HC Deb 15 June 1950 vol 476 cc639-68

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

Captain Crookshank

This, of course, is the Income Tax Clause, but as you know, Sir Charles, we have an Amendment down on Clause 19 which, if carried, would increase the reliefs. I wonder whether it would be for the convenience of everybody if, instead of discussing Income Tax at this stage, we could have a wider discussion on the Amendment which I hope to move, which would bring that matter into the proper relationship with the general Income Tax position?

Sir S. Cripps

I understand that the right hon. and gallant Gentleman is referring to the Amendment to Clause 19.

Captain Crookshank

That is right.

Sir S. Cripps

It will be perfectly convenient for us to discuss any Income Tax matter on that Amendment.

Mr. Osborne (Louth)

Would it be permissible, Sir Charles, under that arrangement, to discuss the standard rate of taxation as it affects production and savings?

The Deputy-Chairman

I am rather doubtful about that.

Mr. Osborne

If that is ruled out, should I be in order in discussing the question now on Clause 17?

Mr. Selwyn Lloyd (Wirral)

Further to that point, Sir Charles. Surely, any argument which would be referable to the standard rate could, under this arrangement, be brought in on the discussion on the Amendment. Could not any argument which may be directed to the standard rate of Income Tax be ventilated on the Amendment when it is called?

The Deputy-Chairman

If it is the wish of the Committee to have a wide Debate on that Amendment, I should have no objection.

Sir S. Cripps

That will be a little difficult if we are not to get ruled out of order, because Clause 19, of course, is not dealing with that subject matter at all. It deals with the rates of relief from Income Tax, and not with Income Tax itself. Subject to what the right hon. and gallant Gentleman has to say, I should have thought that if any bon. Members wanted to make observations on the general matter, they had better do so on the Motion that the Clause stand part.

Captain Crookshank

What I thought was that the reliefs which the right hon. and learned Gentleman is giving in Clause 19, and the reliefs which we seek to have added, could be discussed within what I call the broad framework of the Income Tax as it will be in the course of the year, and that it would be possible on that to raise some of the reasons why, in our view, it is necessary to increase the reliefs, because of the height of the Income Tax, and to show how damaging that high Income Tax is and, therefore, the need for reliefs. That is why I thought it might be more convenient to have one fairly wide Debate on the Amendment instead of two separate discussions. I do not, however, press the point.

The Deputy-Chairman

That is a different matter from the one which the hon. Member for Louth (Mr. Osborne) wants to raise. Perhaps it would suit the convenience of the Committee if we were to have now a discussion on the Question "That the Clause stand part of the Bill" and go on to the wider issue later.

Mr. Selwyn Lloyd

With respect, Sir Charles, surely the level of the standard rate affects both industrial concerns and individuals. I should have thought that if we could bring into the Debate on the Amendment the general effect of Income Tax at 9s. in the pound on both corporations and individuals, it would be possible to combine the discussions to save time.

The Deputy-Chairman

I am advised that we cannot do so. The matter of reliefs has nothing to do with the question of the standard rate.

Mr. Osborne

I should like, with the permission of the Committee, to make a few observations regarding the effect of the standard rate of 9s. in the pound, first, upon industrial production, and secondly, and more important, upon savings generally. I believe that 9s. in the pound imposes far too great a burden to be carried permanently by our economic machine, and that it is one of the greatest factors that is hindering an increase in production.

If we are to get that increased production for which the Chancellor is asking, and rightly asking, and if we are to achieve it so that our costs of production are to be reduced, then taxation has to come down, for the simple reason that men in all walks of life are tired merely of working harder in order to have the privilege of paying more taxes. I believe that a high rate of taxation is the greatest hindrance to greater and better production.

In my own limited experience industrially, I think that this high rate of taxation does four things. First, it causes men, of all classes and in all walks of life, to seek tax evasion within the law. Men will do jobs apart from their own regular job so that they may earn "a bit on the side" in order that they may get something which is free of taxation. It is perfectly legal and is done in every walk of life, and not only by the ordinary man who works for a weekly wage; it is the consideration of many men in industry— "How will this affect my tax position?" —and too much attention is given to the effect of taxation on their activities to the detriment of the efficiency of those activities.

Secondly, I believe that this high rate of taxation encourages wastefulness, and the one thing which we as a nation cannot afford today is to be wasteful. The attitude is growing up in industry, "It really does not matter. It is nobody's business." Often I have heard it said, "Oh, well, Cripps pays for this; it really does not matter." One of the present-day weaknesses of industry is that men in industry —again, in all grades—are not as careful as they might be with materials or with time, because, after all, over a certain margin the Chancellor "stands the racket." This is a cause of industrial inefficiency.

The third thing which the present rate of high taxation does it that, in my opinion, it increases absenteeism, again affecting all classes. Men say, "Why should I put in overtime? Why should I work extra, because I have to come sooner or later on to this 9s." They say, "We may just as well play for nothing as work for nothing." What they are prepared to buy is time off and fresh air. I believe it is true in the mining industry that the greater part of absenteeism will be found amongst the younger, unmarried miners, and largely because of this heavy rate of taxation.

Mr. W. J. Taylor (Bradford, North)

What does the hon. Member know about it?

Mr. Osborne

Finally, it leaves certain sections of people with the false impression that this instrument of heavy taxation can provide for the nation the sinews for the welfare State without the necessary effort which is required. I think that it gives the false impression that merely by taxation all of us can have what we want. Therefore, on the industrial side, unless this standard rate, which is the cornerstone of our whole taxation system, is lowered, and lowered very substantially, I do not think that we shall get that industrial efficiency which the Chancellor requires.

I turn to what is, I believe, a much more important effect of this heavy taxation—that is, its effect upon savings. To support this thesis, I should like to remind the Chancellor of what Lord Mackintosh, the Chairman of the National Savings Movement, said last April. When the figures of the National Savings Movement were falling at a rapid, disastrous and alarming rate, he said that there were three principal causes for the falling off of National Savings: first, rigid wages; secondly, high prices; and thirdly, heavy taxation. I believe that heavy taxation is a very important contributory cause to high prices and has in turn brought in this vast and rigid wage system. Therefore, the key to unsolving the problem as seen by Lord Mackintosh is to get down heavy taxation. It is this 9 s. in the pound that, I believe, is the root cause of the trouble with our savings movement.

In the Budget speech the Chancellor on more than one occasion reminded the House of the terrible danger of inflation, and said how important a part small savings could play in avoiding the danger. I want to show to the Committee that the danger of inflation since the Chancellor spoke is not less, but greater, and that that danger arises largely from Clause 17, which embodies the 9s. in the pound standard taxation, upon which the rest of our taxes are really based.

8.0 p.m.

In March this year I asked the Chancellor what was the value of the pound today compared with 1945 when the new Government took office after the war, and the Chancellor said that at that time it was 16s. 2d. Subsequently I asked him again what its value was and he said that in March it was then 16s. 1d. Since these answers were given by the Chancellor there have been substantial rises in coal, transport and food and, although I do not know if the Chancellor has the up-to-date figure, I doubt if the value of the pound today is worth much more than 15s.—the Chancellor laughs, but I should like to have the correct figures—or about 15s. 6d. as compared with the time when the new Socialist Government took over.

The fall in the value of our money and in the value of our savings is a very important factor on the problem of why savings have fallen off. If savings continue to fall off we shall have more inflation, and if we are to stop this process the Chancellor has to give his attention to this high rate of taxation, which I believe to be the primary cause of our trouble.

May I remind the Chancellor of the responsibilities he and his Government took over when they came to power in 1945, and I wish to give him four examples. In the Post Office Savings bank there was invested £1,642 million, covered by nearly 20 million depositors. The average holding was about £82. In the four and a half years the average interest was £9 4s. 6d. and the average holding in the Post Office Savings Bank has been £91 4s. 6d. but, taking the value of the pound as 16s. 2d. today, the real value is only £74, so that a person who has left money in the charge of the Chancellor and the Government has not only lost four and a half years interest, but something like £17 of his capital.

This is a vicious and a secret form of capital levy against the very people who ought to be encouraged. But the Chancellor says in his Budget speech that he is sorry small savings are not coming up to his expectations. The reason is that his taxation is so high that it is causing prices to rise and that in turn is causing inflation and people are just not going to save. The remedy is in the Chancellr's own hands. He has to get down taxation and to do that he has to cut down expenditure, although I know I cannot go into that question now.

In the building societies the Chancellor inherited the responsibility of £152 million in over three-quarters of a million accounts, which gave an average of about £200 per account. Those persons are about 20 per cent. worse off than when the Socialists took over. That is a point to which the Chancellor ought to give attention. In the Trustee Savings Banks there was no less than £579 million spread over a little more than four million accounts. Again the depositors have lost a substantial amount of their real capital. We should not sit idly by and allow this to go by default. Someone ought to speak on behalf of those who have trusted their money to this Government.

I come back to Lord Mackintosh's warning that it is because of high taxation as embodied in Clause 17 that savings are falling off and are likely to fall off still further. I ask the Chancellor to look at the figures in the National Savings Movement. No one would wish to say any word that would harm that very important and fine movement, least of all myself because I have been associated with it, off and on, since 1926. The Chancellor and his party took over responsibility for no less than £1,816 million in the National Savings Movement in 1945 with an average holding of about £100. Those people today do not hold in capital and interest a real value of more than £80. They are £20 worse off on an average than they were when the Socialists took power and I consider it a grave social injustice—

Sir S. Cripps indicated dissent.

Mr. Osborne

The Chancellor shakes his head, but I should like him to refute these facts later on, if he can. In a Question last April I managed to get from him the admission that an ordinary working man or woman who on the day the Socialists took over in 1945, in order to show confidence in the new Government, paid 15s. for a National Savings Certificate had accumulated 2s. 0½d. by way of interest in the four and a half years, making by way of capital and interest 17s. 0½d. But the Chancellor said that, allowing for depreciation of currency, the real value, plus interest, was only 13s. 10d.

Does the Committee wonder that National Savings are falling off? Is it to be wondered that people are not putting money into this movement? I think it is cowardly to sit by silently and see this happen and make no protest. This will never be righted until the Chancellor finds a way to reduce taxation and the first thing he has to tackle is to get down the standard rate of Income Tax as embodied in Clause 17. With that he can bring down other rates of tax as well.

Mr. Awbery (Bristol, Central)

Could the hon. Member tell us where the Chancellor can reduce expenditure in order to reduce Income Tax? We would then have some idea of where his party stands on this.

Mr. Osborne

It would not be in order to go into that in detail, but that challenge was thrown from the other side of the House to this side last year about this time on more than one occasion and it was said that no savings could be effected. But when devaluation came, the Chancellor promptly found £100 million in economies which he could effect. Only a few weeks previously he had said they could not be effected. I should be out of order to discuss that at present, but the Chancellor said a year ago that no economies could be made and when devaluation was forced upon him he soon found £100 million economies which could be made.

I say in answer to the challenge that if the Chancellor really set about it, as one day the economic position of the country may make him, he will find methods of reducing our expenditure and so effect the reduction in taxation. The astonishing thing about the Chancellor was—

Mr. Emrys Hughes (Ayrshire, South)

Would the hon. Member reduce expenditure on housing, on the social services, on armaments, or on what?

Mr. Osborne

That is not my job tonight and in any case I should be out of order to discuss it. But you will allow me to say, Sir Charles, that when we were challenged a year ago as to whether we could find economies or not the Chancellor and hon. Members opposite kept saying to us that there was no method by which economies could be effected and when devaluation was forced on the Chancellor, he promptly found economies of £100 million, which previously he said was impossible. I hold that much greater economies could be found if the Chancellor really wanted to do it.

Mr. Emrys Hughes


Mr. Osborne

That is the Chancellor's task. In any case, since 1929, for the first time, the National Savings Movement is not helping the Chancellor's Budgetary position at all. For the first time more money has been taken out of the National Savings Movement than has been put into it since the Socialist Government have been in power. That movement is likely to become worse because men and women find that the money they are putting into the National Savings Movement falls in value when they want to take it out. It is not fair, it is not honest to expect people to continue putting their money into a movement when they know that they will be robbed and defrauded by so doing.

I come back to what Lord Mackintosh said, that is that one of the principal contributory factors in the falling off in national savings is that taxation is so high. In "The Times" of 13th April there was this comment on the statement of the Chairman of the National Savings Movement, and I commend this to hon. Members who have been asking questions: It is the profligacy of the government much more than the occasional extravagances of an austerity-ridden public which is responsible for the falling off in savings. The Chancellor wants more and more savings from the ordinary public if his Budget is to retain anything like stability. Here, in tonight's newspaper, is the type of advertisement for which he is responsible:

POUNDS, SHILLINGS AND SENSE Do yourself a bit of good Invest in National Savings. Why should people do so? The Chancellor must face up to this question: Why should people put their money into national savings when the Chancellor knows, and Members on both sides of the Committee should know that the money they are putting in today will be worth less in five years' time if we have the same financial policy and the same Government as we have today.

Mr. Awbery

Is it not a fact that the man who invested £1 in 1914 found that it was worth less than 10s. in 1924 under the Tory Party?

Mr. Osborne

I cannot either confirm or deny that assertion. All I would say is that if it is so, two blacks do not make a white, and because something went wrong previously that is not to say that the same thing need go wrong again without anyone making a protest. I am making a protest on behalf of the ordinary working men and women who buy these certificates.

Finally, may I remind hon. Members opposite what their leaders said in 1945 about this problem before they came into power? The Foreign Secretary was reported in the "Daily Herald" of 5th July, 1945, as saying: Labour will protect your savings against rising prices. It has completely failed to do so. It has failed partly because it has maintained too high a rate of taxation since the war. I should like to remind the Chancellor of what he said at Exeter in June, 1945: The Labour Party wanted to ensure that people's savings were safer than before the war. He has failed miserably. I appeal to him to see what can be done to reduce the standard rate of taxation so that that may be a stepping stone towards giving us a sounder and safer currency and so encourage people to save more.

So far as I know there has never been a reply to the problem that was posed by Lord Bruce of Melbourne at the National Savings Rally at the Guildhall last October. He said, and if this is read in conjunction with what Lord Mackintosh says it puts a responsibility squarely on the Chancellor's shoulders, and I should like to hear any hon. Member reply to it: No conscientious person can get up and appeal to his fellow citizens to subscribe their moneys to savings if he knows perfectly well in his heart that when the hour of need comes for people to draw them out the pounds they get won't buy anything like as much as they could have bought when the money was put into the movement. Has the Chancellor any answer to that? If not, is he surprised that savings are falling?

8.15 p.m.

It is no use talking about where we are to effect economies. The responsibility is on the Government side of the House. I feel that someone ought to make a protest against this continuous drain on the public purse which is causing our money to fall and fall in value, that makes heavy taxation necessary, for unless that is changed we shall discourage the very best section of our people, those who are thrifty and careful and who put their money in the hands of the Government.

Mr. Harrison (Nottingham, East)

I wish to say a few words about the speech made by the hon. Member for Louth (Mr. Osborne) in this Debate, which concerns the standard rate of Income Tax. That is the basic subject which we are discussing. I wish to refer to two remarks he made. He asked "Why should people save?" Shortly afterwards he said that he did not wish to harm the National Savings Movement. It seemed to me that throughout the whole of his speech he could not help but harm the savings movement by the very tone and substance of his speech.

Mr. Osborne

Is the hon. Member arguing that it is just, fair and honest to take people's money knowing that you are to pay them back in money that is worth less, and not tell them so?

Mr. Harrison

That is just the complaint I make against the tone of the hon. Member's speech. It is because he said that that I complain.

Mr. Osborne

It is the truth.

Mr. Harrison

He has just made the submission that if people are to lend money at one turn and the value of that money is to be deliberately reduced—

Mr. Birch


Mr. Harrison

—inevitably, that will discourage savings. With that comment he points his finger at the Chancellor. That is what I complain about because it is not true, and that is the reason why I am taking the opportunity of trying to refute the central argument of the hon. Member.

The hon. Member suggests that the devaluation of the currency of this country is something which is special to this country, something deliberately engineered by the Government. That was the implication behind his speech. Can he tell me a country on earth, a civilised country, where the currency has not been considerably devalued during and since the close of the war? [An HON. MEMBER: "Switzerland."] It is not peculiar to this country. It is almost world wide. There has been devaluation of the Swiss currency to a considerable extent in terms of what it can purchase in Switzerland Prices have risen considerably there

Lieut.-Colonel Sir Walter Smiles (Down, North)

Is it not a fact that Australia is at present talking about revaluing her currency and putting up the price of the Australian pound?

Mr. Harrison

The position in Australia is that since the advent of the present Government their prices have risen to an almost unbelievable extent, reducing the value of the currency considerably. The position in Australia can be used as an example to prove the submissions of the hon. Member for Louth are very unjust when he points a finger at the present Government of this country as being responsible for deliberately manœdevaluation of the currency. Devaluation of the currencies of the world has almost throughout the world been on an equal basis. Most of the currencies have been devalued almost by the same amount during the last five years and that cannot be the responsibility of the Chancellor. It cannot be cured by suggestions that refer to this country alone.

What I assume from the speech of the hon. Member for Louth—and I am sorry to have to say this—is that his references to the deliberate devaluation of our currency can only result in the one thing he says he does not want to achieve— and I believe him—the discouraging of folk, on a wrong premise, from saving, That is what we most certainly do not want to do at this present juncture.

Mr. Osborne

Does the hon. Member really think it honest and fair to people to say to them, "Give us 20s."—as the Socialists did in 1945—"and in 1950 we will pay you back 15s. 6d."?

Mr. Harrison

It most certainly would not be honest and fair, if we had the say as to whether the currency had to be reduced to that extent. But since 1902 the currencies of the world have gone down in the extent of their purchasing power. Currencies have a tendency to fall as industrial development becomes more widespread. I think that the hon. Member for Louth is doing a great disservice to the National Savings Movement. It is not the first occasion, and his remarks are completely contrary to the interests of this country as a whole.

Mr. Selwyn Lloyd

I shall endeavour in due course to deal with one or two points raised by the hon. Member for Nottingham, East (Mr. Harrison), but may I first join in the protest which my hon. Friend the Member for Louth (Mr. Osborne) has made against the level of taxation imposed by this Clause? This Clause really is the main weapon for imposing direct taxation and it is my submission that direct taxation, which is much too high is having an adverse effect upon the trade and economy of this country.

I would give one set of figures to the hon. Member on the ratio of Government revenue to national incomes in various countries. I think these figures are worthy of notice by this Committee. They are not approximately for the same year 1948: In the United Kingdom the percentage of money taken for Government expenditure was 43 per cent.; in the United States 27 per cent.; in Belgium 30.9 per cent.; in Denmark 19.7 per cent.; in France 29.2 per cent.; in Italy 18.8 per cent.; in the Netherlands 37 per cent. and in Sweden 24.5 per cent. So in this country we find a far greater percentage of national income is being taken from the individual or the company by the State for public expenditure; and that the average citizen in this country is very much worse off than in other countries, according to that test.

Then we come to the matter of savings. I do not wish to go into the question of whether there is any deliberate intention to devalue the currency and so depreciate savings. I simply wish to deal with the facts, and the facts are that the situation, so far as National Savings is concerned, is exceedingly unsatisfactory. I do not think it is any good in the national interest to pretend that the situation is satisfactory. I shall give only one set of figures of small savings—deposits and withdrawals. In 1946–47 deposits exceeded withdrawals by £324 million; in 1947–48 deposits exceeded withdrawals by £188 million; in 1948–49 by £37 million; in 1949–50 withdrawals exceeded deposits by £66 million. I consider those facts are extremely serious from the point of view of the public interest, and I wish to take up this matter with the Chancellor of the Exchequer, because I do not think it does the public weal any good to pretend that the situation is satisfactory.

I confess that in the early hours of this morning I got rather angry with the right hon. and learned Gentleman when he suggested that we should go on sitting for 48 hours continuously. Whether anger does sometimes produce afterwards a certain amount of calm I do not know, but this evening, in dealing with the matter, I am simply pained and not angry. Therefore I remind the Committee—with a certain amount of pain—of the speech of the right hon. and learned Gentleman in the Second Reading Debate, to which I have referred before. This is what he said: One of the extraordinary things which the right hon. Member for Warwick and Leamington stated was that the private investor had been almost liquidated. I wonder if he has taken the trouble to look at the actual figures of private savings? As it happens, personal savings in the years 1948 and 1949 were almost precisely the same percentage of disposable personal income as they had been in 1938— 4.8 per cent. in each case. In 1938, when the disposable personal income was £4,500 million roughly, the gross personal saving was £217 million; and in 1948, when the disposable personal income was £8,500 million, the personal saving was £409 million, so that it has remained almost exactly the same per- centage."—[OFFICIAL REPORT, 16th May, 1950; Vol. 475, c. 1154–1155.] On 13th June I asked the right hon. and learned Gentleman about the figures which really mattered, not the gross but the net figures. I asked him what were the net personal savings in 1938 and 1949 respectively. The right hon. and learned Gentleman gave these figures as £139 million for 1938 and £174 million for 1949; in other words, an increase of about 25 per cent. I asked him whether, in view of those figures, it was not a little misleading to have said that personal savings had maintained the same ratio to personal incomes between 1938 and 1949, and the right hon. and learned Gentleman said: I am afraid I have not worked out the percentage of the figures I have given."— [OFFICIAL REPORT, 13th June, 1950; Vol. 476, c. 333.] If that was correct, if the right hon. and learned Gentleman really had not worked out these percentages, it seems very odd, in view of the portion of his speech which I read which dealt entirely with percentages. If it is true that he did not work out the percentages for the net figure, it seems extraordinary that he should have thought fit to make the comment which he did. But if he had worked them out it was, if I may say so, very naughty of him to answer my Question in the way he did. I cannot conceive that the point was absent from his mind. In order to substantiate his contention that personal savings maintained the same ratio to personal incomes, the right hon. and learned Gentleman had to include Death Duties and sums paid in respect of the Special Contribution, and to suggest that that constitutes personal savings seems to me to be a travesty of the facts.

The position which we have to face and which this Committee has to face is that the savings situation is extremely serious and we must do everything we can in our financial policy to maintain the confidence of the saver. I am perfectly certain that only by self-denial on the part of public authorities and private individuals at the present time shall we create the resources we need for our capital investment programme.

8.30 p.m.

We have been challenged, as we so often are, as to where we would effect savings. It is my rule never to seek to make a speech on the subject without providing the Committee with one practical example of where I think there is gross extravagance. On Second Reading I did give two cases, one with regard to the National Health Service and the other with regard to education. I will give one tonight. It is adduced from certain answers to questions which I have put to the Minister of Works, in the course of the last month, with relation to certain expenditure by His Majesty's Government. It refers to expenditure that has been taking place in France.

The Deputy-Chairman

I do not think that on this Clause the hon. and learned Gentleman can develop an argument based on expenditure in France.

Mr. Selwyn Lloyd

If you stop my saying it, Sir Charles, then, if I may say so with respect, the responsibility is yours. We have been challenged and I would certainly have given the answer if I had been allowed to do so, but I shall seek another opportunity. It is very important, when dealing with these matters, to point out the national extravagance which I believe is taking place.

I suggest that one of the factors causing the falling off in personal savings is the high rate of Income Tax and the effect this high rate is having upon the public confidence. It is becoming increasingly difficult to deny that taxation does feature in costs. As taxation remains high, so it is reflected in high costs. It does not permit adequate resources to be accumulated. That is really conceded, inferentially, by the right hon. Gentleman by the fact that he set up the Tucker Committee to inquire into the definition of profits upon which Income Tax is to be levied.

Taxation bears very hardly on risk capital. It also has a direct inflationary effect. Here are three very simple examples. I do not think it is very iniquitous of people. I think people are governed in all walks of society by the ordinary rules of human nature. In one case of very recent occurence a gentleman said of a long telegram, "It makes me smile to think that the Chancellor paid half of the cost of that telegram." There was another case of a shipping company, where a wharf had to be kept open under conditions of considerable difficulty and involving the company in considerable loss. I was told, "We have always the consolation that the Chancelor is bearing half that loss."

The third case is that of a small business where the trading profit is about £6,000 a year and where the taxation— Schedule A, Profits Tax and Income Tax —come to over half that sum, between £3,000 and £3,500. There, I was told, there is anxious consideration, as the year goes on, to see how money can legitimately be spent to avoid the figure of profits increasing, so that the amount to be paid in taxation shall not increase. It is happening in the case of individuals and corporations, and it is a very natural process. People do not feel philanthropic about these matters; and if the money can be spent where they can get most of the advantage they like to spend the money to avoid taxation. The cause is the high level of the standard rate of Income Tax. In the interests of the country and its economic survival, and in the interest of the character of its citizens, I hope we are coming to the day when the standard rate can be safely reduced.

Mr. McGovern (Glasgow, Shettleston)

I have no intention of entering into the Debate on this Finance Bill, because I am anxious to see it through at the earliest possible moment. At the same time, I am always apt to be drawn in when I hear speeches that are unreasonable. I have been listening over a long period of time to the hon. Member for Louth (Mr. Osborne), and to a large number of hon. Members opposite attacking the Government in relation to the amount of money that is raised, the taxation that is imposed, and alleging that the money is squandered in a reckless manner. If this statement that the money is squandered in a reckless manner were true, then any hon. Member of the House and citizens outside would be entitled to stand up and take notice. If the allegations were substantiated, either the Chancellor of the Exchequer or the Members of the Government ought to be put in the dock. When it comes to giving an example of a concrete nature, the case always fails.

Mr. Osborne

It would be out of order.

Major J. R. Bevins (Liverpool, Toxteth)

On a point of order. If it was out of order for my hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) to answer those allegations, surely it can hardly be in order for the hon. Member for Shettleston (Mr. McGovern) to make them.

The Deputy-Chairman

I am trying, as far as I can, to keep this Debate on the Question "That the Clause stand part," within the bounds of order.

Mr. McGovern

I wish hon. Members would allow the Chair to decide the Rules and not arrogate to themselves the rights of the Chairman of the Committee.

I want to deal with the question of the 9s. in the £ which is imposed and that was why, first of all, I was answering the allegations. I was then about to analyse them. Nobody likes taxation. As Members of Parliament we all know that when taxation is imposed upon the general body of people in this country, they are all anxious to get rid of it. That applies in the case of the tax on the pools, on betting, on films, on whisky, on tobacco, on beer, and the Purchase Tax; nobody wants to pay taxation and the ordinary man in the workshop and in the office, and indeed every person we meet, wants to divest himself of the obligation to contribute taxation to the State.

Hon. Members seem to forget that it is inherent in Capitalist society that there should be a continual depreciation of the £ as a result of the fact that we get into large-scale wars. We incur tremendous expenditure in war, and we pay in war sometimes 9s. in the £ to the people who are defending the other 11s. in the £. After the war there comes a position in which we cannot make settlements with other Governments, and then we are going headlong in preparation for another war. I am not blaming anyone for this; it is inherent in the conditions. We find ourselves preparing with armaments and with the training of men—

Mr. Colegate

Like Russia.

Mr. McGovern

Yes, like Russia. I am not absolving Russia from being largely responsible, but if we have to impose taxation at 9s. in the £ in order to prepare to resist attack, why should hon. Members say to the Government which has that job to do, "You have no right to ask for a contribution from the wealth produced by the workers in the workshops, mines, factories and fields"?

This taxation at 9s. in the £ is, therefore, imposed for the purpose of National Defence and for the social services of the country. Further, when hon. Members say that the rate of 9s. is unnecessary, they should show how it is unnecessary. When the hon. Member for Louth says that money is being squandered, he ought to show where it should be saved. I can understand, for example, hon. Members saying that we are raising so many millions by our levy of 9s. in the £ and that portions of the money are being used in a wrong way and are being squandered. I could understand it if they said that, so long as they put their finger on the spot to show where they would save.

The Deputy-Chairman

But that cannot be done in the discussion on Clause 17.

Mr. McGovern

After all, the hon. Member for Louth has made many statements about money being squandered and I think I am entitled to ask him what is being squandered and where we could save.

The Deputy-Chairman

That is just my point. On this Question "That the Clause stand part of the Bill" one can deal only with what is in the Clause. Therefore, this is a very narrow Debate. I hope the hon. Gentleman will try to keep within the bounds of the Clause.

Mr. McGovern

Yes, I am always willing to do so, but I cannot but notice that other hon. Members are allowed full scope—

The Deputy-Chairman

I am only human, and maybe I make mistakes, but I do my best to listen to everybody, and to be fair.

Mr. McGovern

I am sure you do your best, Sir Charles. We all do our best. But when hon. Members get up here and make slashing attacks about money being extravagantly expended, and about this 9s. in the pound being unnecessary, I ask them how money is being squandered and how much could be saved.

The Deputy-Chairman

That is just my point, and I do not want the discussion to go to that length, and I am not going to allow it to do so.

Mr. Selwyn Lloyd

Will the hon. Gentleman allow me? Is he really being quite fair? If he had done me the courtesy to listen to what I tried to say, he would have understood that I did try to give specific examples and that I went as far as I could, but that you. Sir Charles, stopped me.

Mr. McGovern

I was not talking about the hon. and learned Gentleman at all. I was replying to the hon. Member for Louth. The hon. Member for Louth made allegations to which I was attempting to reply, and that was the whole length I attempted to go.

However, I say in conclusion, in relation to the 9s. tax, that I think the people who are paying that money are entitled to pay it, and to pay it with a certain amount of pleasure, because in this country under this Government the standard of living is higher and prices are very much lower than in a dozen other countries I have visited throughout the world. They are taxed lower in other countries often because of the fact that their standards of life are much lower than ours, and wages are much lower, and the social services are much lower. So I say that our people who pay this tax ought to be proud to contribute it. In my estimation the hon. Member for Louth and other hon. Members opposite, including their Front Bench Members, ought to show where squandermania exists, and they are cowardly in the extreme in failing to put their finger on the spot to show where this squandermania exists.

Mr. Spearman (Scarborough and Whitby)

I am always interested in hearing speeches by the hon. Member for Shettleston (Mr. McGovern). I can remember in the last Parliament—indeed, in the Parliament before the last—the great contributions he made to open our eyes, and the eyes of hon. Members opposite, to the dangers from Russia at a time when few other people had the courage to speak so openly. I can agree with quite a lot of what he said tonight. I can see that, as we had the disaster of wars in the past, and have the fear of war in the future, we have all got heavily to contribute—painfully to contribute—in taxation.

But I should like to put this point to the hon. Member—and, perhaps, it will appeal to him more than to many others, because he talked tonight, as he has talked before, about the fear of war —and suggest to him: Is it not a terribly dangerous position we are in, if there is any sort of possibility of the disaster of war ahead, or indeed of any other disaster, when we have no reservoir of taxable capacity left at all?

We have heard the Chancellor of the Exchequer himself admit that taxation can go no further. Is it not a terribly precarious position to have nothing in reserve at all? After all, a prudent man does insure his house, not because he expects there will be a fire or a burglary, but against the possibility that they may occur. The man who does not insure, and has not got a health service to depend upon, is very imprudent if he spends his entire income, without any reserve left for disasters, however unlikely they may be. I therefore suggest to the hon. Member that certainly we must have taxation but not at such a level that it leaves no reservoir, no reserve, whatsoever.

8.45 p.m.

What is also alarming is the fact that there is no indication that taxation can be reduced. Indeed, I do not know how the Chancellor will meet the situation in the future. Let me take, for example, the question of old age pensions. That, I think, is an expenditure to which we on all sides of the Committee are most sympathetic. At present we spend on old age pensions £238 million, or about one-quarter of the entire pre-war revenue of the country. In only 18 years' time without any increase in the nominal sum of those pensions—though, with costs rising, they may have to be increased— the expenditure will be almost doubled. It will amount to £421 million or above one-half of the pre-war national revenue.

The people would tighten their belts and respond to a continuation of even this level of taxation for a time, if they had some confidence that measures were being taken to enable a drastic reduction, with safety, in future. It is because that confidence is not present that the situation is so uncomfortable today. At present the Government and local authorities between them spend about £4,000 million, or about 40 per cent. of the national income. I believe that this country is capable of spending £4,000 million through the Government and local government, but I am sure that we are not capable, for long, of continuing to spend 40 per cent. of the national income.

When we have taken steps to push up our production to the maximum, then indeed we may be able to spend with safety what the Government are now spending. We on this side may think that it could be spent more wisely and beneficially for the country, but we say that the present level, however well it is spent, is dangerous. It is leading us to a most precarious situation. We must not spend as much as 40 per cent. of national income. Let us take those measures which will push u the national income to, say, £12,000 million and then that will be a safe proportion to spend. In the United States of America the Government are planning for, and expecting with confidence, a most enormous increase in national income in the next 20 years. What indications are there that that will happen here? Surely, the Chancellor himself would agree that he would far rather be raising the present sum of £3,600 million on a much larger national income by a lower rate of taxation. That, I believe, is within the capacity of this country if we produce all that we can.

Lower taxation today means lower national expenditure. It might well be that we should have to reduce expenditure and keep it down for a year or two before it was safe to make any drastic reduction in taxation. On the other hand, it might be that the very fact of reducing taxation would force the Chancellor to reduce general expenditure. I give one illustration. I remember talking to that formidable trade unionist in the United States, John L. Lewis, who has a high opinion of himself, and he said, "I think I have done a very good job of work, because I have continually pushed up wages. That has meant that employers have had to introduce labour- saving devices, and that has meant that profits have gone up." Mr. Lewis said, "I do not mind how much the employers make in profits so long as my men profit too. It has meant that prices have gone down, and I am glad of it, but above all it has meant that my men's wages are up."

It may be that if Income Tax were reduced now, the Government would be forced into making those reductions in national expenditure which I believe are absolutely vital for the safety of the country. I do not believe that the greater incentive provided by a reduction in taxation is the major advantage, important as that is. This would not be the time or the place to show how, with lower Government expenditure and with the better distribution of men and materials, we would increase national income. I confine myself entirely now to the additional incentive obtainable by reducing taxation. At the present time, a married man with one child, earning £7 a week, is paying £5 a year in taxation; if he makes £8 he pays £13; if he makes £10, he pays about seven times as much taxation. The man earning £7 a week pays 3d. in the £1. If he makes £1 more, then he pays 3s. on the extra £1. 1s it not obvious that that must be a great disincentive to a man to work overtime?

I have in front of me a table taken from E.C.A. showing the approximate current social expenditure per family and the approximate taxation paid per average family, with an income of under £500 in a year. The average family of that income, according to the E.C.A. table, in this country are paying out 67s., of which Income Tax takes 8s., and various other taxes and contributions add up to that amount, and they are receiving in return for that in the form of social insurance, family allowances, etc., 57s. That does not seem on the face of it to be a very good bargain. I believe that quite a lot of people in this country would willingly take a little less for the time being in social services if they were going to have a good deal more to spend in their own way. I, therefore, urge upon the Chancellor of the Exchequer that this is not a question of helping the rich or even the moderately well-to-do, but that it is for the safety of the country that we have to reduce national expenditure and also Income Tax.

Mr. Emrys Hughes

I understand that we are precluded on this Clause from offering constructive suggestions as to how national expenditure could be reduced. I shall not attempt to put forward constructive suggestions on the lines that I did last night. I wish to make one or two points in reply to the hon. and learned Member for Wirral (Mr. Selwyn Lloyd). I understood him to say that it was necessary in the interests of national finance to reduce our expenditure nationally and privately. One phrase which he used was that we needed, in order to restore our financial equilibrium the practice of self-denial by private individuals. I hope that I have not misunderstood him. I made a careful note of his phrase, that we must at the present time, in order to encourage the habit of thrift and discourage unnecessary expenditure, encourage self-denial by private individuals.

The hon. Member for Louth (Mr. Osborne) produced a newspaper in which there was an advertisement for National Savings, but he apparently had not seen the first page of that paper because on it was another kind of picture—it was not an advertisement; it was a picture of the Leader of the Opposition at Ascot. I should like to know how the hon. and learned Member for Wirral can reconcile his appeal for the practice of self-denial by private individuals with the spectacle of the Leader of the Opposition encouraging thrift by buying new racehorses. It is not consistent. We come here and appeal to the workers to save, and then the Leader of the Opposition and the hon. and gallant Member for Ayr (Sir T. Moore) have published in the paper pictures of themselves at Ascot. That is not showing an example of thrift.

Air-Commodore Harvey

How many Socialists were present at Ascot who did not have their pictures published?

Mr. Emrys Hughes

I do not know, but I know that none of our people were absent from the Division Lobby. I know also that if the Chancellor had bought two racehorses in a year, the suggestion would have been made that he had been pinching the money from National Savings.

The Deputy-Chairman

I think the hon. Member knows how far he can go in discussing this Clause.

Mr. Hughes

It may be quite true that National Savings are getting less, but why is that? Surely it is because there are more goods in the shops for the people to buy. They are now spending the savings they made during the war. People are buying new houses and furniture, and therefore we are getting withdrawals from the banks. I am not alarmed at this at all. Unfortunately, we are precluded from discussing constructive proposals for the reduction of national expenditure, but I understand that we can do that later on Clause 17. [HON. MEMBERS: "This is Clause 17."] I am not going to pursue that matter any further. I have succeeded at any rate in puncturing this hypocrisy of talking about self-denial on the part of our people. If the leaders want the people to practise self-denial, then let them give a lead.

Mr. Mott-Radclyffe (Windsor)

When the hon. Member for Ayrshire, South (Mr. Emrys Hughes) has acquired the same repute as an historian and author as my right hon. Friend the Member for Woodford (Mr. Churchill), and has earned as many dollars, we shall all be pleased to congratulate him if he wins a race.

This is one of the most important Clauses in the Bill. It is the Clause that imposes the standard rate of Income Tax, which is the major weapon with which any Chancellor frames his financial policy. We have had many exhortations during the last four or five years from right hon. Gentlemen opposite to accumulate savings and to produce more goods. We all agree with these objectives, but I think it is the first duty of the Government to practise themselves the economies they preach to others, and to provide the necessary incentives without which increased production cannot be achieved. As my hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) has already informed the Committee, we are unfortunately the highest taxed people in the world.

Since the war, when it might have been expected that there would be some alleviation in the burden of taxation, the burden has actually increased by no less than 20 per cent. Nor should it be forgotten that this burden is not only in the form of direct taxation but in indirect taxation as well. The Report of the E.C.A. Mission states that the load of local government taxation, indirect taxation and insurance contributions for a family of four earning less than £500 amounted to 48s. 6d. a week. We must also take into account that this immense burden of taxation has been accompanied by a steady increase in the cost of living. We shall not be able as a nation to sustain such a heavy burden of taxation in the long run. It is like asking a horse to win a race when carrying too much weight. It makes savings virtually impossible, and it puts the brake instead of the accelerator on incentive.

9.0 p.m.

I hope the Chancellor will forgive me for stating the obvious, namely, that a given sum of money cannot go in two different directions at the same time. It can either go into the Chancellor's pocket in the form of taxation or into savings, but not both. The proof of this lies in the rather misleading impression, which the Chancellor gave on the Second Reading of the Finance Bill in the figures for gross personal savings, for under this heading he actually included Death Duties and the revenue from the Special Contribution. To include those items in personal savings when they are a tax on capital would really make William of Wykeham turn in his grave. The mathematical formula which the Chancellor should have clearly imprinted in his mind is that high taxation plus an ever-increasing cost of living equals no savings, and that is what his figures proved.

May I say a word about incentives? Socialism goes on the principle that the more you earn the less you keep, and that is the principle on which our present system of taxation is designed. That may be very good Socialism, but it is not the speediest way to prosperity.

Air-Commodore Harvey (Macclesfield)

Unless you are sacked from the groundnuts scheme.

Mr. Mott-Radclyffe

Yes, but that means bringing everyone down to the level of the least efficient and we can all do that.

What happens to the motor manufacturer who has responded to an increasing demand for lorries by turning out more lorries to go on the roads? My hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) talked on this subject earlier this afternoon. Does the Chancellor go along to the motor manufacturer and say, "Well done, you have increased production. You have increased your sales not only in the home market, but overseas. You have earned more dollars than the man from the Ministry estimated you would earn. Well done. Come and spend a weekend at the Cripps Arms at £18 10s. a night." Does he say that? Certainly not. The reward for having increased the production of road vehicles is that these vehicles are now to bear extra purchase tax. What about the man who puts in a great deal of overtime? The more overtime he puts in the more he piles up his tax liability.

This burden of direct taxation at 9s. in the £ is a direct discouragement to risk-taking, and it is impossible for Britain to pay her way without those engaged in Commerce taking risks. It is impossible under a Socialist Government for any man to build up a big business from a small one, because the opportunity is not there. Hon. Gentlemen opposite very often tell us that the ladder is now erected by which all can climb to the top. In actual fact it is a ladder without rungs. Today a small business cannot expand into a big one. It is made financially impossible by the Chancellor. But, it is only by reducing taxation that the Government can either encourage savings, which are absolutely vital, or provide the incentive without which in the long run we cannot sustain our economic effort. Most important of all, it is only by reduced taxation and the consequent encouragement of initiative and skill that we can accumulate a reserve of wealth, upon which, in times of strain and stress, every healthy nation must have to draw.

Mr. Birch

We have had an interesting Debate. It has been a very familiar one. We have heard a number of statistics and facts from this side of the Committee and from the other side we have had doubtfully-in-order speeches on the subject of expenditure. We heard the hon. Member for Shettleston (Mr. McGovern) who, I thought, was very tough with my hon. Friend the Member for Louth (Mr. Osborne). He accused us of making false accusations of waste. What would the hon. Member think of a Government concern which sowed 10,000 acres of ground which was not fit to receive the seed in order to state in the House of Commons that they were sowing a total of 50,000 acres? That was done in the groundnut scheme. Was anyone prosecuted? One who was responsible was made a knight and the other was made Secretary of State for War. Hon. Gentlemen opposite have no business to accuse other people of hypocrisy.

I do not want to cover the same ground as has been covered by my hon. Friends, but to put one point to hon. Gentlemen opposite. As far as one can see, as a result of the Synod of Dorking the other day, there has been a certain change of policy or of heart on the part of hon. Gentlemen opposite. They now say "We are all Methodists," and that they do not believe in Karl Marx. They are not going to nationalise anything now, because they think it is all nonsense, and they are going on with a Liberal Society. If hon. Gentlemen really believe that, then they must make the system work. It is no good saying they are going to run a Liberal economy and have private industry, and at the same time have a taxation policy which makes it impossible to run that system. It is not straight and it is not honest. It may be, of course, that hon. Gentlemen are just trying to do something by the back-door instead of doing it by the front—which may be the object—while they say that they are trying to make the thing work.

My hon. Friends have pointed out the difficulties. Income Tax was originally a very small tax and it was thought to be transitory, but it has grown up into the present colossal system. It is damaging to risk-taking and to the building up of small businesses. If we look at economic history, we see how regular the rhythm is of new names coming in and old names going out. But, as my hon. Friend the Member for Windsor (Mr. Mott-Radclyffe) has said, that does not happen today. The whole basis of the Government's policy is conservative, in the bad sense. If anyone was in a big way of business in 1939 he has an absolute guarantee, but if somebody is on the way up he cannot get very far.

Private savings are going down. I hope that the Chancellor of the Exchequer when he replies will tell us why Death Duties constitute saving. That causes me great trouble. The noble Viscount who is the Leader of the Socialist Party in another place said that he had been consulting Treasury officials all the morning and could not make head or tail of it. I have not been able myself to understand it, and if the Chancellor of the Exchequer will explain it he will be a Duns Scotus or at least a Raffles.

Leaving that aside, the real aspect which I want to discuss is the effect upon industry. We have to look upon very high taxation in the context of rising prices. As the President of the Society of Incorporated Accountants said some time ago, the colossal rise in the price level means that much of the value of the savings of the past has been destroyed. He was talking about industry.

The mischief arises from the reason that in this country depreciation is allowed upon what is known as "the historical cost." That is to say, if you buy a ship you are only allowed to charge against profit enough to write off the original cost of it. It was stated on behalf of the Cunard Company the other day that a ship built in 1925 for £167,000 and now coming to the end of its useful life would cost £625,000 to replace; but you are only allowed to charge against profits enough to produce £167,000 at the end.

It is not untrue to say that throughout industry, roughly speaking, for every £1 allowed for wear and tear allowances by the Treasury you have to have £3 of earning in order to counter the rise in the price level. Therefore, in the context of rising prices the very high rates of taxation are being charged not on true profits but on profits which are largely fictitious. The true basis of taxation should surely be that all expenditure which creates an asset of tangible value which is used up in the production or sale of marketable goods should be charged against profits. That is to say, you ought to be able to write off the replacement value. I am not suggesting that we should get away from the historical basis because I believe that it would be too great a step to take yet, but we must recognise that damage is going on, and the only way to counter it is by the reduction of taxation.

The Chancellor last year postponed the evil day by doubling the rate of initial allowances, but that is only a slight postponement, and meanwhile the process still goes on. The Chancellor is the senior partner in every business and is taking not only the major share of the profits but quite a good share of the junior partner's capital as well. That is going on all the time, and it means that taxation raises prices. We are often told that taxation does not raise prices because you are only taxed after you have made a profit, but that is not so. You do get taxed before you have made a true profit. In order to build up what might be described as the price level reserve—enough money to keep your assets intact but not to increase them—you have to put your prices up to make the profits which are necessary to produce that reserve. It would help the Chancellor in his policy, particularly his wage-freeze policy, if he did not exercise such a rigid economy of the truth about such matters. He should realise what is going on. I hope he will discuss this a little.

As my hon. Friend said, taxation at this rate produces an inevitable result. It may produce many other unpleasant results, but it has the inevitable result that prices and the cost of living continue to rise. That, combined with the wage-freeze, is really exactly the same as having stable prices and a large wage reduction. In effect, a wage reduction is taking place now as a result of present policy, and when hon. Gentlemen opposite accuse us of all the things of which they do accuse us, they should remember that they are supporting a policy which inevitably results in a lowering of the wages of their supporters.

Sir S. Cripps

As you have said, Sir Charles, we are debating a very narrow question. The only point which arises for consideration is whether a proportion of the necessary sum of money to be raised in the Budget should be obtained by a tax of this amount in the form of direct taxation. One has to assume for the purpose of the argument on the Clause that the amount of money to be raised is the amount which was determined under the Budget. As you have said on more than one occasion this evening, Sir Charles, we cannot upon the Clause go into the question of expenditure. The question is, therefore, whether some of this money which it is proposed to raise by direct taxation should be raised in some other way; that is, by indirect taxation.

I venture to suggest that any examination of the proportion between direct and indirect taxation can only lead to the conclusion that it would be quite impossible equitably to reduce the direct taxation except in the way we have done in Clause 19, which we can debate presently, in order to increase the indirect taxation in some other way such as more Purchase Tax, more Tobacco Duty, more Beer Duty or whatever it may be. I have not heard any suggestion in the course of this Debate that this money could or should be raised in any other way, and therefore I ask the Committee to agree to this Clause.

Clause ordered to stand part of the Bill.