of molasses, for which we have an advance contract for some long time ahead and of which the prices are lower than the prices we are now paying?

Sir S. Cripps

I have not been into the contract and I do not know. All I know is that we have a purchaser for these goods who has spent his life in the trade and happens to be purchasing for the Government now.

Mr. Butler

Perhaps the right hon. and learned Gentleman will look into it?

Sir S. Cripps

I will certainly look into it. One naturally cannot follow all these individual contracts in that way. Another point which was raised by the right hon. Gentleman was that our costs were too high at present to enable us to export the volume of goods we wish to export. It is perfectly true that in some cases we are getting embarrassment from the amount of prices—that is to say, they are high, for particular markets especially. But I draw the attention of the right hon. Gentleman to the fact that one of the reasons why prices are so high is because profits have been so frightfully high over the last few years—

Mr. Henry Strauss (Combined English Universities)

Nonsense.

Sir S. Cripps

If the hon. Member who said "Nonsense" will look at the figures for last year, he will see that over and above the figure for all dividends, debentures, interest and so on, of £730 million, £1,215 million were put to extra reserve by companies. Those are extra profits over and above what were distributed. It may be that some proportion of this is required for capital investment and that may be a very good thing, but there are other cases, of which probably most hon. Members are aware, in which a reduction of those profits would have made possible a reduction of prices, had that been necessary. I entirely agree with what my hon. Friend the Member for Ipswich (Mr. Stokes) said. Where we can legitimately and in the course of good business, charge a reasonably high price for commodities, we ought to do so. I do not agree with him that it would be better for the Government to take on the wholesaling of whisky, because I believe the merchants could do it better than the Government.

Mr. Stokes

I did not suggest that.

Sir S. Cripps

That is the only way in which we could do what he suggested and charge a higher price. The point is that there is latitude within the profits that have been recorded in the last few years—very large compared with pre-war profits—for a considerable reduction in prices. I asked people, over a year ago now, to use the method of reducing profits by cutting prices. Unfortunately not very many people seem to have followed that point through.

Mr. Drayson (Skipton)

Before the Chancellor leaves that point, may I ask whether he would not agree that at the present time a large number of companies have to put additional money to reserve as a safeguard against a possible drop in world prices to save their industries from ruin?

Sir S. Cripps

If anyone wants to be absolutely cast-iron safe, if that is the object of private enterprise, they never will be able to reduce their prices. I always thought that the object of private enterprise was to have some enterprise as regards taking these risks. That is the argument which is always put forward. All I am pointing out is that in these enormous profits, which last year were £1,639 million compared with £543 million before the war, which is over three times as much, there must be some latitude to take risks with prices, if it is necessary to do so in order to maintain markets. What I am pointing out is that this price factor which is alleged to be stopping us selling our goods is only in a few cases so interfering with our sales and in those and other cases, if it is necessary, I suggest that the proper course is to take the risk of reducing prices—

Sir W. Darling

Coal.

Sir S. Cripps

—and thereby reducing profits. That is one of the ways in which private enterprise can help in this necessity to expand our exports, particularly to the dollar market.

The right hon. Gentleman asked me whether there was any hope in Mr. Truman's fourth point as regards the investment of American dollars either in this country or, more particularly, in the undeveloped Colonial territories. I hope very much that there is some hope. So far no new basis has developed, but we have been considering the matter in the hope that we shall be able to make some arrangements by which further American money will be available to help with that development which is so much required. Then the right hon. Gentleman suggested what has been suggested by a number of others, particularly the hon. and learned Member for Wirral (Mr. Selwyn Lloyd), who was winding up for the Opposition, that really we should somehow or other get over the budgetary difficulties by saving more. He suggested 5 or 10 per cent. It did not seem to matter very much which; one was £165 million and the other £330 million. The hon. Member for Farnham (Mr. Nicholson) then put up the bidding one further to £500 million, which is 15 per cent.—

Mr. Nicholson

I never suggested we could do that by saving. I said a committee representing all interests should be charged with the task of cutting down expenditure by £500 million, which is quite a different thing.

Sir S. Cripps

I do not think it is a different thing really. Whether we call it cutting down expenses or saving, it is the same thing—

Mr. Nicholson

But my way is the more effective.

Sir S. Cripps

I apologise to the hon. Member's leader for his being more effective than his leader in presenting the case. But whichever it is, is not very material. The question is whether there is really any field in which figures of anything like this magnitude can in fact be cut out of the Budget; always bearing in mind what the hon. and gallant Gentleman has said, that it is his intention and the official intention of his party to maintain, on the existing basis at least, all the social services now in existence. I accept that, and therefore he accepts the responsibility for finding the finances. There is, therefore, no question of any cuts in those. He also agrees that defence must be maintained and he would, I suppose, agree that the interest on the National Debt should be maintained, although perhaps the right hon. Member for Saffron Walden would like to find his 10 per cent. out of that? It is quite possible, and with a very little encouragement we might be prepared to accept an Amendment on those lines.

But assuming for the moment that that is not to be called in aid, from where are we to get this money? People say that we could save a few civil servants by better administration. I have no doubt we could. I personally shall never be satisfied with the efficiency of the administration, because I am sure that we can always do better. We are struggling in every way that we can to make it as efficient as possible. If we can get any advantages from that, so much the better, but there clearly is no large saving there when we are talking in hundreds of millions. That is out of the question. Where is it to come from?

Colonel Hutchison

In my speech I instanced where some of it might come from, but I am still waiting to hear the right hon. and learned Gentleman reply.

Sir S. Cripps

I am afraid that I was not in the House when the hon. and gallant Member was speaking. But in any of the speeches which I heard, I did not hear any suggestion as to where it could come from beyond the general suggestion that by some sort of improvement in administration, as was suggested by the hon. and learned Member for Wirral, we might be able to find these moneys. The real fact, as I said in my Budget statement, is that we must face the situation that these moneys have got to be provided.

Mr. Nicholson

The money is not there.

Sir S. Cripps

Fortunately, it is now. In future we may be able to adjust our demands to whatever is there, but there is no reason at present for us to be unduly depressed or for not taking what is there at the moment. At the moment not only are we able to pay for all our current expenditure, but we are also able to pay for all our capital expenditure out of Revenue. That is what is meant by an overall balance in the Budget. If we succeed in maintaining the figures, subject to there being no great change in the situation until the end of the year, we shall not only have paid all our ordinary Revenue outgoings but we shall have paid for the whole of the capital investments of the Government in housing and everything else. If we accomplish that, I do not think that the hon. Gentleman can say that the money is not there. It is there and we are going to get it—and people most willingly pay it up, as we found last year, in order to help in these communal enterprises.

We had some little mention of the Purchase Tax. I must say that I agree very much with the hon. Gentleman the Member for Blackley (Mr. Diamond) when he said that it was the right and proper thing to do—and that is why I did it—to explain at the earliest possible moment as regards Purchase Tax that we could not make any alterations this year, so as to enable industry to get away from the embarrassing situation in which they did not know whether in the course of the Finance Bill there was to be some reduction or not. Therefore, we put it down in the main Resolution which was on the Order Paper for four days. It came to the notice of one of the youngest and most intelligent Members of the Opposition, the hon. Baronet the Member for Moseley (Sir P. Hannon), and it might very well have come to the notice of some other Member of the Opposition. Why they are really upset about it is because they overlooked it. I am afraid that it can hardly be said that I was unduly sharp about this if I merely thought that the Opposition would be able to notice a Resolution which was on the Paper for four days. I think that disposes of the question.

Mr. Butler

I deliberately said that the question of procedure was not the most important, but that we had here a question of principle—that taxation was being maintained without the representatives of the people being able to discuss it in Parliament.

Sir S. Cripps

Of course, people are able to discuss it. I agree that this was put in the Resolution. Instead of putting the Resolution in the form which used to be normal and which would not have drawn anybody's attention to the fact, we specifically put it into the Resolution that we were excluding the Purchase Tax. At that time, anybody could discuss it and could have put down Amendments to it, if they had wanted to, to say that the Purchase Tax should not be excluded. We were surprised that this matter was not discussed in the course of that Debate.

Mr. Butler

Why did not the right hon. and learned Gentleman mention it either in his opening speech or in his concluding speech in answer to the hon. Member who mentioned it?

Sir S. Cripps

I really thought that I had sufficiently mentioned it when I said specifically in my Budget speech that we were not able or prepared to make any alteration in the Purchase Tax this year, and I imagine that anybody reading the Resolution would have seen that. I am sorry if I have over-estimated the intelligence of the Opposition.

Captain Crookshank

May I put this point to the right hon. and learned Gentleman, who I think has inadvertently made a mistake. He suggested that we could have amended it, which is, in fact, not possible because the Chairman never accepts manuscript Amendments to the main Resolution on that day, and of course the Resolution is put on Report stage without discussion or Amendment. Will the right hon. and learned Gentleman kindly make that point clear?

Sir S. Cripps

It was on the Order Paper for four days, and an Amendment could have been placed on the Order Paper, though it may not have been called. It would have been perfectly open to discuss that point in the course of the four days' Debate on the Budget if anybody had wanted to raise it, and, indeed, one hon. Member did raise it.

Mr. Nigel Birch (Flint)

The right hon. and learned Gentleman did not answer it.

Sir S. Cripps

That was a long time afterwards, and nobody else had shown the slightest interest in it.

As there has been no real criticism of what is in the Bill and there is nothing to answer on that score, may I try to repeat once again what I said in the Budget Debate about the position in which we now find ourselves? I have never attempted to hide from the House or the country that we are in a very difficult position, particularly as regards our dollar balance. I have also pointed out for the last year and a half at least that manufacturers should observe that the sellers' market was disappearing; in fact, I started to point that out at a time when people would not believe me.

Mr. Birch

Only your own people.

Sir S. Cripps

No, a great many other people, who said I was mistaken and was too early in my forecast. All I want to say about that is that it is not a new discovery made today by hon. Members of the Opposition who mentioned it, and the hon. Member for East Aberdeen was one who mentioned it. We have not solved the problem of trade between the Eastern and Western hemispheres, and although Marshall Aid has given us time in which a solution may be found for that problem, provided people have the common sense to follow the right policies, it has not yet been found, certainly for a great many countries in Europe.

I agree also with what a number of hon. Members have said, that it will only be found by the co-operation of this country with both the Commonwealth and Western Europe and that we shall not find it in isolation. Of course, it is entirely wrong to suggest, as was suggested by the hon. Member for East Aberdeen, that I have been trying to develop a policy of rigid isolationism for this country. I have done nothing of the sort, and if only he would examine the situation he would find that there is a larger area of sterling transferability now than there has been at any previous period, and that a great part of the commerce of the world today is carried on in sterling. That is not isolationism. In fact, we have steadily been developing the transferability of sterling in order to bring about as great an area of multilateral trade as possible, and, at the same time, we have been trying to get arrangements between the groups like Western Europe and the Western Hemisphere in order to try and solve the remaining large problems which stand between those great blocks of countries.

I suggested—and I venture to suggest it again—that the policies we have pursued in this direction have, in fact, been successful, and that the degree of recovery that we have accomplished, although due to the efforts of our people, has, in fact, been encouraged by the policies of the Government. That, I think, is proved quite plainly by the facts of the situation. Those policies, which we propose substantially to continue in this Budget and in this Finance Bill, will continue to satisfy the necessary conditions for sound sterling and for a reasonable degree of disinflation until circumstances change. As I have said over and over again, we have got to remain flexible in our policies because, in the conditions of the world today, those circumstances may change very quickly and really comparatively suddenly.

We have not only been able to bring about this degree of recovery, but we have also been able to maintain better social services than this country has ever had before—which nobody will deny—and a far higher degree of investment than this country has ever had before.

Colonel Hutchison

Not as high as it needs to be.

Sir S. Cripps

The hon. and gallant Gentleman says, "Not as high as it needs to be." Does he suggest that we should go above 22 per cent. of the national income in investment?

Colonel Hutchison

All I am saying is that industry needs more capital investment than it has been having.

Sir S. Cripps

What I am asking the hon. and gallant Gentleman is, does he think this nation ought to invest a greater proportion of its gross national income than it is doing at the present time? [HON. MEMBERS: "Answer."] Obviously the hon. and gallant Gentleman does not think that. We have therefore maintained this very high state of investment; we have attained this very high degree of social services, and for a great proportion of the population, we have today a better standard of living than we have ever had before. One hon. Member suggested that 90 per cent. of the population at the present time were on a lower standard of living than before the war, worse fed than before the war when there were three million unemployed. It is perfectly fantastic to suggest that. He has only to take the average figures of the calorie and other values of food today to find that it must be false to make that statement, because the average figures are as high as pre-war, and certainly some of the better paid people are not having so many calories today as they had before the war.

Therefore, broadly speaking, it is quite untrue to suggest that we are today in a terribly depressed condition, in a condition of complete failure, that we have been unable to recover, and that the forward look is even gloomier still. The truth is that the Opposition are bitterly disappointed at the success with which our policies have met, and they are hopeful that they will be able to persuade us to do what the Government was persuaded to do after the First World War, that is, to apply what was called the "Geddes Axe." We certainly do not intend to follow a policy of cutting down the benefits to the workers of this country in order that better profits may be earned in industry. If personal incomes do have to come down they must come down all round, and not for one part of the population alone, as they have been adjusted to a very considerable extent already in the redistribution which we have carried out. We have certainly also got to reduce prices, and that we can do by a greater degree of efficiency and a smaller degree of profits. Certainly the swollen profits of the inflation period have got to come down. They must not be regarded as a standard which, once established, can continue to be charged. 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—

Lord John Hope (Midlothian and Peebles, Northern)

Including nationalisation at a loss?

Sir S. Cripps

The hon. Member talks about nationalisation at a loss. It is quite a false conception to consider that it is necessary to make a profit out of any industry, except under a capitalist system. It is not necessary to make a profit out of industry except under a capitalist system. For instance, take the roads. In the old days it was necessary with the tolls to make a profit out of a road in order to have it available for traffic. Quite a long time ago we dropped that idea. We said that we would provide the roads free, and that we would not run them on the profit system any longer. We dropped the same idea with education. It is exactly the same if we decided to provide transport in the London streets free, as Lord Ashfield suggested we should do at one time, because it was so expensive to have a lot of people collecting fares and giving out tickets. Similarly, if it was decided that coal should be provided to industry without charge, it might be that that would suit our economy. There is nothing wrong in it if we like to decide to do it. It is only in capitalist industry that profit must continue to be earned in order to support the private capitalists.

I am sorry for this diversion in order to explain to right hon. and hon. Members opposite about what are called losses in nationalised industries. We believe that this Finance Bill incorporates the necessary provisions in order to carry out the decisions which, I think, met with general approval in the Budget that we have produced. It is an unexciting Finance Bill. It creates no marked changes because, as I have said, it is marking time and it is not intended to produce any marked changes. We hope, therefore, that with those explanations the House will give it a Second Reading.

10.19 p.m.

Mr. Nigel Birch (Flint)

It would be a pity if we ended this Debate without one or two comments on what the right hon. and learned Gentleman has said. I thought that even for him the comments on the Purchase Tax were disingenuous and dishonest, because the real opposition to the Purchase Tax has come from his own side. What he determined was that no discussion in detail should take place upon these taxes, because, as he very well knew, whatever was done on this side, as long as he put down the Resolution in that form, it could not and would not be altered. The great opponent of the right hon. and learned Gentleman's Budget has been his hon. Friend the Member for Central Bradford (Mr. Webb) and it was the hon. Member for Central Bradford of whom the right hon. and learned Gentleman was afraid. He has not yet summoned up the courage to sack him from the party—or from the chairmanship of the party—which seems to be the general punishment for most people on the opposite side who express their own opinions. No doubt he will summon up courage one day.

Mrs. Leah Manning (Epping)

It is not for him but for us.

Mr. Birch

I am grateful to the hon. Lady. I agree with her; it is not for the right hon. and learned Gentleman to sack the chairman of the party. I hope very much that the hon. Lady will keep the chairman of the party although I have no doubt the right hon. and learned Gentleman will do what he can to sack him.

Mr. Shurmer (Birmingham, Sparkbrook)

You speak for your party and we will speak for ours.

Mr. Birch

The fatuity of the last part of the right hon. and learned Gentleman's argument about nationalisation takes some beating. What is the purpose of nationalised industry? The point surely is that it should produce efficiently, cheaply and in abundance. If the right hon. and learned Gentleman thinks that any nationalised industry is doing that I am amazed. Of course it is not. They are all inefficient, produce at a high cost and at a low rate.

The main point which most of my hon. and right hon. Friends have made is the great danger which faces this country because prices and costs are rising here whereas they are falling in the rest of the world. What is the right hon. and learned Gentleman's answer to that? It is perfectly simple—he says you have to reduce the profits. [HON. MEMBERS: "Hear, hear."] His hon. Friends are foolish enough to agree with him. But what are the facts? I have been informed that if all dividends paid by all motor companies were eliminated altogether the wholesale price of a motorcar would go down by about £8 and the retail price by £10. Does the right hon. and learned Gentleman think that will break into the American market? Presumably he does, and that is the level of sense on which this country is being run.

The right hon. and learned Gentleman then said how wonderful it was that we had kept up our capital expenditure at a higher level than that of the Americans—which I believe to be wholly untrue—and that we have kept up our social services. But he made no reference of any sort whatever to the point made by my hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) and myself in the Budget Debate that we have done it at the cost of liquidating every single realisable asset in this country. If you pawn your grandmother's earrings and borrow all you can from round the corner, you can have a few parties and that is what hon. Gentlemen opposite have been doing. They have been prejudicing the permanent interests of this country for a temporary political object, which I believe to be a crime against the nation, but hon. Members are not in the least penitent about their crime.

I now turn to bulk purchase. The right hon. and learned Gentleman took particular pleasure in the wheat agreement with Canada. There is one point about it which I must mention. In 1947 we fixed an extremely low price for our wheat purchases in Canada. What was the result of that? The result was that in the famine of 1947 the acreage sown to wheat in Canada, the largest exporter, decreased by 7 per cent. and the price in America on the free market, owing to the fact that the amount of wheat disposable had gone down, zoomed up. Subsequent contracts with Canada had to be fixed with reference to a price put up artificially by the restricted acreage in Canada—an admirable illustration of what happens when we fix these extremely foolish prices and make these extremely foolish agreements.

Mr. Pargiter

Perhaps the hon. Gentleman would help me. If we fix high prices then, according to his hon. Friends, it is foolish. Now, if we fix low prices it is foolish. What are we to do?

Mr. Birch

Cannot the hon. Gentleman see that in a period of acute shortage it is wrong to fix a price which, in fact, restricts the production of an essential product or material, puts up the free price, and then ultimately lands us with a contract at a higher price than we should have had. It is a certainty that on the average we shall pay more for wheat than we should have done in a free market.

Mr. Michael Foot (Plymouth, Devonport)

Is the hon. Gentleman declaring to the House on behalf of his party that now his party is opposed to the Canadian wheat agreement? If so, why did it not say so at the time?

Mr. Birch

Of course, we have to honour an agreement when we make one. [Interruption.] Hon. Gentlemen opposite do not honour agreements. They have repudiated several agreements with Canada to their eternal discredit.

Sir S. Cripps

The hon. Gentleman is now making an accusation against this Government, that they have dishonoured agreements with Canada. I should like particulars of that, please. The hon. Gentleman cannot make loose statements of that sort.

Mr. Birch

What about wood pulp, for instance?

Sir S. Cripps

What about it?

Mr. Birch

What about it? We dishonoured an agreement.

Sir S. Cripps

Nothing of the sort. I do not know whether the hon. Gentleman is referring to paper?

Mr. Birch

Yes.

Sir S. Cripps

There is no question of dishonouring an agreement at all. It was all arranged with the Canadian suppliers, who came over here.

Hon. Members

Withdraw.

Mr. Birch

That is not what the Canadian Government think about it?

Sir S. Cripps

I have spoken with them about it myself. They thought nothing of the sort. The contract was not with us. It was with a private company in this country. As a matter of fact, the Canadian suppliers came over here. The matter was arranged between us and the private company and the Canadian suppliers.

Mr. Birch

In fact, the private people in this country had made a contract with the Canadian suppliers, with the agreement of the Government, but they were then told that the Government would not produce the dollars for it which they had promised, and so they had to repudiate the contract.

Sir S. Cripps

They had to make an arrangement whereby it was postponed, in fact.

Mr. Birch

Time is the essence of the contract.

Sir S. Cripps

Will the hon. Gentleman allow me? He accuses this Government of repudiating a contract with Canada, and I am still waiting to know what it was.

Mr. Birch

The right hon. and learned Gentleman asked me what it was, and I have told him; and there were other cases.

Hon. Members

Which?

Sir S. Cripps

The hon. Gentleman cannot make loose statements of this sort, which are intended, presumably, to embitter relations between this country and Canada.

Mr. Birch

I am sticking to the facts, as the right hon. and learned Gentleman very well knows.

Sir S. Cripps

I do not know the facts. [HON. MEMBERS: "That is the trouble."] Will hon. Gentlemen tell me what the facts are? They do not know them. I suggest that hon. Gentlemen opposite should not make irresponsible statements which they cannot support with facts, and which are calculated to injure the relations between this country and Canada.

Mr. Birch

I am sticking to the facts. [HON. MEMBERS: "Withdraw."] I have nothing to withdraw. I end by saying that the right hon. and learned Gentleman has shown, as he always does, invincible self-satisfaction. I do not think the facts will bear him out.

10.30 p.m.

Mr. Follick (Loughborough)

It is generous of you, Mr. Speaker, to let me catch your eye at this late hour. I have noticed in the discussions on the Budget Resolutions, and on several occasions, that the matter of Marshall Aid is brought up by various Members on the other side of the House. They have said that if it had not been for Marshall Aid this country would have had about 1,500,000 unemployed. They seem to take a certain delight in that and bringing it to the attention of the House. Today the hon. Member for East Aberdeen (Mr. Boothby) and the hon. Member for Bucklow (Mr. Shepherd) also talked about the incidence of Marshall Aid and the unemployed there would have been if Marshall Aid had not been introduced into our economy.

It is about time that somebody brought to the attention of the country what the British have done towards the economy of the United States. Hon. Members on the other side seem to forget what Britain has contributed within the last nine years towards the wellbeing of the United States. At the outbreak of the war, on account of the distance from bombing and the amount of unemployed in the United States, this country invested the largest part of our overseas investments in American firms and in the erection of new factories for the production of the armaments we required. The result was, as Lord Lothian said towards the end of 1940, that we had expended all our overseas investments.

When the United States came into the war at the end of 1941—and we must not forget that she did not come into the war until she had been attacked—the American factories for the erection of which we had paid to be erected and the firms that had expanded on the guarantee of our orders, formed the nucleus of that tremendous rearmament plan that the United States entered upon; so that the economy of the United States had the advantage that already existed of that nucleus. When Lease-Lend was brought into existence, it was undestood that at the end of the war we should sort things out and strike a balance.

So far as I know, the amount of money invested in the United States has never been returned to us nor have we received payment for all the capital we put into America for arms. I remember listening to one of the fireside chats of Franklin Roosevelt, in which he said that when a neighbour's house is on fire, you help him with the implements to put out the fire and then the implements were returned. That was the intention of Lease-Lend. It was to be a two-sided agreement. I was in this House when the Prime Minister read the telegram that he had received from the United States terminating Lease-Lend. We must not forget that all our difficulties at the present moment go back to the termination of Lease-Lend.

So far as I know and so far as was explained in this House at the time, there were no negotiations at all about the termination of Lease-Lend. In this country we understood that Lease-Lend was to carry on until the signing of peace. But peace has not yet been signed. Yet Lease-Lend was abruptly terminated without notice and without negotiations. This fact should be clearly understood in the country. That was one of the principal causes, not only of the economic difficulties we are going through, but largely also those from which Western Europe has been suffering. We also gave the Americans bases in our Empire for which we did not receive any rental. It is true that we received 50 First War destroyers as a gift; but there again we have given something to America. We have contributed largely to America, and if now America is helping us with Marshall Aid, surely this is only as a return for what we have done towards her own economy in time past.

Returning now to the Budget, I think there was really great disappointment throughout the country with regard to Purchase Tax. A large number of our own people were looking forward to some reductions. On the other hand, I can understand the Chancellor of the Exchequer's difficulty, because he had to find other means of providing the money. But surely there are other means by which the money could have been provided.

I have been studying this matter, and I know of the amount of income acquired from the Stamp Duty on receipts. That duty has not been changed since 1870. We still put a twopenny stamp on a receipt, whether it is a receipt for two guineas or for twenty thousand guineas. There you have a channel from which substantial duty could come into the Treasury. If that form of taxation or duty were changed to one penny in the pound right through our system of trade we would be able to receive sufficient income from that easily to wipe out the whole of the incidence of Purchase Tax.

Another source which might bring us in quite a large income, and which is largely used everywhere abroad, is the taxation of, or a duty upon, space advertising. I am not talking about newspaper space advertising, but advertising on boardings, ordinary billposting, and such space advertising. All along the country roads one can see huge advertisements—and very ugly ones some of them are—which could easily be taxed. In Piccadilly there are huge neon signs which could be taxed. There are none in Regent Street because that is Crown property, and signs are not allowed. But all shop-signs could be taxed. In this way there could be drawn in quite a considerable amount of income without hurting anybody except the people actually using this system of advertising. So I suggest to the Chancellor of the Exchequer that when next he is drawing up his Budget he should think of these two sources of income, and drop some of the more annoying parts of taxation which weighs so heavily upon the ordinary folk of the country.

Lastly, I should like to speak about the reduction of two shillings a bottle on wine. I understand that the reduction was made to help France in her economic difficulties. But surely there is a much more sensible way to do this, because this reduction is only encouraging France to continue with her pre-1914 wine economy when her markets included the whole of Russia, Austria and the Balkans, which were all great wine drinkers. Even North Africa has been turned over to wine production. If we were to insist on North Africa being turned over to cattle breeding, we could be taking cattle instead of wine, which would be of benefit to this country and would encourage France to discontinue this outworn system that is neither to her benefit nor to ours.

10.41 p.m.

Mrs. Middleton (Plymouth, Sutton)

I have listened to the major part of this Debate and one thing has greatly surprised me. In my constituency last week I heard from Tory loudspeakers attacks upon the Budget and what the Chancellor was doing. I expected that we should hear today violent attacks upon the financial policy of the Government from Members opposite, but I have been surprised at the milk-and-water tones of their speeches.

I want at this late hour to deal with only two items; one is included in the Bill and the other is excluded. The one which is included is the duty on beer. I understand that this has been conceived as a revenue raiser. It is intended to send up the consumption of beer in the country and, as I understand from the Financial Secretary today, to provide a relief for working-class budgets. If that was the intention, I can only say that I wish the Chancellor had come to his women colleagues in this House who could have suggested much better ways of relieving working-class budgets. I believe that the penny off beer will entirely fail as a revenue raiser, and that the consumption of beer in the country does not depend on an increase or decrease in the duty.

I suggest to the Chancellor that there is a quite different reason for the fall in the consumption of beer. When I go round the housing estates in my constituency, I find that the money which can be afforded for little extras like beer and pictures is going on garden implements and packets of seeds, and is being used by the womenfolk for the first time in their lives in making real homes of the places where they are living. I believe that the housing policy of this Government is responsible for any fall in the consumption of beer in working-class homes. I very much regret the fact that the Chancellor has taken this penny off the price of beer and has put additional costs on much more important items that come within the scope of this Bill.

The other matter I want to raise is not covered in the Finance Bill; it is one which I and my hon. Friends have raised on more than one occasion with both the Chancellor and the Financial Secretary. It is the question of post-war credits and their payment. I readily agree that it would be impossible for the Chancellor at the present time, in view of the difficulties with which he is faced, to make any large concession in the matter of payments of these credits. I admit that straight away, but I do think that there are certain classes of people to whom some consideration might have been given.

I would particularly instance widows who benefit under their husband's estates. The Chancellor might well have said in the Finance Bill that he would enable post-war credits to be paid at the time when the deceased husband's estate is wound up. This is important for more than one reason. A good many of the women concerned find themselves with heavy commitments in the shape of education for children apart from other things, and my suggestion would represent a very welcome relief to them.

There are others, such as a woman constituent of mine who is under 60 years of age and who is not, therefore, entitled to pension under the National Insurance Act except for the 13 weeks when she is readjusting her life to the new circumstances. In her case the post-war credits were the property of her husband and they would be very welcome indeed to enable her to set up in a small business so that she might earn her own living in the years which lie ahead. I could give other instances which have come by letter from people in my constituency and also from other parts of the country. Cannot the Chancellor, even now, do something to include within this Finance Bill provisions of that sort?

Only today I have had another letter from a constituent dealing with this subject but from a rather different point of view. This is the case of an elderly woman who had a friend who desired to leave her the post-war credits of which she was the possessor. Unfortunately, she died intestate and, therefore, they pass to the next of kin. But the next of kin knew what was the desire of the person to whom the credits belonged, and after much trouble with the Inspector of Taxes in the district did, in fact, get these credits transferred to the person whom it was desired should be the recipient. But they were transferred in such a way that the old lady in question, although over 60 years of age, cannot benefit from the credits because she is what is termed, in the letter I have, a creditor and not a beneficiary.

Something ought to be done at this time of the year when we are discussing the finances of the country to meet hardship of that kind. At least it ought to be possible within the terms of the Finance Bill to make this concession on the one hand to widows, and on the other to creditors, as they are termed, and who are over the 60 years in the case of a woman and 65 years in the case of a man. That is all I want to say at this late hour; I am sorry to have kept the House, but I do believe that the matters to which I have referred are matters about which the people of this country feel very deeply and they should be brought to the notice of this House.

Question put, and agreed to.

Bill read a Second time and committed to a Committee of the Whole House upon Monday next.