BUDGET PROPOSALS AND ECONOMIC SURVEY

HC Deb 19 April 1950 vol 474 cc144-260

3.33 p.m.

Mr. R. A. Butler (Saffron Walden)

My right hon. Friend the Member for Warwick and Leamington (Mr. Eden) has already drawn attention to the difficulty of debating the Budget with the Economic Survey. A very wide range of subjects is involved, and a very large number of papers have to be read by any conscientious person daring to address this Committee—the Survey itself, the balance of payments paper, the paper on the national income, and, I venture to suggest, a very useful document by the E.C.A. on facts about the British economy; and we have since had added to that the lengthy volume contributed by the Chancellor himself yesterday. No one could accuse the Chancellor of the Exchequer of lacking ability to state things clearly, but even his noble efforts, lasting as they did for a very long time, to draw a thread through this mass of materials do more credit to the acuteness of his mind than to the policies which lie behind both his own mind and that of His Majesty's Government.

The general impression made upon my right hon. and hon. Friends and myself was that this is the Budget of a man and of a Government who do not choose or care to look very far ahead, and, moreover, a Budget introduced to look such a little way ahead that they themselves cannot expect to continue long in office to carry out these very policies of which they are so proud. This time we have a reversion to the famous expedients to which the Chancellor of the Exchequer referred before, not expedients on a drastic scale, but still expedients as the opera said: A thing of shreds and patches, and, as some hon. Members undoubtedly found yesterday, a "dreamy lullaby." The question we have to ask ourselves is whether this dirge will have lullabied organised labour into a belief in both the Chancellor and a secure standard of living. Will it have "hushabyied" the querulous Members of the right hon. Gentleman's party behind him?

It is at least noticeable that on this occasion the Chancellor was most restrained; and we should like to pay him a tribute on this score, in not raiding, as he has done in the past, what we have regarded as one form of national savings, and that is a variety of accumulations of wealth. He has obviously not done this because it is quite clear that the raiding, or mulcting, or soaking of the rich has now reached a stage which has resulted in diminishing returns. I did, however, notice that the only occasion upon which we heard the usual grunts and squeals of delight which we associate with hon. Members opposite when their predatory instincts are aroused, in the long period of two and a half hours, was on a comparatively minor, but no doubt tragic point, namely that referring to restrictive covenants—what is known as the Lord-Black, or, as I put it, the other way round, in deference to another place, the Black-Lord case.

Now this case raises a variety of questions of principle, not the least of which is that we on this side of the Committee do not believe in retrospective legislation, and this and other aspects of this case will be considered when we deal with this matter in detail later. Further, I think it most important that no action by the Chancellor should remove what might be called the legitimate incentives to managements—[Laughter]—but we have to ask ourselves in this case—and perhaps hon. Members opposite would wait a moment before laughing—whether these incentives were in fact legitimate As far as we have been able to study the matter—and, as I say, it will be considered again—it would seem that if any of us are to be shorn by Surtax we should adopt the Government's policy of fair shares in this case, and that therefore the Chancellor has a certain amount of right on his side in dealing with this question

Today, we have to deal with the Budget as such. Tomorrow my right hon. Friend the Member for Aldershot (Mr. Lyttelton) will deal with rather a wider scope, and that is the Economic Survey in its relation to the Budget. It is clear, however, even in a speech which confines itself chiefly to the Budget and the financial aspects, that the level of production, the increase in productivity, the progress of the balance of payments, and the size of the national income itself are all interdependent, and the strands which link those different aspects are, or should be, brought together in the Budget. May I stress at the outset of my remarks that the whole of our national prosperity and the whole of our national standing—whether it be our rations at home, or whether it be the lead we can give to Western Europe—depend upon the soundness of our financial position. Never was there a greater need for broad and wise economic statesmanship.

The duty of the Opposition, as we see it, is to awaken our country's attention to the fundamentals of our economic and financial position, and we regard the Budget presented to us yesterday as inadequate to deal with these vital matters. The Chancellor besides making his speech yesterday showed that further physical resilience which we associate with him in making a broadcast speech which, no doubt due to the shorter length of time and for other rather weighty considerations, omitted many of the more sombre remarks which he made during the afternoon. No doubt the right hon. Member for Bristol, West (Mr. Stanley) will be able to deal with this matter at a later stage this evening. The Chancellor said that his aim was to have a happy country. Our aim is also to create a happy country, not just for a few months ahead but in the long-distant future. I believe that we must create that happy country not only now but for a very long period ahead. I do not believe that the terms of the Budget as presented to us yesterday give us the assurance that this happiness in the country will last for a very long time.

Taking the right hon. and learned Gentleman's statement, I want first of all to refer to his references in the open- ing part of his remarks to Marshall Aid. We remember that there was no reference to Marshall Aid in the Labour Party's manifesto, and, therefore, we see with some satisfaction that the right hon. and learned Gentleman has made suitable and appropriate mention of this great and unprecedented aid which has enabled us to survive during these difficult years and under a difficult administration.

We have had for these years £1,211 million of American and Canadian loans. We have had £499 million gross in Marshall Aid. We have disposed of a great many of our overseas assets, such as the Argentine railways, and negotiations are now in progress for, I believe, liquidating our interests in similar concerns in Brazil. Taking the trade figures for the last four years, the total trade deficit has been in the neighbourhood of £1,145 million. There has been during that time a net capital outflow of some £728 million and drawings on the sterling balances of £319 million. We welcome the improvement to which the Chancellor referred that has taken place in 1949. The trade deficit for that year was only £70 million, the capital outflow £301 million, and the drawings on the sterling balances £15 million.

We welcome this because there have been a good many taunts from the other side of the Committee that we are attempting to make the national situation look worse than it is. That is not the case. It is our desire and our pleasure on every occasion that we notice an improvement to register it. Things are far too serious in our national economy and in our national position for us not to recognise a trend when we see it. But this tendency to improve has also been helped and balanced by American aid. We welcome also the improvement in our reserves position, but it is quite impossible to be complacent, for reasons which I now propose to give the Committee.

The Chancellor of the Exchequer used an expression in his speech yesterday as follows: …if external circumstances continue as they are today there is no reason why we should anticipate any dangerous change for the worse in our situation."—[OFFICIAL REPORT, 18th April, 1950; Vol. 474, c. 44.] We regard that as far too optimistic a remark. We consider that the Budget statement does not anticipate difficulties which may arise, for example, from devaluation, which had very scant reference in the Chancellor's long statement. We consider that it is certain that with the undoubted rise which must occur in raw material prices we are going to be in grave difficulties in this country. We therefore think that keener world competition is bound to supervene and to land us in greater difficulties than those which we are facing at the present time.

I look at the Economic Survey, and in paragraph 62 some of these matters are summed up as follows: …it is impossible to put forward precise estimates for the general balance of payments in 1950. Price trends following devaluation have still not fully worked themselves out. Moreover, the future course of raw material prices is dependent to a large extent on the level of United States activity "— and even a small recession in the United States is bound to have a serious effect upon our economy. The experience of 1949 showed the disproportionately large effects produced by comparatively small variations in the United States demand. Another major uncertainty is the effect of the recent action taken to liberalise trade between this country and other members of O.E.E.C. Only experience can show what is likely to be the level of demand for many of the products now freed from control. Similar uncertainty exists about our own exports, which should benefit from parallel liberalising action taken by other countries. That statement seems far franker than the speech of the right hon. Gentleman.

These are the vital assumptions upon which British prosperity rests, and they are all extremely uncertain. The Chancellor prided himself in his speech that by relying on what he referred to as "democratic planning" he would be able to pull this country through. Does the Chancellor or the Government imagine that they are the only Government which have a monopoly of wisdom and yet remain a democracy? Do they realise that they are the only Socialist Government remaining in the English-speaking world, and do they realise that other democracies which are able to remain just as good democracies as this country are not indulging in the restraints, controls and general inhibitions associated with the Socialist management of our affairs?

The Chancellor prided himself on equality of opportunity. I suppose that I have had as much to do with helping to improve equality of opportunity as anyone else, and I can tell the right hon. Gentleman this: it was never my idea in worshipping at the shrine of equality of opportunity to do anything other than to improve the opportunity of the individual and to give the individual the best possible chance of giving of his or her best to the country.

I remember discussing my scholastic reforms with a planner, and he said, "What a pity it is that you cannot turn children out of our schools in ready-made groups ready to be planned by the society in which they are moving." That is the exact opposite of the philosophy for which we stand. We believe that in creating equality of opportunity we should give the maximum rein to individual flexibility and genius. We believe that a rigid economy—as the "Economist" said recently, "Our economy is crammed right against the ceiling "—and a precariously balanced Budget, without any latitude or elasticity, cannot meet the undoubted shocks to which we are heir, and which are so dramatically described in paragraph 62 of the Economic Survey itself.

Certainly we believe that the Government must be strong, and certainly any Government that we formed would be a great deal stronger than the Government opposite it would have a mind 01 its own and know where it was going, but it would not attempt to interfere to the extent that this Government is doing in the private lives of the citizens. Certainly we believe that certain controls are necessary. It is necessary in the case of scarce goods of any sort to maintain a system of rationing, but one control to which we attach particular importance is precisely the control which right hon. and hon. Gentlemen opposite seem either unable or totally unwilling to use, and that is, to use the Chancellor's words, control in the area of public expenditure."—[OFFICIAL REPORT, 18th April, 1950; Vol. 474. c. 40.] What picture do we get of this failure to use that absolutely vital control over our economy, that vital control if we are to stop the undue inflationary trend with which we are faced at the present time? The picture we get is expenditure of £3,375.3 million which has been increased by £200 million over the 1948–49 period. It has surpassed the Budget estimate by £67 million, and there is a prospective increase in expenditure of £80 million in 1950–51. I should like to ask the Financial Secretary what certainty we have that the supplementary estimates this year will be kept within bounds.

We know, on the last occasion when the Chancellor of the Exchequer uttered one of his many exhortations, that the supplementary estimates soared to such an extent as to affect the whole of the Budget balance and our economy. We have had no assurance this year, which is perhaps a sign that the Chancellor of the Exchequer expects the very opposite to happen. The huge sum of £16,000 million has been quoted as spent by the administration of Members opposite in the course of 41 years. I have attempted to bring this above-the-line expenditure up to date, and the latest figure I can get for the five years is no less a sum than £19,000 million. That is an unprecedented sum of money to be spent by any administration in the history of the country.

The responsibility for dealing with this problem of Government expenditure must rest with the Government. The Lord President of the Council, winding up the Debate on the expenditure cuts on 27th October last, stated: Any one who imagines that the present list represents the end of the Government's efforts to achieve economies is going to be undeceived before long."—[OFFICIAL REPORT, 27th October, 1949; Vol. 468, c. 1555.] We have been deceived by the Chancellor's statement yesterday, and, indeed, we expected that we might be.

Leaving aside this question of rising and mounting expenditure, we have at the present moment the highest taxation burden in the world. The latest figure rises even above the figure we were all so prone to use in the recent struggle, namely, 43.5 per cent. of the National income which is taken away by the central Government, local government and National Insurance contributions. That is the burden of taxation upon the ordinary citizen. The Chancellor of the Exchequer permitted himself to make this observation on the subject: Our very favourable industrial results over the past year show conclusively that we are not being crushed down by the weight of taxation."—[OFFICIAL REPORT, 18th April, 1950; Vol. 474, c. 64.] That is not the view, either of my hon. Friends, or of the average man and woman in the country. They are aware of the crushing burden of taxation which is sapping effort, checking a greater rise in productivity and making it impossible for the incentives to be granted which are so vital to improving production to an even greater extent than has been achieved hitherto.

While dealing with this point, may I revert to the discussion we had during the last Budget Debates on the subject of industrial profits? There is no doubt that the Chancellor of the Exchequer on this occasion made some fair and generous remarks about the real situation of industrial profits. We welcome, at least, that sign of grace, but he did not go on to expand the matter. Costs at the present time for replacements in industry are more than three times what they were. There is no doubt that today, if one asks anyone involved in the industry in this country, whether large or small, there is a great shortage of risk capital and a great difficulty in meeting depreciation costs, and that British industry is staggering under the weight of taxation it has never had to bear before. I should like to ask how soon we may expect the report of the Millard-Tucker Committee on depreciations. We do not know when that report will be made, but we believe that further action, to follow the action taken in the last Budget, is essential from the point of view of industrial enterprise if this question of depreciations is to be properly dealt with.

I come now to some of the more detailed points in the Budget. First, let me refer to Income Tax reliefs. I notice that the Government have accepted here almost in its entirety the policy we put to the country in the last General Election. On page 7 of the now famous document, "This is the Road," the following sentence occurs: As we have already said, our aim and intention is to make sure that extra work, effort and skill on piece rates and through overtime, instead of being penalised, shall gain their just reward. In so far as this proposal to make alterations in the lowest scales of Income Tax achieves that object, it is our desire and wish to welcome the Chancellor's proposal. We have not the trappings of office, but clearly we are providing the policy for the country. This is not the first bloodless victory we have secured. Hardly had this Parliament met when the Minister of Labour came to the Box and announced the abandonment of the Control of Engagement Order. Therefore, both on the very thorny question of direction of labour, in which it appears that democratic planning has wholly and totally failed, and on the question of the only important concession the Chancellor of the Exchequer can make in his Budget, the policy of the Opposition in this new Parliament is holding the field. It is strange how the British constitution works; it is a subject of marvel to foreigners and of great satisfaction to ourselves.

This matter of relief in the lower rates of Income Tax will have to be examined in greater detail. We shall have to examine the tables and see precisely what is the effect, but it is quite clear on first examination that it is unlikely to touch precisely those lower paid workers to whom the Chancellor referred in his Budget speech. The lower paid workers are the very workers who are the cause of the greatest anxiety to us all and of the greatest pressure in regard to what is known as the controversy of the "wage freeze." There is no doubt that the lowest paid sections of our population will not be affected by this concession at all.

Is it really tackling the problem of overtime? if the Financial Secretary, who presumably, like most Members of the Government, has now a fixation on agriculture, can tell us whether the agricultural worker who works overtime will gain some relief, and will give us some illustrations, it will be extremely satisfactory for us to know that some of our constituents are covered in this way. Does it measure up to the size of the problem with which we are faced? At any rate, this reform, as we are pleased to call it, has been financed by a most severe tax on the roads. It looks as if the right hon. and learned Gentleman is so concerned about our document, "This is the Road," that he has roads on the brain. He has in his Budget launched an onslaught on the road user, and hence on the costs of industry.

The right hon. and learned Gentleman has had to finance this concession by playing with the last two millions on his immense Budget figure and by imposing a tax on petrol. He has also attempted to compare costs of petrol here and on the Continent. It is rather interesting to note that in imposing this tax he has not only accepted one of the practices of the Continent, namely rationing by price, but he has also departed from one of the major beliefs of the Labour movement itself. It is not a case of fair shares for all, but a case of those with sufficient money who can afford the petrol being able to buy it. This is a departure from the fundamental philosophy on which the right hon. and learned Gentleman has preened himself during the last five years.

Moreover, is the right hon. and learned Gentleman quite satisfied that his analogy with the Continent is correct? Perhaps the Financial Secretary to the Treasury will give us some comparisons between motor taxation paid in this country by way of what we describe as registration, and what is paid on the Continent. Perhaps he will also tell us whether it is proposed in this concession which has been made of giving an extra ration to keep the registration fee at half for the basic ration.

The Chancellor of the Exchequer (Sir Stafford Cripps)

Yes.

Mr. Butler

I accept it that that is the case, and that at any rate will be satisfactory.

When we come to examine this concession about petrol any intelligent person must realise that this country is going to use more petrol as a result. The right hon. and learned Gentleman said he hoped this could be achieved without any great increase in imports."—[OFFICIAL REPORT, 18th April, 1950; Vol. 474, c. 75.] As he used those words carefully, I presume that there is bound to be an increase in import of petrol from dollar sources. In the light of that statement, how do some of the statements in the General Election look in reply to my right hon. Friend the Member for Woodford (Mr. Churchill), when he in very guarded language raised the question of the possibility of increasing the petrol ration? What about the statement of the Financial Secretary himself, which was published in the "Daily Herald "of 1lth February? He referred to my right hon. Friend by saying that he tried to buy votes with wild offers of petrol, and that by pretending that more pleasure petrol can he consumed now without loss of dollars, he was wilfully deceiving the public.

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

But the right hon. Gentleman leaves out the rest of what I said. I said the Leader of the Opposition offered to increase the ration as soon as possible, and the Government will also do it, I remarked, as soon as possible.

Mr. Butler

But the hon. Gentleman's words do not bear that out. I am sorry not to read any more of his speech, but there are many quotations with which I shall have to weary the Committee and I do not wish to speak too long on any particular quotation.

Let us examine what the Chancellor himself said on 11th February last in what I believe is his native town of Nails-worth. He said: It is not possible to extend the consumption of petrol in this country unless they were going to cut it from other kind of dollar expenditure. If that be the case how does the right hon. and learned Gentleman propose to cut other forms of dollar expenditure in giving this new concession to the road user?

Sir S. Cripps

We have by the device of taxation managed to re-allocate the volume of petrol we are going to use. If the economists who advise hon. and right hon. Gentlemen opposite are right, this increase in the price of petrol from 2s. 3d. to 3s. will lead to a reduction of consumption and the amount of this reduction will be available to be used by the ordinary road user.

Mr. Butler

In that case why did the right hon. and learned Gentleman say that there would be no great increase in imports?

Sir S. Cripps

For the simple reason that marginally there may be a small increase.

Mr. Butler

The right hon. and learned Gentleman has had a great deal more time than I have to prepare his important Budget statement and we presume that every word he used was accurate and that he could give good reasons for the words which came out of his own mouth. The real truth is that the observations made in the Election by the Government have now been disproved by their recent action, and there is no doubt that they are now doing something which a few weeks or months ago they thought it was morally wrong to do.

We must see how this experiment works out. Will it result, as we fear it will, in an increase in fares? If so in the London area—and the right hon. and learned Gentleman was not explicit on this point—it may well be that the benefit of the concession given under the Income Tax proposals will be taken away by the increased fares which the Londoner will have to pay in travelling and particularly does that apply to those living in the suburban areas. So this is another example of that wonderful system of transfer from one pocket to another, very often in the same pair of trousers, which is a feature of our national economy.

The other tax on the roads that has been made is on the commercial vehicles. These commercial vehicles are a vital part of our road transport system.

Mr. Churchill (Woodford)

Lorries.

Mr. Butler

As my right hon. Friend reminds me, they are lorries. These lorries are of vital importance to the road transport industry, and I do not doubt but that this proposal will very seriously hit "C" licence holders. We want to ask whether this is a further effort to "feather bed "—I must apologise for the expression—the railways. I should like to ask the Financial Secretary whether an answer will at last be given to the Transport Tribunal which has asked for permission to increase rail freights by 163 per cent. I have no doubt that the whole result of the Government's proposal both on road and rail will eventually be to raise the charges. I should like to know what is the main object of the Chancellor in this?

Surely the right course, if one is to get some sort of understanding between road and rail, is not to use vindictive measures in the Budget, but to get ahead with what we thought was one of the intrinsic features of the nationalisation proposal, namely, some understanding between road and rail upon the rate structure. When are we going to hear some developments in that connection, because unless there be some understanding between road and rail there will never be prosperity by the railways or happiness on the roads?

I should like to ask this technical question, whether the increased Purchase Tax on commercial vehicles can be debated as a separate item. Presumably it will be a Clause in the Finance Bill and can be debated as a separate item and will not be lumped together with others as it is in this nefarious Resolution. The information which we have received from the trade in regard to commercial vehicles is that that industry is finding it very difficult to maintain its exports, and the home market has been a very vital feature of its production. If that be the case, we think this tax upon commercial vehicles is a most regrettable one in this year's Budget. I want to make some mention of the Purchase Tax Resolution.

Before I come to that, I want to say a word about beer. The Chancellor of the Exchequer may well go down to history as the man who devalued our money and revalued our beer, but I very much wonder whether this immortality in the case of beer will serve to put his reputation in good stead. As far as I can see, here is another example of helping the man who is better off and not helping the man who is worse off. The real problem of beer at the present time—this is a subject of great importance in our public life—is that in the average "pub," at any rate in the rural districts, people cannot go in and buy beer in the middle of the week because they have not extra money with which to do so. Any of us who frequent those desirable haunts know that to be the case. They are not crowded in the middle of the week. The real problem about beer is whether the Chancellor's policy is to result, as we believe is the case in regard to the revenue generally, in diminishing returns. I should like to ask the Financial Secretary to give us some indication whether the barrellage consumption has not gone down and whether he thinks it will be increased by the Chancellor's proposal to increase the gravity of beer and to lend to the beer some of the gravitas to which he treated us yesterday.

Now I come to a question on the Purchase Tax. We believe that the Resolution which we are debating this afternoon shows certain signs that the Government are not quite so adamant on this matter as they pretended to be in the course of our Budget Debates last year. The Chancellor must be under no illusion as to the importance that we attach to this subject. It has been a burning issue of discussion in the country. When one examines the Budget, one sees that there is practically nothing in it except the Purchase Tax which will be of interest to women. Women will not take a first-class interest in any of the other proposals which have been made. Therefore, it will be our desire to debate this matter to the utmost that is permitted under the Resolution as drawn.

As drawn, the Resolution only permits us to debate the matter in chunks and not to pick out individual subjects for discussion. The fact is that a very big constitutional question still remains unsolved and unanswered by the Government. It is that the representatives of the people in this Committee are unable to discuss the imposition of particular taxes. They can discuss the taxes only in the chunk. It was an aggravation of this spirit which lost us the American Colonies and it is an aggravation of this spirit, as shown by the right hon. and learned Gentleman, that will lose the Government their position. We see distinct dangers in a Dutch auction, but we also see the necessity for discussing certain aspects of the Purchase Tax.

For example, if a concession is to be made on large cars so that they may be sold without the double Purchase Tax on the home market, there are a great many other goods of a luxury or a vital character on which we think a similar concession should be given, with a view to encouraging our exports. Similarly, there are a great many details which can be discussed in relation to the Purchase Tax and which affect industry, such as the numerous materials which are imported for use in industry and are then processed and sold again, thereby paying double Purchase Tax. Similarly with materials imported for research and investigation. These are individual points which it will be impossible to discuss on the Finance Bill under the terms of the Resolution as it is now drafted.

I want to ask three questions at this stage on the main economic position, before I come to my final summing up. The first is about housing. I feel sure that the Committee and the country will have observed that the so-called concession about 200,000 houses is to last us for three years. It means that we cannot look forward within those three years to any improvement on that target. That will be a source of great disappointment to all those people who are looking for a house and are living in overcrowded conditions. I should like to ask what proportion of the loans to local authorities is taken up by housing needs, and to say that in regard to capital expenditure we attach the greatest possible importance to local authorities exercising much more economy in matters other than housing than they have done hitherto. Economy in the expenditure of local authorities is just as important as economy in the expenditure of the national Government. I should like also to ask whether the Government will give further encouragement to local authorities to sell houses to tenants who desire to have them and thereby relieve the local authorities of the necessity of obtaining loans from the central Government. It would enable them to obtain the finances they want for their future investment in houses by means of selling to the private citizen.

Then I want to ask a question about the food subsidies. This ceiling-cum-floor description of the right hon. and learned Gentleman seems to leave very little room for manoeuvre. It is certainly very difficult to understand. If I am right, this proposal is to go on for only one year.

Sir S. Cripps

indicated assent.

Mr. Butler

Perhaps the Financial Secretary would further clarify the point that in no circumstances will the food subsidies be reduced below £410 million even in the event of the Government adopting our policy of the private purchase of foodstuffs, in order to ensure supplies at cheaper costs.

My third question is in regard to the Health Service. I do not think anybody has been particularly wedded to the idea of the shilling on prescriptions. Those who have studied the matter think that it is a fairly clumsy method. We also know that there are undoubtedly extravagances which the honourable man notices in the Health Service just as some of the workers noticed them in the old days when the fund was being abused. As this is a national fund and as we are all behind a national, free Health Service, perhaps we may receive in the next few days a little further enlightenment as to the possible methods of cutting out extrava- gances in the Health Service and of retaining it as a free, honourable service for all those who are in need.

In my concluding remarks I want to burden the Committee for a moment with some rather serious considerations on one matter. I have hitherto been discussing the Budget and the features of the Budget individually. What I now want to try to make clear to the Committee is that while the right hon. and learned Gentleman has managed to obtain a precarious balance in the Budget, or a slight deficit, which comes to much the same thing, our national economy is not, in fact, in balance. We claim that the Chancellor in his long speech never gave a clear picture. He said: If the voluntary savings of individuals and firms are insufficient then the Government must itself make up the deficiency in the nation's savings by accumulating a Budget surplus."—[OFFICIAL REPORT. 18th April, 1950: Vol. 474, c. 62.] Let us go into the Chancellor's sums. The Chancellor tells us that his ordinary expenditure is £3,455 million, his net below-the-line expenditure is £450 million and his revenue £3,898 million. There, he says, he will have a small overall deficit of £7 million, but that is, in fact, playing with words.

Now that Socialist taxation has eaten away net private savings, it is not the below-the-line expenditure alone which has to be covered by the surplus of revenue over the above-the-line expenditure, but the whole gap between the public's voluntary savings from all sources and the total capital programme, including the Government's below-the-line expenditure. In other words, there Is today a real deficit in our national finances, as can be seen by the admission of the White Paper that private savings must go up by 27 per cent. in 1950 over 1949. The Government have, in fact, nationalised savings, with the same disastrous result that has followed upon nationalisation in other directions.

The Survey states that gross private savings will have to rise by £228 million and net private savings—that is, excluding depreciation allowances—by £193 million. It is true that the increase in the depreciation allowances and what are called "inventory revaluations" reduce the gap, but there is at least a gap of £168 million which should be filled by other forms of private savings. However, the Survey shows that net private savings fell by £254 million between 1948 and 1949—that is, from £966 million to £712 million—and the National Savings figures show a net deficit for the financial year just ended of £68 million, which, including interest payments, means that there is a liability on the Exchequer of £93 million. Allowing for the interest accrued, the net addition to personal savings was only £33 million during the year. I do not apologise for going into this seriously in view of the many figures given by the right hon. and learned Gentleman.

This illustrates a steady downward trend, and all this justifies our criticism of the effects of the Government's economic and financial policies of which they have spoken so much. I must remind the Committee that this is the first year in which National Savings figures have shown a net deficit. The decline in small savings is a sure sign that the mass of the people are finding life intolerable with taxes and prices as they are and are finding it impossible to live within their incomes. Lord Mackintosh has said that 10 per cent. of personal consumption expenditure is paid for by withdrawal of savings. That is a serious picture.

It is against this picture that we have listened to the Chancellor's straightforward remarks on the subject of what he calls "the restraint in incomes," which we may call "the wage freeze." We recognise that patriotic and courageous efforts have been made by the trade union leaders to stem inflation, but everyone can see how increasingly difficult it is to hold the position as it is developing. The Chancellor is assuming that wage restraint will continue, but in our opinion this Budget does not sufficiently strengthen the hands of those who wish to act as we do with a full sense of national responsibility. It is the wage earner in the end who suffers from the type of policy which the Government is undertaking. If the Government spend 43.5 per cent. of the national income, the wage-earner cannot spend that money too. Unless productivity is increased, higher wages and salaries can come only by diversion from Government expenditure or from capital or from exports.

We are living, as I said, under this crazy system of transfer and redistribution which is so well brought out in the E.C.A. Report on the facts of the British economy, in which it is illustrated that one income group is transferring from its own pockets to the other side a great deal of the national money, with a colossal rake-off for all the bureaucrats at the same time. This is all surely an indication of an inflationary trend which it is the policy of the Opposition to combat.

I come back now at the end to what I spoke of at the beginning, the need for a real and improved disinflationary policy with further and better incentives to those who show the best production results. We must control unnecessary expenditure and thereby gain the sums, when we have done that, for further necessary reductions in taxation. Neither in the question of the "wage freeze" nor in the question of full employment is it the intention of the Opposition to swing over to a drastic deflationary policy any more than we propose to allow our standard of living and the value of our people's social service payments to slip away and lose their value due to the present inflationary trend. It would be a tragedy if His Majesty's Government, in pursuing what the White Paper describes as their economic and financial policies by which we have been guided over the last three years, permitted the social service payments to lose even more of their value than they have up to date.

Our interventions in these Debates, therefore, will be designed to remind the country of the fundamentals, some of which I have tried to describe, of our economic position. We see a revenue which is unlikely to be as buoyant as before and an expenditure which is steadily mounting. We see a Government which, by this Budget, has lost all power of manœuvre in the economic field. The fact is that we are simply not paying our way. I would go further. We are the banker of the sterling area. It is not enough for us to live on the verge of solvency because the verge of solvency is also the edge of insolvency. We must create a greater economic strength if we are to give the international lead which we all desire shall be given by our Government and our country.

Finally, we see, and we deplore, the increasing tendency to withhold from the individual the right to spend his money in his own way. We seek to achieve not only national independence and an ability to survive without external aid; we seek also to ensure that our country's prosperity is based on that most priceless of all our traditions, the ability of an Englishman to stand on his own feet.

4.26 p.m.

Mr. Benson (Chesterfield)

My first duty is to congratulate my right hon. and learned Friend the Chancellor of the Exchequer not only upon his Budget Statement but upon the Budget itself. I did not realise until I listened to the right hon. Member for Saffron Walden (Mr. R. A. Butler) how foolproof a Budget it was, for seldom has there been more feeble criticism of any Budget in the large number of Budget Debates to which I have listened.

Before I turn to a general discussion of the Budget, I should like to congratulate the Chancellor upon one or two tax changes which he forecast. Certainly upon this side of the Committee one of the most popular proposals was to introduce for the first time retrospective legislation to combat tax avoidance. The right hon. Member for Saffron Walden said that the Conservative Party did not believe in retrospective legislation. There has not been a Conservative Chancellor in the last 15 years who has not threatened it time and again. In introducing tax avoidance legislation, Conservative Chancellor after Conservative Chancellor has threatened that if avoidance continued, retrospective legislation would be introduced. The right hon. and gallant Member for Gainsborough (Captain Crookshank), who was formerly Financial Secretary to the Treasury, knows that very well. Perhaps he will convert his right hon. Friend.

Captain Crookshank (Gainsborough)

I do not need to.

Mr. Benson

The right hon. and gallant Gentleman says he does not need to, but—

Mr. R. A. Butler

Perhaps I can relieve the feelings of the hon. Member for Chesterfield (Mr. Benson). I thought I made it clear that we did not wish to see avoidance of Surtax of this sort.

Mr. Benson

But the right hon. Gentleman began by saying that the Tory Party did not believe in retrospective legislation. He cannot have it both ways.

It is also well worth while congratulating the Chancellor on his proposals to review the whole tax position in regard to superannuation and annuities. The attitude of the Board of Inland Revenue with regard to annuities has always been extraordinarily anomalous. An annuity is a payment of mixed character. It is partly an interest payment and partly a return of capital, but the Board of Inland Revenue has always insisted that the whole of the annuity shall be taxed. That is quite indefensible. It is perfectly easy actuarially to assess what is capital return and what is interest, and it is only on the interest that the tax should be assessed. As a matter of fact, certain companies have already introduced rather cumbersome policies to separate the repayment of capital from the payment of interest.

With regard to the tax upon commercial vehicles, it may be perfectly true that this tax will not be to the advantage of the road transport licence holders, but that is not the point. The point is: will this tax be of advantage to the country? During the past 12 months or so, the motor manufacturers have, contrary to the general agreement, allowed some 50,000 vehicles, representing £35 million of capital investment, to be sold in this country which should have gone abroad.

Mr. John Hay (Henley)

Will the hon. Member say how much of that amount is due to inability to export?

Mr. Benson

It may be perfectly true that motor manufacturers are finding it more difficult to sell abroad, but all English manufacturers will find this more difficult in future, so they had better get busy and put more energy into it. In any case, we cannot afford to allow an additional investment of some £35 million in road transport vehicles. This is a matter of duplication, for the railways are available and we cannot afford to duplicate in present circumstances.

This is the second Budget in which there has been no radical change. We are probably reverting after some 10 or 11 years to Budgets of stable pattern, where the pattern of taxation and expenditure is broadly the same from year to year. I admit that, compared with pre-war, taxation is extremely high, but those people who expect any serious reduction in taxation seem to overlook the fact that we are now living in a new world and that there will be no serious reduction of taxation. We have laid the foundations for the welfare State; it has come to stay, and it has to be paid for. I admit that we could not have done it in five years had it not been for the great height to which war raised taxation. When we came into office in 1945 we used the level of war taxation and switched its objective from fighting the Germans to fighting insecurity. This enabled us to do what we have done in five years instead of in a generation.

The right hon. Gentleman referred to this as a precariously balanced Budget. I was not sure whether he would advocate higher taxation or lower expenditure. To my astonishment one of his methods of making the Budget less precariously balanced appeared to be to lower taxation. The right hon. Gentleman showed great interest in the possibility of cutting Purchase Tax. He referred to the effect of high taxation as stopping productivity. Yet productivity has been increased in the last three or four years at a rate never before equalled in this country. Productivity is going up two or three times as much per annum as it did before the war. Then the right hon. Gentleman referred to the shortage of risk capital. Why is there a shortage of risk capital? Because there is such an overwhelming demand for new plant and new extensions. It is because initiative is out running the possibility of providing the capital for it. If initiative had been crushed, there would have been no shortage of risk capital.

I was anxious to hear what the right hon. Gentleman would say about reductions in expenditure and where they were to come, but I noticed that he kept carefully to broad generalisations. Well, he was in a difficult position. If what rumour says is true, that he is the author of "The Right Road for Britain," I can understand that it is difficult for the right hon. Gentleman to suggest where the cuts in taxation should fall. I read "The Right Road for Britain" carefully. I underlined it. I found it one of the most effective weapons in my election campaign. and I noticed there that there was not a single one of our social services on which the right hon. Gentleman's party, under his guidance, did not propose to increase expenditure. They proposed to improve the Health Service, they proposed to build more houses, they were to spend more money upon the Army, they were to set up a committee to examine whether they could spend more money on war pensions, and they were to release postwar credits—all in the name of economy

The right hon. Gentleman knows perfectly well that there can be no drastic economy unless there is a drastic change in policy, and the right hon. Gentleman has led his party to follow slavishly along the lines that the Labour Government laid down in the past five years. They can get big economies only if they change policy, and they are pledged not to change policy. I know there were references to administrative economies—and here I am glad to see in his place the right hon. Member for Leeds, North (Mr. Peake)— but what hon. Gentlemen opposite have to say on this matter is extraordinarily vague. I admit theoretically that some economies in administration must be possible, for no machine works at 100 per cent. efficiency. I will give them that. But the idea that we are to achieve large savings—and by that I mean savings sufficiently large to affect taxation—is simply nonsense.

I am not quite sure whether it was the last Budget or the one before when the right hon. Member for Leeds, North, took up our challenge to say where these economies should be made. He was for some considerable time the Chairman of the Public Accounts Committee and, if I may say so, he was a very good Chairman. Goaded by our demands to be told where these economies were to come from, the right hon. Gentleman carefully went through the work of the Public Accounts Committee and quoted a string of suggestions and criticisms which it had made. What did the lot amount to? Barely a quarter of a million pounds. I am not suggesting that a quarter of a million pounds should not be saved, and I hope sincerely that, as a result of my activities on the Public Accounts Committee, it will be saved, but the saving of a quarter of a million pounds will not reduce our taxation.

As a matter of fact, we have two important Committees continuously engaged on this problem of administrative efficiency and of waste. The Public Accounts Committee has been running since 1863. That Committee, and the Estimates Committee, year by year investigate industriously what Government Departments are doing, but it is seldom that either turns up any really large extravagance. If the public Accounts Committee of this year finds a large extravagance, the reflection is upon the Public Accounts Committee of last year for not finding it out earlier. As a matter of fact, neither the Public Accounts Committee nor the Estimates Committee ever do find large evidence of waste. That is not their function, except in theory. Their real function is to act as a deterrent to waste and they act very effectively because civil servants treat both these Committees with a good deal of respect and trepidation. It is because we have had these two Committees running for so long, and because they are assiduous in examining how our public money is spent, that there is very little really large. scale waste.

I know that hon. Members opposite, led by the Leader of the Opposition, are very fond of talking about "hordes of officials." Our Civil Service has grown, but does anyone really suggest that we can slash the number of our civil servants sufficiently to have any real effect on taxation? We cannot do so unless we are prepared to cut services and unless we are prepared to slash again at policy. The long-term trend is inevitably towards the growth of the Civil Service; it is only natural. As nations or individuals get wealthier, they change from what is known as primary goods to secondary goods and from secondary goods to tertiary goods, and then start demanding, not goods, but services. As this nation grows wealthier it will demand more and more services for the community.

What was the record of the party opposite before the war? I looked it up and found that from April, 1932, just after the National Government took office, until April, 1939—that is seven years before the war—the number of civil servants increased by 63 per cent. That is excluding Post Office and industrial civil servants. We have been reducing the number steadily and regularly since the war, and there has been a reduction of 5,000 or 6,000 in the last few months. There will be no great drastic reduction. At present there are 444,000 civil servants. Does anyone imagine that it is practicable to cut that number by 25 per cent.? A 25 per cent. cut in the Civil Service is outside the realm of possibility, but what would it give us? If we took 110,000, which is a 25 per cent. cut, at, say, £400 a year, the saving would be £44 million, yet that is a fantastic and impossible figure.

Even with the most drastic economy, if one attempted to reach 100 per cent. efficiency we could not save even a quarter of that number of civil servants. The fact is that one may rake here and cut there as things change and we get away from war-time conditions, but there is no chance of a really severe and drastic reduction in the Civil Service, any more than there is in other forms of expenditure, unless we are prepared completely to revolutionise Government policy.

My right hon. and learned Friend, the Chancellor, referred to a rather interesting phenomenon, the shift from unearned income to earned income. This trend has been going on very rapidly since 1938 and I think it very likely that it will accelerate and tax policy has certainly helped acceleration. High Death Duties and high Surtax are going to eliminate the large estates. With the Death Duties running to something like 80 per cent. and with heavy Surtax making it impossible to rebuild those great estates, those great private accumulations of wealth, of the large rentier class whom the right hon. Member for Saffron Walden described as a form of saving, are inevitably bound to pass. They are politically negligible; from a social point of view they are morally indefensible. They are, in fact, born milch cows to a Chancellor of the Exchequer, and it was the party opposite who started milking them first. We are merely continuing. Inevitably they will go and I do not think that when they pass, anybody will shed a tear over them, unless it be some future Chancellor of the Exchequer.

4.47 p.m.

Mr. Black (Wimbledon)

In rising to speak in this House for the first time, I ask for the indulgence which is normally accorded to maiden speakers and my feeling of trepidation in speaking here on the first occasion is somewhat allayed for me by the experience of very great kindness which I have received since I came here from Members of all parties and indeed from everyone connected with the conduct of business in this House. I hope my speech will not be regarded as unduly controversial for a maiden speech, but it is rather difficult on a subject of this kind to avoid going somewhat into the realm of controversy, and if my speech is regarded as in some sense controversial, I shall at least endeavour as far as possible to be constructive and not provocative.

I should like first to suggest that the outstanding fact of the Budget and the Budget speech is that there has been no real and constructive effort to reduce either the enormous level of public expenditure which is taking place at present nor the taxation which follows from that tremendous expenditure. I am not personally so much concerned with the comparatively small alterations in the incidence of tax. It is obviously possible to criticise some of these particular changes of incidence, but in my judgment any changes of incidence in taxation contained within the Budget are of very minor importance and pale into insignificance in comparison with the fact that the country is being asked for a further year to maintain a level of public expenditure and penal rates of taxation which we cannot continue to support without the very greatest peril to the economic life of the nation.

I would certainly be correct in asserting that never in history, either ancient or modern, has any nation been able without disaster to maintain for long public expenditure and taxation at the rate which we are experiencing today I do not believe that the economy of this country will be able for long to maintain expenditure by the Government in the neighbourhood of £4,000 million a year, and taxation, including local taxation, at the rate of 40 per cent. of the national income, or on an average 8s. in every £. I believe that disaster would have already overtaken us as a result of the policy which has now been pursued for nearly five years were it not for the fortuitous but outstandingly generous assistance which we have received from the United States and from the Dominions, which has tended to obscure the real character of the disaster that faces the nation if this particular policy continues to be pursued.

I want to suggest two profitable fields for investigation by the Chancellor of the Exchequer in which, I submit, there is great scope far saving in public expenditure. First—and I say this in spite of the speech which was made by a former speaker—I believe and submit that there is vast scope for saving in the costs of public administration and the expenses which are involved in running the Government at the present time I do not believe that it is necessary for the nonindustrial Civil Service and for local government employees to be retained at a figure of about 700,000 in excess of the numbers which were necessary for the purpose of carrying on the business of the country before the war.

While it is quite possible for hon. Members to attempt to minimise any saving that might be effected in this particular field, I suggest that the saving is not confined merely to the saving that would be inherent in a reduction in the number of civil servants and local government officers, but it goes far beyond that because this great new army of 700,000 officials has its counterpart in another great army in private industry, of people who are not productively employed but whose engagement is necessitated by the fact that somebody has to answer the letters and to fill in the forms which are sent out by this vast army of 700,000 non-industrial civil servants and local government officers who have been taken on to the public pay-roll over and above the numbers who were employed before the war.

Why is it necessary for this vastly increased number of public servants to be employed? One obvious reason is the fact that there are some 25,000 rules, orders and regulations by which the life of the business community is harassed and which, obviously, require a very large number of officials for their administration and supervision. I was very interested in making a study of the Report of the Herbert Committee on the work of Intermediaries and I should like to draw the attention of hon. Members to one particular aspect of that Report to which, I think, sufficient attention has not been paid, either in the House of Commons or throughout the country. The appendix to the Report contains an impressive catalogue of the number of licence applications dealt with by the various Government Departments during a period of 12 months. I have had the number of licence applications in that catalogue totalled, and assuming, as I believe to be the case, that my arithmetic is correct, I was staggered to find that the grand total is some 19,370,000 licence applications dealt with by the Government Departments during a period of one year.

It is not in the interests of the productivity of private enterprise that not only vast numbers of officials should have to be employed to deal with this stupendous total of applications for licences but that, on the other hand, private business should be dragged down by the obligation to make licence applications on this scale, many of which, no doubt had to be made in triplicate and involved vast research and work on the part of the unfortunate people who were entrusted with the duty of making the applications.

In the whole field of public administration it is quite erroneous to suggest that there are no further economies that can be made and that everything possible has already been done, because such an attitude to the problem bears no correspondence at all to the realities of the situation. What is lacking is not scope for economy but the will to effect the saving which we regard as essential to the industrial well-being of the nation. That is one field that offers very large scope for economies in public expenditure.

Secondly, I should like to draw the attention of the Committee to a further field in connection with certain of the social services. I have particularly in mind those social services which may be said to possess two characteristics: first, that they are services paid for by the many but enjoyed by the few, and secondly, that they are paid for by the less well-to-do and enjoyed by the better off. There are a great many aspects of the social services which deserve consideration under this heading but I wish now to refer only to two and to ask the Committee to consider whether there is not in this particular field considerable scope for economy.

First, I want to draw attention to the expenditure involved in the maintenance of the day nurseries. The day nurseries were very largely a product of war conditions and they played a valuable part in the conditions of the six war years. During the war they were paid for wholly as a charge upon the national exchequer and they made a valuable contribution to the war effort. But the time has come to review the financial arrangements applicable to the day nurseries. The situation today is that these nurseries are paid for as to one half by the ratepayers and as to one half by the taxpayers; and by law it is only possible to make a charge to the parents of children in the day nurseries to the extent of the value of the food which they eat. That means, of course, that it costs parents nothing at all to put their children in a day nursery, because the cost of food if the children were kept at home would be approximately equal to the price they pay for the food in the day nursery.

In the area of a county council with which I am connected, we recently had a financial probe into this question of day nurseries. Some very interesting facts were brought to light and I should like to bring them to the notice of the Committee. First, only one family in 200 in the whole area of the county council benefited in any way from the operation of the day nurseries. Here is an example of a service which is paid for by the many but enjoyed only by the few. But an inquiry into the circumstances of the parents of the children disclosed the fact that there were a number of cases in which parents had a combined income of as much as £15 per week.

Thus there are children maintained in day nurseries at a cost of £2 Is. per week per child, from which 6s. 8d. can be deducted for the cost of the food they eat, which is paid for by the parents, leaving a charge of £1 14s. 4d. per week on the rate funds and the national Exchequer. I suggest that it is not good sense or social justice that the old age pensioners, with their meagre allowance of 26s. per week each, should be required to contribute, through taxation and rates, to the maintenance in day nurseries at public expense of the children of parents having a family income of £15 per week. That is a type of service where the financial arrangements involved ought to receive serious consideration.

The second social service to which I wish to refer under this head is that of housing and the subsidies paid in connection therewith. I hope that no Member of this Committee will think that I am proposing to embark upon any general condemnation of housing subsidies, because while a policy is pursued which results in the same labour force in the building trade as before the war building only half the number of houses at three times the cost, it is obvious that subsidies are in many cases essential if the houses are to be brought within the reach of the lower wage earners of the country. But what I am suggesting is that there can be no justification for giving subsidies in cases in which they are not needed, as the giving of subsidies indiscriminately results in the subsidies being provided in many cases by members of the community who are less well housed and less well-off than the minority who enjoy the subsidies and who occupy the houses erected by the local authorities.

It seems to me, and I think that it would seem to the country that the only justification for giving subsidies is the fact that a need exists on the part of the recipients which ought to be satisfied or alleviated by the community at large. But what we are doing in many cases at present is to take money from a majority of people who are themselves less well off. through rates and taxes collected from them, and to use that money for a privileged minority of people who may be very much better off in many cases than the people who are providing the subsidies, the benefits of which they enjoy.

I can understand, and I thoroughly agree with the principle underlying the social services that the strong should be asked to bear the burdens of the weak, but matters have developed to a point at which the social services operate in a number of cases in the form of requiring the weak to bear the burdens of those who are stronger and better off than they are. I therefore suggest that without in any way impairing the value of the social services or depriving needy members of the public of the assistance which they ought to get, there is here a big field which is worthy of consideration and in which large savings could be effected.

I wish finally to say a word about the discouragement to effort and enterprise which is inherent in taxation at its present levels. A great deal has been said both in this House and in the country in the past as to the deterrent effect of P.A.Y.E. Income Tax upon extra effort and overtime, but I do not think that sufficient attention has been given to the discouraging effect of indirect taxation as distinct from direct taxation.

I take the case of a typical family in order to illustrate the point which I have in mind. Let me assume the case of a man with a wife and two children who has a basic salary of £500 a year, and who could, by extra effort or by overtime, add to his in- come an additional £100 a year, bringing it up to £600 a year. Under the reduction, announced yesterday, in Income Tax applicable to such a case, the P.A.Y.E. Income Tax to which that man would be liable on the £100 per year earnings for overtime or extra effort would be about £20 per year, leaving him, as it would seem, with £80 a year to spend. But that, of course, is only the beginning of the story, because where direct taxation leaves off indirect taxation begins.

Let us see what would be the effect in this case of the man going into the market to spend his £80 a year net income. Let us assume, for instance, that he spends his £80 on providing his wife and himself with cigarettes during the year. In that event he suffers a further £64 of indirect taxation and is left with £16 worth of cigarettes at the end of the year. Again, supposing he spends the £80 in taking his family to the cinema once a week, the Entertainments Duty is £36 and he is left with cinema entertainment of a real value of £44. Or, to take a third example, suppose he saves up the money for a year in order to buy a radiogram or a piano. At the end of the year the position is that he suffers Purchase Tax of £25 and secures a radiogram or a piano of a real value of £55.

I suggest that indirect taxation at its present levels is just as much or even more a deterrent to extra effort and overtime as is direct taxation deducted from wages. Of course, this is true right up the scale up to the highest income earners. It is not a good state of affairs that eminent authors should limit the number of books they write because it is not worth while for them to write any more; that famous artists should curtail their efforts and limit the number of pictures they paint because it is not worth while to do any more work; that eminent surgeons should limit the number of operations they will perform because there is nothing left in it for them if they perform any more.

I know, and recognise, and agree, that material gain should not be the only consideration or the only incentive in cases of this kind, but we are getting far away from reality if we fail to recognise the fact that material incentives are a great spur to extra effort, and a spur without which many people will not exert themselves to their full capacity. I must con- fess my very great surprise at the fact that the Chancellor has maintained indirect taxation at this present crippling level. I have always understood that the view of the Labour movement has been that indirect taxation is an unjust form of taxation, being a tax upon needs and not a tax upon means; and that the fairest way to extract money from the taxpayer is through direct taxation based upon income and the circumstances of the individual.

I would bring to the notice of the Chancellor what the present Prime Minister said in 1940, about Purchase Tax, when Purchase Tax was first imposed in that year at a time when the country was at war: In fact, it is not a really sound tax and is only a kind of handy way of getting a certain amount of money into the Exchequer. It will not assist the finances of the country, and I do not think it will meet the Chancellor of the Exchequer's aim, that is, to suppress luxury."—[OFFICIAL REPORT, 23rd April, 1940; Vol. 360, c. 92.] That was in 1940, a war year; and after five years of peace, indirect taxation is three times greater than it was in 1940.

I wish to repeat my conviction, which I am quite certain is widely held throughout the country, that this nation cannot recover its former position as one of the great trading and industrial nations of the world without very substantial relief from public expenditure, and the present rates of taxation. It would be pathetic and tragic indeed if, after the splendid triumph which was achieved at a cost of six years of war, as a result of the unwise policies pursued in the years that follow —extravagance instead of economy and unwise financial measures—we were at this stage to lose the battle of the peace. It is still possible for us to re-create the former greatness and prosperity of this country, but we can never hope to do so under the existing burdens of public expenditure and taxation. It is still possible even at this late hour for us to regain what has been lost, but it would be a tragedy indeed if history were to record that we missed the opportunity while that opportunity was still available to us. I pray with all my heart that it may not be so.

5.14 p.m.

Sir Stanley Holmes (Harwich)

It is with the greatest pleasure that I congratulate the hon. Member for Wimbledon (Mr. Black) upon his maiden speech. He came to this House with a great reputation for the public work which he has done for his county and his borough. That he won the seat by such an enormous majority showed what the electors and the residents of his town felt with regard to him. Therefore, I think a little more was expected of him than is expected of the ordinary new Member who comes into the House. He has certainly given us today—although perhaps everything he said was not agreed to by hon. Members on the other side of the Committee—a sound and solid speech made in the best Parliamentary style. I am sure we look forward to him being a great asset to the House in years to come.

I read in one of the Sunday papers an account of the session of the Consultative Council of the Brussels Treaty Powers which was held last week end, and in which they started in quite a novel way to consider what they should spend on defence. They began with the resolution that they should spend only what could be afforded by each country without upsetting its own domestic economic policy. This is something quite new. We do not do that in this country. What happens so far as the Chancellor of the Exchequer is concerned, the traditional procedure, is for him to ask the various Ministries what they want to spend. In some cases the Chancellor is able to reduce the amount; in other cases he may fail, or perhaps he does not even try.

In framing his Budget his starting point is the amount of money which his colleagues need. That method was all right 40 years ago, when taxation absorbed only a small proportion of the income of the nation, and the question of whether the nation was over-taxed did not arise. Notwithstanding anything the Chancellor may say, I venture to agree with my right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler) that today we are grossly over-taxed and we are putting the cart before the horse.

I suggest that a new method should be adopted and that the Chancellor should himself first decide what the country can afford to raise by way of taxation. We cannot afford to raise the amount we are raising at the present time. The Chancellor could fix the figure, for example, at £3,000 million. It would then be his duty to divide up this sum among the Ministers and tell them what was their allocation. It might be that a Minister could satisfy the Chancellor or the Cabinet that his allocation should be more. I would point out that the method which I am now suggesting that the Chancellor should adopt for the nation from a financial point of view is the method which every family has to adopt. Last night the Chancellor was appealing to the family, and that is what every family has to do. They can only spend the money coming into the house week by week. If they spend more they get into difficulties. To my mind, there is no reason why this new method should not be adopted, since the nation cannot go on paying taxation on the present scale.

I would refer to one sentence of the Chancellor in his broadcast last night. I did not put it down until he had finished, but I think that these were the words he used: If anyone tells you that Government expenditure should be cut, ask him what he would cut.

Sir S. Cripps

indicated assent.

Sir S. Holmes

I will endeavour to show him, and I propose to refer to the food subsidy. For the year 1950–51 the food subsidy is put down as £401,944,000—

Sir S. Cripps

The hon. Member is quoting the figure from the Estimate and I attempted to point out yesterday that that does not really represent the food subsidy. The food subsidy will be £410 million.

Sir S. Holmes

Then I will alter my sentence, and say that the food subsidy for the year 1950–51 is put down at £410 million. I will try to show to the Committee that this sum is unnecessarily high because of the system of bulk buying pursued by the Minister of Food. It is very difficult to get at the true facts, because the Minister of Food always refuses to inform the House at Question Time what he is paying for any commodity. I am sure that every hon. Member has welcomed the outspoken and genial way in which the new Minister of Food has answered Questions since his appointment, compared with the lofty disdain of the previous Minister. But the new Minister also withholds information. One of the first Questions put to him after his appointment was by the hon. Member for Banbury (Mr. Dodds-Parker) who questioned him about soya beans. The hon. Member asked: …what is the average price at which soya beans are bought by his Department; and at what price they are sold to manufacturers in the United Kingdom. The Minister replied: Soya beans are sold to manufacturers at £59 per ton, but my Department is a trading concern, and I am not prepared to disclose the prices at which we are buying. When the hon. Member for Banbury suggested that the Minister had been buying at £34 a ton, all the Minister would say was: I am not necessarily accepting the figure of £34 a ton."—[OFFICIAL REPORT. 15th March, 1950; Vol. 472, c. 1081–2.] That makes it easy for the Ministry to conceal what they are doing under bulk buying. However, we have seen enough of the representatives on the Front Bench opposite to know that if anything which gives credit to them is accomplished, it is loudly acclaimed in the House, in the Press and on the wireless. Therefore, it is not unfair to assume that the refusal to give information about bulk buying means that it has been unsuccessful.

Although I have said that it is difficult to get the truth of the matter, I propose to give an example of bulk buying which is within my own knowledge. During the winter of 1947–48, a number of food canners in this country negotiated through their agents for the purchase in Norway of the whole 1948 seasonal supply of cod roes. It was their intention, if successful, to sell one-half for export, particularly to America and Canada, thereby obtaining valuable dollars, and to distribute the other half in the United Kingdom.

The agents were successful and they sent back contracts based on a very reasonable figure. The British canners then approached the Ministry of Food for import licences. These were refused, as the Minister decided to deal with this commodity by means of bulk buying. He sent his representative to Oslo. The representative informed the Norwegian authorities that the contracts entered into could not be approved because the Ministry of Food were prepared to buy the whole season's supply, but at a lower price than was stated in the contracts. The Norwegians refused. They realised that the Government were now in the market and, far from offering to sell their goods at a lower price. they actually asked for a higher one.

In a very short time 90 per cent. of that season's supply had been bought, mainly by America and Canada, at a higher price than that stated in the contracts of the British canners. The Ministry then thought that they must do some—thing, and they bought the remaining 10 per cent. The result was that the people of this country, who would have got 50 per cent., got only 10 per cent. and paid higher prices than they would have paid, and the rest of it which would have gone to America and Canada or other hard currency countries was entirely lost to us.

That is a concrete case. How many more there are one does not know, because the Ministry of Food will not give any information. In the example I have quoted, as a result of Government interference and insistence on bulk buying, 90:-:er cent. of our domestic and export trade in this commodity was lost. That is something which has happened in the past, but bulk-buying contracts which have been made in the last few years are having their effect upon the food subsidy this year, and they will continue to have their effect on the subsidies for the next two or three years.

World conditions have changed appreciably in the last 12 months. There is no longer a world shortage of most of the major food commodities. In fact, heavy stocks have been accumulated, particularly in the United States and Canada under those countries' Governments' support-price programme. Agricultural production in nearly every country in Europe has rapidly expanded, with the result that many countries, such as Holland, France, Italy, Belgium and Germany, which were large importers of foodstuffs during the early post-war years, are now self-supporting. In fact, most of those countries are looking for export markets to get rid of their surplus over their domestic requirements.

The United Kingdom is the only worthwhile market for any country which has an export surplus of food. This rapid change in the supply situation alters the necessity of maintaining bulk purchase to secure supplies and to safeguard against shortages. Prices of nearly every food commodity have reached a peak, and many have started to decline; but the normal decline in world prices of food is being retarded because of the bulk-purchase contracts of the Ministry of Food, which automatically give a floor to each market. With this tendency for lower prices, no experienced trader would be prepared today to commit himself far ahead. He would adopt a hand-to-mouth policy. There is no reason which can justify the Ministry of Food continuing bulk purchase by contracts which are at a fixed price for more than a very short period.

Mr. Jenkins (Birmingham, Stechford)

Is the hon. Gentleman advocating the abandonment by the Ministry of Food, or by any buying organisation, of all the long-term contracts with the Commonwealth—for instance, those with Australia and New Zealand?

Sir S. Holmes

Of course I am not. The hon. Gentleman had better hear the rest of what I have to say. The greatest economic danger to which this country could expose itself at present would be caused by fixing the price of its future imports at a high and almost irreducible level while the prices realised by its manufactured exports are subject to the effects of world competition. On 27th March, the hon. Member for Maldon (Mr. Driberg) put a Question in which he asked the Minister of Food: …if he will make a statement detailing the various bulk-purchase contracts entered into by his Department since 1945, with particulars of the duration of such contracts and the price-revision clauses contained therein."—[OFFICIAL REPORT, 27th March, 1950; Vol. 473, c. 9.] It will be observed by anybody who looks at the list printed in the OFFICIAL REPORT that in very many cases it says: Annual review within agreed limits of variation. I will give one or two examples. The contract for New Zealand meat goes up to September, 1955, and the same phrase is used in respect of that contract. Then there are Danish bacon, Dutch bacon, butter and cheese from Australia, butter and cheese from New Zealand, butter from Denmark, oils and fats from Nigeria, the Gold Coast, Sierra Leone, Gambia, Australia, and New Zealand. After all those, we find the words: Annual review within agreed limits of variation. I want the Committee to realise that in nearly all these contracts the variation is 7i per cent. either way. That means that if the price in the contract is, say, £50 a ton, the most we can get it reduced to until 1955 is £46 5s. [HON. MEMBERS: "Seven and a half per cent. per year.")

Sir S. Cripps

The hon. Member said that it was a reduction or an increase of 71 per cent. per year—not over the whole period?

Sir S. Holmes

Yes, certainly. As I was saying, if the price of the contract is £50 per ton, and if the world price of the particular commodity falls to £30 per ton, we have to go on paying £46 5s. per ton.

The Minister of Town and Country Planning (Mr. Dalton)

Only for one year.

Sir S. Holmes

That is the information given to me. If the right hon. Gentleman means 7½ per cent. one year and then another 7½ per cent. the next, I will accept that.

It is probable that world prices will fail considerably, in which case the food subsidy being paid owing to bulk purchase contracts will be unnecessarily raided, or the public will have to pay an unnecessarily high price for foodstuffs, which will mean additional indirect taxation.

I want to call attention to what the bulk sellers think about this. On 9th March, the chairman of the Uganda Chamber of Commerce said: It is nearly five years since the end -ot the war, and I am sure that in 1945 few of us thought it would take so long to get back to free scope enterprise or that politics would to such a degree affect our dealings. Perhaps the most contentious aspect facing us at the present time is that of the bulk selling of part or the whole of certain of our crops. We are well aware of the necessity of this during the war years, but in my view it is fundamentally wrong not to permit, as far as can be done within currency considerations, the free movement of our produce to countries which may prove of appreciable value to us in future commercial relations I realise that the reason given for arresting the move towards free marketing of our main crop which has taken place, was the revaluation of our currency, and we cannot insulate ourselves from the economic forces against which the British Commonwealth is battling. Nevertheless I feel that such a reversal of the previous years' trend was unnecessary and could have been handled with better results to our selves and without detriment to the Commonwealth's interest. I particularly draw tilt Committee's attention to the last sentence, which is the most important of all: Long-term contracts which, fortunately, have not applied to our main crop, may surely lead us into a fool's paradise. They strike fundamentally across the law of supply and demand. We may well find that at the end of any long-term contract the price paid by the purchaser is way above the world market price and unnecessarily holding up the cost of living of that country while the selling country has built an economy on a false price with disastrous results on the termination of such a contract. Any country must base its production economy on world prices. It must produce at a rate which enables it to sell profitably on those markets. Surely, if we create false prices—as long-term bulk selling does—then, instead of being able to weather a trade recession, we shall have to face economic anarchy. There are other points regarding the result of bulk purchase with which I should like to deal, but they are outside the scope of a speech on the Budget. Bulk purchase results in worse quality and a deterioration through so much food being kept for so long in cold storage. I should like the Chancellor to say whether his officials have the opportunity of examining the accounts of the Food Ministry, so far as bulk purchase is concerned, in the same way as do the auditors of public companies under the Companies Act. If they do, perhaps they know all the secrets.

I know that the example which I have given is a true one, and it would be interesting to know whether it was ever reported to the Chancellor himself or to his Department, and also whether any action has ever been taken by the Treasury in a case where it has been found that the bulk buying was being carried on at a loss. I suggest that information concerning bulk buying is not being disclosed to the Committee or to the House at Question Time, and that therefore we have every right to believe that it has been a failure. I hope that this House will have the opportunity of appointing a Select Committee to go into the matter so that we may know the whole truth.

5.40 p.m.

Mr. Crosland (Gloucestershire, South)

The Committee hear for the second time this afternoon a plea from a new Member for that friendly and indulgent hearing which, I know, will be given with the same generosity as on similar occasions in the past. I believe it is a tradition of this House that maiden speeches should not be controversial, which I take to mean that in my humble way I should not throw any stones at the other side of the Committee. But, as far as I know, there is nothing in the traditions of the House which should deter me from throwing a few pebbles at the right hon. and learned Gentleman the Chancellor of the Exchequer.

Before I come to that, I should like to say one word about the earlier part of the Chancellor's speech of yesterday afternoon, in which he discussed the state of our economy in rather general terms. It is a good moment to sit back and consider the state of our economy as a whole, because, to a large extent, the post-war transition period, the period of recovery, is now over. Our economy is in balance so far as the foreign account is concerned, which is an enormous change from the position two or three years ago. It is also in balance so far as internal affairs are concerned. As the Chancellor said, we have an approximate balance between total supply and demand. I agree very strongly with him in his statement that there is no serious inflation in our system now and that the degree of disinflation we have achieved is certainly greater than at any time since the end of the war.

We can form a judgment on our economy, now that it is settled down and not disturbed by any temporary post-war factors. I am certain that that judgment must be a favourable one. No matter what index we take, whether of productivity, total production, total exports or dollar exports, I think the verdict must be that the sort of controlled full employment we are trying to run in this country not only works—which we always knew it would—but also works a great deal more efficiently than many people expected. Undoubtdly, much of the credit must go to the policy of disinflation associated with the present Chancellor of the Exchequer. He has played a very large part in carrying this policy through and undoubtedly this policy, to a very considerable extent, has been responsible for our present much more favourable state of affairs.

Given that the objective is to maintain our present equilibrium we come to the question of what kind of Budget we ought to have this year. This is where I begin to differ from the Chancellor. I take the view that on the whole we have not had the Budget we should have had. I find myself in somewhat of a dilemma and faced with some conflict of loyalties. Although I do not suppose that the Committee is interested in my opinions, I may say that in the past I have supported very strongly the Chancellor's policy of disinflation. At the time of the last Budget for example, I thought that that unpopular Budget was absolutely correct and, if anything, that it should have been more unpopular. I also think that some of the very wild figures thrown at his head during the pre-Budget period this year were, for the most part, complete nonsense.

However, despite the fact that my instincts would be to defend him, particularly when he introduces a not very popular Budget, I think that in this particular year he has erred very seriously on the side of excessive caution. In his speech yesterday the Chancellor said, very properly, that the Budget must now be a balancing item in the accounts of the whole nation, and that the sort of Budget we have must be determined by the way various other trends in our national economy are going. He put estimates on a number of these trends and in every single case I think he erred somewhat on the side of caution. He knows very much better than I do that these estimates are not really extremely accurate figures, that they are, to a certain extent, a matter of guess-work and that there is a very large margin of error. They are, to a large extent, prophecies about certain things which, even in a fairly efficiently planned economy, are not entirely under the control of the Government.

The Chancellor estimated an increase of production of 21 per cent. this year, compared with 4 per cent. last year. He agreed that this was a conservative estimate, and he said that the figures for January and February this year already showed that it was proving a conservative estimate. There is no doubt whatsoever that the actual increase in productivity will be substantially greater than the one for which he has budgeted.

Then there were his estimates of the general level of investment. There has been a great deal of argument as to what will happen to the level of stocks in 1950–51. Again, extremely wild figures have been put forward suggesting that industrial investment will run down by 300 million. I do not think that will happen. But I think the Government have taken the most cautious view possible of the behaviour of investment and that it is arguable that investment in 1950–51 will be below the Chancellor's estimate.

As far as the foreign balance is concerned, the Chancellor estimates that we shall move from a deficit to a surplus of £50 million. It seems the most optimistic estimate that could possibly be made, and I am not entirely convinced about what he said on the desirability of at once achieving a surplus in the foreign balance in all circumstances. At any rate, I would myself expect the rise in inflationary pressure resulting from changes in the foreign balance over the next 12 months to be somewhat less than he expects. All these figures are subject to a very wide margin of error. It would be quite possible, on calculations equally plausible and equally likely to be right as the Chancellor's own calculations, to reach a situation in which overall concessions could have been made on a substantial scale in this Budget. Moreover, the Government are now in some danger of underestimating the extent to which the underlying trends in our economy are now disinflationary. We have come to the end of the post-war inflation period, when our affairs were dominated by a very high rate of restocking, of rehabilitation of industrial equipment, and of improvement in the foreign balance.

More and more, from now onwards, the dominant factor each year will be the increase in productivity which, of course, will exercise here a regular disinflationary effect. I think we are moving to the end of the really serious inflationary period and that the trend is towards disinflation. But even if he did not accept the whole of this analysis, on his own figures the Chancellor might have taken a slight risk. The argument for taking that slight risk is that it seems that 1950 is certain to be dominated economically by the wages question. I think hon. Members would agree that the policy of wage restraint, which, I think is a matter of agreement on all sides of the Committee, is now in serious danger of breaking down.

Moreover, this policy could have been substantially strengthened if we had had a Budget containing more concessions than were contained in the Budget presented yesterday. In fact, the crux of the matter seems to be that even if the Chancellor of the Exchequer thinks that the situation as a whole is more inflationary than I do—and, clearly, he does think so —it would have been worth gambling, worth taking the risk of a slight increase in what I might call the savings-investment kind of inflation, which he discussed last night, in order to avoid a more serious risk of a very much more damaging type of inflation—a wage and cost induced inflation.

That is the size of the problem which he had to face, and that is why I think he might have been wise to have accepted a slight increase in inflation of the traditional kind in order to preserve a much greater degree of restraint on the wages front. By not doing so he has certainly condemned himself to the necessity, later, of a very dramatic and possibly very spectacular Government intervention of some form or another in order to try to buttress the whole policy of wages restraint. As the opportunity of buttressing that policy by the Budget has not been used, some other intervention by the Government will, I believe, be called for later in the year.

Everybody has advised me that the one really crashing error which a maiden speaker can make is to speak for too long, so perhaps I may devote the last two or three minutes of my speech to dealing with the nature of the concessions which the Chancellor has made. Accepting for the moment his general thesis that the state of the economy was so closely balanced that we could not have any net concessions, there is still the increase in the petrol tax—a measure which I, personally, entirely support—which gave him £70 million to £75 million which he could use. He has chosen to use this money in Income Tax relief. I do not think that was the right way to use it because if I am right in supposing—and I think most hon. Members will agree with me—that the dominant problem in 1950 will be the wages problem, then I believe that this £70 million to £75 million should have been used not on tax reliefs but to influence the cost of living and prices. I think that if the money were used in that way, and not to reduce taxation, there would be more chance of the general restraint on the wages front being continued.

My own preference would have been for the money to be used in a variety of ways. I know that there are arguments as to how practicable those different methods are, but, personally, I should have preferred another 2d. off beer—although the Chancellor perhaps had a certain bias against that after his experience last year. It would have cost the Exchequer very little. I should have preferred to have seen Purchase Tax taken off a small group of household articles which are in fairly general use and, also, I should have preferred to have seen not such a large reduction in net food subsidies as the one which has been made — from £465 million to £410 million. I believe that if we are to have a policy of wages restraint under full employment we must use subsidies as a flexible weapon, as part of our wages policy as a whole. I think we were wrong in accepting, as a result of the decisions after devaluation, so large a reduction in net subsidies as that from £465 million to £410 million.

To sum up, my main argument is a plea to the Chancellor, who has fought for so long a brave and even a rather lonely battle against inflation, to realise that possibly the main danger now has come on another flank and not on that flank at all, and that a certain reversal of policy might, therefore, be necessary.

5.54 p.m.

Captain Waterhouse (Leicester, South-East)

I am quite sure that the Committee will wish me on their behalf to express their very real appreciation of the very charming speech which we have just heard from the hon. Member for Gloucestershire, South (Mr. Crosland). He spoke with fluency and with knowledge and, indeed, with rather more than that. He promised us that he would not throw stones at this side of the Committee and he kept that promise very well. He said he might drop a pebble or two on the Chancellor. I thought they were rather more than pebbles; they were edged flints because, if I understood his argument correctly, what he said to the Chancellor was that the Chancellor's figures were faulty, his arguments erroneous and his actions completely ill-'advised. Apart from that he thought the Chancellor's record a notable one. All of us on this side of the Committee hope that the hon. Member will continue as he started, and will drop pebbles whenever he feels inclined.

When I was lucky enough to catch your eye, Major Milner, I was very relieved to see that the Chancellor had by his side three right hon. Gentlemen who at one time took some interest in the prosperity of trade in this country. It is a happy thing that he should be so supported in this Debate. His speech yesterday was a very fine effort, showing great endurance on the part of the Chancellor and possibly on the part of the Committee too. It covered an extremely wide field. I listened as best I could and with what intelligence I could muster, and it seemed to me that his first one-and-a-half hours put up such a satisfactory smoke screen that when he came to say what he had to say about the Budget, he was fairly sure that it would not be too keenly examined.

This is a new form of procedure to me. Many new things seems to have happened in the five years during which I have, unfortunately, been absent from these discussions, but I feel strongly that there is a great deal to be said for having two distinct debates—one on the general economy of the country and the general prospects, arising out of the White Paper, and another, the Budget Debate in the old sense of the term.

In my remarks this afternoon I want to deal entirely with the Budget and not with the economic Estimates. To my mind the guts of this Budget seem to be that we are estimating this year to spend £119 million more than we estimated to spend in 1949. That yields a surplus of £443 million above the line, which, again, is completely over-balanced by a large deficit below the line. Indeed, I am provoked to ask the question: when is a surplus not a surplus? Apparently, it all depends upon which side of the line it falls. If we are to judge at all by the actual results of last year, then the figure of the deficit of £7 million is absolutely meaningless. It may be not tens of millions but hundreds of millions off that mark.

If we examine the actual figures for last year we find that there is a surplus above the line of £549 million and a deficit below the line of £487 million, which should have given the real surplus as £62 million. But if we turn up the record of the National Debt we find that our internal debt during that period has increased by some £40 million. That should mean that the surplus is, in fact, reduced from £62 million to £22 million. If we go further still, and take into consideration the changes as a result of devaluation and the extra indebtedness arising therefrom, we find it to be not less than £597 million.

Does it not boil down to this—that a surplus above the line for the last year of £549 million is, in fact, a deficit of £575 million? In other words, the apparent surplus which many people in the country thought was a well of some £400 to £500 million is no more than a camouflage of the actual worsening of our position by a substantial amount. The Chancellor might smile at this. I know what is running through his mind. He is thinking, "The poor fellow is confusing capital and income and all the rest of it." But in the old days the finances of this country used to be based on the actual expenditure of a year. There was no money put aside for a capital purpose or a revenue purpose; what we spent in that year had to be found in that year, and I believe that that was a good principle.

Why did the Chancellor seek to take advantage above the line for the benefit that he gets from devaluation, from the increased revenue, whether by direct taxation or by Customs and Excise, and decline to take into account the permanent disadvantage of the decrease of our world assets by the increase of our overseas indebtedness? To give a true picture of last year's finances—I do not know whether the Chancellor will agree; if he does not he will probably laugh again—the right hon. and learned Gentleman took £3,924 million from the taxpayers and also increased our national indebtedness, internal and external, by £636 million—his own figure.

That being so, I do not think it is going very far away from a precise statement of the case to say that under this happy Socialist Government of ours we have worsened our position since last year to the tune of £4,500 million. It seems that the Chancellor does not understand. It is the amount he has taken from the taxpayers on the one hand and by which he has increased our debt on the other hand. If these two are not added together, as in any computation any of us would make in our private lives—the amount of our income plus the amount of our borrowing—then the Chancellor's economy is one quite outside the ordinary run of the economics of ordinary life. I think it is fair to ask the Chancellor how long this can continue? How long can we go on spending money or increasing our indebtedness to the tune of some £4,500 million a year?

The right hon. and learned Gentleman produced some figures about increased productivity. The hon. Member for Gloucestershire, South, thought well to doubt some of the right hon. and learned Gentleman's figures and some of his deductions, and I am in a good deal of doubt about this particular figure of productivity; indeed, the Chancellor used the figures with very great caution. He said that output "seemed" to have risen by more than 3 per cent. in real terms, and that this "suggested" an increase of nearly 4 per cent. in the output per man year. Perhaps when the Financial Secretary replies he will tell us on what his right hon. and learned Friend is basing his figures. Is he basing them on hopes? Is he really guessing at them? How were they arrived at? Is he comparing like with like? It is very difficult for him to compare the product of any industry with what it was 10 years ago. Products have changed; methods of manufacture have changed everything has changed; and it is extremely difficult to say with certitude that there has been an actual increase of such a small percentage as this. Perhaps the Financial Secretary would explain to the Committee how these things are computed.

I would point out to him, in that connection, that where we see the concrete facts, where they are disclosed—for example, in the coal industry—and where we are comparing like with like, there is not an increase of 4 per cent. in productivity but a decrease, last year, of 6 per cent. or 7 per cent. If we take the findings of the Girdwood Committee we see the same thing. That Committee found there was a marked decrease in productivity in builders' output. It is perfectly true and obvious that in certain directions there has been a marked and happy increase—in motor cars, in iron and steel; but it is a very strange thing —although we hope it is true—that this comparatively small number of industries that we know have made an increase should have made an increase that has out balanced the decrease in those industries in which, we know full well, there has been a definite decrease; there should be an increase, as the Chancellor says, for we have had vast capital expenditure, and it is only right and proper that there should be an increase. I hope it is true, and I hope that the Financial Secretary will be able to satisfy us that the figures the Chancellor has given are based on facts and not merely on hopes.

Trade and industry cannot get much encouragement from this Budget. "The Times," which is a very friendly and moderate critic, talks of it as a "barren Budget." It errs on the side of courtesy—if it is possible to err on that side. The Income Tax change has, I fear, been too small to have any real effect, except in the important direction of helping the trade unions in their effort to hold wages. I think it will have an effect there, and to that extent it is good. To decrease Purchase Tax on expensive cars may help that industry a little, but it will not have any great effect on trade or industry.

We have got this new Purchase Tax—the new Purchase Tax on commercial vehicles—on lorries, as we used to call them—and on petrol. Members on the Treasury Bench know too well there is no help for industry in a tax on com. mercial vehicles, on lorries, which are just as much a part of plant as a lathe: What sort of outcry would there have been in this Committee if the right hon: and learned Gentleman had come to us and said he was going to impose a tax on lathes, or on milling machines, on knitting machines, or on looms? That is exactly the kind of thing he is doing. It will not be a very large, but it will be an additional, burden that has to be carried by our trade when it is combating competition from abroad. It is not a helpful gesture, at best. I think we have to look far and long before finding any real help which has been given by this Government to industry in any direction at all.

If the Chancellor really did want to help industry—I entirely agree, again, with the hon. Member for Gloucestershire, South—he might have critically examined the Purchase Tax. The Minister of Town and Country Planning has got a very good recollection, as I have, of the working of the Purchase Tax, and everyone will agree that during the war it was a useful tax, that it was a proper tax. As a peace-time tax it is, I think, just about as bad a tax as could be devised. It is raising a vast revenue. It is raising no less than £282 million of revenue. Quite clearly, that is not a thing that can easily be written off. But it is a bad tax for many reasons.

I will give the Committee half a dozen. It penalises craftmanship and it penalises quality. It stops industries producing the best that they can, and it canalises their products into the utility sections, which are very useful but are not among those sections which make industries grow, thrive and flourish, and become living assets in the country. It twists values and it warps choice. It is bad that in the whole of our economy today it is difficult to get any indication of quality by price. Economics have been twisted by taxation, and that is a bad thing. The tax is extremely difficult to modify, and that goes against one of the main canons of taxation. All taxes ought to be reasonably elastic so that they can be put on a bit or taken off a bit, to discourage or to encourage from time to time.

Purchase Tax can always be put on without doing any great injustice: it may do great harm, but not injustice. But as soon as it comes to taking off Purchase Tax, there is the danger of doing the very greatest injustice. Why, there are stores in this country who have on their shelves and in their warehouses, so I am told, between £250,000 and £500,000 worth of Purchase Tax paid on goods. How is that to be met? The Minister of Town and Country Planning will remember the difficulties we had during the war in modifying certain controls on what we called the austerity garments. When it was found that there had to be longer socks, longer shirts, or buttons on pyjamas there was an outcry, because austerity patterns were already on the shelves. That applies more in the case of Purchase Tax. It is doing real harm to industry because it is stopping experiment, it is stopping initiative, and it is thereby, in my view, definitely hampering exports.

If I carry the Committee with me on the argument, which, I think, is a fairly strong argument, that Purchase Tax in itself is a bad tax and ought to be modified or abolished at the earliest possible moment, I then go on to give a couple of examples, if I may, of industries about which I have some knowledge, and with which I have taken the trouble to make a better acquaintance. The first is the footwear industry. One sees from the White Paper that in 1949 the expenditure on footwear was £170 million. Purchase Tax on that is only £5 million—a very, very small amount; but the whole of that Purchase Tax falls on to about 31 per cent. of the product of the industry. The Committee will remember that the Purchase Tax is 33^* per cent. on ordinary boots and shoes and 100 per cent. on the fur-lined.

Mr. Jay

indicated dissent.

Captain Waterhouse

Is that not right? Is it not 33i per cent. on the ordinary run of footwear?

Mr. Jay

The utility footwear covers 100 per cent. of the industry.

Captain Waterhouse

The hon. Gentleman is quite wrong. I think I am right in saying that the utility footwear covers 96-i per cent. of the footwear industry. That is the figure I have from the trade, and I think it is probably right. The £5 million Purchase Tax therefore falls on the remaining 31 per cent. Of course, it is a tremendous tax on that very very small percentage—the best quality footwear, the finest footwear that is made in Northampton and Leicester. That is why sales are virtually drying up. Manufacturers are unable to find markets at home for these goods, and if they cannot find markets at home how much more difficult is it for them to get into markets abroad? What a risk people run in starting a large range of goods when they know that if those goods are not liked in Canada, the States, New Zealand or Australia there is no chance of disposing of them on the home market because of this preventive tax. It is in that sort of way that, in my view, the tax is killing the better end of the trade.

I do not know whether the Government carries this on because they take some satisfaction in penalising what they call the "better-to-do," on the basis that those who are able to afford it, ought to be "soaked." If that is their view, then it is one that they ought to waive. From a national point of view it is too expensive for them to vent little spites of that sort in this way. I believe that this tax ought to be abolished. Five million pounds is not a very large sum, and I believe that this tax could be abolished to the permanent advantage not only of the trade but of the country and, ultimately, of the Chancellor himself through a better flow of better goods in the export trade.

Take another example, that of clothing. Here we find that our expenditure on clothing is £780 million. The revenue from clothing Purchase Tax, according to an answer given the other day, is £57.1 million. Of course, we are aware that here the large ran^ge of utility goods has a very marked effect on the cost of living index. That is an additional difficulty, but it is not an insuperable one. I do not suppose that a sales tax would be popular, but I am convinced that a sales tax on the whole range of clothing would be a great deal less unpopular and a great deal less harmful than is this Purchase Tax. Moreover, it would not have to be a very heavy sales tax to raise £57 million on a turnover of some £780 million. It would, I think, be about 1s. 6d. in the £1, or in the 1s.

We are also running a very great risk with one of our major industries—our export of cloth and tweeds. We in this country have ^got the best tailors in the world. Looking at all of us here one might not be too sure of it, but we have the best tailors, and if we could afford to go to them, we would again be quite nicely dressed. Again I go back to the Minister of Town and Country Planning, who once went to the Board of Trade, and, very properly, took an extremely active interest in women's clothes. He got together a little posse of experts, who got a dress show going. His intention was to assail the women's fashion market. Well, he failed, because Paris is and always has been the centre of the women's trade. But London is and always has been the centre of the men's trade. London tailors are the showrooms, the show places, the shop windows of Yorkshire and the West of Scotland. If we squeeze our London tailors out of trade, we shall do irreparable harm to the cloth manufacturers of both Yorkshire and the West of Scotland.

But there is another and equally important range, and that is women's and children's clothes. There, again, on the less expensive side we are building up a very good export market indeed. Rather the same argument applies here as to the boot and shoe trade. How can anybody be expected to pay out a large sum of money in buying a fine range of materials solely with the view of sending it to a foreign market, in the knowledge that if that foreign market does not happen to like it and does not accept it there is no hope at all except to write off the whole lot as a dead loss? It comes back to this: a sound export trade can only be permanently built on a flourishing home trade. Purchase Tax is killing the home trade, and it will eventually "repercuss" in the killing of the export trade—that very trade which the Chancellor so properly puts first and most important in all his arrangements.

Let me conclude with these few points. If the Chancellor agrees, as I think he is bound to, that the export trade is paramount, then it is time that he stopped merely paying it lip-service. If he agrees that it is important for us to expand our trade in textiles, then he must agree that that trade can best rest on a sound home demand. He knows, of course, because he said it himself yesterday, that foreign markets are becoming more and more difficult. Traders expect help and not hindrance from the right hon. and learned Gentleman; they expect tangible help and not exhortations and speeches. I submit that if the Government really mean what they say it is high time they cut out the cackle and got on with the job.

6.20 p.m.

Mr. Leslie Hale (Oldham, West)

Many years ago a King's Bench judge was called upon to sit on an appeal from the Chancery Division. He listened to the arguments with some attention and gave his judgment much as follows: "My Lords, I have listened with the most earnest and careful attention to the able arguments of learned counsel on either side without, I fear, understanding a word of them, and, further, I have, my Lords, listened with even greater care and attention to your Lordships' learned and lucid judgments without any better result, and I therefore agree with your Lordships and for the same reasons."

I listened with great care and attention to the speech which has just been delivered. I am afraid that so far as the figures are concerned, I have no greater understanding of them now than I had before, and I am afraid, therefore, I must disagree with the right hon. and gallant Member for Leicester, South-East (Captain Waterhouse), for the opposite of the reasons, if any, which he gave. I listened with very great pleasure to the speech of the hon. Member for Gloucestershire, South (Mr. Crosland) who expressed with great courage and ability some of the apprehensions which all of us feel in considering any Budget Statement. I am sure that some of the reservations and some of the doubts which he expressed in his forthright and courageous statement were heard by the Chancellor of the Exchequer as appreciatively as by any other Member of the Committee.

I would prefer to deal today with the Economic Statement and to continue the debate on the White Paper and try to examine just what was the statement which my right hon. and learned Friend made yesterday. We have not heard much about it from hon. Members opposite. Considering the prognostications which they have made consistently over the years and their constant prophecy of doom, they have had very little to say. We had been assured time after time that there is going to be unemployment; that the workers were suffering from malnutrition and could not work. When the report of the Minister of Health showed that the health of the people of the country was better than ever before, they said that the workers had not the incentive to work, and when it was pointed out that production was better than ever before, they said that that was largely due to chance.

Mr. Osborne (Louth)

Does the hon. Gentleman remember that it was the Minister of Health who warned the country that there would be 1 million unemployed but for American help?

Mr. Hale

The hon. Gentleman has' repeated that so often before that we shall be in danger of contracting psittacosis if we get that particular announcement put to us much more. The statement which the Chancellor of the Exchequer made yesterday can be summarised briefly as follows: he said, first of all, that approximately half the trade of the world is now being carried by sterling. One would have expected that hon. Members opposite who affect to be so deeply concerned with the trade and industry of the world would have cheered to the echo that announcement.

The noble Lord the proprietor of the "Daily Express" has published a lively encomium today and said that this was one of the striking turning points in our commercial history, and a testimony to the resilience and courage of the industry of the British people. That particular noble Lord, so far as I know, has never passed an encomium on the Chancellor of the Exchequer before. It will be remembered that he used to be not on speaking terms with the right hon. Member for Woodford (Mr. Churchill) during the period when he was Chancellor of the Exchequer. I still cannot remember what it was about. The right hon. Member for Saffron Walden (Mr. R. A. Butler) is not here at the moment, but he was rather dubious about this question of the petrol tax and motorcar tax and had apparently forgotten that the right hon. Gentleman who was sitting beside him was the Chancellor of the Exchequer who introduced that measure of double taxation on the motor industry and who also raided the Road Fund.

Mr. Nabarro (Kidderminster)

Will the hon. Gentleman complete the extract and mention the fact that the noble Lord also said that the pre-war figure of the world trade in this country was 75 per cent.

Mr. Hale

We have had a war since then. The second thing which my right hon. and learned Friend said, and which I thought would have been cheered by the Opposition, was with regard to the continual expanding of national income over the whole of this year even after allowing for the small rise in prices which has taken place. The third point which he made was the increased payment to the wage earner of £300 million a year which shows that the "wage freeze," as a freeze, is really nonsense. If we have a genuinely expanding income and maintain taxation at the same level, we have virtually a really effective reduction in taxation of the best kind that can be effectively made in a welfare State.

My right hon. and learned Friend's final point confirmed the statement which he had made before about the dollar gap. He has warned us very fully and frankly and freely that this was a temporary statement, that the figures were based on the most favourable quarter of the year and there might be a recession. I should have thought that the achievement, even of a temporary character, in bridging the dollar unbalance at this early stage was a very great achievement indeed and one which we all welcomed.

What have we got from this? We have now completed a period of five years since the end of the war. It has been a period of reconstruction. We have already a temporary balance and have reached a situation in which we can say to the United States "We are back on the old road; we are recovering from the war." We have reached a temporary balance and we are in a position to discuss and plan for the future and to use this moment as a breathing space on the road to international planning.

I want now to come to what I feel is a fundamental point. I want to put it as temperately as I can. Whenever my right hon. and learned Friend mentioned planning in his speech, there was a titter from the benches opposite. Whenever we talk about utilising the economic resources of the country and devoting them to the purposes for which they can be best used, there is an air of contempt from hon. Members opposite. I have never found out whether hon. Members opposite reject planning or not; whether they believe in laissez-faire economy or not; whether they want to go back to completely uncontrolled enterprise or not. We have sat today listening to questions by hon. Members opposite asking for more and more controls to help industry. This is a fundamental division. It is not a division merely between the people who believe in Socialism and those who do not. It is a division far more fundamental than that. It is a division between the people who believe in the Atlantic Charter and the people who do not, because that Charter pledges itself to international planning.

I want to make what I think is a perfectly fair test of the arguments put before the House during the last few weeks. I take the question of European steel. I listened to a very able maiden speech made by the hon. Member for Esher (Mr. W. Robson-Brown) from the benches opposite in the Debate on 9th March. It was a speech in which he dealt with steel very fairly and temperately. I do not criticise a word he said. It was a lucid statement 'of what I call the laissez-faire attitude. I do not say that in any critical sense, because I have expressed similar apprehensions in regard to the textile industry, and we have to face international trade conditions as they are. What he said was: The steel trade knows perfectly well from its long experience that the time has come when the surpluses of these European countries from which we suffered before will once again be thrown upon the world markets, probably at uneconomic prices …It has always been the policy of continental steel makers to maintain at all costs a high level of production, and to dump upon the export markets the surplus which they could not dispose of at home. Germany is once again rearing its head, and Japan is also revealing itself as a competitor of Great Britain. Again, dealing with the argument of my hon. Friend the Member for Hammersmith, South (Mr. W. T. Williams), he said: Reference was made to the evils and disastrous effects of the restrictions on imported steel to this country before the war. The plain truth of the matter is that as a result of those tariffs the industry was safe from ruin, and I give great credit to the Government that brought them in."—[OFFICIAL REPORT, 9th March, 1950; Vol. 472, c. 563–6.] I am not challenging one word of that, and I may have said the same thing myself in another context—the hon. Member knows the industry to which I am referring. This is the crucial test. It is added to because we are told that by 1952 or 1953 the European production of steel will be in the region of 70 million tons and the effective demand will be 62 million tons. What, do we mean by "effective demand "? We mean the demand by people who can pay.

It seems to me that this is the dividing line between the two parties in their plans for the future. We have the whole of Africa waiting for steel. We have vast development projects all over the world which need steel. We have a world shortage of food, and we need steel for the development of food projects. We have vast areas of underfed people who need all the steel that can be produced, and will continue to need steel for year after year. In spite of this, it is said that we should go back to restrictions, tariffs and underproduction to maintain prices. If we are to face the economic problems, we have to face this problem.

The onus is on us to see that the underdeveloped areas get the things they need, and some method has to be devised by which there can be an expanding economy throughout the world. I said that this was the fundamental difference not merely between non-Socialists and Socialists, but between those who believe in the Atlantic Charter and those who do not. But it is also a difference between those who believe in the Charter of the United Nations and those who do not, because Article V of the Charter says:

" The United Nations shall promote

1. (a) high standards of living, full employment and conditions of economic and social progress and development.
2. (b) Solutions of international economic, social, health, and related problems and international cultural and educational cooperation.
3. (c) Universal respect for and observance of human rights and fundamental freedoms for all without distinction as to race, sex, language or religion."

I have been waiting for someone opposite to say whether the Conservative Party believe in laissez-faire, and whether they want to revert to the old days of tariffs and restrictions on production.

It is also a question of those who believe in the provisions of the International Monetary Fund, which also provide on a similar basis. There was published a few weeks ago a document which I regard as being of vital importance on this matter. The document is perhaps the greatest vindication of the policy of my right hon. and learned Friend that has ever been penned in international affairs. It is the Report of the Expert Committee on national and international measures of full employment. It is a long report, and I do not wish to attempt today to cover all the ground that the report covers. It states, in dealing with, the dollar gap—and it is to this that I wish to direct attention—that: We can envisage no satisfactory solution of the world full employment problem and no real improvement in the world trading system unless the chronic dollar shortage is attacked at its roots. We are convinced that to find a real solution the problem must be attacked on a world basis rather than on a European basis. We have hopes that when the recent Washington conversations took place some matters must have been discussed which dealt with this problem. I have always expressed the view that trying to solve the dollar gap problem by sending goods from impoverished Europe to oversupplied America is unethical and not the right solution. It is wrong, and the answer is contained to some extent in this report.

That Expert Committee recommend certain national and international measures for the maintenance of full employment, and the national measure they recommend first is the provision of full employment targets. Such targets were much criticised by Members opposite when they were introduced in this country. We had many prophecies that these targets would never be reached. The second measure they recommend is that we should commence a comprehensive programme for directing our fiscal and monetary investments and production planning to the achievement of full employment. This is precisely the policy the White Papers have tried to follow for the last four years.

Their third measure is that we should maintain stability of the price levels and combat inflationary tendencies. Again we are back to the policy of my right hon. and learned Friend. Fourthly, we should commence compensatory measures designed to expand effective demand. which is a matter I want to develop for a moment or two. Lastly, that we should adopt measures for administrative and statistical surveys for the implementation of the full employment programme. That is nationally.

Internationally they go further. They recommend very similar measures, but also that there should be a reform of the procedure of the International Bank whereby unusual balances should be balanced through the Bank on the basis of investment. I know that the suggestion will sound Gilbertian and will be greeted with smiles, but the solution of the world problem today is that exporting nations should pay for their exports. That is the solution we have to come to, and curiously enough that is what has been happening in relation to the Western Hemisphere over the last few years. They have not done it in this way, but they have lent the money for it to be done. In effect, if the exporting nation pays for its exports, and if then the balance arrived at bilaterally or multilaterally is dealt with by the International Bank and balanced by investments, then we have a stable policy for world employment and for dealing with the development areas.

I do not believe there would be any great advantage in investment on the lines envisaged in President Truman's Fourth Point, that is in the so-called civilised countries—I use that word for the want of a better one. The room for investment is in Africa, the East and in the underdeveloped territories of the world where the dollar unbalance could be used to provide employment for the British engineering industries for a century to come. Our resources should be used in schemes of irrigation and for hydroelectric development. We should be carrying out an ethical policy, and by that means advancing a very long way along the road which leads to international cooperation, international development and a solution of world problems on the lines dealt with in this report.

In view of the very great progressive mind shown by Congress in these last few years, we have reason to be grateful for the foresight of President Roosevelt and the ability and constancy of President Truman. I believe that there is now no great obstacle to securing this end. I am not suggesting exploitation in Africa. There must be many years of background expenditure that will be nominally unproductive, but the Tennessee Valley Authority provides a classical example of how it is 'possible to organise, under the supervision of international planning, the sort of development work the world so greatly needs.

We have had in these last few years many warnings. In this decade we have had warnings which ought to have cured many of us of any lack of ability to face the problems of the future as soon as we can. Behind us on the road to economic nationalism are 25 million corpses which piled up during the last war. I do not believe there is anyone in this Committee who does not sincerely think that there is a real possibility in front of us on this road of economic nationalism of 100 million corpses being created by the next war and that we sitting here have an excellent chance of participating and being numbered amongst them.

We have had warnings. We have had not merely this warning of the danger of war and the warning of the atom and the hydrogen bombs, but we have had a significant warning from Lord Boyd-Orr in his report on world food shortages and the devastation of soil erosion. I do not believe that the most ardent advocate of individualism and private enterprise on the benches opposite believes that we can deal with this problem of world soil erosion on the basis of competitive enterprise, or that we can deal with world food shortages on that basis either.

So we have major problems. There is the third warning—the warning of the rising tide of nationalism in the underdeveloped areas. There is a warning that these conditions will not be tolerated much longer, and that we cannot look forward to maintaining, even with our progressive policy—and I pay great tribute to the work of the former Colonial Secretary during the time he was in office—the standard we have hitherto had, because we have not the resources to provide all the needs that have arisen nor to finance all these schemes that need to be financed. All this can only be done by world planning.

These are the major warnings. They are the portents in the sky ahead. They are the warning that truly we have reached a turning in world history, which may decide for good or evil the destinies of the world in the future. I would respectfully commend to the Committee a point which I believe to be of importance —that at this moment in world history we find, perhaps for the first time, something vitally important and very unusual. I remember that once my right hon. Friend the Lord President of the Council said that we examined tendencies, but that they did not always point the same way. In the vast political problems which we face that is indeed true. We do good to so-and-so, but frequently it does harm to someone else. Even the economic trends do not point the same way, and leave us in doubt as to whether we should go that way.

I suggest to the Committee that along this path of international planning and co-operation in the development of the under-developed territories and the full utilisation of the vast resources of the civilised parts of the world, all the pointers are now in the same direction. The pointers of ethics are not only pointing to the path of change but also the pointer of expediency, the economic pointer, the pointer of science and the fact that there have been the warnings that I have mentioned that economic nationalism leads to war, that under-development leads to Communism and to the uprisings of the undeveloped people. But there is something more. I feel that the path of the old materialism which started with Darwin and ended with Hitler and Pavlov has gone, and that men like Einstein and Rutherford and Planck have brought something new into human thought. They have "restored mind to the universe" and the mind should be used in the only way that the mind of man can best be used, as shown by Havelock Ellis in one of his finest passages. He said: For a brief space it is granted to us if we will to enlighten the darkness that surrounds our path. We press forward, torch in hand, along the path. Soon from behind comes the runner who will outpace us. All our skill lies in giving into his hand the living torch, bright and unflickering, as we ourselves disappear into the darkness. I suggest that the programme I have adumbrated is a programme which leads along the fertile paths of international co-operation and understanding through an integrated Europe to a United Africa, at any rate in that large part of the continent where racial hatred and racial segregation are not being preached. In concluding I should like to pay my tribute to my hon. Friend the Member for the Yardley Division of Birmingham (Mr. Usborne), because that road will lead, as all roads must inevitably lead, to a united world, which is the final aspiration of man along which he has been moving for centuries; so that at long last we may hope to reach through human good will and co-operation in international planning on the high level that distant aspiration which, if we seize our opportunities, may now be capable of achievement.

6.47 p.m.

Mr. G. B. Craddock (Spelthorne)

At this moment I recall vividly a character in J. M. Barrie's play "What Every Woman Knows." It will be remembered that David Wylie told his friends that every time he was called upon to make a speech in public he was so nervous that he could never overcome starting with the phrase, "In rising for to make a few remarks." I am bound to say that in addressing the Committee for the first time I experience a somewhat similar apprehension, but I am fortified in the knowledge that I can and do respectfully claim the kindly and traditional indulgence of hon. Members.

Some 16 or 17 years ago one of His Majesty's representatives, a Governor of one of our Colonies in East Africa. propounded the astonishing doctrine that it was the duty of a Government to tax the people to the utmost limits of their capacity. At that time I was in business in East Africa, and I also happened to be President of the Chamber of Commerce and other public bodies. In that capacity it fell to me to reply to this extraordinary doctrine. I cannot say whether anything I said then had any effect. Sufficient to say that we heard no more about it, and I felt that never again should I have to refer to such a strange doctrine.

Since 1945 I must confess that I have gained the impression that His Majesty's Government and the Chancellor of the Exchequer are imbued with exactly the same idea. The Budget presented yesterday reinforces my opinion. Surely the primary duty of any Government is to run the country efficiently at the lowest possible cost and be absolutely ruthless in cutting out extravagances and waste. Quite simply, it should be to keep taxation at the lowest level. The Chancellor of the Exchequer is, above all, a trustee of the people's money, but—and I say this with great respect—I find little evidence that he has approached his great problems in this way at all.

Yesterday, we heard a great deal of talk about democracy, but there is a very strong tendency these days for the Executive to act in a way entirely contrary to democratic ideas. People are told to do this and do that, and are being continually instructed to pay this and pay that. I feel that this tendency ought to be retarded and, indeed, reversed.

Yesterday also the Chancellor of the Exchequer spent some time delivering a homily on surpluses. I fully appreciate that this is the Keynesian theory of budgetary control and economic policy.

Let me be frank and say that I have never accepted the Keynesian theory as a sound long-term policy. I wish to emphasise the phrase "long-term policy." I am not being wise after the event because, ever since it was promulgated, I have spoken and written against it as an unwise policy from the long-term point of view. The theory of surpluses is supposed to maintain high employment. Yesterday, the Chancellor emphasised that aspect very strongly, and I understand that in his broadcast last night he also emphasised that the policy of surpluses was entirely responsible for the maintainence of full employment. That cannot be the case.

As one of my hon. Friends said, it is on record that responsible Ministers of the Crown have stated that if it were not for Marshall Aid there would be 1,500,000 to 2,000,000 unemployed. If that is so—and it comes from very responsible sources one cannot see how full employment has been maintained as a result of the Keynesian theory. It is also supposed to prevent inflation, but has it done so? I cannot accept that, and I would go so far as to say that inflation is with us now almost as acutely as in past years. One gets evidence of that from rising prices and the continued pressure for higher wages. In view of the cost of living, one cannot blame people for pressing for higher remuneration. A further point is the continual lowering of the purchasing power of the pound. These are all very dangerous inflationary trends.

The policy of surpluses has not encouraged saving. In the Economic Survey the country is asked to save more. I cannot see how that is possible in face of the present high taxation. Furthermore, the policy of budgeting for surpluses in the way it has been done provides absolutely no incentives to the people, and that is one of the most important things for us to deal with at the present time. Surely the proper way to encourage savings and to provide incentives, not only to the individual but to industry as a whole, is to get Government expenditure as low as possible, with consequent lowering of taxation.

This leads me to the subject of exports. I was glad to hear my right hon. and gallant Friend the Member for Leicester, South-East (Captain Waterhouse) say that we want very much higher sales in the home market, which will help the export trade. I believe the time has come for us to get back as quickly as we can to the old, well-tried view, which has stood the test of many years, that exports are essentially the overspill of the home market. Greater incentives both to industry as a whole and to individuals lead to greater production, and that is one of the main ways of getting down costs. With lower costs the natural corollary is lower prices. This encourages in every possible way a great upsurge of production. I do not deny the great effort and the success which have already been achieved, but I believe most sincerely that with additional incentives such as I have indicated there would be a much greater upsurge in the country which would bring more to the home market and leave a still bigger amount for the export trade.

I will give an example from the motor industry. I have here a letter from the director of the Society of Motor Manufacturers and Traders, which says that during 1949 the output of the whole of the motor industry was: cars, 412,000; commercial vehicles, including public service vehicles, 218,000—total, 630,000 vehicles. The letter states that the present capacity of the industry is sufficient to make 800,000 units; that is, that current production falls short of what could be achieved by approximately 170,000 vehicles. Surely, if encouragement was given to the industry to produce to the fullest capacity the industry would be able to bring down costs and lower prices, and greater sales to the home and export markets would be possible. I was surprised to hear the Chancellor say yesterday that so many commercial vehicles were being sold at home. I do not know the reason, but it may well be that the price of commercial vehicles is still too high for people abroad.

I want to refer to two particular points in the Budget. Like every other hon. Member, I am delighted to learn that the cut in the housing programme is to be restored, but I feel most strongly that 200,000 houses a year are still far too few. In my election address I characterised the housing situation as a social evil of the first magnitude. Since I have had the honour of representing Spelthorne I have, naturally, had wider opportunities of seeing housing conditions. Every week I spend Saturday visiting people in their homes to see for myself. I can only characterise the shocking conditions of over-crowding in which people are living as a crime, and I am sure that that opinion is shared by all hon. Members. If this colossal expenditure is necessary—I admit it only for the sake of argument-1 suggest that the Chancellor of the Exchequer has his priorities wrong and I would ask him whether it is possible to tackle the housing problem with greater vigour.

One further point is the question of Post-war Credits. When sterling balances and unrequited exports are discussed we frequently hear the explanation that those are debts of honour. I often ask myself whether the debt of honour is due to us or from us. Be that as it may, Post-war Credits are debts of honour to our own people. I feel very strongly that we ought to be paying more attention to our own people than we seem to be doing.

I put forward to the Chancellor of the Exchequer the suggestion of a possible approach to the question of these Postwar Credits. Would it not be possible tc show that we do regard them as a debt of honour to our own people that must eventually be met, and to issue in exchange for, or to cover, those Post-war Credits some form of National Savings certificate which might carry a small interest of, say, 1 per cent., repayable in five or 10 years? That would not be unreasonable. The 1 per cent. would cost approximately £6 million per annum. I would gladly see part of the impost of 9d. on a gallon of petrol go towards covering that small sum, because it would show that we really feel that this debt that we owe to the people is just and fair and that it should be clearly recognised as such.

I hope that I have not trespassed on the kind indulgence of hon. Members or taken advantage of their courtesy. If I have, I can only apologise, through you, Major Milner, to hon. Members, and say that if any excuse is needed it is this: I believe that we are a great people, all of us, irrespective of party From 1939 to 1945, our people were called upon to bear tremendous burdens, which they carried with honour, and, I believe, with glory. Since 1945 they have been forced to bear tremendous burdens of a different type but none the less severe, financial burdens in the way of taxation, due, I suggest, to the wrong policies of His Majesty's Government. I believe that our people are now near to breaking point.

If the break comes, it will not only be a great tragedy for a great people and a great nation, but a catastrophe to the whole world.

7.4 p.m.

Mr. Jenkins (Birmingham, Stechford)

I have not previously had the privilege of following a maiden speech; indeed, I feel that it may be presumptuous of one so junior in age to take upon himself the customary duty of congratulating a maiden speaker, but none the less I do so with great pleasure, on behalf of the whole Committee. We all listened to the hon. Gentleman, and to the points which he made, with great interest. I was particularly interested to hear his announcement that he was not a supporter of Lord Keynes' budgetary policies. I was afraid that we were all Keynesians now, and I am glad to hear that there are some people on the Opposition side who do not pay even lip-service to the doctrines of the late Lord Keynes. I am sure that we shall all look forward to hearing the hon. Member upon many occasions in the future.

We have not heard a great deal from the Opposition this afternoon that is new in criticism of the Government's financial policy. Most of it, as my hon. Friend the Member for Chesterfield (Mr. Benson) said, was familiar to those of us who heard last year's Budget Debate. A suggestion was made I think by the right hon. Member for Saffron Walden (Mr. R. A. Butler) that our international position and our balance of payments position were in much greater danger than they need be because of the persistence of high taxation and the generally inflationary condition of this country. We have also had the point of view expressed that the Budget does not go far enough in giving incentives to people in all ranges of income. I want to comment briefly on both of those two lines of attack. I will deal first of all with our overseas position and our position in relation to the dollar area.

The suggestion is that that position would be better than it is if it were not for the persistence of inflation and high taxation. Clearly there is a close connection between our international position and our internal financial position. Nobody would deny that, but it is false to go on to suggest that the major cause of our dollar difficulties during the past few years has been a lack of stringency in our internal financial arrangements. If that had been so, surely it would have shown itself in a marked deterioration as compared with pre-war in the direct, visible trade relationship between the United Kingdom and the dollar area. Surely that is where inflation at home would have made itself most felt upon our internal position. Imports would have risen to an unduly high level because of excessively high money incomes and exports would not have been as high as they ought to have been because of the excessive pull of the home market and a general lack of incentives.

Has that been the case? It has not been the case at all. There have been factors in our dollar position which, since the war, have been very much worse. They are familiar to the Committee —factors like the terms of trade, the trading position of the sterling area, our investment and shipping income and the ability of sterling area gold to bridge the gap. They have all deteriorated as compared with 1938. The one factor which showed an improvement over 1938 as soon as we got out of the immediate post-war position has been the direct trade balance between the United Kingdom and the dollar area.

By 1948, our imports from the dollar area were down to 75 per cent. in volume of what they were before the war. Our exports were up about 32 per cent. above what they had been before the war. There is really no sign here at all of inflationary conditions and lack of incentive in this country bedevilling our relationships with the dollar area. The one factor over which British Government policy would have the most direct control is the one factor in the whole situation which shows improvement and not deterioration.

The truth of the matter is that hon. Members opposite are, on this point, the true doctrinaires in British politics today. They insist upon believing that if we have high taxation, comparative equality of wealth, and what the hon. Member for Chippenham (Mr. Eccles) often calls over-full employment, we are bound to get stagnation of effort in production, and external difficulties. They believe that because they want to believe it and because they have always believed it. The directly contradictory evidence of the facts makes no difference at all to the outlook of those doctrinaire politicians.

If one measures our state of affairs today by any reasonable criterion—by total production, by productivity, by total exports, by exports to the dollar area—then the clear conclusion is that the present state of affairs in this country has not only had important welfare effects through redistributing our income but, as my hon. Friend the Member for Gloucestershire. South (Mr. Crosland), in a striking maiden speech, said ealier, it has also been peculiarly efficient. Is there a comparable country in Europe which, despite lower taxation ratios, despite greater incentives, despite lack of comparative equality, can point to results, measured by the joint indices of production and exports, which are as good as those that we have achieved in recent years?

My second main point deals with incentives, although to some extent this question was involved in the first point. This Budget, while it does a little to give extra incentives to people of all ranges of income, at least all those whose income is sufficiently high that they pay some Income Tax—it does not cover everybody—is clearly not a great incentive Budget in the sense that it carries out any large-scale reductions of Income Tax such as would give substantial additional incentive to all ranges of wage and salary earners.

I believe that there is something to be said for giving extra incentives to people at all levels of income, right up to the top as well as right down to the bottom. There is a case for that, although it is often spoiled by the grossest exaggeration from the other side of the Committee. What we have to consider, looking now not merely at this Budget but a few years ahead, is how we can try to meet that case and give some extra incentive to people in all ranges of income. This is generally thought to involve a cut in the standard rate of taxation. An Amendment to that effect was put forward on last year's Finance Bill by the hon. Member for Chippenham and was supported by the Opposition. It was a good incentive Amendment for some people, but what it proposed was a most regressive remission of taxation since it would have been a remission which would not have been of the slightest benefit to a married man with two children unless he was earning nearly £700 a year. Therefore, it affected only people fairly high up the scale. That seems to me to be the difficulty with which we are faced in trying to give any incentive concession to the more highly-paid people.

The Budget has now settled down. I do not think we shall get any of those big, almost adventitious changes, either on the expenditure or on the revenue side, which we have had in recent years. Therefore, if we are to make any new substantial sum available for tax concessions, it has either to come out of a substantial saving of expenditure—and whatever hon. Members opposite may say, such measures involve a change of policy so far as the social services are concerned—or it has to come out of a shifting of the existing burden. To pay for incentives for the more highly-paid people by either of these methods—by cutting down on social services, which mean most to the worst off, or by shifting the burden on to the worst off by increased indirect taxation—would be quite intolerable. If we are to give incentives to these more highly-paid people, it has to be done without affecting the broad distribution of income in this country. That means that it has to be done by a shift from unearned income to earned income in the higher ranges. So far as that affects budgetary policy it involves some attempt to deal with the enormous sum in this year's Budget of about £480 million for servicing the National Debt —a sum which will increase still further if, as the Opposition want, interest rates are stiffened when the many conversion operations which are pending for the early '50s come to be carried through.

I do not suggest for a moment any repudiation of the National Debt, but from a long-term point of view we ought to consider the possibility of a large-scale capital tax which could be used to redeem a great part of that National Debt. It would have to be used in that way or it would be grossly inflationary, and the only savings which would occur would be the saving of the interest on the Debt less the Income Tax and Surtax or that interest which came in previously. The savings would not be enormous but they would be substantial. I believe that such a measure would be worth while for four reasons.

First it would be worth while because it would do a lot to end the gross inequality of property, almost as bad as in 1939, which still persists and which I believe to be totally incompatible with a truly democratic society. Even hon. Members opposite, when they talk about a property-owning democracy, must have an idea that this kind of gross inequality is not really right. It would do a second thing—and this is a point I have mentioned before in the House—it would do something to correct an inevitable disparity between the sacrifice made by people who have observed a policy of dividend restraint and those who have observed a policy of wage restraint.

When a wage claim is forgone for, say, two years because the union has exercised restraint, what extra wages might have been obtained during that time have gone for ever because there will be no retrospective payment of wages. When, however, a dividend claim is forgone for a period of years, it is not forgone for ever because the money is ploughed back into the business, is enriching the shareholder's capital, is there developing for him, and can be obtained in the future either in the form of higher dividends or in the form of capital appreciation. This disparity can only be corrected by some form of capital tax. I do not believe in the practicability of a capital gains tax and I therefore believe that it involves a levy of this kind.

Thirdly as I have said, such a tax would enable the Chancellor to give certain incentive Income Tax concessions to the higher-paid workers and to the managerial classes without carrying through a regressive policy, without going back on the move towards comparative equality of wealth which we have had recently. Fourthly, such a tax, if it were big enough, would also do a good deal to curb luxury spending out of capital which has been going on, and still goes on, which is out of keeping with the needs of the time, and sets a bad example to the rest of the country. I do not suggest for a moment that the Chancellor could or should have done it in this Parliament and in this Budget, but it is a thing for the future to which we ought to turn our minds and which we ought to think about a good deal.

For my last point may I turn to this year's Budget proposals? My feeling is that the Chancellor has, if anything, been a little over-cautious. Last year I took the unpopular view—a view which was taken by very few others—that his surplus was not big enough. This year he has, if anything, erred on the other side. But if he has made a mistake, his record in recent years in keeping the economy of the country on an even keel is sufficiently good that he is fully entitled to the benefit of the doubt. And the mistake, if it proves to be such, can be easily corrected in the course of the year. Apart from this one broad criticism, I feel that in the circumstances of the time the Budget does what is possible to distribute our burdens reasonably fairly.

7.20 p.m.

Mr. Kaberry (Leeds, North-West)

Once more today, and yet once more in the long history of the House of Commons, the Committee will have to bear, although for but a short time, with a maiden speech. I crave the indulgence of the Committee, especially as I speak on a topic which has in the past involved so many misunderstandings, for so easy is it when matters of finance are discussed to misinterpret what might have been said; and a great deal of unhappiness has been caused by wrong interpretations of the remarks of various speakers.

I can only attempt now to speak as one of the many millions in this country who seek in their own way to run their own establishments, either as homes or as businesses, to earn an honest living and try to make ends meet. In many respects those who struggle in that way may well be qualified to know best how to balance their particular budgets. They may well consider with some suspicion the person who considers and describes himself as a "financial expert," but who in many respects appears as a person who knows best how to overspend other people's money.

The theme of the Chancellor's speech yesterday was, apparently, the pursuit of happiness. No one can complain of a theme of that kind. It is to the credit of everyone in public life that all our responsible people are devoting their efforts to that end. I have read in the newspapers that, in his talk last night on the B.B.C., the Chancellor said that it would have been far easier for him to have played Father Christmas than the role of Scrooge. If that is the part which he has allotted to himself, I hope he will play the later part of that same character and carry out many of the things which were done by Scrooge after his dream when he had seen the folly of his ways and had an opportunity of putting right some of the things he had previously overlooked. My only fear is that his dream may become our nightmare if the Chancellor discovers some of the things we would prefer him not to see.

To many of us there is little doubt that over-all Government expenditure presents a burden far too heavy for us to carry, either collectively or individually. It is a little difficult to test whether or not that burden can be carried merely by saying that the money has in fact been produced from taxation or has been squeezed from the people. I hope I may have the indulgence of the Committee when I say that many of us feel that the party opposite were very fortunate in their financial inheritance when they first came into power in 1945. In 1939 there was a total over-all revenue of some £927 million. When the party opposite came into office, the figure was about three times that amount. Income Tax had been doubled and Purchase Tax introduced; many new taxes had been brought in to provide the revenue to surmount the difficulties which confronted us during the war years.

There are many of us who feel that many branches of Government expenditure can properly and easily be pruned without detriment to the country as a whole. There is little point in continuing the present state of affairs, of merely poulticing a sore, as it were, when by some very careful and discreet surgery the whole cause of the trouble could be rapidly removed. By a careful pruning of expenditure many things which we feel are desirable could be brought about by means of a reduction in taxation.

I know that on this occasion I must not be controversial, and I hope I may be forgiven if I say that there are many ways in which one could review all the items of Government expenditure, particularly those which have been already quoted to the Committee, in order to assure the country that we have at heart a determination to eliminate any unneces- sary expenditure. I hope that the Chancellor, in answer to his own conscience, as he said yesterday, will impress upon his colleagues that the Estimates for the ensuing year will not be exceeded, as they have been exceeded in previous years. There are many of us who would like some reassurance that there is a constant review of Government expenditure.

I would have been much happier if in the popular edition of the Economic Survey, well illustrated, attractively produced and written as it is, greater emphasis could have been placed upon paragraph 35, on page 10, of the White Paper, where we are told that there is a basic assumption underlying everything that is said in the following pages about the balance of payments, production, investment and consumption"— which is the reliance by this country upon the continuation of American aid for the following two years. It is a little regrettable that that very definite statement does not find a prominent place in the cheaper and more popular version of the Survey. In the light of the pursuit by the Chancellor of the happiness which he desires for us all, a gloomy reflection will be found on page 6 of the popular edition, which says that: For many people, however, the main personal problem of 1950 will still be finding the homes they want. While we welcome the announcement made yesterday of the restoration of the programme for the production of 200,000 new and permanent houses this year, many of us know—from the City of Leeds, for example—that that target will not produce the over-all total of new houses which are required to satisfy the pursuit of happiness by so many of the citizens of that and other of our cities.

The ever-rising cost of living, which makes for so many the problem of personal saving so difficult, is difficult to reconcile with the matters to which I have referred, whether or not there is a real check on Government expenditure. In that light I feel that one is right in asking: does this Budget statement help the ordinary person in the achievement of that innate desire of every person to save and to fend for oneself?

Unquestionably, everyone must welcome, at any time, by whatever means, a reduction in the rate of Income Tax, but when it is offset at the same time by the increased levy on petrol consumption one has only to divide the advantage of 4s. a week in reduction of Income Tax for a person with an income of £600 or £700 by the number of ninepences per gallon on petrol to find that the two items rapidly cancel each other. I may or may not have been alone today in the receipt from the City of Leeds of a telegram representing 600 medical practitioners in that city complaining on their behalf that the imposition of a tax of that kind will cause some difficulties and will easily offset any advantages which may have been received by way of reduced Income Tax. That not only applies to the medical profession, but to all professional persons and to every section of the community which is dependent for transport upon private cars.

I wish to associate myself with the remarks of the hon. Member for Gloucestershire, South (Mr. Crosland), but I would have preferred to see an approach to some easing of taxation on beer rather than the "third degree" approach. Surely it would have been possible, by the careful pruning of expenditure to which I have referred, to have brought about, as that hon. Member suggested and as I agree, a reduction of 2d. on every pint of beer.

My hon. Friend the Member for Spelthorne (Mr. G. Craddock) referred to the sum of £17 million which was spent last year towards the reduction of the debt which we owe for Post-war Credits and in respect of a similar sum of £17 million which is provided in this year's Estimates. One takes comfort, whatever that may be, from the remark of the Chancellor yesterday that any extensions that have been suggested would have been too costly for us to afford; but is a debt of honour at any time ever too costly to afford? There are many cases, to two of which I will refer, which provide special circumstances wherein these Postwar Credits should be repaid. I hope it will not be suggested that these hard cases make bad law, because I have yet to find that it is bad law to pay a man back money properly owed to him.

I feel it should be possible for the country to repay Post-war Credits to persons when they are suffering from some form of incurable disease and are totally unfit and unable to work. Surely no one in this Committee who desires to pursue the policy suggested by the Chancellor would wish to oppose a suggestion of that kind. Nowadays Post-war Credits are repaid when a man is 65, or a woman is 60; but it is possible for a man to die at the age of 64 and, if he leaves it to his son, aged 30, the son has to wait until he is 65. He might have the misfortune of dying at 64, and so on it goes. I know a case of a widow aged 42 whose husband died two years ago. She cannot work and has a mother to look after. She has a child living with her. She cannot draw Post-war Credits left to her and has to hope she will live until she is 60 because, if she dies before that age, under present rules her daughter will have to wait until she is 60 years of age.

Of the many examples of which hon. Members must know from their own constituencies, there are many cases of persons—men under 65 years of age—who are suffering and are certified to be suffering from diseases which are incurable. They may have a limited expectation of life. I could quote many cases of men of 58, 52, 55 and one man of 50 with a very limited expanse of life before him who has spent all he has in order to present a decent front and make ends meet. The country owes him £60 in Post-war Credits, but he cannot draw them because, at the age of 50, he is not qualified. I think that with proper safeguards and machinery which already exists through one or other of the Ministries which at present organise the receipt of claims of this kind, no hardship would be caused to the national Exchequer, but a great relief would be provided for the recipients if these Postwar Credits could be paid.

I believe these things are capable of being achieved by the Chancellor in the pursuit of his ambition that we shall all be able to journey together along some sort of a road. He has it in his power. It is in the power of the Government to remove many of the obstacles which prevent our greater and speedier progress. If all that can be done, not only the Chancellor but the whole country will be happier.

7.38 p.m.

Mr. Diamond (Manchester, Blackley)

There is only one thing more pleasurable than catching your eye. Major Milner—a pleasure rendered the more acute the rarer it is—and that is catching your eye on an occasion when one has an opportunity of congratulating a maiden speaker. That pleasure is made more pleasurable when one finds he comes from one's home town and was born in the same year. It may have occurred to you at the moment, Major Milner, that the Debate is almost becoming parochial. The hon. Member for Leeds, North-West (Mr. Kaberry) has just spoken; the acting Leader of the Opposition, at the moment is the right hon. Member for Leeds, North (Mr. Peake), the acting Leader of the Government is the right hon. Member for Leeds, South (Mr. Gaitskell), you are in the Chair and I had the good fortune to be born in that city and have the even better fortune of congratulating an hon. Member on an excellent maiden speech—

Mr. Ellis Smith (Stoke-on-Trent, South)

This explains a lot.

Mr. Diamond

I hope I shall not be accused of tautology if I say that an hon. Member who comes from Leeds has made a most excellent maiden speech. If I may say so I, who "put up my hair" a mere five years ago, was very much impressed by the way in which the hon. Member for Leeds, North-West delivered his speech and by the sincerity with which he delivered it. He has no reason to fear that he may have somewhat transgressed the normal bounds of controversialism, because his obvious sincerity would have justified every single thing he said. We are very interested in and grateful for what he said, and we assure him that he has now nothing but pleasure before him. He will share with us the joy of rising from his seat from time to time in an endeavour to catch Mr. Speaker's eye, and occasionally succeeding. We look forward to hearing him again on those occasions.

Although I must say that I have been most impressed by the maiden speeches which have been made on both sides of the Committee, and particularly by that of my hon. Friend the Member for Gloucestershire, South (Mr. Crosland), who made an extremely able speech, I cannot hide my bitter disappointment at what Members of the Opposition other than Members making their maiden speeches, of course—have said. This is a great occasion; it is one to which I have looked forward ever since 23rd February, when I realised that I was entitled, perhaps I might say just entitled, to come to this House once more, and hear from the Opposition the explanation of what had been puzzling me, as a mere accountant, all through the election. I was stupefied, during the election, to realise what ignorance and lack of training I must have had in my own profession, that my Conservative and Liberal opponents should be able to say, supported by the official views of their respective parties, that if they were returned to power they would reduce taxation substantially—my Liberal opponent said he would reduce the standard rate of Income Tax to 6s. 8d. in the pound—and to increase the number of benefits even more substantially. I was looking forward to the time when I would find out how all this was to be done.

Today was the great day. Today, on the occasion of the Budget Debate, was the opportunity for the Opposition to explain to us how this was to be done, or else go down in history as having cheated the electorate. I make no complaint of election speeches which are perhaps partisan, and which represent the marshalling of one's own arguments more carefully than the marshalling of the arguments of one's opponents. But when one repeatedly notes the same sort of statement as that which was put out by the Opposition, and when one is speaking of financial matters to people who do not fully understand them, it becomes a serious matter. When one goes to a man and says to him, "Would you like a reduction in taxation? "he can, like my constituents, who are very intelligent people, answer that question like a shot. The answer is "Yes." When you say to electors, "Would you like additional benefits of this or that kind? "in the form of a simple question they say "Yes." When you say, "Would you like all these things? "they say" Yes." In fact, almost as many in my constituency said "Yes" to that sort of question as to my appeal to the realisation that all these things cannot be done at one and the same time.

The real seriousness of this is that in such a situation those who cheat the electorate in such a way do a serious disservice to democracy. That is my serious complaint in this matter. I hope that the right hon. Gentleman the Member for Leeds, North, who, I assume, is to speak tonight—

Mr. Osbert Peake (Leeds, North)

On Friday.

Mr. Diamond

Then the right hon. Gentleman has a longer time to think the matter out. I am sure it has all been thought out, and that it was thought out before it was put down on paper. I am sure that it was thought out by the right hon. Gentleman, who has held a responsible position in this House and on the Public Accounts Committee. I am sure that he thought out carefully how more money can be provided out of less income, and also how Government expenditure can be reduced, in view of the fact that he is a person upon whom we in this House gladly relied for his careful survey of Government expenditure, as Chairman of the Public Accounts Committee, as I understand he has been. That is a major Committee of this House, and it does no service to the House for hon. Members to get up and say that we, in this Mother of Parliaments, have not yet discovered a system whereby we can control Government expenditure. It does no service to the House to say that sort of thing, particularly when it is untrue.

We have, as my hon. Friend the Member for Chesterfield (Mr. Benson) has once more said—and one has to repeat these things so many times—committees whose function is to see that there is no extravagance, and to draw the attention of the House to the fact if there has been extravagance. If there has been extravagance and it has not been drawn to the attention of this House, the right hon. Gentleman the Member for Leeds, North, is culpable, and we expect his apology or explanation. He will have during tomorrow—

Mr. Peake

I had better inform the hon. Member, who has treated me with the greatest courtesy, that I ceased to be Chairman of that Committee in the autumn of 1948.

Mr. Diamond

I was not certain whether the right hon. Gentleman still occupied that position, but the argument is unaffected, because it is, I understand, a tradition of this House that the Opposition ex-Financial Secretary to the Treasury shall be Chairman of the Public Accounts Committee. In other words, it is always an Opposition Member who is Chairman of that Committee. That is the case at this moment. Therefore, it is a Member of the Opposition, which regularly makes complaints about the extravagance of Government expenditure, who is charged with the main responsibility of reporting to this House what extravagance has occurred, and we are complaining of his lack of ability—

Mr. Peake

It is not the Chairman of the Committee who makes the report; it is the Committee, upon which the Government have, of course, a substantial majority.

Mr. Diamond

Any right hon. or hon. Member of the House who is the chairman of a committee which is not reporting the facts as he knows them to be, would immediately resign. Therefore, we expect either the resignation of the right hon. Friend of the right hon. Gentleman the Member for Leeds, North, tomorrow or an explanation of why they have not reported this extravagance, or, what is more to the point, the withdrawal of the ridiculous remarks which have been made by the Opposition.

I am, apparently, to be perennially disappointed in regard to any explanation of how we can get more out of less. It is a simple proposition but, apparently, not everyone understood it, judging by the voting record at the recent election. Judging by this Budget and the present state of affairs, I do not think that more justification of the wisdom of our general financial policy and economic planning could be asked for than the results which are being shown at present. All the indices are so much in our favour that it is really beyond the power of anybody any longer to repeat that there is no incentive to work, or that industry is overburdened by taxation, or any of the other allegations that are continually being made.

The fact is that we are, in general terms, doing better than ever before. Whatever difference of view people may have as to how to distribute what is produced the first thing in which we should all delight is the fact that production is higher than it has ever been before and that productivity is going up at a rate greater than ever before. Unless that is so everything else is of relative unimportance. That having been established, and the greatest credit for all that undoubtedly belonging to my right hon. and learned Friend the Chancellor of the Exchequer, his position is so unassailable that he can well withstand any comment I might have to make on some alternative that might have been produced by this Budget. I do not think that my right hon. and learned Friend has followed out to the full the argument that he put before us in his Budget speech. He made it quite clear—and, of course, this is the point of view which we all share—that the one essential was continued full production, which involves continued full employment. He went on to emphasise the necessity that everybody should be kept at work.

There are two things necessary for that. The first is the continuation of the present method of economic planning—with which we on this side all agree, and which, I am sure, will continue—and the second, that those who work in industry should be satisfied and contented workers. There, in spite of our control of economic planning, is the one point where I think we may have grounds to be fearful with regard to the continuation of full and ever-increasing production. What is worrying everybody is the possibility of increased pressure for higher wages. I think that most of us are of the opinion that, in so far as some of these wage demands relate to low-paid workers, there is considerable justification. We certainly know that that hole in our armour is the one seized upon by our Communist opponents at all elections. The phrase "wage freeze" is one which has been enormously built up by them because, of course, it is the one thing they can say—not that they can do Lanything about it —which they know will have a great appeal. Therefore, we must apply ourselves to that problem to see how, if at all, this Budget could have eased those wage demands, particularly so far as the lower paid worker is concerned.

Although my right hon. and learned Friend stated the problem with the greatest clarity in the early part of his Budget speech, he did not proceed to adopt methods which would have any considerable effect in easing those wage demands. With all deference, therefore, I wish to put forward an alternative suggestion to the one put to the Committee by my right hon. and learned Friend. By the principle of raising taxation on petrol he has provided himself with some £70 million—I have no objection to that at all—with which he proposes to reduce the tax liability of everyone in the country, with one exception. Everyone, including the largest Surtax payer. will get a relief of £11 5s. a year. But there is one exception; there is one man who will receive no relief whatsoever—the lowest paid worker.

Let us be quite sure about this; let us look at the figures. The Financial Statement supplied to us to enable us to see at what point taxation begins to be borne, shows that the average worker, that is, the married man with two children, starts to pay tax at present when in receipt of an income of, approximately £400 a year. Ho pays tax amounting to £3, and, under the proposed change, he will pay £2 10s. But he is not the lowest paid worker; in fact, we could regard a man on that salary as being far from the lowest paid worker. We are concerned with the people who receive £5 a week or less. At no stage of these tables do they have to pay tax at all.

The single man with an income of £250 a year does not pay a substantial amount of tax. He pays £19 10s. a year, and under the new proposal will only pay £16 5s., thus saving £3 5s. But the single man is not so gravely concerned as the lowest paid worker, because, when we talk of the lowest paid worker we mean the man who has a fixed amount of money which has to go a long way, and the length of the way depends on the size of the family. It is quite clear, therefore, that where the shoe pinches hardest is where the man is married with a family. But the present suggestion affords him no relief whatsoever. Whatever other alternative may or may not be put before the Committee, I must say that the present one cannot be said to be of any help with regard to what I suggest is the most important social problem in our economic situation at the present time.

It seems to me that a very good case indeed can be made out for increasing family allowances instead of dealing with the matter in the way suggested. Let us consider the wage structure for one moment. Does any man, hearing the good news that he has been presented with twins that morning, go to his employer and say, "I now have twins; may I have a rise?" If he did, would he get that rise? Of course not. His wages are not paid in relation to his needs at all, and I make no apology for referring from these benches to a man's needs as being the main guide. His needs have increased as the result of an increase in his family, but his wages remain the same.

We have adopted a measure for giving him some assistance in the form of family allowances. But family allowances are not supposed to cover the cost of the extra children. There is no relief in respect of the first child, and no one can suggest that 5s. a week meets the cost of providing for an additional child today. One has, moreover, to bear in mind that this figure of 5s. was fixed in 1945 when it went a certain way further than it does today. Therefore, what one has to do is to help the wage earner whose needs are greatest, that is to say, the man with the smallest wage and the largest family. When one knows that his wage takes no account of his increase in family, surely, the logic of the argument is to give an increase where it is needed, and that can be done in the form of a family allowance. The cost is certainly not out of the question because the present cost of providing family allowances at the rate of 5s. for the second and subsequent children is, I believe, in the neighbourhood of £60 million. Therefore, the amount could be doubled for each child at a smaller cost than the present relief in taxation which is going to help every single person in the community, including the Surtax payer, with the exception of the lowest paid worker.

I realise that it can be said of my suggestion that this assistance is not limited to the lower paid workers. That is quite true. Of course, if a family allowance is paid, it must be paid to everyone with a family. However, I would make two comments in reply to that criticism. First of all, anyone with a family has a greater need than anyone who has not, at the same level of income and, secondly—which is much more important—we have a system of taxation which is a marvellous way of tapering off the net amount of family allowance retained by the individual in accordance with his needs. That is the whole purpose of taxation. When we tax family allowances—as we very properly do—then those who have very substantial incomes find that 90 or 95 per cent. of their additional family allowance is paid back in taxation.

It is not until we get right down to the bottom of the scale that we find that those who are getting additional family allowances are retaining the whole of them. That means to say that the greater the need, the greater the proportion of the family allowance retained by the individual. I suggest to my right hon. and learned Friend that he might reconsider whether it would not be more helpful in the present economic situation to give to those whose need is greatest, rather than to help all of us.

8.0 p.m.

Mr. Summers (Aylesbury)

I was very glad that the hon. Member for Blackley (Mr. Diamond) told us that he regarded the position of the Chancellor as unassailable but still found it possible, in the latter part of his remarks, to say that the Chancellor had completely failed in the changes he made in the Budget to help those whose need was greatest. That is one of the criticisms to which I shall have occasion to refer later on.

Before saying more about the Budget itself, I want to say a few words about the Survey upon which the Budget proposals are necessarily based. I listened as we all did, with interest to the marathon speech of the Chancellor yesterday. At the outset, he was at pains to tell us his views of what he called democratic planning and to explain the limitations which he found in practice in carrying out those extravagant claims which we had heard from the other side of the House in the earlier days since the 1945 Election.

When we look at the contrast between the performance and the promise for 1949, it is small wonder to us that he stressed the limitations of democratic planning. We find that whereas it was intended that there should be some 20,000 more people in agriculture and mining, there were in fact some 23,000 fewer. Whereas it was intended that the industries of drink, tobacco and distribution should be allowed some 18,000 more people, there was an addition of no fewer than 102,000. In the face of such figures, it is difficult to understand the meaning of the words of the Minister of Labour on 9th March when he told the House: …Distribution of manpower is now such that the Control of Engagement Order can safely be withdrawn…'[OFFICIAL REPORT, 9th March, 1950; Vol. 472, c. 468.] We on this side were naturally delighted that, without further ado, and on returning to the House, he found it possible to cancel that Order, but surely, in the face of such figures as those it cannot be claimed that it is the distribution of manpower itself that has rendered that Order no longer necessary. If we look at raw materials we find that the planners, in their foresight, told us we might expect an increase of some 80,000 tons in the consumption of non-ferrous metals, but there was a decrease of over 90,000 tons. The same contrast between performance and promise is to be found in the figures for fixed investments. Small wonder that we find that this claim for precise planning carries little conviction when examined in any detail.

I have been wondering what is the cause of some of the changes in some o; the figures that become apparent from a study of consecutive Surveys. I can only think that the planners, finding themselves thwarted in making changes when looking into the future, have embarked on the remarkable task of changing. the past. One would have thought that the sanctity of time would have enabled a year like 1947 to remain more or less intact. However, a study of the Surveys for last year and for this year shows that the United Kingdom debit has been changed and that the imports have been changed. When we come to 1948 we find such extraordinary changes in the figures as to lead us to have very little conviction in the figures now presented. We find personal savings—I speak of 1948—to be £189 million less than we were told they were a year ago. Profits of traders and partnerships are £235 million less. Salaries, in some unaccountable way, have been increased by £290 million. Government expenditure has gone down £145 million.

How much reliance can we place in the figures presented in the Survey if in the past we find they have been so drastically amended, as a study of these figures suggests?

Mr. Harrison (Nottingham, East)

Is the hon. Gentleman suggesting seriously that with deliberation the Government, over a series of Economic Surveys, have falsified the various tables?

Mr. Summers

Most certainly not. The point I am trying to make is that to frame Budget proposals on the argument that figures presented to us in Surveys are sufficiently accurate to one or two per cent. to be relied upon, will not bear examination when we find, on further study, that changes made in subsequent Surveys render them valueless.

Mr. Mitchison (Kettering)

Will not the hon. Gentleman find the explanation of the discrepancy in the appendices at the end of this document—" National Income and Expenditure of the United Kingdom, 1946 to 1949"?

Mr. Summers

I am not at all averse from accepting the suggestion that there are explanations. The point I am trying to make is that this foundation upon which a policy is planned to be based, will not bear examination if, in the light of subsequent study, that foundation is proved to be quite different from what it was on its initial presentation.

Mr. Mitchison

Will not the hon. Gentleman agree that figures may be equally correct whether studied on one basis or another, and that if the basis is clearly explained in the document, then it is for him to find what that basis is?

Mr. Summers

If it is possible to have two completely different figures regarded as correct because they are founded on different bases, then accurate planning on that basis becomes an absolute farce.

With regard to the overseas balance, we are told we may look forward with confidence to a surplus of £50 million in contrast with a deficit of some £70 million last year. We are told that that is to be brought about in three main ways—first by the contribution of the United Kingdom. According to the Survey, exports to the dollar markets will increase subject to three very important provisos. These are: Provided that the competitive advantage resulting from devaluation is not dissipated by inflation, that productivity continues to improve at least as rapidly as in competing countries, and that the United States continues to be willing to accept increasing imports from the United Kingdom…. It would be just as reasonable to say that the party opposite can be relied upon, with assurance, to win the next General Election if the advantage of Government is not dissipated in the meantime, if their propaganda is just as good as that of their opponents, and if the public are willing to accept their doctrine as freely as they have done in the past.

But the evidence which one studies to see whether these assumptions are reliable points entirely in the opposite direction. We were told only yesterday that the terms of trade since September, 1949, are 10 per cent. worse than they were then. There are ominous signs of the "wage freeze" thawing—that most menacing threat to the whole structure built up by the right hon. and learned Gentleman and presented to us in these Budget proposals. If he imagines that these reliefs in taxation are really going to prevent that major threat, then I am sure he is going to be disappointed.

Today our rail transport costs are not covered by the charges and there is to be an increase in the cost of road transport. The cost of living is still rising and if a comparison is made between figures for raw materials, wholesale prices and retail prices, then it is quite evident that the increase in the retail price of goods has by no means reached its limit. In contrast to the likelihood of increased prices in this country, there is no doubt that the very opposite is occurring in the United States, where prices have already begun to fall. A study of their wholesale and retail figures shows that exactly the opposite trend is likely in the United States to that which, in fact, is happening in this country. Mention has already been made of the threat of Japanese and German competition. In fact, we in this country are dependent entirely upon the maintenance of a high level of business activity in the United States.

The second contribution to this surplus which we are led to expect must, of course, come from the sterling area. In that connection the results of the first quarter were very encouraging, but the Chancellor was at great pains to remind us that the first quarter of the year is generally more favourable, from that point of view, than any other quarter and that we should be making a very great mistake if we attached too much importance to the results which appeared in the first quarter. He reminded us that our reserves, even after the improvement derived during that first quarter, are still below the figure which existed when Marshall Aid started—and even that figure was regarded as quite inadequate, by pre-war standards, by comparison with what was required. The third contribution to this surplus is to come from a great increase in invisible exports. I do not doubt that there will be an increase in invisible exports, but to rely upon an increase as large as two-thirds seems to me to be singularly optimistic.

In the light of the facts which I have indicated, to say that this surplus is highly precarious is, I suggest, a gross understatement. Unlike his predecessor, the right hon. and learned Gentleman quite properly linked our overseas position with the position of our economy in this country, and he laid stress on the great threat to both sides of our economy which is to be found in inflation. I cannot accept his judgment of the extent to which we may be complacent about this question of inflation. It seems to me quite wrong to suggest that the danger is considerably less now than it has been for a considerable time. Let me remind hon. Members of the figures of private saving which, after all, is a large factor in inflation. In 1946–47 personal savings amounted to £324 million; the following year they were £189 million; the year after that they were £37 million; and last year, far from there being any saving, withdrawals exceeded savings by £70 million. The latest figures of all show that withdrawals are running at a rate of £100 million a year.

Last autumn, after devaluation, we were told that, unless the advantage of devaluation was to be lost, it was necessary that there should be drastic cuts in various ways to bring about economies. I think the total was something like £250 million. It is, therefore, somewhat surprising that we should find that, despite the emphasis placed upon the need for these cuts last autumn, the fixed investment programme foreshadows that fixed investments are to be only £4 million less than they were last year. What has happened to the remainder of the economies? We are told, with a strange twist of logic, that the economies which we were then asked to accept were, in fact, not cuts in the existing rate of expenditure but were cuts in the additional expenditure which would have been incurred had it not been for the revision of policy.

The situation is not unlike that which would exist—an unlikely situation, I know—if the Chancellor himself were personally to have a large overdraft at the bank, and if he were approached by the bank manager, and pressure brought to bear upon him, to insist that something should be done about it. I cannot imagine that the bank manager would be particularly impressed if, in response to that pressure, the Chancellor were to say, "Please do not worry; in view of the representations you have made I have decided to cancel the very expensive holiday in the South of France which, but for your advice, I was thinking of taking." But that is what we are asked to accept—that additional expenditure which, but for this situation, would have been imposed on top of that already existing, was to be cut and that we must regard the economies suggested in the autumn as adequate to the situation.

Another aspect of inflation is that of the sterling balances. I was very shocked during the election that the Chancellor should have attempted to mislead the public into believing that the help we have had in this country from Marshall Aid is virtually balanced by the help we have passed on to other countries. In fact, that will not bear examination. By the same token, I am equally shocked that it should be suggested that, from an inflationary point of view, the increase in the sterling balances virtually cancelled the release of sterling balances which we permitted during last year. The figures are presented in the White Paper as a mere difference of £15 million. On the one hand, we have the unrequited exports which necessarily follow the release of the sterling balances by arrangement, but the corresponding additions to the sterling balances have no unrequited imports to balance the unrequited exports; they are transfers of capital, transfers from one country to another under European payments schemes, and so on. The measure of inflationary pressure under the heading of sterling balances, far from being a mere £15 million, is more like £150 million.

Under the heading of inflation, I come to what I regard as the most serious factor in all those abstruse calculations which the Chancellor puts out. Elaborate figures are balanced above the line and below the line to suggest a surplus, and so on. Under the heading of taxation, credit is taken for all forms of taxation, irrespective of their nature, as anti-inflationary measures. But when we examine what kind of taxes are paid and find that a very large sum indeed is paid not out of income but out of capital, then it is not right to take credit for all such types of taxation as anti-inflationary measures.

We find, if we look at these figures, that Death Duties produced £190 million; and the Special Contribution, another tax paid largely out of capital, £120 million. A good deal of the Surtax—I will not put any figure to it—is also paid out of capital; and almost the whole of the Profits Tax is, in fact, a capital demand, having regard to the limitation of dividends prevailing at the present time. If those figures are added, we come to a total in excess of the above-the-line surplus for which credit is taken by the right hon. and learned Gentleman in building up his balance against inflation.

Lastly, I would quote two extracts from the Chancellor's speech in 1948. He said this to make it quite clear that these figures grow as inflation does, and that it is quite wrong to regard the whole of the surplus as necessarily anti-inflationary in its effect. This is what he said: The mere fact that there is a Budget surplus, according to our traditional form of account, does not mean that we are thereby reducing the inflationary pressure by the amount of that surplus. And again: The size of this surplus"— which that year was bigger than anybody foresaw— is, to some extent, itself a measure of the inflationary situation."—[OFFICIAL REPORT, 6th April, 1948; Vol. 449, c. 48–50.] I do not doubt that, at least in part, the conditions he was then describing are present today in considerable measure.

So I am forced to the conclusion, looking at those figures, that both the balance of payments forecast and the Budget proposals themselves rest on a thoroughly insecure foundation. I find the Chancellor's smug satisfaction entirely misplaced; and his specious arguments designed to obscure the truth are as dangerous as they are false. The fact of the matter is that many of the supports for the economy of this country which have been present during these last four or five years are rapidly disappearing and will shortly be gone. Marshall Aid has but little time still to run. We were told yesterday that the buoyancy of the revenue is something which can no longer be depended upon. We are finding that, thanks to our ageing population, the obligations we have already incurred in regard to the social services automatically will increase as the years proceed. The sources of fresh capital for British industry are drying up. Already, by devaluation, we have as a nation had to retreat to totally unprepared positions. The fact is that the limit of taxation has already been passed.

Mr. Messer (Tottenham)

Time.

Mr. Summers

It seems to me we have speedily reached the end of the road. Perhaps before long it may be possible to depart from that road to the right road. By excessive spending and wasteful administration the Chancellor finds himself trapped in a strait-jacket of his own making. The avoidance of disaster is solely depending on favourable economic weather, and yet, in face of all these warnings, which are plain for those to see who will see, no adequate steps are taken to deal with the situation.

What is the main object of the Budget proposals that have been put before us? Having apparently exhausted the sources from which taxes of the normal character can be drawn, the precedent is to be set of taxing capital goods for the first time. There is to be a Purchase Tax on commercial vehicles. The justification put forward is that the sales were excessive in this country. By what test is this charge of excessive sales in this country made? Is it a reward for increased productivity on the part of the men in the factories, increased output on the part of managements in those same factories; that a penal taxation on the output of those people is to be arranged? Why should not those lorries for which sale cannot be readily found abroad be made available to cheapen the costs of distribution in this country?

The right hon. and learned Gentleman talks about democratic planning, and comes with the voice of a dictator and says, "You have made too much and sold too much in this country and you must pay the penalty:" That is not the way to get a continuance of that remarkable response from the motor industry, and a continuance of that great help in the export trade for which it has been so greatly responsible. The fact of the matter is that one is driven to the conclusion that the motive is to prop up, by adding to the expenses of its competitors, the tottering nationalised railway industry.

Mr. Ellis Smith

Steel next.

Mr. Summers

Not only are capital goods to be taxed by this Budget, but the delivery costs of virtually all goods and the costs of public transport are to be increased. This is nothing but a contribution to that inflationary spiral which the right hon. and learned Gentleman takes so many hours to tell us is most dangerous in its effect. Here I come to the point made by the hon. Member for Blackley, that relief in taxation is, in fact, not going to reach those who are really in need of it. We have the extraordinary position that the bachelor is to be treated better than the married man, and that those not at the bottom of the level of wage scales, but those higher up, are apparently to have prior consideration in the distribution of the money raised by taxing the motor industry. Nor is there any encouragement for saving, which is surely one of the main factors needed to preserve our economy at the present time.

So I am forced to the conclusion that the Chancellor has shown himself blind to our dangers, and has added to our difficulties by his Budget proposals, and that his Budget proposals will give neither satisfaction at home nor confidence abroad.

8.27 p.m.

Mr. Mitchison (Kettering)

I have listened with all the care which it deserved to a long, involved piece of obscurantism entirely barren of any suggestion, based, it seems to me, on trivialities, on the one hand, and on a certain need to find woe, on the other. I should have thought that by now hon. Gentlemen opposite would have been able to see that this country was recovering remarkably and that that recovery proceeded last year; and that if they had looked from the Chancellor's speech to the Statement on National Income and Expenditure of the United Kingdom in the four years ended in 1949 they would have observed there one or two remarkable facts which appear to be forgotten in tales of woe such as that which we have just been hearing.

We were told that there was no saving. We were told that personal saving no longer existed in this country. If hon. Members had turned to the financing of capital formation they would have seen that during 1949 that had proceeded at a figure very closely approximating to the 19.48 figure, and that, as in 1948, the same proportion was financed by personal savings. In those circumstances it seems to me extremely difficult to say that personal saving counts for nothing, as appeared to be the contention of the hon. Member for Aylesbury (Mr. Summers).

Then we are told that a very large proportion of the national income is taken for taxation and Government expenditure of various kinds. But that statement is pushed into assertions that a proportion —sometimes stated as 40 per cent. and sometimes as half or more—of personal income is taken in taxation. If hon. Members would take the trouble to look at the correct figure on page 17 of the Command Paper they would find that the proportion of personal income required to meet taxation has remained steady at 27 or 28 per cent. during the last four years, and that the pre-war proportion, though naturally lower, was 19 per cent. I cannot regard the difference between those two figures as an immoderate increase after six years of war, and in a welfare State.

Let it also be remembered that much of the increase of 15 per cent. in public authorities' current expenditure on goods and services was due to the provision by the State of services previously paid for direct by consumers. When we are looking at national expenditure it is surely right to treat the majority I think all—of expenditure on the National Health Service as nothing but a transfer into public accounts of that which was previously paid for in private accounts. Similar considerations apply to large parts of the National Insurance Scheme, and to a number of other considerable items of Government expenditure. We may be content, and patriotically content, with the fact that our increase in production, whether in industry or in agriculture, has shown the very satisfactory figures to which my right hon. and learned Friend referred in his Budget speech.

It was suggested by the hon. Member for Aylesbury and others that this country was in some acute inflationary position. I see no reason to suppose that that is so. On that point I prefer the very simple and very clear conclusion of the O.E.E.C. working party which reported last summer—since when I should have thought there was no doubt that matters had got certainly no worse and probably much better—that there was no inflation in this country but some continued risk of it. It therefore seems to me right that in dealing with the Budget, my right hon. and learned Friend should take the course of erring on the side of caution and regarding inflation not as something present but as something more immediately dangerous than the alternative risk.

I should have thought that this Budget could present few opportunities to any Chancellor, and that it was essentially a Budget of a transitional period when, as during the last few years, very considerable capital expenditure had been made and had begun to show signs of fruition already, but had hardly yet reached the stage of full fruition. In those circumstances I should have thought that a cautious Budget was indicated. On the other hand, the promise of the future development of that investment is an encouraging point. What, in fact, has been done has been to take a sum of round about £70 million from one particular source, and that particular source is motor transport, with special emphasis on commercial vans and lorries, the increase in the number of which during recent years has been too marked to represent any real increase in demand.[HON. MEMBERS: "Why?"] It is said by the hon. Member for Aylesbury, "What does it matter? The more lorries you can produce the more you can sell, the better for you. You are doing nothing that does any harm to the country."

Surely the whole object of restricting or attempting to restrict by fiscal means what appears to be an inordinate increase in the number of lorries is two-fold. First of all, it is to see that a proper proportion of them is diverted to the export trade—and is there any reason why it should not be so diverted?—instead of being used unnecessarily, as it appears on the figures, on the /roads of this country. I say "unnecessarily" for this reason: if we look at the rate of increase during the war, before the war and immediately after the war there was no such sudden increase as that which has now taken place. If we look at the proportion taken for internal use as against external use, it appears to be an excessive proportion.

Mr. Summers

If the Chancellor is merely concerned to see that a proportion of the lorries made is, in fact, exported, he has ample resources to do so by raw material controls, without adding to the cost of transport by putting a commercial tax on those sold at home.

Mr. Mitchison

I am not prepared to accept that statement. It is well known that there have been raw material controls in the motor trade both for lorries and cars. The position appears to be that the car side of the trade, which is notoriously confined, or largely confined, to one or two big combines, has, in fact, sent a proper proportion of its output overseas; but that the same does not seem to have happened as regards commercial vehicles. I think that anyone who goes about our roads now must be struck by the very considerable increase in these lorries, many of them returning apparently from one-way journeys. That is for ourselves to see. The number of lorries and vans travelling empty on what appear to be one-way journeys is too considerable to be explained.

The suggestion is that these fiscal steps have been taken in order, if I may quote the hon. Member's words from recollection, to bolster up what he called—I have forgotten his exact phrase—the outmoded nationalised railway industry, or some such phrase as that. Everyone must agree that the railways were taken over in a bad condition. They were bound to be taken over in a bad condition with all the difficulties of six years of war behind them; but, on the other hand, it is surely sensible that every step should be taken to see that the most economical and the most sensible method of transport is used, whether it is road or rail.

It is no new thing to have our railways crying out for what they used to call "a square deal." When they are nationalised they are surely as fully entitled to a square deal as they were when they raised complaints in the past that the road in- dustry had some. unfair advantage. Some burden should be put on the road transport to compensate against the inevitable burden which the railway system has to carry by the maintenance of its permanent way and rolling stock, more particularly when the permanent way and rolling stock are in the condition they are bound to be in after six years of war.

It seems to me that this Budget was all that any Chancellor of the Exchequer could have done in the circumstances, and that the economic position, as reflected in the accounts we have seen and in the Economic Survey, show the progressive success of a system of planning which undoubtedly depends not only on what is happening in this country but on what is happening in the rest of the world. It is, of course, impossible to plan with complete certainty in any world where one country is dependent on another, but it is certainly foolish to attempt, for that reason, to omit national planning.

8.41 p.m.

Mr. David Eccles (Chinpenham)

The Committee has had the good fortune today to listen to a number of maiden speeches. I myself have heard the hon. Members for Wimbledon (Mr. Black). Gloucestershire, South (Mr. Crosland), Spelthorne (Mr. G. Craddock) and Leeds, North-West (Mr. Kaberry). They were all attacks upon the Government, but whereas the speeches from these benches were an example of deliberate planning, the speech delivered by the hon. Member for Gloucestershire, South, was a fine piece of individual enterprise.

The hon. Member for Chesterfield (Mr. Benson), as well as the hon. Member for Gloucestershire, South, said that the Budget was now assuming a normal pattern and that we had reached a stable period in the post-war economy. I wonder if they are right. It is true that we are entering the sixth year of peace, and that at long last the exceptional outlays and receipts which are the legacy of war are beginning to tail off. I should say that we have reached the High Summer of Socialist finance where the growth of the revenue is completed, and that some autumn tints are visible. I suspect that the next Budget, whatever else it may be, will have to be rather different from this one, because the frosts will have begun in earnest.

The Committee, therefore, may think it appropriate at this moment of High Summer to compare the Socialist Budgets we have had so far with those half-forgotten Budgets of Conservative and Liberal Chancellors of the Exchequer, and then to go on and consider for a minute or two the shape of things to come. Pre-war Budgets were essentially middle-class. Their authors were men trained in the business of making and keeping money.

Mr. Harrison

Particularly keeping it.

Mr. Eccles

Their habitual study was profit and loss accounts and audited balance-sheets. They knew very well how to get value for their shareholders' money. They were shrewd enough to accept the necessity of saving, and they refrained from consuming a substantial part of their incomes. As for the man who spent more than he earned, they knew quite well what happened to him; his credit disappeared, and when the boom subsided he went smash. These bankers, merchants and industrialists applied the lessons of their own experience to national finance. For them, the Budget was a form of expenditure that very seldom created a productive asset, and therefore it ought to be kept as small as possible and each item minutely controlled. It is popular now to deride these middle-class principles, and to forget that if our predecessors had not acted upon them, the countries of the sterling area would never have formed the habit of leaving their monetary reserves in London, and British industry, capital and credit would never have conquered the markets of the world.

However, history moves on, and once the property qualification as a condition of the franchise was abolished, once the suffrage became universal, another kind of experience, different from that of the middle classes, began to knock at the Chancellor's door. The new electors had old needs, and they believed—and rightly up to a point—that these needs could be satisfied through the Budget. But no attempt was made to help them to see that unless a continuing restraint was exercised, unless some of the old middle-class principles were applied to their insatiable demands, the social progress which all desired would pass through a boom to a "bust."

That brings me to the essential difference between the old Budgets and the modern Budgets. Formerly it was held that the smaller the Budget the better for the nation. That principle has been turned completely upside down, and the majority of the electors now wish to see State expenditure expanded in directions and at a pace far beyond the resources of the nation. In our generation the fashion is. the larger the Budget the better for the nation. I shall all my life remember the Debate a year ago on the Supplementary Estimates when the hon. Member for Jarrow (Mr. Fernyhough) and the hon. Member for Tottenham (Mr. Messer) argued that the only criteria which this House should apply to the amount of money to be voted for the Health Service was the needs of the people for medical treatment and care. Suddenly, starkly, we saw revealed the driving force of a working-class Budget in all its undisciplined humanity and in all its shapeless suicidal power.

From time to time in the last Parliament the Labour Government tried to curb this cormorant of public money. They fixed a ceiling for the food subsidies and went back on it. They announced some delayed-action economies which were intended to make devaluation respectable. They said they were going to make a charge for prescriptions, and there were to be no more Supplementary Estimates. Now we are to believe that the taxpayers' contribution to the National Health Service is to be held at the astronomic figure at which it has climbed unchecked. That undertaking will be of no more value than all the previous undertakings given by the right hon. and learned Gentlemen, for here we see this new force at work, here we see it defeating whatever middle-class virtues still betray the origins of the right hon. and learned Gentleman, the right hon. Gentleman the Minister of State for Economic Affairs and the Financial Secretary to the Treasury—they all three come from the same and best of public schools—who now rule at the Treasury.

We enter a new age in which the good Chancellor is not one who spends least but the one who spends most. This is the financial aspect of the revolution in economic policy, of which the right hon. and learned Gentleman spoke yesterday. It is quite easy to condemn it as wholly bad, but I think that anyone who accepts the implications of universal suffrage must pause and inquire whether there is not something valuable in this change, which we ought to combine with much that remains true in the old principles of finance. For instance, it is surely a matter for rejoicing that all political parties now recognise how infinite is the scope to increase the opportunities and improve the standards of the school children and the old people. We differ sharply about the pace at which these improvements can be made. But that does not alter the fact, which is a very important fact, that we are all pledged to the principle of expanding Social Services.

The discovery of this horizon without limit is an important guarantee that, provided we can pay for our essential imports, we shall be able, year in year out, to maintain stable employment, because we have ready to hand this unsatisfied demand for expenditure on both consumer and capital account which can be brought in when there is a falling off in domestic spending. These are great prospects, but they will remain mere dreams unless we apply to the new and limitless demands for State expenditure the old middle-class experience in financial control and the middle-class preoccupation with the effect of taxation upon the creation of wealth and upon the credit of Great Britain.

I should like to digress for a minute to draw the attention of the Committee to some of the changes that have been brought about by this new principle of spending all we can get in. Owing to the six years of war and, as was mentioned by the hon. Member for Chesterfield, the fact that the public became accustomed to very heavy taxation, the enormity of the changes is sometimes forgotten. It is extraordinary, but a fact, that the downward swing in Government expenditure from the dizzy heights of total war had already exhausted itself in 1947–48. Ordinary expenditure in that year was £3,100 million, but as that figure and the corresponding figures for the next two years contained huge terminal payments which are now largely completed, we find that the expansion since 1947–48 in the continuing ordinary expenditure of the Government is no less than £740 million. In other words, in the short space of the last three years, Labour Governments have added to cur- rent spending a sum equal to a total Budget for the middle 'thirties.

Only one-seventh of this £740 million is accounted for by continuing expenditure on defence. Social outlays claim by far the largest share. If the hon. Member for Coventry, East (Mr. Crossman) were here, he might be interested to know that the three war items, war pensions, service of the debt and defence, combined, now take a smaller percentage of the national income than they did in 1939. Then they took 13.3 per cent. and now they take 12.7 per cent. The great increase has therefore been in domestic expenditure. As my right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler) showed, the total of taxation has climbed to 43.5 per cent. of the national income —almost double what it was in the mid-thirties. In 1936, it was 22 per cent. We have gone from that to 43.5 per cent. To finance this unparalleled increase in expenditure, the Socialist Government, for the first time in our history, have had to push the rates of tax to a point where a further increase would mean a lower revenue. This is in time of peace; at a time when we are unable to pay for our food and raw materials; and when they knew that Marshall Aid was soon coming to an end. The moment could hardly have been worse chosen to jam us right up against the high-water mark of taxable capacity.

In 1950 many sources of revenue are still inflated by the closing stages of the post-war boom, and the next significant move in the revenue, assuming that we do not have galloping inflation, which none of us wants, is likely to be down; but, as the Chancellor has often said, if this decline comes about it will do so at the moment when there are automatic increases in the cost of the social services, as, for example, when more schools and hospitals are built and the number of old-age pensioners increases.

Taking a 10-year view of the finance of the sprouting welfare State, it is just about as insecure as it could be. We know that competition is coming from Germany and Japan which will squeeze out our easy profits. The world boom will subside. Part of this overgrown structure of the welfare State will have to go, and we shall be fortunate if the collapse is confined only to the top storey. I admit that that is in the future. What do we pay even now, while the boom still lasts, for taxing ourselves to the limit of capacity?

Mr. Paton (Norwich, North)

What conclusion is the Committee to draw from this argument—that it was wrong to indulge in costly social services?

Mr. Eccles

I am coming to my conclusion, no doubt too slowly for the hon. Member, but I shall come to it in the end. The social costs of the last few hundred million of a Budget of £3,900 million far exceed the benefits we get from the expenditure of that money. These costs can be summed up under five heads. The difficulty in controlling Government expenditure of that size; chronic inflation; the destruction of personal savings; a decline in the efficiency of production; and the "wage freeze."

My right hon. and hon. Friends will go into the details of these evils at much greater length than I can tonight, but I would point out that all these evils aid and abet one another and that all of them flourish when the taxes bite too deeply into the earnings of the people. These handicaps take a good time to show themselves, and they are very hard to measure in Statistics. We have heard from the hon. Member for Oldham, West (Mr. Leslie Hale) and the hon. and learned Member for Kettering (Mr. Mitchison) that it is quite easy to pick out figures to show that, in spite of the burden of taxation, Britain's recovery has gone a very long way.

Let those who will, take comfort in those statistical selections. Like a human being, an economy, by indulging in a stimulant, can for a time disguise how sick it is in mind and body. We all know in our hearts that there is something very wrong with our wages, prices, savings, taxation and foreign balance. The housewife worries about the prices, the trade unions worry about the wages, the professional man is worrying about his savings, and all of us are worrying about taxation. Is it not possible that there is a common source for all those anxieties, and that that common source is the oversize of the Budget?

Mr. Leslie Hale

I apologise for interrupting but the hon. Gentleman is imputing things to me which I did not say. I did not select any figures. I said that full employment, expanding national income, and other matters to which my right hon. and learned Friend referred were at least symptoms of a certain amount of prosperity, but the Conservative proposal at the Election was for an increase in wages, a reduction in taxation but an increase in expenditure, and they detailed a number of social services they proposed to expand.

Mr. Eccles

I apologise to the hon. Member. He did not bring forward any figures but his general argument was that recovery was very good indeed and that we need not worry. I think we need to worry. It is difficult to measure but still it is a fact that the sellers' market has disguised the burden of taxation. Rising profits mean rising revenue, but when the profits fall and the revenue, too, from which new taxes is the gap to be met? When, as is now happening, the terminal revenues are coming to an end, from where is the gap to be filled? The right hon. and learned Gentleman did not tell the Committee that over the last three years he has collected £400 million more in terminal revenues than he has disbursed in terminal payments. What happens when those are no longer there?

And then take savings. The decline in savings has been offset by E.P.T. refunds and by the use of reserves which were held back in the war. At the very moment when this temporary finance is exhausting itself, personal savings are in full retreat before the rising cost of living. Again, little by little the fear is growing that our domestic over-spending will drag British prices out of line with world prices. If that fear did not exist, why do His Majesty's Government hesitate to risk the convertibility of the £ in the company of European nations, not one of whom has the metropolitan and imperial resources that we have?

Apart from these considerations, does any hon. Member believe that the high level of taxation had nothing to do with devaluation? [An HON. MEMBER: "Yes."] Well, what was devaluation but an admission that if British prices were not slashed we should have had this last winter under Socialism heavy unemployment? And whose over-spending was it that pushed the prices so high, and will do so again if the necessary economies are not made? The Chancellor himself makes no bones about it. He told us yesterday that he is the man who has the chief responsibility, acting through the Budget, for the price level. He it is who determines the extent of the demands upon our national resources. It is the right hon. and learned Gentleman who has put such a strain upon British manpower, savings and prices that the public has tried to shift the burden and will go on trying to shift the burden by demanding higher incomes. As the hon. Member for Wimbledon said, it is the intolerable size of the Budget which is the source of all this trouble. Hence the rise in prices, hence the devaluation last September, hence the wage freeze and the danger of another crisis if necessary measures are not taken.

What can be done to reverse these forces of disintegration? I used to think that the case was so clear for reducing the size of the Budget that all the argument could be concentrated upon where the cuts should fall and which taxes should be lowered. The General Election has shown me, however, that before common sense can get to work there has to be a big change in public opinion. The party opposite—and the right hon. and learned Gentleman was at it again last night on the radio—have created such a false climate of thought, have set up such resistances in the public mind, that economies in the Budget, which are the only things that will take the pressure off prices and wages, will fail in their purpose and will boomerang against the very object they were designed to secure.

Perhaps I may put this difficulty in a crude form. Supposing a reduction of £100 million in the taxpayers' contribution to the Health Service met with such fierce opposition that serious trouble followed, good sense would have been defeated in advance; or suppose that the abolition of the Profits Tax upon undistributed profits touched off a fusillade of wage demands and even strikes, again good sense would have been defeated in advance. As the old Latin tag put it, we have reached a point where we can neither bear our vices nor their remedy— Nec vitia nostra nec remedia Pati possumus." We have to reckon with those resistances which have been deliberately and successfully fostered by Ministers.

Must we, then, admit defeat? Is it now too late to combine in one and the same Budget the old principles of economy and the new desires to spend without limit? In his Budget speech a year ago, the Chancellor drew the conclusion that the expansion of the social services must go in step with the increase in the national income. That sounds all right, but what exactly did he mean? Have we reached the position where it is the settled and permanent policy of the Labour Party to spend the maximum revenue that can be raised by the most ingenious combination of taxes, extracting the last penny from rich and poor that can be taken without provoking a taxpayers' strike? My hon. Friend the Member for Spelthorne spoke on this point and, I am sure, would join with me in asking the Government whether it is their policy only to call a halt in expenditure when it is seen that the effective limit of taxable capacity has been reached.

The Chancellor spoke yesterday about a framework of democratic planning within which the British economy is to flourish and expand. I want to tell him this. If the framework means jamming us right up against the high-water mark of taxable capacity, this year, next year and for ever, then we shall pass from one depreciation of the £ to another until not all the broadcasts and all the controls in the world will check the accumulated bitterness of savings gone, real incomes vanishing, and the welfare State in ruins.

And so I ask myself whether our democratic institutions themselves can survive unless we can achieve this reconciliation between the old and the new principles of finance. It has to be done, but how difficult it will be, for it involves a major change in British policy. There was a time when His Majesty's Government took the exchange rate of the pound as the guiding priority of their economic policy. All the other elements —the interest rate, the level of taxation and the degree of unemployment—then fluctuated round the exchange rate, which was the strong point that had to be held at all costs. We know the result; great wealth, but at a great social price. Then. in revulsion against that policy, the Labour Party chose another Ark of the Covenant. The new holy of holies is the frozen employment of 98.5 per cent. of the working population and a domestic programme in which cost is a minor factor.

Now it is the turn for the other elements to fluctuate, notably the foreign balance and the purchasing power of the pound. The result, though different, is equally lop-sided and equally destructive of national harmony and progress. Compared with what we have to do now, it was easy to set the course by watching the exchange rate, although the social cost proved to be intolerable. Compared with what we have to do now, it is easy to set the course by watching the unemployment index, but the price in the rise of the cost of living and in falling standards will also prove to be intolerable.

One asks, are these two objects, the old object of steady prices and the new object of full employment, so contradictory that we cannot pursue them at one and the same time? I thought the Chancellor yesterday came very near to saying he thought they were so contradictory that we have to make the choice. It seemed to me far the most significant passage in the whole of that two and a half hours. Need we be so easily depressed? To put this in other words, could we not find the way forward to a disciplined expansion of the social services? I admit that has not yet been done in any free country, but for my part I am optimistic that, wisely led, the British people can and will successfully pioneer in these unexplored regions of democratic finance.

I am optimistic for a number of reasons, the chief of which may not commend itself to the Committee. It is the fact that we have had the good sense to give women the vote. Women of course are much better at budgeting than men. They lay out the weekly money. They know that a new dress for Annie means that Tommy's shoes must wait, and when it comes to Christmas they are the realists who tell father it is not what the children want, but what the family can afford. The Government could trust these competent chancellors of the family exchequer with the true facts of the national finances. Ministers who did not only preach economy from the Despatch Box and the pulpit, but also practised it in their own Departments, would win the understanding and the support of the women. They would find, if they gave the lead themselves, that the argument would be irresistible for living within the national income and doing so by a well-thought-out, carefully explained scheme of priorities in the social services. But it is quite unreasonable to expect ordinary men and women to pay attention to appeals for greater effort and economy from a Government which issues a blank cheque to the Minister of Health and when that right hon. Gentleman in one year fills it up for £100 million more than the sum he first thought of.

My conclusion is that the danger to the financial structure of the country, which is also the danger to our free institutions, will not be removed until we have a Government which explains successfully to the public why it is in their own interests that the size of the Budget shall be reduced, what will happen if it is not done, and how it can be done, preserving that sense of social justice which we all feel in these days. There was no possibility in the last Parliament that the Socialist Party would humble themselves, eat their words and speak this kind of truth. Why should they? They believed they would have the power for ever and ever to deal with inflation with all the apparatus of controls and compulsion. They no longer have the power, nor have we on this side of the House. Perhaps Providence has decreed this evenly-balanced House of Commons to teach us to think again about the old and the new finance, and, taking what is good in both, to forge a modern discipline which will secure the strongest and the steadiest rise in living standards that British industry and the British character can earn. I should count the uneasy months of this Parliament well spent if we used them to make a start in that direction.

9.16 p.m.

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

I should first like to join with the hon. Member for Chippenham (Mr. Eccles) in congratulating those hon. Members who have made maiden speeches today, including my hon. Friend the Member for Gloucestershire, South (Mr. Crosland), upon whose speech I shall presently make some comments. Most of those making maiden speeches in this Parliament have begun by saying that they were frightened of the ordeal. I must say that their speeches have frightened me, because if they are as good as that at the start, I do not know what they will be like later.

In his speeches in these Debates the hon. Member for Chippenham always seems to indulge in vague prophecies of impending doom. He told us tonight, among other things, that the welfare State will have to go. [HON. MEMBERS: "No."] I think those were his words.

Mr. Eccles

I said that we should be lucky if we confined the collapse to the top storey if the financial policy of the right hon. and learned Gentleman continued.

Mr. Jay

The words I wrote down were, "the welfare State will have to go." [HON. MEMBERS: "No."] In his speech in the Budget Debate last year the hon. Gentleman prophesied that there' would be serious unemployment before the next Budget. That did not occur. I venture to think that his prophecy tonight will go the same way.

The right hon. Gentleman the Member for Saffron Walden (Mr. R. A. Butler) asked me one or two questions which I should like to answer first. He asked me if there were many farm workers who were earning sufficient in wages to gain by the concession which we have made in Income Tax. The answer to that is, of course, that if a farm worker's wages come within the income brackets of the scales he will gain that concession, and a number of farm workers do come within those brackets. The right hon. Gentleman also asked me what proportion of the loans made to the local authorities below the line in the Budget were spent on housing. The answer is that out of the total of £290 million about £220 million, or 76 per cent., is spent on housing. In fact, the greater part of the surplus which arises above the line in the Budget is spent on capital expenditure on housing below the line.

The right hon. Gentleman also asked me whether it would be in order to debate on Purchase Tax in our consideration of the Finance Bill. It will be possible, under the Resolutions, to debate two things, first, the general rates of Purchase Tax as they now stand and which we propose to continue; and, second, any of the specific proposed changes which we are making in this Budget, including of course, the tax on lorries to which he was in particular referring. The right hon. Gentleman also made some observations about our proposals for taxation on petrol and lorries. So far as I understood him—in spite of what we have been told in the Press—he did not actually oppose—at least, he did not do so with much conviction—the proposed increase in the petrol tax, though he did, I think, oppose the imposition of the Purchase Tax on lorries. Even if he did not oppose those proposals, I think he certainly misunderstood our purpose in making them. He described them as an onslaught on the road user, and suggested that our purpose was in some way to assist or bolster up, as somebody else said, the finances of the British Transport Commission. If that was our purpose, it was a very odd way of doing it because, of course, the British Transport Commission will be one of the largest payers of both these taxes. Our real purpose in the case of the petrol tax is, of course, to assist economy on a dollar commodity, and, in the case of the Purchase Tax on lorries, to restrain excessive investment in one part of the economy, and to encourage exports.

The right hon. Gentleman also suggested that there was some inconsistency in the raising of the petrol ration with some of the statements made in the General Election. I think he misunderstood them also. We said, during the General Election, that as soon as it became possible to make an increase in the ordinary ration, we would do so, but that we would not do so at the expense of food or essential commodities. By our proposal to increase the tax on petrol—which includes the unrationed consumer and, therefore, is likely to lead to economy by that consumer—it becomes possible for us to make this increase without having to draw away dollars from other necessary commodities. In fact, it is just by that tax that we are enabled to prevent, as we hope, the consumption of petrol this year from going beyond the normal increase. There will, of course, be a normal increase, and, therefore, my right hon. and learned Friend's statement yesterday that there would be some increase is perfectly consistent with our proposal.

Mr. Butler

Could the hon. Gentleman tell me how he defines the "normal increase"?

Mr. Jay

I mean the expansion at the rate at which it has been continuing during the last three years. There has been an increase in our consumption during the last three years. I doubt whether the critics of the Purchase Tax—

Mr. Butler

If the hon. Gentleman proposes to reduce the number of vehicles, how can there be an increase in the amount of petrol used?

Mr. Jay

Surely the right hon. Gentleman understands that we are not going to reduce the number of vehicles, but merely to moderate the rate of increase. I should have thought that that must be obvious from the figures.

I doubt whether the critics of these proposals, such as the hon. Member for Aylesbury (Mr. Summers), realise the enormous cost to the national economy of the very rapid increase which has been going on in our road fleet during the last few years. In 1938, we had a total fleet of road vehicles amounting to just over 3 million. By the end of last year it was just over 4 million. The fleet of commercial vehicles alone has risen from under 500,000 in 1938 to over 800,000 by the end of last year. Indeed, the steel consumption by the motor industry for vehicles used in the home market has been running at the rate of about 500,000 tons of steel a year. [HON. MEMBERS: "Why not? "1 That is, of course, steel which we could have exported or used for other goods for export. Indeed, the annual addition to our fleet of commercial vehicles has been at a rate of something like £37 million a year above the rate planned in the investment programme, and we take the view that if there is to be an increase in the investment programme at that rate, it certainly ought to go to housing rather than to more commercial vehicles.

In reply to the hon. Member for Aylesbury, I wish to point out that we have tried very hard to divert this excessive flow of vehicles from the home to the export market by physical controls. But, as he did not seem to realise, we have certainly failed in this task.

The Opposition, and most notably the hon. Gentleman the Member for Chippenham have often asked us to try fiscal and financial rather than physical controls. This is an instance where, we think, he has made out his case.

Mr. Peter Thorneycroft (Monmouth)

Would the Minister agree that it is impossible to have any rational consideration of this particular problem unless the Government, first of all, state what they are going to do about railway charges? Are they going to put them up by 16i per cent.? That puts a different complexion on the matter.

Mr. Jay

Entirely irrespective of the railway charges, investment in this particular industry is well in excess of the investment programme.

I do not think there is very much disagreement with the general aim of the Government in this Budget. That aim is to use the Budget as a disinflationary weapon, to restrain the rise in the cost of living and to assist recovery of our export trade and our gold reserves. I do not think anybody today has openly advocated the unbalancing of the Budget and the abandonment, as that would imply, of our efforts to conquer the dollar gap and achieve full economic independence by 1952.

But there has been disagreement on whether we were accurately estimating the degree of disinflation required. The right hon. Gentleman the Member for Saffron Walden thought, as I understood him, that our policy was not disinflationary enough, because he thought we were overestimating the amount of savings available. My hon. Friend the Member for Gloucestershire, South on the other hand, argued that we were being too disinflationary. It may be that, in standing between these two authorities, we are nearer the mark. I fully agree that national income statistics have to be used with great caution as a guide to policy in this respect. Like most statistics they are good servants but bad masters. In steering between inflation and deflation we are much less in the position of a pilot navigating by some exact scientific instrument than a driver on the roads plotting a general course and avoiding each hazard as it appears. We should use these figures as a map rather than as a compass.

The right hon. Gentleman the Member for Saffron Walden argued, as I understood him, that we were being too optimistic in hoping that a sum of something like £160 million would be available from private savings this year in addition to what was available last year. I think he was a little too pessimistic in his picture of the present position of the small saver. First, we should remember that, if we count the accrued interest saved, there was actually a net gain from the small saver last year. Secondly, we should notice that the change last year was much more an increase in withdrawals than a drop in the total of actual new savings, which still stands at nearly £800 million a year. Quite clearly, that increase in withdrawals is due to the fact that there are more goods available on which people may spend money. [HON. MEMBERS: "At high prices."] But, secondly, I think the right hon. Gentleman left out of account the probable increase in company savings, as a result of higher devaluation profits put to reserve by certain industries, on which we count this year. If he considers, for instance, the position of the oil and whisky industries, I think he will see that that is not an unreasonable expectation.

My hon. Friend the Member for Gloucestershire, South, argued that in the past we had underestimated both the rise in productivity and the resulting rise in revenue. He thought we were still doing so and that our Budget was, therefore, too disinflationary. It is true that our estimates of total revenue have proved to be a little too cautious, and that perhaps has to be counted to us for virtue or at any rate for prudence. But, of course, if that is to be held against us, I think we must in all candour point out that our estimates of total expenditure have also gone the way of all flesh in the last two years.

Surely the real question of policy is this: is this country at present threatened by a rise in unemployment or by a rise in the cost of living? If it is unemployment with which we are threatened, then we should be wise to give large reliefs and perhaps to unbalance the Budget. If, on the other hand, it is a rise in the cost of living with which we are threatened, then we must be right to stick to the disinflationary policy of the last two years and to continue to stem the flow of purchasing power. I think my hon. and learned Friend the Member for Kettering (Mr. Mitchison) took the view that on those grounds the policy we were pursuing was about right; and I must say I can hardly believe there is anybody in the Committee who would deny that the rise in the cost of living is still the greater immediate threat today.

Let us also recall that at this time a year ago the Government were urged to relax their disinflationary policy and to produce a much easier Budget. We refused to do that and a very few months afterwards, following quite a minor American recession, the country was facing one of the worst exchange crises of recent years. It would surely be the height of imprudence to forget so soon that only seven months ago we were faced with a disastrous strain on our central gold reserves and great difficulty in paying for some of our essential imports. After all, the very improvements we hope to see this year in our balance of payments, together with the increased housing programme, themselves constitute an increase in our investment and, therefore, an inflationary factor.

It is, of course, true that devaluation has so far proved a remarkable success in its effect on the gold reserves, exceeding not merely our expectations but also our hopes. Indeed, the further large rise in the gold reserves announced by the Chancellor has certainly shown how wrong were those critics who proclaimed last October that the Government's post-devaluation economies were too small to stop the dollar drain. For instance, events have proved wrong the forecast which the right hon. Member for Warwick and Leamington (Mr. Eden) made in this House on 26th October, that a new dollar crisis was "not many months away "—not a very helpful remark, as I thought at the time, even if it had proved to be true.

Nevertheless, despite all that, it surely would be folly today, so soon after we have overcome the acute anxieties of last summer and begun to rebuild our vital reserves, to start throwing away this improvement prematurely by relaxations on the Budget front, the dividend and wages front, the exchange control front—and I say that because steps to convertibility were mentioned by the hon. Member for Chippenham or in any way at all. How very easy it is, after all, to relax in these respects and to lose gold. How desperately difficult it is to recover gold and dollars which have been lost.

Like my hon. Friend the Member for Blackley (Mr. Diamond) I have been trying today to discover whether or not the Opposition support the basic disinflationary aim of this Budget or whether they would tackle our economic problem in some radically different way. I gather from the right hon. Gentleman's speech that the Opposition do not favour the abandonment of disinflation or a reckless unbalancing of the Budget. On the other hand they have told us today that they favour large reductions in expenditure,, and they oppose at any rate some of our proposals for higher taxation. That appears to me to suggest that their main policy is one of large reductions in Government expenditure. The right hon. Gentleman the Member for Saffron Walden was a little guarded about that, but I think it was the main thesis of the speech of the hon. Member for Chippenham that we were "overspending ", as he said, on a large scale, and that the size of this expenditure must be reduced. [HON. MEMBERS: "Hear, hear."] I am. glad to have the Opposition's agreement that that is their policy.

Let us look at the record first of the Government and then of the Opposition themselves in this matter of economy in Government expenditure. We ourselves, by the sustained economy drive of the past year, have actually carried out some far-reaching cuts in Government expenditure. The economies made last autumn, over and above those in the investment programme, including many administrative economies of the kind the hon. Member for Wimbledon (Mr. Black) urged, have reduced the total of the Estimates for 1950–51 by £90 million below what they would otherwise have been. In addition, against the Supplementary Estimates for 1949–50 of £170 million, which attracted so much notice, we, in' fact, made savings in other Departments of £114 million, which do not seem to have attracted so much notice. For the present year, 1950–51, although the total estimated expenditure is higher than last year's actual expenditure by £80 million. that general increase conceals reductions in Civil and Revenue Votes which total, altogether, £147 million. A false picture of the efforts of economy has been drawn by emphasis on the increases and omission of the decreases which have' been achieved.

I was hoping, again, like my hon. Friend the Member for Blackley, that the Opposition today would give practical examples of the waste of which they complain and make practical suggestions for economies adding up to the £500 million for which the Leader of the Opposition called last autumn. I remember that in the course of the General Election the Leader of the Opposition told us that the present Chancellor was "squandering the public treasure at a pace unknown before." "Waste and extravagance," he went on, "are presented on every hand."

Mr. Messer

Wait for it.

Mr. Jay

Since the Election, and in addition to what the Public Accounts Committee may or may not have been able to do, we have had a number of Supply Days, on some of which, of course, the Opposition chose which Estimates they wished to debate. One naturally expected that they would choose, and the Leader of the Opposition most of all, those Estimates which would enable them to lay bare before the public this waste and extravagance, and to suggest large economies. I therefore listened with care to all those speeches, and I read them during the Easter Recess, in the hope of finding new avenues of economy. The result is rather surprising.

The Leader of the Opposition chose to speak in the Debate on Defence, and in that speech, so far from explaining just where the "public treasure" was being "squandered," actually made five suggestions for increased expenditure and only one, rather vague, for reductions. He asked, for instance, for a number of increases, and notably for an expansion of the fighter aircraft force, which, as I understand it, would cost millions if not tens of millions of pounds. Throughout the Debate on the Estimates Opposition speeches followed this ratio fairly faithfully as set by their Leader, with five or six demands for increases of expenditure for every one for reductions. There were a few suggestions for economy—I want to be fair—but those for increased spending were more numerous, more definite, and involved larger sums of money.

Viscount Hinchingbrooke (Dorest, South)

On a point of Order. I understand that in Committee of Supply it is improper to raise questions of taxation. Is it proper in Committee of Ways and Means to discuss supply?

The Chairman

The rule is that we cannot, of course, go into these matters of expenditure in detail, and I did not understand that the hon. Gentleman was proposing to do so.

Mr. Jay

No. I am speaking in a very general way. In these Debates we were asked by the Opposition to spend more on both health and housing. On health, for instance, the hon. Member for Luton (Dr. Hill), in his very interesting speech, actually said that he saw a prospect of increased expenditure on hospitals of £100 million or £200 million, which he said was "justifiable in relation to hospital considerations." On the Army Estimates we were pressed for better pay and higher allowances, for more equipment, more married quarters, more amenities for the Territorial Army, and so forth. Indeed, one hon. Member opposite actually told us that "no money should be spared" to make the Territorial Army attractive. Another said, on the Air Estimates, in dealing with fighter aircraft, that it was not a question of "what we could afford but what we must afford." On the Navy Estimates—

Mr. Butler

On a point of Order. I was under the impression, up to the speech to which we are now listening, that we were discussing a certain Motion on the Order Paper. It would appear that the hon. Gentleman's arguments at the moment are totally irrelevant to that Motion.

The Chairman

In reply to the right hon. Gentleman, the essential thing is that the hon. Gentleman's arguments should be related to the subject of taxation, and I think that so far they have been so related.

Mr. Jay

Hon. Gentlemen opposite have been discussing expenditure most of the afternoon and I am replying to their arguments. Perhaps it is not so surprising that these proposals should be made from the Opposition, because earlier in the year they laid before the electorate a series of proposals—of which I think the right hon. Member for Saffron Walden was a part author—for increases of expenditure of all kinds. We have examined those proposals in the last few weeks, and, so far as one can put estimates on hypothetical promises, it appears to us that had hon. Gentlemen opposite been called upon to honour the pledges in "The Right Road "and" This is the Road," an increase in Government expenditure of nearer £100 million than £50 million would have been necessary.

Mr. Butler

Would the hon. Gentleman be kind enough to give me the estimate which he must have made equally fairly, and with equal patience, of the amount of money which we proposed to save?

Mr. Jay

I am coming to that point next. If it is proposed to spend as much or more on defence, health, education, housing and other social services, where do we find the £500 million saving for which the Leader of the Opposition called last autumn'? Presumably not on the Debt interest. There only really remains the food subsidies, where the Opposition apparently propose to make most of these large cuts. Nevertheless, today we have been asked by the right hon. and gallant Member for Leicester, South-East (Captain Waterhouse) for heavy reductions in, if not the abolition of, the Purchase Tax.

Simultaneous sweeping cuts in food subsidies and Purchase Tax is a very odd policy for a party which is professing to be able to reduce the cost of living; for a simultaneous reduction in Purchase Tax and food subsidies would raise the cost of living very steeply indeed. [HON. MEMBERS: "Why? "1 The complete abolition of Purchase Tax would reduce the cost of living index by a little more than one point, whereas the reduction of the food subsidies by the amount of revenue thus lost—about £300 million—would raise it by six or seven points. The net result, therefore, of this operation would be a rise of five or six points in the cost-of-living index. The price of wireless sets and motor cars would go down; and the price of bread and milk would go up. I can imagine no greater economic folly at the present stage of our recovery than to carry through a change of that kind.

I believe that there is a strong case for the preservation of what my hon. Friend the Member for South Gloucestershire called the flexible weapon of the food subsides as a permanent element in our policy. But they are even more vital at the moment in the battle to close the dollar gap. We mean to maintain the present level of subsidies during the current year on the assumption that the policy of income restraint will continue to be honoured by those concerned.

It has been suggested, I see, in the Press that in setting a target of £410 million for the subsidies in the present year we have made further cuts in the subsidies over and above those which were announced in the autumn. That is not so. The whole difference between last year's figure of £465 million and the present figure of £410 million is made up entirely of the economies announced last autumn, mainly in what, I see, the "Economist" calls the indirect food subsidies—that is, in the feedingstuff subsidies on which we saved £36 million, two-thirds of which have been borne by farmers' profits and not by the consumer at all and by savings in fertiliser subsidies, and by certain minor items, such as dried eggs, raisins, etc.

This year we intend that this £410 million shall be a minimum as well as a maximum. The savings on one item will be used to prevent rises in the price of another. It may be, of course, that the steady general increase in the supply of most foods, together with the maximum of £410 million, will involve rises in retail prices. We shall certainly not restrict the supply of food in order to save subsidies or to keep the prices down, and I do not think that the Committee would wish us to do that. We also do not intend that the rate of subsidies should fall this year below £410 million if at the same time the cost of living should rise. The only eventuality in which they could fall would be if there was a general fall in world food prices, which, I think, is not very likely.

We intend, therefore, to maintain our essential twin policies of Budget disinflation and restraint of income and prices through stabilised food subsidies. These policies have given us in the last three or four years industrial peace and full employment. We ask that they should be judged on their practical results, and among those results I would only quote a few facts now which I think are indisputable and cannot be questioned from any side of the Committee.

Production in this country is now at a record level. Our productivity has been rising faster than at any previous period. One hon. Gentleman opposite asked how the statistics of productivity were computed and whether we believed them to be reliable. I think that we all agree that they are very difficult statistics to work out, but we believe that, so far as these things can be calculated, the figures are as sound as we can make them, and, of course, as between one year and another the difficulties are not so great as over a long period.

Our rate of investment in productive equipment is also, I think it is generally agreed, higher than ever before. Our exports are more than half as high again in volume as before the war. We are now very near to a balance in all our overseas transactions, an achievement not reached in any year since 1935, and only once in the 1930s. I am not sure whether it has been noticed that our total visible exports are now paying for 90 per cent. in value of our visible imports; and that is a higher proportion than in any year since 1870, if not earlier. My researches have not gone back any further. According to some figures given recently by the "Economist" the real wages of wage earners are higher on the average than before the war, without allowing for any increase in the Social Services—which is much the same thing as saying that the majority of our people are better off in real terms than they were before the war.

We believe that, on that test of facts, the policy which has borne these fruits should be continued. We also believe that the active workers and managers of all kinds, to whom the main credit for these achievements is due, have earned by this rising productivity the relief by way of Income Tax and the increasing housing programme, we have given in this Budget. At the same time, our cardinal and primary aim must still be, for the reasons I have given, to build up our gold reserves a long way above the present figure. A much higher reserve is our only real hope for full employment and for economic independence in the future. If unemployment does come, it will come, as I see it, not through any falling internal demand, but, as we learnt last summer, through lack of dollars with which to buy essential raw materials. Therefore, the Government are equally determined, while making these relaxations in the present Budget, to maintain the necessary restraints on the income front, the Budget front and elsewhere, which will enable us to build up our gold reserves well above the present level, and thereby give our country the assurance of full employment and full economic independence in the future.

Mr. Eccles

Can the Financial Secretary briefly explain Resolution 22, about Death Duties, of which I gave him notice?

Mr. Jay

Resolution 22 is designed to close a loophole through which evasion of Death Duties has been made possible. It is necessitated by a recent decision in the High Court, which has had the effect of nullifying Section 44 of the Finance Act, 1940, which was passed to deal with this particular avoidance device. As a result of this decision in the courts that Section has become ineffective, and what we are proposing to do is to restore its validity in the forthcoming Finance Bill.

Ordered: "That the Chairman do report Progress, and ask leave to sit again."—[Mr. Sparks.]

Committee report Progress; to sit again Tomorrow.