BUDGET PROPOSALS AND ECONOMIC SURVEY

HC Deb 11 April 1951 vol 486 cc1044-146

4.18 p.m.

Mr. Oliver Lyttelton (Aldershot)

I think it will be necessary for me to devote a large part of my remarks to the general economic background of the problems which the Budget seeks to solve. The right hon. Gentleman, in his very lucid explanation yesterday, made quite clear how the incidence of the taxes would operate.

First of all, I should like to express some pleasure that the authors of the Economic Survey this year have decided to abandon the practice of prophesying. The authors have left the prophet's mantle in the cloakroom, and I think that, if they have not already lost the ticket, they are quite determined to lose it sometime. That is to be welcomed. Here and there in their historical retrospect they treated us to a delightful extravaganza in the art of special pleading. By suppressing all the inconvenient things like the fuel crisis—they did not have to go back to the Battle of Waterloo for that—the convertibility crisis, the Daltonian inflation, rising prices, and so forth, they have been able to dish the whole thing up in a sort of illuminated address to the Government—no doubt, all ready for the Dome of Discovery at the Festival of Britain.

I should like to begin by saying how delighted I am with the financial results for 1950–51. I make no bones about it that they are far better than I ever estimated that they would be in my greatest moments of optimism. If we could ignore the causes which led to so much of the recovery, I think that we should all have solid grounds for satisfaction. Everybody in the House is heartened by the achievements of our exporters. There again, they achieved figures which I do not think any of us expected. I get the added satisfaction from their achievements because exporters are, of course, all free enterprise undertakings, with the exception of coal, and there unfortunately our record was not quite so good.

Every Member of the Committee, I am sure, feels great satisfaction that at the beginning of 1951 we can stand on our own feet and do not have to rely any more upon external aid. A proper tribute is paid in the Economic Survey to the great help which the United States of America, the Dominions and Canada, in particular, have given us through loans and through Marshall Aid, and I think that we might pause at this moment to express our gratitude for one of the greatest and most unselfish acts of statesmanship—and I am thinking particularly of Marshall Aid—in history.

Judged by themselves, these achievements are a great tribute to the vitality of our people. I think that the results give solid ground for satisfaction, but, unfortunately, much of the success in restoring our balance of payments, for example, and much of the success even of our exporters has been due to causes which everyone in the House deplores. It is as well to remember that about this time last year the business outlook was uncertain and hesitant. Exporters were wondering whether the demand for their exports would be kept up. Profit margins were being cut and German and Japanese competition was beginning to be felt. Two months later, all this uncertainty was resolved by the outbreak of the Korean War.

We would have preferred to work out the problems for ourselves and not have had them worked out for us by such a terrible event. But there it is, and since the Korean War began we have seen the vast American re-armament budget of £25,000 million sterling, and the large contribution which we are rightly to make ourselves. This has led to rising prices of raw materials and manufactures the world over, but it has made it possible for the sterling area to achieve a large overall surplus, and has, temporarily at least, greatly altered for the better many of our balance of payments problems.

I am trying to deal with the broad issue. I would say that the first thing that strikes one about the Chancellor's Budget is the extraordinarily little elbow room or liberty of manœuvre which he had. In last year's Budget debate my right hon. and hon. Friends and I laid particular stress on the fact that in times of peace—and to most of us it has seemed a most uncertain kind of peace—the Government had committed themselves to spend almost all the money which they could possibly raise. There was nothing in hand for an emergency, and almost everyone except the Government saw that emergency looming ever nearer and nearer.

In 1950 the emergency came. The outbreak of the Korean War showed even the Government that it was necessary to start to re-arm on a big scale. How is that re-armament to be financed? Yesterday the Chancellor of the Exchequer spent some time in explaining that there is no form of Government expenditure which could possibly be reduced, and I shall have something to say about that later on. I should like the Committee, first of all, to address itself to that argument in the context of what I am now saying.

In this context, all that the Chancellor was saying is, "My predecessors had pledged every asset of the estate which I have just inherited, and I find that there are no possible reductions in the commitments which I can make." This argument, which is no doubt an excuse for himself, if a somewhat unjustifiable one, is one more condemnation of six years of Socialist management of our finances. "What can I do?" is the age-long cry of those who find themselves in a position out of which they have difficulty in manœuvring.

I said that I did not accept the Chancellor's statement that he could make no economies. He set out the problem very clearly and, I think, very fairly from his point of view. I should be the first to admit that economies in Government expenditure must be discussed under two categories. The first is administrative expenses, which are just the housekeeping expenses of keeping the Government and its servants going. I think—and I am going to put a figure to it—that about £50 million could be knocked off the cost of administration if the Government really tried.

It is impossible to do more than indicate the general lines upon which such economies should be made. I think that if he is fortunate enough to catch your eye, Major Milner, we shall have a speech from one of my hon. Friends on this side of the Committee who will go into great detail on some of these matters, but I want to say that there are a number of things which I wish the Chancellor would look into.

There is far too much inspection going on over industry and other things. We find that there are three or four inspectors where one would do. There is far too little economy in the use of Government clerical manpower, and I have with my own eyes frequently seen practices going on which, if they occurred in my own business, would lead to the immediate dismissal of the manager. One cannot raise the Government's stationery bill from £2 million in 1938 to £16 in 1950 without engaging a great many extra people to write on that paper. We have to pay not only for the paper but for all these extra people. Hon. Members opposite can think what they like, but I want to record my opinion that over the whole field of Government administration, which, after all, in this context accounts for about £2,500 million, ignoring defence and debt services, it is possible to lop £50 million off administration expenses.

The other category has, of course, changed as a result of policy. I was rather horrified by the Chancellor's statement or his acceptance that there could be no way of saving on the £1,500 million which was, by and large, the expenditure on armaments. I have been in the business myself. I was Minister of Production for over three years, and I can tell the Committee that there is no field of Government expenditure where greater waste is possible unless the most rigid control is kept over every item of expenditure. That, of course, will perhaps not produce the total sum—I do not want to be unfair—but it will accelerate our arms production.

For heaven's sake do not let the Chancellor genuflect to re-armament expenditure under the idea that the Treasury should keep their hands off this field. It is the very one in which they should be intrusive. Never in the past have they stifled the production of weapons, and I do not think there is any chance of them carrying it that far, but it is absolutely necessary for them to scrutinise and criticise and prune armament expenditure as one of the first contributions to the subject.

We have always said that the administration of the Health Services lent itself to abuse, not, of course, by the great majority of the people who use that service and benefit by it, but by the unpatriotic minority who were beginning to be seen. It is common knowledge that we have advocated making some charge for spectacles and false teeth as a means of economising and preventing abuses. In spite of some of the things that were said at the South Hammersmith by-election and others, the Government have now at long last come round to this unpleasant—and very unpleasant—but, I fear, necessary method of economy.

On this point I should like to ask why the Minister of Labour still finds himself a Member of His Majesty's Government. I have not the slightest doubt that there is some explanation, which at the present moment escapes me. According to my information, he was reported as saying—I hope he will correct me if I am wrong—that he would never be a Member of a Government which made charges on the National Health Service for a patient. Is his continued membership of the Government due to a definition of this word "patient"? That was suggested last night by the hon. Member for Warrington (Dr. Morgan).

I think the explanation must be that a man who gets very ill, has all his teeth out and gets a National Service denture is not a patient within the definition of the Minister of Labour. Am I right about that? Or, of course, it might be that a man whose sight is defective, who has to go to the oculist and is supplied with spectacles under the National Health Servise is not a patient within the definition of the Minister of Labour.

Whether that explanation is right or not—and I offer it to him with my compliments—surely we are entitled in this Committee to have a full account of the struggle which he has had with his conscience, and to learn the reasons why upon this occasion at least his conscience has not won. Whatever the explanation offered, we must now all realise that this rugged monolith of the Labour movement is now standing precariously balanced on the foundation of a verbal quibble.

Mr. McGovern (Glasgow, Shettleston)

Do I understand the right hon. Gentleman to suggest that the Opposition pioneered the way for this charge for spectacles and false teeth, and that they take credit for having forced the Chancellor to do this?

Mr. Lyttelton

Frankly, I do not think there is any credit in it. I make no bones about it. We think it was a necessary measure, although it is a very regrettable measure. The Government have introduced it and they must take the full responsibility.

I now turn to the most significant omission from the Chancellor's speech yesterday. His speech lasted two and a quarter hours, or thereabouts—and I promise him that I make no complaint about that, because I listened with deep interest and attention to his very good presentation of the subject—and in that long time he made no mention of what I consider to be the most important aspect of our economic affairs today. He made no mention of the possibilities of increased production.

It is significant that the Economic Survey puts the possible increase in production in 1951 at about 4 per cent. above the level reached in 1950, and seems to estimate that we can maintain the same rate of production as we were attaining during the last quarter of 1950. I would remind the Committee that a fall of 1 per cent. in our production would reduce our national resources by £80 million.

One would have thought that if there was one subject which the Chancellor should not have omitted, it was this very one, because it is by these means, if they are open to us, that we could close the inflationary gap and solve many of the difficulties from which the consumer will suffer by rising prices. It is not too much to say—and it has been said by many people on the Government side as well as on this side of the Committee—that increased production would immeasurably ease the whole problem.

Why did the Chancellor omit it from his statement? I cannot accept that he omitted it for lack of time. I think there must be some other reason, and I wonder whether this is not it. If he raised the matter of increased production, would he not inevitably have had to say something about the subject of British industry being supplied with the necessary raw materials to admit of this increase? I think that is why he omitted this question.

Of course, the plain fact is that at the beginning of their administration in 1946 and 1947 the Government were faced with a great shortage of foreign exchange. That was not their fault; it was largely the heritage of the war. But in the mind of Sir Stafford Cripps the shortage of dollars became an obsession. He was perfectly right to have that obsession during 1948 and 1949, but from the beginning of 1950 we should have started to buy raw materials and use our foreign exchange to do it. It is notable that my right hon. Friend the Member for Ormskirk (Sir A. Salter)—whom we are all very glad to see back in this House, and who I hope will be lucky enough to catch Mr. Speaker's eye later in this debate—wrote an article in the "Financial Times" last summer, in which he pointed out that the Government should have been running down their surpluses abroad and going shorter of money and longer of commodities.

Industrialists, and all those engaged in business, are very familiar with this problem. It is perhaps too much of an excursion into the obvious to say to the Committee that if nothing is done about it and one just lets things be, the stocks of a business will always rise at a time of falling demand and will always fall at a time of rising demand. That is quite obvious, and much of our business ingenuity is used in trying to prevent those kinds of things from happening. But this is just what has happened to the Government. In traders' parlance, they are now long of money and short of goods at a time when the skilful trader would be short of money and long of goods. Perhaps that is why the Chancellor omitted from a very long speech perhaps the most important of all means by which we could alleviate the economic difficulties of the day.

I apologise to the Committee, but I must reinforce my point with figures. According to the White Paper on National Income and Expenditure, the Government's trade stocks fell by £132 million based on 1950 prices. Of course, at replacement costs in 1951 this would probably be well over £150 million, and perhaps over £160 million. I cannot estimate the figure because I have no detailed knowledge of the commodities held in the Government stocks. As the Chancellor told us very candidly yesterday, one of the reasons there appeared to be an economy in Government expenditure was because they had not bought many of the raw materials—I suppose such as meat and metals—for which they had estimated. So, when the Chancellor is talking about economies he is unfortunately in a very bad position, because what he told us yesterday was that he can make no economies where they should be made but that he has made economies where they should not be made.

I now turn to the subject of devaluation—not a subject which Government spokesmen in these days are particularly anxious to ventilate. If we were to listen to some of the Government spokesmen, we should be led to believe that the rise in prices and the rise in the cost of living—which is perhaps the most serious of all our economic problems today—were due to the Korean war. I think we had some echo of that at Question time this very day. On this subject the Government have not yet succeeded in coordinating either their ideas or their policy or their public statements. I give the Committee an instance. The "Bulletin for Industry," a Treasury publication, in April, 1951, used these words: The first tendency in answering that question is to assume that because raw material shortages started with the Korean crisis and American stockpiling, and so on. That is the Treasury bulletin. The Economic Survey, also I suppose a Treasury publication, states in paragraph 46: Industrial demand for raw materials everywhere was already high and rising in the summer of 1950, and even before re-armament world consumption of a number of commodities was outstripping production. Lastly, the Lord President of the Council as he then was, now the Foreign Secretary, in a broadcast on 21st October, 1950, stated: At the beginning of the summer it looked as if there was going to be an easing of prices. It is really high time that the Government made up their minds which of these horses to run. The statements have the great advantage, of course, that we can be sure one is right because they are entirely contradictory. It is hardly surprising that when the same Department, and that the Treasury, speaks with two voices about the same subject, the results are so disastrous for the national economy.

I suppose that a fair analysis of rising prices would divide the subject into three phases. The first phase, caused largely by the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton), showed that between the General Election of 1945 and his departure in November, 1947, there was a rise in retail prices from 148 to 167—about 13 per cent. I am using the London and Cambridge index figures. Secondly, largely as a result of imprudent financial administration, partly from the convertibility crisis and other pieces of inefficiency, we had to devalue the pound, so that the pound which used to buy four dollars worth of American cotton, after September, 1949, only bought about 2.80 dollars worth. So it was perfectly obvious that when the stocks of cotton were exhausted, the price of cotton goods, sheets, shirts and so on, had to go up, and the second phase in the rise of prices is directly attributable to devaluation. Do not let the Members of the Committee forget that, and let them see that members of the public remember it.

In short, devaluation by a single act increased the cost of American imports by 44 per cent., and although I do not want to go into the reasons because they are elaborate and obvious, the cost of many sterling imports rose nearly by that amount owing to the competition felt from hard currency areas to whom these sterling imports became cheaper by reason of devaluation. That is the second phase. It is rather a grim fact that most of the prices up to date can be attributed to either the first or the second phase. They have already begun to feel the effects, no doubt, of the Korean war and the American re-armament and strategic stockpiling, and that is the third phase.

Unfortunately it is true that we have not yet felt anything like the full rise in prices, and the Chancellor of the Exchequer has been quite frank about it. Some economists think that the rise in prices and the cost of living will reach the staggering increase of 15 per cent. during 1951. I feel that that is quite probably an over-estimate. I prefer to quote the official figures coming from the Economic Survey, which are to be found on page 43. It states: Although the volume of personal consumption in real terms will have to decline, the money value of goods and services available for consumers to buy may, as shown in Table 24, increase by about £600 million between the two years, mainly because of the rise in import prices. That means in rather less genteel language that the consumer will have to pay £600 million more for a slightly smaller volume of commodities. I do not agree with this figure either. I think that the truth will probably lie somewhere between the two. This is the kind of price we have to pay for the improvement in our balance of payments.

Finally, it is necessary to state that all through these three phases there runs the same theme, that Government expenditure has been too high in relation to the national resources, and now that we are faced with a national emergency that fact is being brought home to us by what the Chancellor himself describes as a "harsh and unpopular Budget." Before I turn to the specific taxes and the Chancellor's method of raising revenue to meet our emergency, I feel that I must say a word about the balance of payments.

As we all know, our balance of payment problem was greatly eased during 1950, partly by the running down of stocks to which I have referred, but in the main due to the spectacular increase in our invisible exports. Our invisible exports rose by about £200 million to £382 million. The largest contributions to this result were from the trading profits of British-owned concerns in the production of such commodities as wool, rubber and tin. These earnings are an unpleasant reminder of how much our economy depends upon the devotion to duty of those who are producing these commodities under very hard conditions in a country like Malaya. The White Paper deals with the increase in invisible exports under the heading of "Athis." Other invisible exports have risen from £209 million to £315 million. It would be interesting to know how much of this is oil—I think that probably a great part is—and how much is due to commerce-banking, insurance and all the other invisible exports of which we know the Government do not approve.

Mr. S. N. Evans (Wednesbury)

Nonsense.

Mr. Lyttelton

I suppose that they shut down the Liverpool Cotton Exchange in order to improve our invisible exports. The result, as I have said, is a favourable balance of payments of £229 million.

I must now worry the Committee by going into some further technicalities, because there is a very important point which now emerges, and it relates to sterling liabilities. My right hon. Friend the Member for Woodford (Mr. Churchill) bitterly complains of the phrase "sterling balances," and I think we all think he is right. They are debts, and the more straightforward description from our point of view is that they are sterling liabilities.

During the last year our sterling liabilities to non-sterling countries other than dollar countries decreased by £207 million. The reason for that was that the sterling area were heavy sellers of commodities to European countries, for example, and they obtained payment in sterling for their sales. This sterling was provided either by the European countries running down their sterling balances—and in this connection the term is the correct one—or by borrowing from Great Britain through the European Payments Union. At the time this was happening our sterling liabilities to the sterling area increased by £382 million.

To summarise what these figures mean, it means that the increase in our gold and dollar reserves and in the favourable balance of the sterling area as a whole has been financed to the extent of £224 million by increasing our indebtedness to the sterling area of £224 million. I must at this point thank the Chancellor for Tables 12, 13, and 14 in the Balance of Payments White Paper, and, for that matter, the Board of Trade for their extra figures on page 35 of their Report. These Tables were added at my request, and although most hon. Members and I are pretty punch-drunk with statistics by now, they have led to an easier comprehension of the tangled pattern and kaleidoscope of these trade figures.

Finally, although I refer with satisfaction to the results of 1950; the first two or three months of 1951 show a marked deterioration in our balance of trade, and it makes one look with some apprehension to the rest of the year, although I hope it is too gloomy to base precise estimates on the results of only three months.

With that background I turn more specifically to the Chancellor's estimates of the inflationary gap and his method for closing it. I was frankly surprised to find that he estimated the inflationary gap at only £150 million. He added £19 million this year for old age pensions, making the total amount which he wished to raise about £170 million. I was relieved to find the official estimate as low as that, and I am not going to be too critical of the calculations which he made in reducing the gap to this particular dimension.

The Chancellor succeeded in the course of his otherwise lucid speech of surrounding this matter of the inflationary gap with a kind of Whitehall nimbus, and I fear the Committee have become lulled into a sort of feeling that this inflationary gap of £150 million was, in fact, bridged and that that meant there would be no further rise in prices. I know the right hon. Gentleman is scrupulously fair in these matters. I think that I could even quote his words, but that is the impression which got round. Of course, it does not mean anything of the sort. The Chancellor said himself that the object of closing the gap was not to add further to the inevitable rise in prices which other causes would bring about.

There are, of course, four main sources from which he proposed to draw the necessary revenue and the Petrol Tax is the first. This increase was described by the Chancellor as long overdue, a most curious piece of phraseology for the Chancellor to use about a tax, as if the object of the nation was to see that every tax was as high as possible as soon as possible. I think any sensible man, including unrepentant Tories like myself, hold the view that every tax should be as low as possible for as long as possible—or am I wrong? The defence for this tax is another bit of special pleading. I do not know what it has got to do with the matter, but he said that the price of petrol here was still considerably below what it is on the Continent. I do not think we can attach much weight to that argument. We shall have to examine during the Finance Bill the influence of this tax and its effects on the cost of production, the cost of distribution and the cost of living, but this is not the moment to go into those details.

The second main source of revenue is an increase in the Profits Tax. The Chancellor pointed to the increased dividends paid lately and gave a percentage by which dividends had been increased since the middle of last year. He did not, of course, give details of the increased capital on which these increases in dividend had been made. It would have been fairer if he had done so. I dare say the figures are difficult to get, but, apart from that, that is what he based some of his support for this Profits Tax upon. There are two very bad features of this Tax. The first is that it inevitably decreases, and I think almost exactly by the same amount, what are known as private savings, which are the amount of the retained profits by companies. The ordinary shareholders—I am extremely surprised that such an expression was got over without any jeers from hon. Members opposite; and I should like to remind the Committee that the average holding as to 99 per cent. of the stockholdings in general stock companies is under £400 a person—have got to be looked after.

Sir Richard Acland (Gravesend)

There is rather a different figure about averages. The right hon. Gentleman has referred to the average holding, but what is the size of the holdings within which the average share is held?

Mr. Lyttelton

I am very glad that the hon. Member is continuing the argument. If he likes to go into this matter, he will find that nine-tenths of the total holdings are in sums under about £500, and when we get to the final one-tenth we get into much larger holdings.

As I said, the ordinary shareholders have to be looked after like any other section of the population. Many of them are living in retirement or old age on the dividends of their ordinary shares, and if there is to be an increased tax on distributed profits by and large in this phase of our economy, the tax will be paid at the expense of the amount of money retained in the business. We may not applaud that, but it is nevertheless a fact, and it is true particularly of the companies who are distributing only a small proportion of their total earnings. Of course, the effect on companies which are expanding their businesses, where the margin is much smaller, will be quite different. This tax on distributed profits will be a tax on the companies' vitality and their ability to expand, because it will limit their ability to raise capital. That is one bad feature, and the other, of course, is that as a deflationary weapon it is worse than useless, because the amount of the tax will be upset by a decrease in private savings.

I must say one word about Purchase Tax. We on these benches recognise that there is very little opportunity of manœuvre and we could not expect a great reduction in the Purchase Tax. Today I must recall my satisfaction that the Treasury Bench have taken the advice which we gave in the Finance Bill debates last year. They have eliminated from the Purchase Tax a number of household necessities—not all of them—and I think that that is a reform which was long overdue. We pressed this last year and got no result.

The next source of revenue is, of course, the raising of the Income Tax. Here, again, it was an omission from the Chancellor's argument that if £75 million is raised by an increase in the Income Tax, it cannot be entirely credited as closing the inflationary gap, because part of it will be offset by a reduction in personal saving. On these Benches we think he was absolutely right in lightening the burden for those with family responsibilities, and that part of his proposals will receive our support.

I come to further compliments to the Chancellor and congratulate him on the extraordinarily understanding way in which he has been reading Conservative literature. He has done two wise things, and they are wise because they are Conservative ideas. I should like to let the House into a secret. It is perhaps a little sour for me to have to do so, because I should like to tell the Committee that almost exactly the same scheme as he has now put forward about old age pensioners was to be part of the Conservative manifesto at the next General Election. Now, instead of it being in ours, it will be in his. I do not mind, because for a long time we thought that these old age pensions ought to be adjusted, particularly with a view to inducing people to lengthen their working days and retire later in life. On this matter we would have produced some variation in the scheme which I think would have made it even better and more scientific.

I want to conclude by saying that the outstanding feature of this Budget is that, owing to the management of our affairs during the last six years, the Chancellor found himself with no liberty of manœuvre. He has made a genuine attempt to spread the burdens as widely as he can, but in this vale of tears it still remains true that re-armament is going to be paid for by rising prices. He has made this Budget in the knowledge that wages and salaries are going to lag behind increases in prices. Here, again, is one of those unpleasant truths which no amount of juggling with the figures or of Socialist theory can get rid of. The burdens are going to fall mainly upon those who are least able to bear them. As the population becomes aware that the policy of re-armament is to be financed and paid for by rising prices, while at the same time there are exhortations to keep wages and salaries stable, our people will use far harsher terms about the Chancellor's Budget than even he used about it himself on the radio last night.

Mr. Collick (Birkenhead)

That is a poor show, a shockingly poor show.

5.0 p.m.

Mr. Clement Davies (Montgomery)

I should like to offer our warm and most sincere congratulations to the Chancellor of the Exchequer upon his Budget statement of yesterday. I have listened to many a Budget statement. I remember listening, from another place rather than from the Floor of this Chamber, to the famous Budget statement of 1909. Never in my experience has there been such a chorus of congratulation to the Chancellor of the Exchequer as the new Chancellor has received during these two days. They are thoroughly deserved, because the Budget speech was a personal triumph. It was well expressed, well put together, well constructed. It was lucid and clear, and very easy for us all to follow.

It looks to me as if this Budget, if not very well received outside, has been followed by a sense at any rate of relief in many quarters, at the form which it has taken. I do not gather that there has been very strong criticism from the right hon. Gentleman the Member for Aldershot (Mr. Lyttelton). There was no mention in the Budget of a capital levy or of any tax upon capital increases, nor were there any harsh Income Tax proposals.

The Chancellor has entered upon his new career at a very unfortunate moment. The truth is that this country is now upon a war footing, and has been so since last June. We have now to take measures which are truly war measures rather than peace measures. The Chancellor therefore has to face an expenditure this year of no less a sum than £4,197 million, an astronomical figure compared with the figures to which we were accustomed before the war. He has to find it at a time when taxation is already so high that in some directions it has reached not only saturation point but the point of diminishing returns.

The Chancellor expects to receive in the coming year less revenue from tobacco and from intoxicants of all kinds. He cannot look there for any increase to meet his increased expenditure, so he has to find the money when there is greater inflationary pressure than we have previously experienced. That pressure is likely to increase in the future because of the fewer consumption goods, and because there will be rising incomes both of wages and of salaries.

There is one comment I feel I ought to make both upon the Economic Survey and on the statement made yesterday by the right hon. Gentleman. With what I might call "the economic preamble" to his speech everybody must agree, but I wish that he and the Economic Survey had laid greater emphasis upon the undoubted fact that fewer consumption goods will be available and that they will go on diminishing in the coming year unless something very extraordinary happens.

Mr. Gaitskell indicated assent.

Mr. Davies

The right hon. Gentleman agrees with that. If the difficulty could be overcome by increased production that would be encouraging, but it is admitted that the amount of increased production that he can get will not meet all that is required. We have had to increase in quantity our exports to get the same volume as we were getting before devaluation. That increase had to come from stock which would otherwise have been home consumption goods.

In addition to that, there has been a further call for more of those goods to meet rocketing world prices, and to meet stockpiling at home, when prices have already rocketed and when our stocks were running down. As the right hon. Member for Aldershot has pointed out, the time will come when those goods will have to be replaced at much higher prices. That replacement can only be met by again reducing the goods for home consumption. Finally, world needs are growing. There are 1,000 million more mouths to feed every year. The means for satisfying that demand are now to be diverted to the production of armaments and implements of defence.

So far, very little has been diverted, either as material or as labour, towards the full amount that will be required for armaments. We are only in the planning stage at the moment. When the plans come to full fruition as the years go on—and certainly next year—the pressure will be felt all the greater and the amount left for us will, therefore, be less. Let us take that fact in conjunction with another new fact. A change has come about with the new Chancellor, since Sir Stafford Cripps, whose absence we all regret, has gone. There is no longer a wage freeze. That has rightly disappeared. We owe a deep debt of gratitude to the trade union leaders and the men in industry for showing, at the request of the previous Chancellor of the Exchequer, so much restraint throughout those years. That restraint put a tremendous strain upon them. Prices were rising, but they were asked to keep their wages at a low point.

It is right that they should now get increased wages to go with increased costs. That is the sound way. I do not like subsidies. I much prefer wages to follow as the costs increase. It does not seem to me right that we should keep down wages and then bribe the men to keep quiet by making it up out of taxation. It is much better to allow men to have a proper wage, so that they can maintain their own standards of living.

We must not forget the class which cannot increase its income, not only the old age pensioners but other pensioners. The old age pensioners are not the only ones who suffer. There is another great body, whom we do not usually call pensioners, of people who are living upon pensions. Take teachers, for example. One is especially sorry for those who retired before the war, when salaries were much lower. Many of them are still alive and are having to live upon what was enough in those days, but certainly is not enough now. I will quote what was said to me by a very honoured colleague of the right hon. Gentleman. His brother had worked hard and honourably all his life and, thinking that he and his wife would be safe enough, he retired upon pension some time ago. Finding that his pension was now not enough, he had written to his brother saying, "It seems to me that we have both lived too long." That is one of the most strikingly pathetic statements I have ever heard. Something ought to be done to meet the hardships of these people.

I am glad that the Chancellor has come to the assistance of the old age pensioners. So far as it goes, it is all to the good. I am glad that there was an intelligent anticipation of what might be put forward from this side of the Committee. I would tell the Chancellor that I much prefer our proposal, which is that the pensions should be linked closely with the cost of living so that what was regarded as the correct pension years ago when the cost of living was low, would now be raised and the same standard maintained today. Pensioners should have that as of right and should not have to go to the National Assistance Board to appeal and to explain their position. I believe that that must come about at some time or other.

It is right that the Chancellor should have budgeted for a surplus. My only doubt is whether he has provided enough. I know it is difficult to determine what should be the precise figure and I realise that had he been tougher, he might have done more harm. Therefore, I cannot really quarrel with the figure which the Chancellor has in mind, and I would merely say that I have some doubt as to whether it is enough. Like the right hon. Gentleman the Member for Aldershot, I wish that more had been said about production both in the Economic Survey and by the Chancellor. The only answer to inflationary pressure is production, more production and still more production. To increase production, will the right hon. Gentleman ask his colleagues in the Government to do all they can to remove the restrictive practices on both sides of industry which are hindering production?

We are face to face with tremendous inflationary pressure, and the Chancellor, who is a sound economist, knows that the one way this can be met is by increasing our production. He should do whatever he can to encourage that and to do away with the hampering restrictions on both sides of industry, on the side of the employers, with price rings, and so on, just as much as on the side of the employees. I realise that everything will depend upon the supply of raw materials. It is most unfortunate that this should come at a time when there is a call from all the free countries for the very raw materials of which we are short. This has created the extra shortage. Without wool, zinc, rubber, sulphur, tin, and so on, the whole of our structure falls to the ground and we shall not be able to produce anything like the quantity of export goods which we need to maintain our imports even of food.

I should have liked to hear more from the Chancellor about the cutting down of expenditure. Very rightly, the Chancellor has challenged us on this, saying that if we can suggest some way of cutting down expenditure it is only right that we should put it forward. He said that we should be as specific as we can. For many years I have not deviated in this matter. One cannot be so precise as to say "Cut that." Only Government Departments can provide the answers to the principles which I should follow. I would ask them what there is that can be postponed at the moment without doing irretrievable harm. Some things cannot be postponed but must be done and done now. However, I am sure that we are trying to do too much at the same moment, and that it puts a burden upon our shoulders which it is almost impossible for us to bear.

As an illustration, let us take a matter about which I was very anxious and which has now become general throughout the country, the feeding of school children. Many hon. Members will remember the report that I had to make about my own country of Wales. The best and healthiest children there, were those in the Rhondda who were given their midday meal because their parents were unemployed. That is the kind of thing that we must continue. But surely the Government can postpone great Government buildings or suggest that new county council buildings might be postponed for a while until we are in a better position. Cannot the Chancellor say to each Department, "Go through all your proposals and cut out for the time being all those things which can be postponed until we are through the present difficulty"?

The Chancellor is pursuing much the same attitude as that with private persons and firms, for he is asking them to cut down their expenditure. That is really what is behind the postponement, for the time being at any rate, of the initial allowance of 40 per cent. on machinery and plant and 10 per cent. on buildings. Private persons and firms are thus discouraged from starting new buildings. There is a real danger in this because it may affect the production which we so badly need. Nevertheless the Chancellor is going out of his way to discourage the provision of new machinery, plant and buildings. If he is asking us as individuals to do that, cannot he ask his colleagues in the Government to follow the same rule? It is a good rule to follow, and by means of it a large part of our expenditure could be saved for the time being.

This is a Budget of some £4,000 million. I believe that the total number of civil servants and local government employees is about 2,300,000; if that is not correct, it is at any rate a vast figure. Is no waste going on among all these public servants? We experience things ourselves from time to time which can mean nothing else but waste. Is enough being done today to avoid that waste?

I said at the outset that we are really on a war footing and that we are dealing with difficulties to which we have not been accustomed except in time of war. May I ask the Chancellor whether, in those circumstances, it would not be wise, and for the benefit of the whole country, to establish what we had in time of war, a Select Committee of the House to inquire into national expenditure, which then did great good? The mere fact that it was in existence made people who, otherwise, would have been extravagant, much more careful about what they were doing.

To turn to the changes suggested by the Chancellor, Profits Tax, as such, is a bad tax because it is a penalty upon good management and careful husbandry. However, the Chancellor is quite justified in proposing it at present for two reasons. One is that profits have gone up enormously during the last two or three years due, to a considerable extent, to the wage freeze agreed upon voluntarily by the workers which enabled large profits to be made by their employers. Therefore, it is only right, when the Chancellor wants money as badly as he needs it today to meet expenditure, that he should turn to that tax. Secondly, it is right that he should put a further tax on distributed profits, to stop inflation. For those two reasons the Chancellor was right. It should only be a temporary tax, however, since it may well be a penalty upon good and proper management.

For the same reason there is justification for increasing the Purchase Tax. I quite agree with the tax on motor cars, for they will be sold whatever the price may be, even if it is double. The tax will not stop their manufacture, since those who need them must have them. Moreover, Purchase Tax upon electrical appliances was badly needed. I have not understood the double policy pursued with regard to electricity. There has never been enough to go round; we have to face cuts in electricity from time to time, yet every day in the papers we see efforts made to push the sales of electricity. I think the tax which has been put on will ensure that this does not get out of hand. The only tax I have doubt about is the petrol tax. The cost of transport has gone up already so much and this is bound to add to it. There is no other tax which has its effect so quickly upon increasing costs and transport charges. As soon as this is put on it will be reflected in increased costs and, therefore, in increased prices.

I do not want to enter into further detail now. On the whole, I think the Chancellor has done extraordinarily well in face of his difficulties. He means to be fair, he certainly means to be honest, and he is conscientious. I admired, as I am sure the whole Committee did, his fine peroration. The right hon. Gentleman is imbued with a high sense of duty and his peroration, if I may say so, rang true throughout. We are face to face with tremendous difficulties. Our whole future is in danger and we want our liberty. It is beyond all price. We are all called upon, in order to defend that liberty, to make our sacrifices. I believe that everyone in the country is prepared to make all the sacrifices possible to maintain the proud position which we have inherited and which we all want to see handed on to those who follow.

Mr. Snow (Lichfield and Tamworth)

Does the right hon. and learned Gentleman consider that the Select Committee on National Expenditure, if resuscitated, would operate successfully in conditions of party, as opposed to a Coalition Government?

Mr. Davies

I do not see why it should not, because it would be composed of hon. Members from all sides of the House. The mere fact that it was in existence would have an effect straight away.

5.26 p.m.

Mr. Benson (Chesterfield)

Before I congratulate the Chancellor, I would like to deal with the point regarding the Select Committee on National Expenditure. It did extremely valuable work during the war and it was for that reason that the Estimates Committee has since taken over its work. The Estimates Committee is doing exactly the same work—

Mr. C. Davies

No.

Mr. Benson

It goes right to the spot in investigating the actual activities of Government Departments. Its function is much the same as that of the old Committee on National Expenditure and is quite different from that of the Public Accounts Committee.

In addition to congratulating the Chancellor on his brilliant speech, I should also like to congratulate him on the extreme ingenuity of his Budget. Faced with an increase in expenditure of £931 million in the coming year, managing to meet that problem with an increase of taxation in the coming year amounting to only £139 million, and managing to do that within the scope and according to the canons of orthodox taxation is a great achievement. Because the achievement has been so great, the criticism we have had so far has been mild.

There is always something in a Budget that everyone can criticise. Burke's old tag about "to tax and to please" is as true now as it was when he uttered it. But there has been little effective criticism today from the Opposition spokesman and I would hardly call the remarks of my right hon. and learned Friend the Member for Montgomery (Mr. C. Davies) criticism at all, since I agree with so much of what he said.

Mr. C. Davies

The hon. Member usually does.

Mr. Benson

The fact that we have been able to meet this enormous increase in expenditure with a Budget which I would hardly describe as harsh or savage, is a tribute not merely to the Chancellor but to the extraordinary resilience and vitality of this country, and also to the part that six years of Labour policy has played in that.

The right hon. and learned Member for Montgomery mentioned that our standard of living would drop. Inevitably it must. We are to spend considerable sums on armaments, whether we like it or not, and the probability of any increase in production is remote because of the appalling difficulties in regard to raw materials. During the last two years we have had a rate of productivity in this country which has never before been equalled, but that cannot continue if there is a world shortage of all raw materials required for our industry. Rearmament and war have produced that world shortage.

The criticism by the right hon. Member for Aldershot (Mr. Lyttelton) was really to recount all the difficulties and problems into which this country, along with most other countries, has run in the last five or six years and to dump them on the doorstep of the Labour Government as if the Labour Government were responsible. The mere fact that we have met these difficulties and have come through so well is, I repeat, a credit, and not a debit, of Labour Government policy.

The right hon. Member made certain suggestions with regard to possible economies. So did the right hon. and learned Member for Montgomery, but he was very wise not to specify. The right hon. Member for Aldershot, however, did so. He suggested that by cutting down our Civil Service, our investigators and our administrators, we could save £50 million. If we assume that the average salary of a civil servant of the type to be cut is £500 a year, that would mean cutting our Civil Service by 25 per cent. Does anybody seriously propose that we could do that? What we have done for the last year or two has been to make a steady decrease in numbers, and last year there was a reduction of 20,000, but to propose that we could cut the Civil Service by 25 per cent. is too fantastic for words. That, however, is what would have to be done if we were to save £50 million on administration.

I was rather puzzled when the right hon. Member, in practically his next sentence, suggested that there must inevitably be extravagance in arms production and that, therefore, we needed more inspection. The right hon. Member would cut down on civil servants and inspectors in order to save in one direction, but would increase them to make savings elsewhere. How he can extricate himself from that dilemma, I do not know.

There is no machine that works with 100 per cent. efficiency, and there never can be. Inevitably, there must be waste and extravagance in a matter of spending £3,000 or £4,000 million a year. We have, however, two very effective and powerful Committees as servants of the House—the Public Accounts Committee and the Estimates Committee, the latter being now really a committee on national expenditure—sitting regularly and con- tinuously. The Public Accounts Committee have at their disposal the whole of the information available as the result of the audit by the Comptroller and Auditor-General, who sits with the Public Accounts Committee, and every year the whole of the accounts, or at any rate the major ones, are gone through. From time to time we find an occasional extravagance—we always shall—but we never turn up anything which is sufficiently large to have the remotest influence upon taxation. The idea that we can save by discovering some fantastic extravagances or waste, that we can slash the Civil Service in sufficient numbers to produce any effect upon taxation, may be perfectly all right from a platform, but—

Sir Arthur Salter (Ormskirk)

I do not want to contest the hon. Member's argument, but surely, on his own figures, has he not a little over-stated the proportion of the reduction in the Civil Service that would be required to give the saving referred to? The hon. Member gave the figure of £500 as the average income of civil servants. In order to effect the saving, would this mean a reduction of 100,000 in the Civil Service? The number of non-industrial civil servants is, I believe, between 600,000 and 700,000.

Mr. Benson

The right hon. Member is quite wrong. The number of non-industrial civil servants is something like between 420,000 and 440,000. [An HON. MEMBER: "What about the Post Office?"] In the 600,000 or 700,000 there are the Post Office—I think I am correct; I looked at the figures yesterday. A saving of £50 million, therefore, would involve, quite definitely, a cut of 25 per cent.

Mr. David Eccles (Chippenham)

If we were to dispense with, say, 20,000 civil servants, we should have less rent to pay and less expenditure on stationery and all other equipment. There would be a saving of more than merely salaries.

Mr. Benson

We have dispensed with 20,000 civil servants in the last 12 months, There would be subsidiary savings by dispensing with their services, but the broad fact remains that we have to make a cut of something like the kind I have mentioned before we could get the savings suggested by the right hon. Member for Aldershot.

I was not quite sure what the right hon. Member for Ormskirk (Sir A. Salter) said in reply to an aside from the right hon. Gentleman about the date on which he wrote the letter suggesting that there should be a purchase of raw materials.

Sir A. Salter

I said "last summer." I do not have the exact date.

An Hon. Member

August.

Mr. Benson

The major trouble with regard to a shortage of raw materials is, of course, the Korean war. The right hon. Member for Aldershot himself said that prior to that war, exporters were getting worried about whether they would be able to maintain their markets; there was the possibility of a recession. The time when there is a possibility of a recession is not the time to buy raw materials. The fact that the Government tended to hold off in the early part of the year was good commercial practice. The upsetting of the whole of our calculations by the completely unexpected invasion of North Korea is nothing for which the Government can be blamed, and for the Opposition to attempt to lay that blame upon them for the shortage is merely to rest upon the crudest of hindsight.

Sir A. Salter

The time when I wrote was, I think, in August; certainly it was in the summer, after the Korean war. Would the hon. Member contest that it would have been a good thing to do what I then strongly urged: namely, to prevent stocks from running down and, on the contrary, to stockpile?

Mr. Benson

It certainly would have been a good thing, but whether it was physically possible is a matter which I cannot answer. That question must be asked of the appropriate Government Departments.

A major argument used by the right hon. Member for Aldershot was the disastrous effect of the high level of taxation. He said, I think, that taxes are so high that there is nothing left for emergency. A leading article in "The Times" this morning makes exactly the same point. In referring to the increase of 6d. upon the Income Tax, it says that an essential margin of increase has been relinquished for war purposes. That is a most extraordinary argument and it completely loses sight of realities.

If war comes, taxation and finance immediately become of secondary importance. No matter whether your taxation system is good or bad; no matter whether your tax level is high or low, when the war starts it has no influence whatever upon the prosecution of war today. What do matter in the prosecution of war are the realities, and the realities are these, that the Government take possession of war materials, it directs labour, it turns production to the aims it requires and it leaves the balance for civilian consumption. It takes what it wants and leaves the rest.

There is only one limit in war to what a Government can take and that has nothing to do with finance. The limit is the difference between maximum production and the minimum standard of living that it can impose upon the community. Those are the things that control and fix the amount the Government can take. Finance may be important, not for the prosecution of war, not for the facilitation of obtaining raw materials and armaments, but for the after effects. For example, in the 1914–18 war every conceivable practical and theoretical blunder was made in the financing of that war. Did it hamper the Government in war production? Not a scrap. The only effect was that we ended the war with a National Debt bearing something like 6 per cent. per annum interest.

In the last war the process of getting arms and equipment was exactly the same as in the first war. The Government took what it required and left the balance to the civilian consumer, but, as a result of the experience in finance of the first war, very few blunders were made and finance was handled very skilfully. We ended the war, not with an interest of 6 per cent. on the National Debt, but with an interest of 2 per cent. That was the influence of finance upon war, not upon prosecution of war, but on the aftermath of the war in the cost of the Debt.

There is something of the same element in re-armament in peace-time. The reality is that total production is the upper limit and the lower limit of what the Government can get is not a standard of living which it imposes upon the community but a standard of living which the com- munity will accept. The difference between war-time re-armament and peacetime re-armament is that in peace-time the Government, instead of taking, has to persuade, and it can persuade the community in so far as the community is seized of the importance of re-armament. Obviously, they are far less tolerant of heavy taxation in peace-time than in wartime.

Hon. Members opposite are in the habit of suggesting that our taxation, which runs, say, between 35 per cent. and 40 per cent. of our national income, is a dead burden on the community. It is nothing of the kind. The bulk of that taxation returns to the community in transfer payments. At present something Hike £2,500 million out of the £4,000 million raised returns in the form of transfer payments and redistribution of income and is not a diminution of the income of the consumer. There is one part which is a real diminution of consumption and that is the part spent on goods and services required by the Government themselves. We have the figures for 1950 and an estimate for 1951.

Take the 1950 figures, which are for the calendar year. We find that in the White Paper on National Income and Expenditure, goods and services required by the Government in 1950 amounted to just under £1,500 million. That was a burden on community consumption. There were indirect advantages, but it was a direct burden. Since we are discussing the question of armaments, we must split up that £1,500 million. Something like £780 million were for armaments. The burden of general administration was £700 million, which was approximately 6 per cent. of our national income.

It is rather interesting to make a comparison with 1938. In 1938 the demand for goods and services was somewhat over £400 million and the expenditure on armaments was also something over £200 million, leaving £200 million as the burden of general national administration. That was 4 per cent. of our national income. What has happened in the meantime has been that the burden of administration has increased from 4 per cent. of our national income to 6 per cent. of our national income. In other words, there has been an increase of 2 per cent. on the burden on our national income. Hon. Members know that the complexity of government has grown enormously and the cost of that is represented by the increase of 2 per cent. on the national income.

So far as our ability to fight and to re-arm despite that growth of the real Government burden of 2 per cent., we still have left a community which has a far higher production, a higher standard of living, and a far higher rate of industrial investment. We are far more effective as a fighting organisation now than we were in 1938. There is not a shred of evidence to show that Government financial policy in the last six years has in any way militated against our pulling our weight if we have to.

I noticed that last night the right hon. Member for Woodford (Mr. Churchill) said that taxation had clogged and hindered development. As evidence of that, he said that although we had a great increase in production, it was not as great as the increase in production of the United States. That is perfectly true. Our annual growth of production is nothing like that of the United States and probably never will be, but it has been a great deal higher under the Labour Government from 1945 to 1951 than it was under the Tory Government from 1931 to 1939.

Mr. Kirkwood (Dunbartonshire, East)

There is no comparison.

Mr. Benson

The bulk of the taxation is returned to the community and redistributed. Taxation is the method by which we have given the community social security. The burdens we are putting on them in this Budget and in future Budgets are burdens which, we hope, will bring them, not merely social security, but international security.

5.50 p.m.

Sir Stanley Holmes (Harwich)

For many years now it has been a pleasure to hear the speech the hon. Member for Chesterfield (Mr. Benson) makes on these occasions. Apparently the right hon. Member for Ormskirk (Sir A. Salter) disagreed with him three times, and I think that on that particular point I can leave the cut and thrust of debate to the hon. Member for Chesterfield and to the right hon. Gentleman who, I hope, will be catching your eye, Mr. Speaker, during the course of the next two or three days.

However, there is one point on which I want to speak against what the hon. Member for Chesterfield said. I refer to the Socialist Government's financial policy during the six years from 1945 to 1951. As a matter of fact, I intend to refer only to that policy from 1945 to 1947, because in my view the then Chancellor has added tremendously to the difficulties in which the present Chancellor is today.

After the exhaustion of the war the country needed a period of rest for recovery and consolidation. It needed a "breather," but that was not granted; and that was due to the then Chancellor of the Exchequer, who, it will be remembered, has had an extraordinary career in the last six years. In 1947 he gave up the Chancellorship as a result of an indiscretion. He was then given a Ministry of a sinecure nature, but although it was a sinecure the salary, which had always previously been £2,000 per year, was raised to £5,000 a year, an extraordinarily bad example of Government economy. He subsequently became the Minister of Local Government and Planning.

I wish to try to show the Committee the difficulties into which he has put the present Chancellor, and into which he put Sir Stafford Cripps, by the policy which he carried out over those two years. As I say, the source of the country's present financial and economic arrangements was primarily his policy, and I will enumerate the present predicaments that are the legacy of his policy.

The first is the scale of Government expenditure. The sceond is the load of taxation. The third is the curse of inflation and the acceptance of a "soft" pound. The fourth is the wilting of thrift. The fifth is the continuance of many wartime restrictions and rationing. The sixth, and by no means the least, is the general absence of reserves and elbow room in the national economy with which to face new and unforeseen demands such as the Chancellor now has to face.

The hon. Member for Chesterfield referred to the 1914–18 war. I would point out to him that the country ended the recent war in a far weaker position than that in which it found itself in 1919.

Hon. Members

Hear, hear.

Mr. Benson

I quite agree, and that makes the way in which we have built it up all the more extraordinary.

Sir S. Holmes

It is nice to have unanimity on one point at least. The country's external assets had been reduced by nearly £2,000 million between 1939 and 1945; and, with sterling claims exceeding £3,000 million against it in the shape of sterling balances, Britain had become the greatest debtor country in the world. The problem of adapting its economy to the new situation was more difficult than was that task to any of the older belligerents.

At the end of the First World War—I may now be about to say something with which the hon. Member for Chesterfield will also agree—the authorities accepted as the basis of national recovery the task of re-establishing the security of the currency. Serious errors of judgment were made, and the disaster of a long period of deflation and unemployment followed. Yet it did not follow that the policy of attending to the value of the currency was wrong in principle. What is clear is that the under-estimation of the importance of the currency in 1945 has had untoward consequences.

I repeat that conditions in 1945 were entirely different to those of 1919. In 1945 the entire world was short of goods, and a market for our exports was assured for years. In addition, our country had been knocked about much more in the Second World War than in the First World War. During the period of the Second World War, we had been unable to build any houses or do repairs or buy all sorts of commodities we wanted. The result was that when the war ended in 1945, work was assured for years and years, whatever Government had got into power. [HON. MEMBERS: "No."]

I venture to say that the claim to have given full employment, which was really the only point made by the Prime Minister in his recent broadcast on behalf of his party, is without foundation or substance at all. Therefore, I venture to repeat that the under-estimating of the importance of the currency in 1945 and the following years has had untoward consequences, because at that time there was a latent inflation in the system, and no effective steps were taken to eliminate the redundancy of credit over and above the volume needed to support the level of prices at the end of the war. What happened? This redundancy caused the purchasing power of the pound to deteriorate, contributed powerfully to the devaluation of 1949, and has played its part in the present wave of price increases and labour unrest.

Mr. Pannell (Leeds, West)

The hon. Member mentioned the present wave of labour unrest. Will he please compare the figures in the realm of industrial unrest since 1945 with the 250 million days lost in the 17 years from 1921 to 1938—years of bitter struggle, with industrial lockouts, and so on? These were typical of a Tory régime. We have had industrial peace, comparatively, since then.

Sir S. Holmes

I said perfectly clearly and candidly that in 1921, as a result of the financial policy adopted after the war which ended in 1918, deflation and unemployment were caused. That unemployment reached its height in 1929, 1930 and 1931, when the Labour Party were in office.

Mr. Pannell rose—

The Deputy-Chairman (Colonel Sir Charles MacAndrew)

Only one hon. Member may stand at a time.

Sir S. Holmes

As I say, the 1945 Chancellor has to bear a big load of blame. He started the country racing along the wrong financial road in an unsound car with defective brakes, with the result that we find ourselves today in a difficult economic position. He did, however, have a piece of luck. He received from America and Canada loans and gifts of over £1,200 million, with which he could have put right the financial situation and improved conditions immensely for the Chancellor of today. But he utterly failed to do so. I was one of the hundred Members of this House who voted against the American Loan. I did so because I was sure that that loan would be misspent and I was right. That loan and the gifts from Canada were intended to be used for capital expenditure—

Mr. Jenkins (Birmingham, Stechford)

Oh, no.

Sir S. Holmes

—to rehabilitate our railways which had done a wonderful job during the war but which were worn to a thread; to rebuild factories, knocked to pieces, and to provide machinery to allow them to start again. Even where factories had not been touched during the war, they contained out-of-date machinery. America had gone ahead tremendously during those six war years, and it was to enable us to get up-to-date machinery so that we could compete in the export markets against other nations of the world that the Americans made us the loan. Instead, the then Chancellor said, "Let everybody have a good time," and he spent most of the money on food, films and tobacco.

That is not all. In the last six years we have had a number of nationalisation Acts of Parliament and every one has been a failure. The coal mines became State property and today we have less coal and worse coal at a much higher price. In the old days before nationalisation, the railways used to pay a small dividend to their shareholders. Today under British Railways we have slower trains—

Mr. Manuel (Central Ayrshire)

Oh, tosh!

Sir S. Holmes

—less punctual trains and worse restaurant services; while every passenger has to pay higher fares and every industrialist has to pay higher freights which prevent him from competing in the export markets as he should be able to do. The Chancellor said yesterday that if Members wanted to suggest how expenditure could be saved, would they please do it in a practical way. I propose to try to do that. First, I take the National Health Service. That is costing the taxpayer £400 million a year. I would remind the Committee that when that scheme was brought in, it was said that the scheme would be self-supporting.

Hon. Members

No.

Mr. George Thomas (Cardiff, West)

There was never anything said about that at all.

Sir S. Holmes

I would remind the Committee that the first subsidy for the National Health Scheme was given towards the end of 1949, after Sir Stafford Cripps had issued his Economic Survey. After he had pleaded for economy, he had reluctantly, and I think disgustedly, to find a Supplementary Estimate of £100 million for the National Health Service. That has since gone up to £400 million a year. I congratulate the Chancellor on having won the first round in a certain battle. I hope he will renew his efforts and go into many other items in the National Health Service where the participants could very well pay. We all know everything about what is happening. We know perfectly well that while all of us want the people who cannot afford to pay for themselves to have everything they need in the way of medical service, there are very many people who are perfectly well able to pay for themselves and do not need the subsidy from the Treasury.

Last night the Chancellor of the Exchequer spoke about education. He said: I must tell the Committee that the only Measures through which we could have achieved substantial savings would be either to raise the school entry age or reduce the school-leaving age. We did in fact discuss these but, I think rightly, turned them down."—[OFFICIAL REPORT, 10th April, 1951; Vol. 486, c. 848.] I agree it is much more difficult today to do anything about altering the school-leaving age, but I would remind the Committee that in 1944 an agreed Education Act was passed through this House, when my right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler) was the Minister of Education. This Act provided for the school-leaving age to be raised by one year but it was not to come into force until the Minister of Education nominated the day. I have always felt that the late Miss Ellen Wilkinson made a mistake in choosing the very first possible day to bring it into operation. I am looking at it from the point of view of a Chancellor—

Sir R. Acland

Which day would the hon. Member have selected?

Sir S. Holmes

This has meant that the cost of education has gone up tremendously both on capital and current accounts, an increase in expenditure which the Treasury and the taxpayer might well have been spared in these difficult financial days.

Money could also be saved on the railways. There is a redundancy in the staff at all grades. When one comes into any of our main-line stations, one finds twice as many porters waiting to take the luggage as there are passengers to offer it. That is a point which might be gone into; also whether these porters pay their proper share of Income Tax on their tips, because we want fair shares for all with regard to the payment of Income Tax.

There are far too many men at the docks. One finds in several places at the docks that a service has been discontinued, but not a man has been discharged. Obviously, money is wasted in that way. I can give an illustration from a well-known town. At the railway station there was in the railway companies' days a station-master and three inspectors. One inspector looked after passengers, one after freight and the other after personnel. At the same station today the same station-master has 14 inspectors instead of three. In all the railway departments throughout the country there are too many clerks and too many officials. There is no doubt that money could be saved.

The result of nearly six years of Socialist Government is that today we are the highest taxed and the worst-fed nation in the world. [HON. MEMBERS: "Look behind you."] I notice that the hon. Gentleman opposite who made the most noise and pointed at the hon. Member for Belfast, West (Mr. Teevan), does not look too bad himself. But hon. Members opposite should ask the housewives in their constituencies. The only hope for this country is hard work and rigid economy. The Government must not leave the economising to be done entirely by the people.

There is a lot of discontent because post-war credits are not repaid. The payment was only expected to be deferred until after the war, but six years have passed and only a few elderly people have been repaid. In the old days, up to 1947, a man who owed any Income Tax and did not pay could not be fined. The process of the law could get the money from him, but he could not be fined. The Chancellor put that right in 1947 when a provision was introduced that three per cent. interest should be paid from three months after the time when the demand was made.

Mr. Douglas Houghton (Sowerby)

On arrears of tax of over £1,000.

Sir S. Holmes

I suggest that if the State is able to charge a taxpayer interest on what he owes, the Treasury should pay to the taxpayer interest on money which they owe to him. It would be a slight benefit to those who have post-war credits if they were given three per cent. interest on what was due.

6.16 p.m.

Mr. Teevan (Belfast, West)

I rise to speak, for the first time in this Committee, with a great deal of trepidation and nervousness, and I must ask hon. Members to bear with me patiently.

The fact is not disputed that we in this country are faced with a rising cost of living which has resulted in a most drastic reduction in the purchasing power of the £. The right hon. Gentleman the Chancellor of the Exchequer freely and frankly admitted that yesterday, and it is further evidenced by the ever-growing demands for wage increases.

There is one class in the community upon whom the present state of affairs bears most cruelly. The people in that class are the old age pensioners. Yesterday it was learned that the basic rate of pension for men aged 70 and for women aged 65 and over was to be increased from 26s. to 30s. for single persons and from 42s. to 50s. for married couples. I sincerely hope that the Chancellor will give due regard to a Motion tabled by the hon. and gallant Member for Portsmouth, West (Brigadier Clarke) and myself last night, regretting that no increase has been given to the non-contributory pensioner who at the moment gets the ridiculous sum of 10s. a week.

I think I am voicing the opinion of the entire Committee, when I say that I welcome wholeheartedly the proposal itself. I welcome wholeheartedly the spirit behind the gesture, but I question whether it will provide an adequate solution of the problems facing the people today. I agree that a larger increase in the basic rate of pension would have been fraught with the gravest financial implications. I should like to make the tentative suggestion that possibly an increase in the rate of national assistance rather than in the basic pension rates might have been an alternative which would have been at once more beneficial to those pensioners who are in need and less burdensome to the community.

However these increases are to apply, it is admitted by everyone that it was essential that the rates should be increased. The only question which it is necessary to ask is whether or not the increases will prove adequate. If the present inflationary spiral continues—and so far as one can see there is no prospect of anything else—within the next few months the real value of the 30s. pension will have diminished to such an extent that the old age pensioners will find themselves back in the same plight in which they were before the increase.

I feel that I shall have the whole Committee with me again, when I say that there is only one sure way of making the pound buy more, and that is by a policy of retrenchment designed to cut out waste and extravagance. I applaud the Chancellor's decision, which was a courageous decision, to reduce the cost of the National Health Service, and I also applaud his further assurance that everything possible will be done to secure the utmost economy in Government expenditure. But may I, as a maiden speaker, and without wishing to be accused of being captious or carping, say that one has only to survey the events of recent months to wish that that policy had been carried out earlier? It is apparent to me, and I feel to many hon. Members, that there are many directions in which the need for increased economies must be emphasised.

First, there is great need for increased efficiency, coupled with decreased expenditure, in certain of those industries which have been nationalised. As was said by the hon. Member for Harwich (Sir S. Holmes), on the staff of British Railways there are many thousands of redundant workers who could be employed in far more profitable and productive trades. Then there are huge numbers employed in the civil administration of this country. I give all due credit to the Government for the pruning that has taken place already in this direction, but surely far more could be done to release manpower from non-productive employment.

There is no point in talking about economy unless it is practised. One can only hope that, in future, the estimates and plans of the Government will bear more relation to the extremely difficult financial position of this country. I feel sure that hon. Members on all sides of the Committee will agree that we must have no more errors involving millions of pounds, such as that which occurred recently in regard to the Festival Gardens, and that, until a policy of retrenchment and economy is pressed to the end, no one can hope to see the people of this country freed from this millstone of taxa- tion, which is crippling and ruinous in the extreme to every section of the community.

6.22 p.m.

Mr. Hubbard (Kirkcaldy Burghs)

I feel extremely fortunate in having caught your eye, Sir Charles, at this moment, because it gives me the privilege of paying tribute to the speech of the hon. Member for Belfast, West (Mr. Teevan). Making one's maiden speech is an ordeal which we are all glad to survive, and the hon. Member approached his task today with the modesty which this House deserves, yet with confidence that was evidence of his own ability, and with a fairness which was appreciated on all sides of the House. I feel sure that I can speak for hon. Members in all parts of the House when I say that we shall welcome him to our debates, and, in fact, look forward to hearing his future contributions.

May I say that, although I have been in this House for a mere seven years, I have never at any time known such a lack of criticism of a Budget from hon. Members opposite. I think that is the finest tribute which any Government could have—the fact that so little indeed has been said regarding the Budget introduced yesterday by my right hon. Friend the Chancellor. Indeed, when I heard the right hon. Gentleman the Member for Aldershot (Mr. Lyttelton), who opened today for the Opposition, claiming credit, in so far as the old age pensioners are concerned, that his party proposed this concession, I thought that that was the last word indicating the bankruptcy of the Conservative Party. The right hon. Gentleman had the cheek to put forward the claim that this proposal was to be included in his party's programme for the next election.

I should like to refer now to something said by the hon. Member for Harwich (Sir S. Holmes), who mentioned the fact that today we were having less production. He spoke of worse coal and less coal. If that is to be typical of the approach of his party to what is the real basis of the economy of this country, then it is further evidence of bankruptcy on the part of hon. Members opposite. At this time of day, I thought everyone had fully realised that, while we have lost manpower in the mining industry, we have had increased produc- tion and, although that may seem a long way from the affairs of the Budget, the real wealth of any nation is still, as was stated by Adam Smith—and I cannot get past him—its power to produce. Everything associated with the Budget and the future of the country is tied up with our capacity to go on increasing our production.

I think it is rather sad, however, at this time of the day, in regard to a set of men like the miners, who have done so much to increase the productivity of this country and the capacity for increased productivity in industries other than their own, that we should be told that all we have got is worse coal and less coal. That does not help us in any way. If the hon. Gentleman had shown the same spirit of fairness which has been shown elsewhere, he would have taken the opportunity to pay tribute to the people on whose efforts the future economy of this country is dependent.

I never pose as an expert on financial matters, but maybe that is the reason I am so anxious to enter this debate today. I have been a victim of the financiers before, and perhaps it is because I am so anxious to avoid being their victim again in future that I wished to say a few words in this debate. When I heard the right hon. Gentleman opposite claim that part of their programme for the next Election was to improve the conditions of the old age pensioners, I could not help remembering that in 1938 I was one of those who came down here pleading with the Tory Government at that time to increase the pension of 10s. a week. I shall remember for all time what I was told, along with my fellow delegates who came to London representing the Scottish local authorities. It was that even to give an increase of 5s. in the economic crisis at that time would have brought this country to ruin and bankruptcy.

Hon. Gentlemen opposite, when they were in power, did not increase the pension in 1940; what they did do was to issue supplementary pensions, and it comes very ill from them today to claim that an increase in the pension was part of their programme for the next Election. As the honorary president of the Scottish Old Age Pensioners' Association, I know how little the old age pensioners of Scotland would depend upon any promises made by hon. Members opposite. Indeed, they have had their lessons in the past.

Brigadier Clarke (Portsmouth, West)

What about the 10s. 0d. non-contributory pensions now?

Mr. Hubbard

There is no such thing now. Any person in need of a pension receives a pension of 26s. a week, with supplementation above that if the pension is the only income. There is no single person today who is forced by this Government to live on 10s. a week. There is no single pensioner in the country today who has to live on even 26s. a week, nor any married couple who are asked to live on 42s. a week.

Mr. Charles Ian Orr-Ewing (Hendon, North)

The White Paper issued yesterday shows that the cost of living has gone up in relation to the purchasing power of the pound by more than two to one, and, therefore. 26s. today are worth less than 13s. were worth before.

Mr. Hubbard

If I were to go into the whole question of the increased cost of living, I should remind the House that a great deal of the ever-increasing cost of living is the result of increased prices charged by countries controlled by other than Socialist Governments. But to continue my argument, there is no person in this country today who has to live on 26s. a week and no couple who have to live on 42s. a week.

Mr. Remnant (Wokingham)

If he wishes, I will send the hon. Member a case tomorrow of a widow who is not entitled to a contributory pension but who is now under consideration for a 10s. 0d. non-contributory pension.

Mr. Hubbard

I do not follow the point the hon. Member is making. I hope he will allow me to make my own case. I have been associated with the Old Age Pensioners' Association for many years, and I know the disappointment old age pensioners experienced from the Tory Government in the early 1940's. When the Widows and Old Age Pensions Bill was introduced in 1939, they were told they would receive an increase of 9s. 6d. in the pension and they found it was all tied up with the means test.

Brigadier Clarke

Now it is a needs test.

Mr. Hubbard

The hon. and gallant Member, who is always an entertainment to the House when he makes his own speech, might be courteous enough to stand up if he wishes to put a point to me. If anyone wants to interrupt but is not gentleman enough to stand up, then I refuse to give way. I will give way to any hon. Member who stands up.

Brigadier Clarke

The hon. Member admits now that there is a needs test instead of a means test?

Mr. Hubbard

I say that most old age pensioners will be grateful indeed to the Chancellor for the increase in old age pensions. I regret very much that the sum could not be more because, as hon. Members opposite have said, this increase has come after an increase in the cost of living. We have no assurance at all that there will not be other increases in the cost of living. As far as the old age pensioners are concerned, it will be a case of too little money chasing too dear goods. The old age pensioners are grateful for this improvement as something they could not have had from any other Government. I suggest to my right hon. Friend that it ought to be possible to lay regulations from the National Assistance Board to become operative at once to add the increase now rather than wait until after the passing of the Finance Bill.

There is a large number of old age pensioners still left outside. There are the cases of men between 65 and 70 and women between 60 and 65. Those people do not retire because they want a pension. They retire because they are no longer able to work. We ought to recognise that fact. Many of these people are compulsorily retired. If they could continue in industry there is already an inducement for them to do so. I am glad to say a better inducement has been provided by my right hon. Friend in his Budget. If they could continue to work they would do so, but many of these men are compelled to retire at 65 because they are physically incapable of carrying on any longer. All they have to face is another five years at a lower rate of pension, and that is not in keeping with the spirit shown in the Budget. That is also true as far as women are concerned.

A large number of men retire because they are physically incapable of continuing work. Many retire because they are in unsuitable employment. If they were in other employment, they might go on for a few years. Many retire because it is the rule of their professional association or trade union. If we are to make a success of the effort to induce men and women to remain longer in industry, we must have co-operation from associations and trade unions to remove the rule that compels people to retire at an early age. Some policemen retire at a very early age. It is not compulsory in all cases but in many trade unions retirement at a certain age is compulsory.

Many men who are incapable of working a full working week when they are 65 are capable of working part of the time. The increase in their earning capacity now from 20s. to 40s. a week without any interference with their pension is something which will be appreciated by these pensioners and which ought to be appreciated by everyone in the country. Old age pensioners today get too small a slice of the cake because the cake itself is too small. I agree with the Chancellor that if we are to have an ever-increasing number of pensioners retiring from production, we are going to have an ever larger number eating from a cake that will be getting smaller and smaller. Therefore, we must try to get these people to keep on working in industry for as long as possible.

Today a man of 65 who is incapable of working a full week can work half of the hours ordinarily worked, and two elderly men can replace one man who is capable of doing a full week's work. There is a tremendous advantage in this, but I should like to stress to the Financial Secretary to the Treasury that if that advantage is to be enjoyed by old people, we shall need the fullest co-operation of my right hon. Friend the Minister of Labour. It should not be left to the haphazard chance of an old person finding work for himself. The Minister of Labour should find out where there is light work available. An old miner could look after pumps or engines, for instance. The Minister ought to prepare a list of that type of work that might be done by two elderly people sharing what would be a full week's work for a younger man.

Future Budgets in this country will be determined by our ability to go on increasing productivity. Great tribute ought to be paid to the Government because we find ourselves free from Marshall Aid. No one expected that we should be free by this time. In all fairness the Government are entitled to some tribute, because the abilities of the present Chancellor and his predecessor have made that possible.

There are many things about the Budget that we regret. I do not think there has ever been a time when there has been a good Budget. People always like to sink their teeth into it and argue about it. Lucky are those who can stick their own teeth into it. Much more fortunate are those who can sink their free teeth into it than those who now have to pay half the cost of their teeth. Every man and woman in this country feels quite capable of taking care of the Budget. They think they know far better than the Chancellor of the Exchequer what ought to be done and what ought not to be done. But if we are to look forward to better Budgets, something important must be faced, something for which everyone in this Committee must hope—

Mr. Redmayne (Rushcliffe)

A new Government.

Mr. Hubbard

Something indeed more important than that.

Brigadier Clarke

There is nothing more important.

Mr. Hubbard

If we can avoid the dangers of war, that is much more important than anything. Whatever may be the colour of the Government that follows this one, so long as we are living in time of war or rumour of war we shall never have good Budgets. So long as we have to spend money on defence or rearmament we shall never have favourable Budgets. Therefore, the two things for which we must hope are, first, that the international situation will improve, and second, that full advantage will be taken of our capacity to produce. There are some signs that outside prices—wool, for instance—are falling rapidly. Whether the prospect of an election in Australia has anything to do with that, I do not know.

Mr. Osborne (Louth)

The price of wool is going back again. The slump has stopped already.

Mr. William Ross (Kilmarnock)

Do not be so cheerful about it.

Mr. Hubbard

At any rate, we know that in a few weeks' time, if there is a change of Government in Australia, there will be a chance that the price will go down. There will be the possibility of imposing some control over it.

Although many of us find in this Budget things that we do not like, and though we shall never live long enough to see the Budget of which we all approve completely, I should like to congratulate the Chancellor and to say, as one who represents old age pensioners, that we appreciate what has been done. All we hope is that it will be followed up in order that we may get the fullest possible advantage from those benefits which the Chancellor has made possible.

6.42 p.m.

Mr. E. Martin Smith (Grantham)

There are many points on which I entirely agree with the hon. Member for Kirkcaldy Burghs (Mr. Hubbard). If I may most humbly offer him a piece of advice, may I ask him to do his best to keep politics away from the subject of old age pensioners? There are many on this side of the Committee who are just as sincere as he is in their wish to see the lot of old age pensioners improved.

I should like to start in a friendly frame of mind by congratulating the Chancellor of the Exchequer on what I consider was a very lucid and clear statement. There was much in it with which we on this side of the Committee do not agree, but we are not afraid of giving credit where credit is due, and we give him credit for introducing many things with which we entirely agree and for which, indeed, we have been pressing for many months past.

I congratulate him, for instance, on being able to persuade the Minister of National Insurance that it is possible to give this extra small help to the old age pensioners. I myself have been trying hard since I have been a Member of Parliament during the past year to yet some relief for them, and I am glad that some relief has now been given. I suggest that we should go further and deal with the Purchase Tax on wireless sets, for instance. To many old age pensioners a wireless set is the only joy they have left. Many of them will not now be able to afford a wireless set.

Mr. Hubbard

They could not before.

Mr. Martin Smith

I have tried to get the Postmaster-General to allow them to have free wireless licences—a small point but one of which perhaps the Chancellor will take note, and one which I know would be very much appreciated by every Member of this Committee. The Chancellor has brought in other changes with regard to spectacles and dentures which we realise are necessary, although if, unfortunately, he has not brought about the resignation of the Minister of Labour he will not have got the congratulations of the entire country.

But surely there are further economies possible in the welfare State without in any way affecting the service which that welfare State gives. I can think of many myself—small ones, perhaps, but nevertheless economies which might have very definite effects. The right hon. Member for Wakefield (Mr. Arthur Greenwood) said some time ago that pounds, shillings and pence were meaningless symbols, and after six years of Socialism he is nearer to being right than many of us thought he would be. Pounds, shillings and pence are becoming meaningless symbols because of the rise in the cost of living, and money is eventually becoming almost worthless. Nor do I believe that the Chancellor's present intentions will stop this inflation.

Mr. Daines (East Ham, North)

The hon. Gentleman has made the point that my right hon. Friend the Member for Wakefield (Mr. Arthur Greenwood) once said that pounds, shillings and pence were meaningless symbols and that he is beginning to think that is right. If the hon. Member has any symbols to spare, I am quite open to receive them.

Mr. Martin Smith

I was addressing myself to the rise in the cost of living. I was surprised that the Chancellor did not refer to the necessity for increasing productivity. I was surprised that he did not say anything about the difficulty of getting raw materials, because it is vitally important to increase our productivity. The Economic Survey mentions a figure of 4 per cent. I think industry is quite capable of attaining more than a 4 per cent. increase.

I believe that hon. Members opposite are becoming almost blinded by their self-congratulation on what they term their full-employment policy. I know that we have very little unemployment, and I am glad of that, but I do not believe everyone in this country is as fully employed today as he might well be. Given the chance, many people would change their jobs and become more productively employed. I am certain that there are many workers in nationalised industries who are redundant.

We have got full employment, but people are not fully employed, and I am certain that, given the chance, private industry in this country could increase productivity by considerably more than 4 per cent. It has been made extremely difficult, however, by the Chancellor's increase in Income Tax and by his abolition of the depreciation allowance for machinery. This rise in Income Tax will discourage not only voluntary saving but the harder work and overtime which many people would like to do. Any of us who have anything at all to do with labour know that the one thing which is stopping many people working overtime is the present rate of taxation which does not make it worth their while. If taxation could have been reduced, I am certain that more work would have been done, and happily done; and, in fact, the Revenue would eventually have gained.

The abolition of the depreciation allowance is a sheer menace. I appreciate that the Chancellor's intention was to encourage goods to go for export. What, in fact, he has done has been to hit trade in the worst possible way. The one thing he should do is to encourage the purchase of new machinery so that manufacturers keep their plant up to date. I have today received a Treasury paper called "Report to Women" which states that before the war productivity in British industry was improving every year and that since the war it improved even faster. It goes on to say: Important among the causes of this increased productivity is new machinery. By preventing manufacturers from getting new machinery, the Chancellor is hindering productivity. He should realise that the depreciation allowance is merely something which offsets increased costs of replacements. I believe that the loss of this allowance will hinder the entire production of this country. I ask the Chancellor to reconsider this point before it is too late.

Savings also are going to be discouraged by the increase in Income Tax. Personally, I do not mind so much about Profits Tax. It will hit certain people very hard indeed, but I would not mind the Profits Tax provided the Chancellor produced the corollary to that, which would be a decrease in the tax on undistributed profits. If he would agree to that, industry would be encouraged to plough back more money into their business. If they could not afford to buy new machinery or could not obtain new machinery, they would invest the money in savings, so that the Chancellor would get it back in that way. Merely to increase Profits Tax and not at the same time to decrease the tax on undistributed profits will not help at all; it is, in fact, inflationary.

The Chancellor may be worried about wasteful capital expenditure, and in fact he said: The recent rise in interest rates may also exercise some check on investment."—[OFFICIAL REPORT, 10th April, 1951; Vol. 486, c. 842.] Why does he not consider a rise in interest rates? It would not be very popular with many hon. Members, I know, but I believe such a rise is on the way. It would stop wasteful capital expenditure and I believe would do a great deal of good. The cheap money policy of the former Chancellor of the Exchequer is at best a joke; that policy has gone, and I believe that although it might make it more expensive for a Chancellor who had to consider future funding operations, he would gain tremendously from a rise in the interest rates. I believe such a rise is likely to come.

Mr. Jenkins

I am not quite clear why the hon. Gentleman proposes a rise in interest rates in order to restrict capital expenditure and objects to the abolition of the initial allowances, which has exactly the same intention.

Mr. Martin Smith

I do not believe it has. If we abolish the initial allowances, we hinder industry in their attempt to obtain new machinery. If we have the cheap money rates, we have today, we are encouraging some local authorities to borrow money at cheap rates—and they might not be so careful about economy as they would be if the rates were slightly higher. I believe the two things are quite different; they have very little to do with each other.

After six years of Socialism, when every avenue has been explored for possibilities of taxation, it is difficult for the Chancellor to find any way whereby he can obtain extra revenue. I believe that taxation today is so high that the law of diminishing returns is beginning to operate. In my maiden speech last year, I warned the Chancellor about that and mentioned the case of beer.

Mr. Houghton

There has been no sign of it since.

Mr. Martin Smith

I said that the tax on beer was so high that less beer would be drunk and revenue would be decreased, which is precisely what has happened. I believe that what is true of beer is true in many other instances. The railways have put up fares to so high a level that many people have ceased to use them. They still have to run the trains but they do so at a bigger loss than would be the case if they reduced fares and encouraged people to travel by rail.

I hope that some of the present proposals will help to close the inflationary gap, but I think it is extremely doubtful whether they will do so. The rise in the price of raw materials has so far reached only the wholesaler and has not yet reached the retailer. Perhaps it will take anything up to 18 months before it does. When that rise in retail prices is felt as a result of the rise in the prices of raw materials, I believe there will be demands for higher wages—and quite rightly. It will be very difficult to refuse those demands in many cases, and if we get them there will be further inflation.

One of the gravest dangers today is that the present rate of taxation is so high that it is virtually inflationary in itself. A reduction in direct taxation would encourage production and would bring into the Treasury a larger revenue. I believe that is the only way in which we can stop inflation. It is no good trying to stem the flood by increasing taxation; that will never stop inflation. The only way to stop it is by a reduction in direct taxation.

In my opinion there are many ways whereby we could bring about greater productivity in the country by decreasing some of the swollen staffs in these nationalised industries. There are many forms of economy about which we on this side of the Committee know. There is scarcely any Member of the Committee who does not know of cases, in Government Departments or elsewhere, where three men are doing work which could be done by two. We meet such cases day after day.

Yesterday the Chancellor asked whether we could give him specific cases where we knew economies could be made. I will not weary the Committee by giving them now, but I will send to him many cases of which I know where economies could be made and which in the end would amount to a considerable sum. The Chancellor himself has all the facts and figures, and I ask him to look again to see whether he can find some way of saving in Government Departments and in the welfare State. I am convinced that he can make economies without in any way harming the welfare State or hindering Government business.

Mr. Houghton

Is the hon. Gentleman equally anxious to dispense with the services of many directors in private industry who do no work at all?

Mr. Martin Smith

I think that is far beside the point. In private industry, which is run by shareholders, if the shareholders dislike a director they can always say so. Unfortunately, we on this side of the Committee are not allowed to object to those directors whom we consider are doing nothing in the nationalised industries. If the Chancellor cannot derive some means of cutting out waste and if he insists on high taxation—as he is insisting—then in my view he has no hope whatsoever of stemming inflation. The only way in which it can be stemmed is by a reduction in taxation.

6.57 p.m.

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

When it was first suggested that the Budget and the Economic Survey should be considered together I felt very uneasy, and as a result of our experience I am convinced that it has proved a mistake. In my view there should be two separate debates, one dealing with the Budget alone and the other dealing with the Economic Survey. In the main I want to confine myself tonight to dealing with the Economic Survey because, quite apart from the question of die allocation of our finances, we should not have an opportunity of allocating them at all if the economic stability of the country were not as good as it is today.

Before I proceed I want to make one or two observations on the Budget itself. I believe—and I think this will be proved to be the case in the country—that the Chancellor's statement on retirement pensions is out of harmony with the policy of the Trades Union Congress and with Co-operative and Labour Party policies. The Chancellor said: It would be premature to alter the age in the national scheme on this occasion. May I emphasise those words—and I hope this will be re-echoed in the ears of all students of our social services: … to alter the age in the national scheme on this occasion. For many years we have advocated pensions at 60. We were realists, and during the consideration of the Beveridge Report we compromised. When we put forward our evidence, we compromised and agreed on 65. I want to ask the Chancellor of the Exchequer where this present move will stop. The Chancellor then said that the Government must ask employers and workers to … give the most serious consideration to the possibility of postponing retirements."—[OFFICIAL REPORT, 10th April, 1951; Vol. 486, c. 849.] All students of our economic affairs will be bound to agree to a very great extent with that statement, but in my view—and this is in keeping with our policy—it should be a matter for the person concerned to decide and there should be no penal effects as a result of that decision.

The Trade Union Congress principles are the principles set forth in a Cooperative publication, and they say that National Insurance should be insurance and not a lottery. They state that, as all pay the same contributions, all should receive the same benefits. They state—and these are only the main principles upon which our policy was based and national legislation was introduced—that minimum benefits should be fixed at a scale below which no one should be expected to exist. Therefore, if it is right to fix a certain scale at 70, that should also apply to those at 65. In my view it will be found by administration—and it is only the future that will prove this—that by this method the greatest in need may get no increase at all. Therefore, I appeal to the whole Committee, and particularly to hon. Members on this side, to use their influence, between now and the time when the legislation is introduced, to induce a reconsideration of this proposal.

I sat here sadly today when I heard the right hon. Gentleman the Member for Aldershot (Mr. Lyttelton) say to the Chancellor of the Exchequer, "Almost all his proposals for dealing with the old age pensioners will be put into the Conservative manifesto for the next General Election." I was sorry then to hear a number of relatively young Members laugh at that proposal. People in the country will not be laughing at proposals of that kind. They will be filled with indignation, especially when they know that the proposals are being made by those who always have been opposed to them.

Mr. R. A. Butler (Saffron Walden)

Will the hon. Gentleman, whose words always carry sincerity, explain what he means when he says that my hon. and right hon. Friends are against the old people?

Mr. Smith

Well, this will start a long controversy; but it is quite a reasonable question to ask and wants a reasonable answer. The right hon. Gentleman knows that before the war—I am not going further back into history than that—we battled for years asking for an increase in the 10s. I remember the late Neville Chamberlain, at the Treasury Box, time after time, making all kinds of excuses—explanations, if the right hon. Gentleman likes—why the 10s. could not be increased. That did not go on for a few months: it went on for years and years. I visualise men like Tom Pitt, Will Banfield, and Joe Tinker—many hon. Members like that: I wish we were producing some more now—battling away as they did for years and years, in Parliament and in the country, for an increase in the 10s. They did not receive a penny increase until as a result of pressure—I admit this now—from both sides the supplementary pension was introduced—I am speaking from memory—in 1940.

Mr. Butler

The hon. Gentleman will not deny the initiative taken by Neville Chamberlain and Sir Kingley Wood in this matter of old age pensions? I think that we are now getting a clearer picture.

Mr. Smith

No. I said pressure from both sides. Of course, since then we have had people like the right hon. Gentleman the new Member for Ormskirk (Sir A. Salter), who, I understand, is to speak from the Opposition Front Bench, and, if I remember rightly, Sir John Anderson. We cannot forget what he said, also speaking from that Box.

However, I said that I would confine myself to the Economic Survey. In my view, Britain's chief assets are, first, our enormous industrial capacity; second, the skill of our industrial people in particular, which they recognise is not due to themselves but to generations of accumulated and inherited experience and knowledge; third, our coal. Those are the three greatest assets of Britain. We obtain a living for 50 million of our people by approximately only 12,250,000 men and women working to convert imported materials into manufactured goods and machines and then exporting them again—with the aid of the miners, in particular, who produce the fuel which is Britain's greatest material asset.

There are employed in the basic industries only 4,250,000 and 8,000,000 in the manufacturing industries—a total of 12,250,000, working to find a livelihood for the rest of the people—over 40 million. There is a total in civil employment of 21,500,000. I want to emphasise—and we have arrived at the stage when this ought to be emphasised—that there are far too few people in this country engaged in the important basic industries and manufacturing industries. They urgently require reinforcements. If those who prepared this Survey had experience in industry they would have approached our problems in the way I am now approaching them.

Let me make a few observations upon the Survey itself. Paragraph 1 records a great achievement of hard work and sacrifices, and is a tribute to our fellow countrymen, and particularly to the 12,250,000 engaged in the basic and manufacturing industries. It is the result of five years of regulation of our economy, and, to that extent, marks a big step forward compared with what would have been the position had the Conservatives been in power. This proves what could have been done had we planned our economy as we thought it should have been planned. Paragraph 2 states: … by the end of 1950 it could fairly be claimed that the immediate task of post-war recovery was completed, with the notable exception of coal, and, to a lesser extent, of generating capacity. … For five years I have disagreed with the country's coal and power policy. I believe that those two industries should have been given greater priority than they have been given in the past five years.

Then we come to paragraph 3, following which we may say that we should all be grateful that so many millions voted Labour in 1945 and 1950. As a result of the policy of regulating our economy we have not only achieved all that but, according to the economic reviews of other countries, the wages and standard of living in Britain are relatively higher than they are in any other country in the world. [HON. MEMBERS: "Oh,"] I am not saying it. If we take the Review of the United Nations we find that it states that relative—

Mr. Nigel Birch (Flint, West)

Relative to what?

Mr. Smith

Relative to our pre-war position according to this Review, the average real wages in the world have dropped by 50 per cent. since 1945.

Mr. Osborne

Has the hon. Gentleman seen Lloyds Bank Review, which, on page 63, shows that the cost of living in the United Kingdom and the United States, compared from 1938 to 1950, show that the dollar has fallen by only 43 per cent., whereas the pound has fallen by 47 per cent.? It also shows that the relative incomes before and after the war were about 157 per cent. in the United States, whereas ours is about 98 per cent.

Mr. Smith

That may be so. I have not had an opportunity of reading that Lloyds Bank Review. I have put it on one side, ready to read, and I will certainly check up on that.

According to my information, while the average real wages in the world have dropped 50 per cent. since 1945, in our country they have dropped only 15 per cent. whereas in the United States they have dropped 25 per cent. In October, 1920, the cost of food was 191 per cent. over July, 1914. How were the engineers treated—those who, apart from the men who served in the Armed Forces who must come first, made greatest contribution to winning the two wars? While the cost of living went up 191 per cent. engineers' wages were increased by only £1 19s. 6d., plus 12 per cent. on earnings.

From 1914 to 1923 wages never caught up with the real cost of living, and here we see the fundamental difference in this country—and this is why people in the industrial areas will go on voting Labour, irrespective of disappointments in certain respects—between government by ordinary methods and government by regulation. Huge reductions took place in wages between 1923 and 1933: in agriculture, 40 per cent.; compositors, 21 per cent.; locomotive drivers, 22 per cent. How were the real wealth producers treated, those to whom I belong, the so-called unsheltered trades? Coal miners received wage reductions of 46.5 per cent between 1923 and 1933. Compare that with the enormous increase in their wages, conditions and status since 1945. The wages of engineers—those men who have proved themselves as patriotic as any section of the community—were reduced 38.5 per cent.; steel workers, 42 per cent.; cotton operatives, 38 per cent. No wonder that in these large industrial centres people cannot forget those dark, drab days between the two wars.

Paragraph 8 of the Economic Survey says: we must try to meet most of the cost of re-armament by sacrificing for the lime being … "For the time being"! For many years it has been "for the time being." I have heard those words sung to many different tunes: "Fight a war to end war"; "Save democracy"; "Save the pound"; "Fight to stave off Russian Imperialism." Now some people are talking about re-arming.

Viscount Hinchingbrooke (Dorset, South)

Which people?

Mr. Smith

Those who are responsible for pressing the re-armament, and those who have menaced our country on two occasions.

Viscount Hinchingbrooke

The Government.

Mr. Smith

They alike, and all those who agree with them, too.

Paragraph 9 of the Economic Survey says: The shortage of raw materials is, indeed, much the most serious of all the difficulties with which the United Kingdom is likely to be faced. I agree. But what action has been taken about that? Paragraph 11 says: defence expenditure has now to be raised at a rapidly increasing rate. What for? To support men like "Emperor" MacArthur?

Mr. Osborne

That is out of date now.

Mr. Smith

The world has to thank this country for having a Government which has used its influence to bring that change about.

I supported the two world wars, unlike some other people. I have never been a party, and never will be, to asking others to do what I am not prepared to do myself. Having said that, let me add that there will be no national unity in our country in support of any war that could and should be avoided. Paragraph 21 says: Alternatively, if the existing labour force could provide the extra production …. It is always the "labour force," meaning industrial workers. That is why I emphasised at the beginning of my speech that it is always those people who must increase production. It is not the professional people, not the local authority people, but those engaged mainly in mining, engineering, cotton, pottery and their allied services in transport.

Mr. Osborne

And agriculture and fisheries.

Mr. Smith

We know that agriculture plays its part.

Paragraph 25 states: Physical shortages and the needs of arms production will inevitably lead to a reduction in exports of coal. … Then, paragraph 47 states: The scarcity of sulphur is, without doubt, the most threatening of all. Sulphur and sulphuric acid are consumed either directly or indirectly in almost every industry in the United Kingdom. I ask the question, to which I think we are entitled to a reply from the Government spokesmen: Is it a fact that the shortage of sulphur has been foreseen for three years? If so, why have no substitutes been introduced? Why have we been left so dependent on sulphur from the United States? If anyone doubts that this was foreseen, let them turn to the White Paper, which can be obtained in the Library. Unfortunately, there are published far too many reports upon which no action is taken. [HON. MEMBERS: "Hear, hear."] The Opposition say "Hear, hear," but this applied more before the war than it does at present. The First Report of the Committee on Industrial Productivity, published in April, 1949, states: Although raw sulphur does not account for a very large sum in our import programme … it is a very critical import … our supplies of natural sulphur are at present drawn exclusively from the U.S.A. This is not only expensive in dollars, but it renders us unduly dependent on a single source of supply. After the First World War, I was in the Army of Occupation in Germany, and although I have always been critical of Prussian militarism and all that kind of thing, and was hypercritical about the menace of Nazi ideas on all that was best in life long before many hon. Members had made up their minds where they stood, I must say that as soon as Germany saw that she was in a serious economic position after the First World War, she turned to substitutes and alternative methods of production. They introduced synthetic things of all kinds and that, to a certain extent, assisted them to get over their difficulties. Why have we not done the same in this country? I am confident that there are certain well-organised, powerful vested interests which have prevented this country from going over to substitutes because it would not be in their interests to do so, although it would be in the national interest.

Political forces opposite who had power in the past are not entitled to be critical now, except within narrow limits. Why did not they implement the many reports which were published before the war? The first one which comes to my mind is the Sankey Report. The second are the two reports published on the Severn Barrage. So that I should be well-informed on this subject, I spent a day, some years ago, with one of the greatest authorities in the world, discussing with him the question of obtaining electricity supplies through hydro-electrification. I went through the drawings, and I was introduced to the engineers, the statisticians, the designers and others and I am confident that this country could have implemented the 1933 and 1943 reports published by the engineers who made that inquiry.

Had these reports been implemented, we would have now an output of at least 2,000 million kilowatt hours per annum; a saving of almost one million tons of coal per annum, which would have been available for export, and a saving in the transport of coal. Can the Chancellor give us an answer to the inquiry which he undertook to make two years ago on the practicability of the Severn Barrage scheme, and say if it is proposed to implement that report?

My final point deals with paragraph 100, which is concerned particularly with the recovery of German and Japanese industrial production. I have read of and seen the menace of Japan for 30 years—the sinking of our ships and the way they treated our men. After years of menace to our people's standards, we now read that the Americans, in particular, are proposing to put Japan on her feet again. I believe—without going into the details which I have here—that America's proposals are outrageous and should be repudiated by this country immediately. They are a challenge and a menace to the standards of the industrial people throughout the world.

By putting Japan on her feet again America will have to aid Japan and subsidise Japanese industries with supplies of cotton, oil, iron ore and coking coal for some time. The people in our industrial areas will say, "What a game this is." The people of Britain feel very uneasy about the re-armament of Germany and the economic re-armament of Japan. I say, speaking from a point of view of the ordinary people, that it simply does not make sense. The proposed United States-Japanese peace treaty is an insult to world democracy. The chairman of the Japanese Social Democratic Party has already said this:

1. "1. Re-armament violates the disarmament clauses of the Constitution and endangers world peace.
2. 2. It might lead to the use of force against the workers and to Fascist developments in Japan.
3. 3. Many of the thirteen members of the Far Eastern Commission are opposed to it.
4. 4. The Japanese people are overwhelmingly against it, and if it were imposed upon them by their Government would not be willing soldiers."

The textile, pottery and other industries are feeling very concerned about the proposed United States colonisation of Japan under the cloak of a so-called peace treaty. The Government should insist on safeguards or refuse to be a party to these proposals. Japan was and is a terrible menace to our standards, which were built up as a result of years of sacrifice in the trade union movement. Now we are seeing it again. It is staring at us on the horizon.

Japan has low standards of living, long hours, and low wages. They copy our designs and ideas. We do not object to fair competition, but Japanese competition is most unfair. The hours of labour in Japan should be fixed, before we agree to anything like this, at 45 hours a week. Wages should be increased considerably and conditions improved. There should be an international fair wages and conditions clause. One can understand the people in North Staffordshire and Lincolnshire in particular being concerned about this.

The United States imported before the war pottery from France worth £370,000; Germany, £549,000; Britain, £1,850,000; Japan, £3,120,000. Again, we can see this kind of thing developing. I quote from the United States publication entitled "Foreign Commerce Weekly." This is a publication of the Department of Commerce of 3rd October, 1949.

Mr. Osborne

On many occasions the hon. Gentleman has protested to his own Front Bench about long speeches by Front Bench Members preventing back benchers from speaking. I was rather hoping that he himself would set a good example.

Mr. Smith

If the hon. Gentleman will look at the columns in the OFFICIAL REPORT he will find that I have been preparing myself for this speech. I have not spoken for some time. I want to do justice to those whom I represent and I do not care about anyone else's opinion.

According to this publication, in 1949 industrial production in Japan was 77.8 per cent. of the 1932–36 period. If we include output of utilities it was 94.2 per cent. Taking the same period, the production of metals in 1949 was 84.4 per cent.; ceramics, 79.6 per cent. Large development of hydro-electric power sources is now taking place in Japan. Three new power plants are now being constructed in Japan and 30 others are being prepared. I want to conclude by pointing out that the Japanese Prime Minister said: The cost of re-armament would upset out programme of economic rehabilitation. What a joke it would be if it were not so tragic. All the human sacrifices, the torture of our men and the sinking of our ships creates frustration and disillusionment in the minds of our people. The Labour Movement should say in no uncertain way, that never again shall we be a party to encouraging a return to the standards we had to contend with in the past, standards that we were supposed to have fought to stave off during the last war. International standards ought to be laid down to ensure that these conditions will never again be a menace to us or to other countries.

7.30 p.m.

Viscount Hinchingbrooke (Dorset, South)

I have been groping for something with which to deal in the speech of the hon. Member for Stoke-on-Trent, South (Mr. Ellis Smith), but I have found it exceedingly difficult. He did, however, disclose himself as an arch protectionist, and in that he is being a loyal doctrinal member of the Labour Party, because the policy of the Labour Party, when carried to its conclusion, must lead to extreme protectionism and autarchy. He is in the main stream of opinion to that extent. But I wonder whether there is any salvation for this country these days in this high protection, or whether our fortunes and prosperity do not depend entirely on international trade; upon seeing that we give as much opportunity for countries abroad to thrive and prosper and trade with us as we give to our own people. I can think that only poverty and misery for this country lies ahead if we go much further along the lines of extreme exclusion that we have seen developing steadily over the last 10 years.

I am glad that the Financial Secretary has returned, and the Chancellor of the Exchequer himself as I speak the words, which is a great honour for the Committee, and is perhaps in recognition of the fact that although these debates are beginning in a desultory way, they will develop in the weeks and months ahead in such a way that the right hon. Gentleman and his colleague will be required to sit on the Government Front Bench almost continuously to deal with Opposition speeches and votes. I was wondering, during the course of the last few speeches, why we had the pleasure of the company of the Joint Under-Secretary of State for Scotland for so long, until I thought that perhaps her presence was a token of the imminent return of the Stone of Scone to Westminster. However, she has given place to the right hon. Gentleman and the debate can proceed.

Members have been almost unanimous in their congratulations and approving comments on the speech of the Chancellor of the Exchequer. It was a finely constructed speech, and one which deeply interested the Committee. But, in all the approving comments that have been made, there has been a disposition to think that he is capable of working a miracle and that his Budget is of the character of a miracle, instead of which, as I see it, nothing has been said or done that can really cloud or overcome the immense gravity of the financial events which surround us. The right hon. Gentleman showed himself to be a good Chancellor presiding over a bad situation. I would rather we had a bad Chancellor presiding over a good situation.

All these highly knitted arguments, explanations and expositions really amount to very little, or to nothing at all. It was all quite interesting, and it brought the subjects together, to have the Chancellor chasing an elusive figure all the way through his speech, allowing it to increase at one moment and to decrease at another, until, in the end, he proved to his satisfaction and to those who still care for the doctrines of Lord Keynes that the inflationary gap had been closed and all was well. The Chancellor of the Exchequer appears to think that he is Neptune quelling the ebb and flow of great waters with a trident. I picture myself and other taxpayers, on the other hand, as bathers on the Sydney beaches watching a shark coming in with the incoming tide.

This modern notion that the Budget is somehow an instrument of salvation in present circumstances is, to my mind, pure "hooey." It can have practically no effect upon the essentials of our external or internal financial position. Something very much more drastic is required than mere balancing of the Budget or producing intellectual arguments to overcome the inflationary gap if we are to find succour and help. With these levels of taxation, it seems ridiculous to think that if a Budget is created with a surplus of £100 million we are therefore initiating a process of deflation, whereas if there is a deficit of £100 million we are initiating the process of inflation.

I am much more of the thinking of the economist Colin Clarke, who said that above certain levels of taxation all Budgets, balanced or unbalanced, are inflationary, or at any rate that could be reasonably deduced from his thesis. There comes a time when in particular political and social circumstances, connected, perhaps, with the fear of external aggression, or the absence of fear, when people are simply not prepared to have their way of life, whether they are people of large means or small, curtailed by governmental activity and taxation.

All that is being done by drawing out of the pockets of the people these vast sums and then expending them is to add to the aggregate of private spending, which is naturally recognised and insisted upon. It is this additive effect that produces inflation. If the Government were to raise another £300 million or £400 million, and allow expenditure to stay at what it is today, it would have no effect on rising inflation. That is my belief, which is supported by many eminent economists at the present time.

There seem to be only four avenues of relief for these rising prices, the increasing cost of living and incipient runaway inflation. The first is expenditure. We can divide that into home expenditure and overseas expenditure. Of home expenditure, I believe that the situation is so grave as to warrant a cut by a small percentage in all the supply services. My right hon. Friend the Member for Aldershot (Mr. Lyttelton) thought that perhaps we could find £50 million in savings in administration. I have not worked out what percentage that is, but a 5 per cent. cut in the supply services would yield £180 million and I should have thought a cut like that would be worth while. Of course, in some fields such as education and the social services such a cut would not be applied, but in other fields, and I believe that this is true of the general food subsidies, we might let it run to a cut of 8, 9 or even 10 per cent. While on the subject of food subsidies many of my hon. Friends have said that in these days it is quite wrong for the middle income and upper income classes to be receiving these subsidies. They ought to be cut back and consequent provision made for those in slender circumstances. I am perfectly certain we would get a moderate cut in food subsidies along those lines.

We see a very much graver situation in overseas expenditure. There is a heavy drain at present upon the lives and energies of our people due to the amount of goods, services and money which is flung overseas and which ought to be curtailed drastically; indeed, some of it halted altogether. There was a very interesting article in the "Observer" some time ago, which showed that we drained away from this country the total receipts that we had from Marshall Aid. That is harking back a long time now, and I think the Government are to be greatly blamed for allowing it to be thought throughout the world that the British people were deriving some direct benefit from Marshall Aid, instead of which the life and the comforts of the people of this country have been damaged, and the money canalised out of this country and sent overseas, that is if I understand that article aright. It has never been contradicted, but has been supported by some hon. Members opposite. What has happened to that money goodness only knows.

There are loans and gifts which the Government have steadily granted to foreign countries and to all parts of the Colonial Empire. My hon. Friends on this side of the Committee set great store by the Colonial Development and Welfare Act and the gifts and grants that are made under it. I earnestly hope that we shall see in the coming months how essential it is to keep back in this country a certain proportion of the goods and services which we need, but which, through our immediate generosity, we wish to send overseas or to some country in the Colonial Empire. There are the fantastic wastes of money on groundnuts, poultry schemes and other undertakings of a like nature. There is also the burden of the sterling debt, released because of the present over-liberal attitude. As my right hon. Friend the Member for Woodford (Mr. Churchill) has demanded time and time again we should make a comprehensive settlement, including compensation for war services, thus ending the thing and cancelling the debt.

Sir R. Acland

Repudiating the debt.

Viscount Hinchingbrooke

Not repudiating the debt but making a settlement, instead of which the Government, in their profligacy and over-humani- tarianism on behalf of people abroad, are chucking the money away, as a result of which the British people are taking it in the teeth with rising prices and inflation.

Sir R. Acland

What does the noble Lord say if the other people to whom we owe these debts, contracted when the right hon. Gentleman the Member for Woodford (Mr. Churchill), was Prime Minister, refuse to do what the hon. Gentleman has said?

Viscount Hinchingbrooke

I do not know what we would do, but, in the first instance, we should make an approach and see how far we can get. The Government have done nothing of the kind.

Mr. Ross

Nonsense.

Viscount Hinchingbrooke

Then there are things like the Foreign Office Estimate, which has risen from £2 million to £25 million, and is now the subject of investigation by the Estimates Committee. I cannot go into details, but that shows the wastefulness and complacency which exists. There are all these elaborate contributions to the United Nations organisation—not to the organisation itself but to schemes and projects which are prepared and developed by them, and the money for which is spent by a committee over which we have no control. Once the Foreign Office gets the money which is voted by this House it never sees it again. All that kind of thing must be brought to an end, because it constitutes a tremendous drain out of this country of our goods and services, and thus of our standard of living.

The second avenue to relief in our present predicament is one which was mentioned by my hon. Friend the Member for Grantham (Mr. E. Martin Smith), namely, increased production. I believe that that can only come about if we take the right course, and by doing so we should get more than a 4 per cent. increase in productivity. I doubt very much whether, in this coming year, with things as they are, we shall get to the level of the productivity which we had last year. I do not wish to take time dwelling upon these things tonight, but it is a simple argument. Unless people are given incentives there cannot be increased production. Why should people work harder and longer unless they can see an opportunity of saving and enjoying a better life, keeping money aside for, say, a house at the end of their days? How can those things be except by lower taxation? The Government do not seem to think in those terms at all. Although the Chancellor would not balance his Budget, in the hearts of the people he would engender a new hope and a new joy of life and increased productivity would come about.

The third avenue to relief which I want to commend has also been mentioned by my hon. Friend, and that is rising interest rates. There is today, in all the Government's administrative affairs, a new recognition of the value of the price mechanism. They are dispensing with many physical controls and allowing financial control to take over. It may not be popular with the Labour Party, but that is what the Government are doing and it is something for which we have begged for a long time. Why not go a step further and apply the price mechanism to capital investment and allow the interest rates to rise, thus canalising new industrial activities into projects which are worth while?

Nobody knows better than the men engaged in industry how to do it, and certainly they know much better than the Government administrators of Whitehall, who cannot know all the facts. There is a tremendously increasing case today, from the point of view of holding back inflation and reducing purchasing power, for increasing the interest rates.

Mrs. Jean Mann (Coatbridge and Airdrie)

Could the noble Lord tell us some-thing about the prosperity of the country when taxation was so low and interest rates were so high following the last war?

Viscount Hinchingbrooke

We could go to the other extreme and have interest rates at 6, 7 and 8 per cent., which would produce a slump, but at the present moment the boot is on the other leg. We have the dangers of inflation and we are governed by the Keynesian doctrine of Government stimulation. No one has given recognition to the reverse tactics, to what Keynes himself would, I am convinced, have suggested if he were alive today.

The other effect of raising interest rates would be that it would do a thing which has not happened for some time and which is obviously of immense value in our predicament. We have dispensed with Marshall Aid, which, in my view, we never had in this country, because it was canalised out. That may delight the hon. Member for Gravesend (Sir R. Acland), because he has great concepts of development overseas, and to him it does not matter very much whether in this process the people of this country reduce their standard of living. Let us replace Marshall Aid by rising interest rates, and invite Canadian and American, and perhaps Swiss, Swedish and South African capital into this country and, with it, enormous quantities of goods and services.

I am concluding, but I want to mention briefly the fourth avenue to release. My right hon. Friend the Member for Aldershot said that we were long of money and short of goods. The fact that we are long of money is shown by our having $3,850,000,000 worth of gold and dollars now, or a sum approximating to it, which means that we have a cushion enabling us to make a change. I hope that the Government will give attention in the months to come to a revaluation of sterling. We have to make our exports earn more and our imports cost less. In these days, when the pound sterling note is doing rather better on the foreign markets, in some cases rather better than par, we should try to push the valuation up to 3 dollars or to 3.20 dollars. That is an operation which the Government cannot afford to say anything about—they said nothing about the reverse process—but I hope they will consider it in the coming months.

From these benches we shall offer forthright and ruthless opposition to the Budget and the Finance Bill. The Government, since they have been in power, have spent about £20,000 million of the people's money—

Mr. Jennings (Sheffield, Hallam)

Wasted.

Viscount Hinchingbrooke

—and have wasted a great deal of it. We think that in present circumstances they ought not to be allowed another penny of it. I hope very much that, just as we have voted consistently on extra-budgetary increases, such as price increases and railway freight charges, on Prayers and on Supply Days, so we shall do exactly the same thing in this Budget and vote against all the increases that the Govern- ment have proposed. Not to do that would be derogating from the duties of an Opposition.

7.53 p.m.

Mr. S. N. Evans (Wednesbury)

I am sure that we are all grateful to the noble Lord for his warning. It will give us an opportunity to go into special training. I should have thought that in the last six years the Government had done a magnificent job of work. When I look back to 1945, when we were practically bankrupt, and after giving full praise to our Atlantic friends and cousins for the assistance we have had, I still think that we are further along the road to economic independence and financial self-respect than anyone had the right to expect at this stage.

I do not want to spend a lot of time on eulogies, but I would add my congratulations to the Chancellor of the Exchequer, on national, party and personal grounds. It is a Budget that will give very great satisfaction throughout the country and certainly it has had a tonic effect on my party. Indeed I do not remember the Parliamentary Labour Party being so perky, united and harmonious for a long while.

I want to ask a question of the Chancellor and to get a little explanation. The Committee knows that in the last 12 months I have taken an active interest in the very important subject of agricultural economics. It would be a good thing if my colleagues felt less antipathy to getting a little farm manure on their shoes. This is a very important subject, but on these benches we are a little prone to steer clear of subjects that we think we do not know enough about. We do not have to take a dose of strychnine to prove that strychnine is lethal in its effect. Nobody has inhibitions about discussing the Armed Forces although he has not been in the Armed Forces, so I hope very much that many of my colleagues will turn to this subject in an endeavour to learn more about it. I will say without equivocation that if, by some mischance, there were a transference of political power following the next General Election, I should be the busiest recruiting sergeant since Moody and Sankey.

I want to ask the Chancellor of the Exchequer for some explanation of what appears to be a contradiction and a discrepancy between this year's White Paper on Government expenditure and last year's. Last year, on page 9, the income from farming was given as £258 million for 1948 and £283 million for 1949. In this year's White Paper, those profits are given as £261 for 1948 and £304 for 1949. The last item shows a difference of £21 million. If we could have an explanation of the discrepancy, I should be grateful. Although I fight hard on this subject, I always try to be fair.

Enormous sums have been poured into this industry. The consequence is that, in the first place, we have a land inflation that is in many ways reminiscent of the Lancashire cotton boom of the 1920s. I know of a farm which was recently sold for £18,000 which in 1934 was sold for £1,750. It is becoming practically impossible for farmers to buy farms for their sons. It is getting very difficult to rent a farm even, because the money that can now be obtained from sales presents a big inducement to the owners to sell out. Dinner jacket farmers from the City and the suburbs are descending on the countryside like a crowd of locusts. I do not think that is a good thing for agriculture. It is very important that we should look into the reasons and I must record my belief that the reason is to be found in the policy that the Government are adopting towards the industry.

In particular, I find it very difficult to understand the further increases in prices conceded as a result of the last farm price review. Most of all, I am worried by the ever-growing cataract of milk. I said at Manchester a year ago that guaranteed markets for unlimited quantities at prices which enabled the inert and inefficient to make a profit were concealing a good deal of inefficiency and inertia in the industry. That caused a hullabaloo. The N.F.U. president recently announced that within the next five years we shall have 375 million gallons of milk more, with no increase in the number of cows. There must be a good deal of inefficiency at the moment to permit a 20 per cent. increase in production without any increase in the number of producing units. I am glad that the dairy side of the industry is making itself more efficient.

I am interested to know what we are to do with all that milk. Someone might get the odd idea that I should drink some. The N.F.U. president had the answer to that. He said that we should have unlimited quantities of pre-war quality ice cream and substantial quantities of delicious milk chocolate. Hundreds of millions of pounds in farm subsidies year after year, £800 million of new capital poured into the agricultural industry in 10 years and at the end of it all, plenty of ice cream.

Mr. Baldwin (Leominster)

Will the hon. Member tell the House of a single article for which the farmer gets a guaranteed price for which he could not get more on the open market?

Mr. Evans

The answer must be that without the £300 million subsidy—

Mr. Baldwin

Answer the question.

Mr. Evans

—in part paid direct and in part paid by the consumer, nobody could afford to buy the products of British agriculture. That is the position into which we have put ourselves. First, we inject large sums into the industry to stimulate production and then we find that the cost of the article is so high that we have to give the housewife money to enable her to buy it.

I want to talk about the extra 375 million gallons of milk. That is a lot of milk. No one belonging to the N.F.U. or the industry ever says anything about butter. Where I come from they are very fond of butter and they have been short of it for a long while. The 375 million gallons of milk would produce 74,000 tons of butter. The total import of butter is about 124,000 tons, but nobody in the industry ever says anything about the prospects of providing more English butter. I was curious about this, and I found the reason we cannot have more butter. It takes roughly 2½ gallons of milk to make a pound of butter and we are now paying the British farmer 5d. more for a gallon of milk than we are paying our overseas suppliers for a pound of butter. What do the farmers say to that?

Mr. Baldwin

I will tell the Committee what the farmers say to that. They say the Government should free the industry and let it do what it likes and get what it likes. We do not want subsidies and guaranteed prices.

Mr. Kenyon (Chorley)

My hon. Friend should remember that more things have to be taken into account in making butter. For instance, the skimmed milk is turned to other uses, and that must be borne in mind in considering prices.

Mr. Evans

I am sure there are very important considerations about which we should all like to hear. My complaint is that the N.F.U. and the industry never mention butter and we who live in industrial areas would like to see a little more butter. We are given the new figure of milk production and yet nothing is said about more butter. That is significant. The industry should address itself to this problem. There can be no doubt that Denmark, which sends us a pound of butter for less than we pay our farmers for a gallon of milk, has no advantage of soil, climate or wages, and it is very difficult for the workers in the industrial areas to understand why there is such a discrepancy in costs.

Mr. Snadden (Kinross and West Perthshire)

The hon. Member says that Denmark has no advantage, but does he realise that only 5 per cent. of the agricultural labour in Denmark is employed labour, whereas in this country 50 per cent. is employed labour? The conditions are entirely different. They are family farms in Denmark.

Mr. Evans

But the families do not work for nothing. The relative wages were printed in "The Times" for all to see not long ago. The farmers and their wives do not work for nothing. Is it suggested that they work for nothing?

Mr. Hugh Eraser (Stafford and Stone)

Another point that the hon. Member should remember is that Denmark has to import feedingstuffs from abroad, and, as Denmark has a large animal population to consume the skimmed milk which becomes available, conditions relating to costs are, therefore, different.

Mr. Evans

I hope it will be noted that the Tory agricultural chorus is taking up a little of my time. There is a reason why the Danes and other Continental peoples generally are so much more efficient and can therefore bring a sharper competitive force to bear in agricultural primary products. They look after their grass. There is no doubt that most British grassland is woefully, if not disgracefully, neglected. Any fair practical farmer will say that the output could be doubled in a very short space of time, and if that output were then processed and stored we should not need to find such large sums of foreign currency for feedingstuffs.

Mr. Jennings

Will the hon. Gentleman produce some evidence for such a statement? It is absolute nonsense.

Mr. Evans

I am sorely tempted to answer.

I would say that another important effect of the uneconomic price that is being paid for milk, which is costing more than £100 million a year subsidy—is that in areas in which the main activity was traditionally grain—I am thinking particularly of wheat—there is a very big changeover from wheat to milk. In 1947, we embarked on this agricultural policy of injecting very large sums of public money into the industry with a view of insulating ourselves against the need for dollars. It would seem that instead of utilising our best grain lands for growing, we are allowing them to turn over to milk. That, being a cash crop at a very high price, is not unnaturally attractive.

I suggest to the House that we should watch this trend very carefully, because public money is involved. Let me give one simple illustration. Norfolk produced in 1938 roughly 21 million gallons of milk, and in 1949 35 million gallons, an increase of 61 per cent. But in the case of wheat, for which we have to pay with dollars if we do not produce it in this country, output has dropped in the same county from 141,000 tons in 1938 to 111,000 tons, a decrease of 30,000, or 22 per cent. in the period in which milk production has increased by 61 per cent.

Mr. Baldwin

Will the hon. Gentleman tell the Committee that the English farmer is compelled to sell 75 per cent. of his wheat to the Ministry of Food at £4 per ton less than is paid for foreign wheat landed in this country? He has to sell wheat at £28 to £29 per ton but has to pay £32 per ton for feed for his pigs.

Mr. Evans

I do not accept that farmers farming scientifically and energetically on good land are having anything but a very good time. They are buying washing machines, milking machines, tractors, cars and lorries more easily than they used to buy manure barrows. We have now got to the stage where more money means not more production but less.

Mr. Baldwin

Then leave the industry alone.

Mr. Evans

By the paying of prices for commodities which enable the least efficient and energetic to make profits, we make certain excessive profits for the energetic farmer farming scientifically on good land. That is a very bad consequence indeed. In the first place, such a farmer finds himself ranged as a profiteer, which he does not like very much, and for that reason he is driving with the brake on. Also, he is brought into the higher Surtax brackets too early, and for that reason, too, he is likely to ride with the brake on. These fancy prices are based on the capacity of poor farmers, agricultural drones, Luddites, and misfits to make profits. Let us be quite clear that this system is probably retarding production, not helping it.

I want to see in this industry money harder to get and easier to keep. I believe that before there is any health in this industry, there will have to be a few healthy bankruptcies.

Mr. Snadden

The hon. Member has quoted from the Command Paper, and has mentioned certain figures. Does he realise that the income from farming shown in the Government Command Paper published the day before yesterday is only 2.7 per cent. of the national income? Considering that 40 per cent. of the food we eat is produced by the industry, surely it is entitled to an even bigger slice of the national cake?

Mr. Evans

We are quite willing to proceed on the basis of the rate for the job. My grievance is that we are paying the rate but we are not getting the job done efficiently. I would say that a 500 per cent. increase in income for a 40 per cent. increase in production is unduly generous. But I must not try the patience of the Committee. [HON. MEMBERS: "Go on."] I should like to go on.

Mr. Jennings

The hon. Member cannot teach the farmers their business.

Mr. Evans

I have yet to hear the hon. Member for Hallam (Mr. Jennings) say anything intelligent. I should like to say a word about the February price review. I do not think that the present system of reviewing prices is satisfactory. Year after year it seems to me to be a one-horse race with the farmers winning in a canter. I believe it is high time that the method of determining these prices was altered. I cast no aspersions on the impeccable nature of anyone's motives, but I believe that the industry itself and the Ministry of Agriculture really believe that all-out British farm production, no matter what the cost, is the prerequisite to British prosperity. I do not accept that, but it is quite easy to see that people who think that their prosperity is synonymous with national prosperity will have no compunction about fixing prices which they think will serve the interests of their industry and indeed the nation well.

I am not very happy about the part played by the Treasury in the price review on this occasion. I am willing to concede that we have a new Chancellor of the Exchequer, but I think that once more the Treasury have allowed themselves to be pushed about instead of standing firm. I do not think there was any need for a price increase on this occasion. It would be a very good thing if we had a Royal Commission to examine this industry from top to bottom.

Mr. Baldwin

Hear, hear. Have a go.

Mr. Evans

Such a Commission could then decide whether we are using our resources to the best advantage, whether it is intelligent to try to grow wheat half way up Ben Nevis. It could decide all these things, and it could also decide on a method of price-fixing which would be fair to the industry and to the nation alike.

8.20 p.m.

Mr. Maudling (Barnet)

The hon. Member for Wednesbury (Mr. S. N. Evans) always speaks with great sincerity on the question of farm prices, but I am sure he will forgive me if I do not follow him. I cannot make even a pretence of understanding farm accounts, and I do not want to be involved in this argument. I think it would be fairest all round if the Financial Secretary would arrange for the hon. Member's speech to be circulated in the rural districts, accompanied by comments from hon. Gentlemen below the Gangway, in order that the argument could be then discussed as widely as possible.

I listened, as did other hon. Members, with great interest to the extremely lucid and coherent speech which the Chancellor made yesterday. One point of interest to me was the increase in the disregard of pensioners' earnings. I myself put a Motion on the Order Paper several weeks ago suggesting that this should be done. It gathered to itself some 50 Conservative signatures, but it did not gather any signatures from hon. Members on the other side of the Committee; even though an expert committee under the chairmanship of the hon. Member for Sowerby (Mr. Houghton), I think, recommended precisely the same thing some weeks later.

Mr. Houghton

We consider that there are better ways of making representations.

Mr. Maudling

Anyway, I am glad we both agree that the result achieved is a good one.

This Budget has been received with a remarkable amount of approval from hon. Members on both sides. I have seen it described in the Tory Press as a Tory Budget and in the Socialist Press as a Socialist Budget; which is rather contrary to the normal proceedings whereby people generally call a Socialist Budget a Tory one and vice versa. This degree of unanimity is really surprising, but I do not think it will last indefinitely when people begin to understand the real implications of the disinflationary policy which the Chancellor is pursuing. As I understand it, the object of his Budget is to equate purchasing power with the goods available to be purchased; in other words, to prevent the addition of credit inflation on the top of the already existing cost inflation.

I am sure everyone would agree that that is a proper objective for the Budget this year; but I think it is worth pausing to recall once again that the major causes of the cost inflation which has already taken place, and which is the most serious part of the burden the country has to bear, include the effects of devaluation and the effects of delayed purchasing of raw materials by the Government. I think it probably fair to argue, as Government supporters have argued, that after devaluation in the early part of 1950, they used the bargaining power of the British market to restrain price rises in our imports that might otherwise have taken place. I think that is undoubtedly true. But the change from a policy of holding off the market to a policy of going into the market was far too much delayed.

The machinery of bulk purchase, concentrating decisions in one man, is bound to make mistakes of this kind, and we on this side of the Committee have often argued that when these mistakes are made in the bulk buying system they are as a result, very big mistakes indeed. There is no question whatever that in the case of Argentine meat the Government have been caught in the position of a bear speculator on a rising market, which is one thing that a wise trader will never allow to happen. So I do not think there can be any doubt that the buying policy in the latter part of 1950 has contributed to the present cost inflation that forms the major part of the whole inflationary situation in the country.

I would refer to what was said by the hon. Member who raised the matter of re-valuation. I should have thought that any question of re-valuation to a new fixed parity in the present situation was impossible. I have never yet seen a really cogent argument made against the system, adopted by the Government of Canada with considerable success, of allowing the £ to move freely in dealings between authorised dealers backed by a solid exchange equalisation account. I think there is a general feeling that the £ is under-valued, and that a much better way of curing the under-valuation of the £—which contributes to high import costs—is by allowing the £ to move freely in authorised dealings amongst people with permission to acquire foreign exchange. I should like to hear more about that point from the Chancellor.

Before coming to his Budget proposals, the Chancellor dealt with non-Budget factors that contributed to inflation. As my right hon. Friend the Member for Aldershot (Mr. Lyttelton) said this afternoon, the Chancellor made relatively little reference to the possibility of increasing production. I do not think it is generally realised in the country that the 4 per cent. increase in production which we expect this year in fact represents no increase at all in the level of production attained by the end of the calendar year 1950. That is a measure of the stringency of the raw material position to which we have been brought. It is a very solemn thought that, after the increase in productivity year by year over the last three years, we are now to be tied back to the level of production at the end of 1950.

The point I wish to make about production and which cannot be stressed too often, is that if our raw material shortages can in any reasonable time be cured or alleviated, the next problem will be the supply of labour, the shortage of labour and man-hours, particularly in the engineering industry. We hear a great deal about the shortage of machine tools, which is supposed to be a limiting factor on our production, but in the vast majority of cases our machine tools are still worked on a one-shift basis. With more hours worked in the engineering industry, either by bringing in more people, or by engaging in longer working hours, or by a combination of the two, we could get far more output from our existing machine tool capacity; and, with the world shortage of machine tools, I consider it highly important that we should concentrate on this possibility.

The next point is the question of wages. The Chancellor referred again to the need to continue the restraint in wage increases. I should like to be sure that the relatively optimistic way in which he expressed himself will be justified in the event. To my mind, the most serious danger of further increasing the inflationary pressure in the country arises from a further increase in the rate of wages. It is on the wages front that the greatest danger will arise. I cannot help feeling that in some ways this present Budget will not contribute in any way to arresting and restraining wage increases. It may act in the other direction.

The Chancellor said very little about credit policy, although it has been mentioned by two hon. Members on this side of the Committee. As I understand it, his view is that credit policy can be left to a combination of cutting out initial allowances plus selective restraint exercised by the banks. He referred to the recent increase in the rate of interest, which he did nothing to bring about himself, though he referred to it with a certain amount of approval.

I do not believe that in practice it is possible for the banking system, with the best will in the world, to distinguish in every circumstance between advances which are inflationary and advances which are not inflationary. The system just cannot work with that nicety. I think that there is a considerable argument for backing up the existing system of credit control with a certain increase in the rate of interest. No doubt we shall hear arguments against that. There are counter-arguments on the other side. The effect on rents of an increase in interest rates is immediate. Undoubtedly, action would have to be taken to prevent increases in rent as a result of increases in the rate of interest. I think that that could be done by a review of the housing subsidy system, which is a system by no means perfectly designed to meet its purposes.

The other argument is that, in present circumstances, with the rate of overdrafts at 4 per cent., charges can be set off against other income for tax purposes and therefore the net cost of the overdraft is relatively small—2 per cent. or less. One would have to increase the rate of interest very steeply in order to provide for a really considerable effect after taking tax into account. That, it is said, would mean a very large cost to the Treasury—a very large additional expenditure on the service of the National Debt. For my own part, I do not think that that objection is entirely valid. I believe that a very small increase indeed in short-term money rates might produce a remarkable psychological effect. I calculate that the cost to the Treasury of an increase of one-quarter per cent. in the short-term money rate would be about £15 million gross, or more like £5 million net when proper deductions for taxes have been made. That small relative cost would have a considerable disinflationary effect.

While on this subject, I have another definite suggestion, and that is that something more should be done to control hire-purchase credit. The Americans have introduced a regulation W, I think it is called, which prescribes definite limits which are laid upon hire-purchase transactions. At present the policy of the Government is to try to restrain hire purchase, once again through the banking system. Once again, I do not believe that the banks, with the best will in the world, can possibly operate that system really effectively. There are too many ways of getting round the controls exercised by the banks in the matter of hire purchase. In present conditions when we are trying to cut down consumption of, for example, television sets and motor cars—production that conflicts with the re-armament programme—to allow large hire-purchase facilities to continue to exist is to run contrary to our whole policy.

My final non-budgetary point is on the question of prices. This is a most important point indeed. Quite clearly, the Chancellor's intention is to cover the major part of the inflationary gap by allowing prices to rise. The major problem he has to face is that incomes are going to rise by £600 million, or thereabouts, whereas the real amount of goods available on which the income can be spent is going to fall. The major part of that gap is going to be closed by allowing prices to rise. That is the lesson which comes out of the Economic Survey and out of the Budget speech. It is not a lesson which has yet been properly appreciated by the country as a whole. It is most important that it should be appreciated.

I have never fully understood why it is that a lot of economists consider that it is a good thing that prices should go up in order to cure inflation. I always thought that rising prices were a symptom of inflation rather than a cure; but I can see that a rise in import prices will exercise a disinflationary effect, just as much as a Budget surplus would, because that rise will withdraw money from consumption in this country. In effect, rising import prices are the foreigners' surplus. We are having to meet two disinflationary surpluses this year: one that goes for redemption of the debt to the Chancellor of the Exchequer, and the other that goes to the foreigner who sells us goods. The rise in import prices is the overseas merchant's and producer's surplus. That is, in fact, the major part of the Chancellor's plan to deal with his inflationary problem.

Turning to the Budget proposals themselves, I have followed as best I could the very complicated calculations through which the Chancellor went in order to arrive at his figure of £150 million—a figure which had been reached beforehand by a number of newspapers by somewhat less complicated methods. I would not presume to quarrel with the figure which he has taken, which, so far as I can follow it, seems to be reasonable, but I am not at all happy about the methods which he has chosen to raise this money, for several reasons.

In the first place, I think far too much emphasis has been laid on direct rather than indirect taxation. Surely, it is one of the axioms of taxation policy that, when we are trying to restrain inflation, we should place the tax burden as much as possible on the point at which money is spent rather than the point at which it is earned. I would rather see an increase in the duty on spirits than an increase in Income Tax, since the disincentive effect of the latter will be quite considerable. The increase in the rates of Income Tax will have a disincentive effect particularly on people in the £8 or £9 a week level of income, and I think the Chancellor might have taken this opportunity of increasing the number of steps in the Income Tax scale from three to four or five, a suggestion which has been urged on him on a number of occasions.

Then there is the Profits Tax. It is, technically speaking, a bad tax, and it is particularly unfair to certain industries. I would call the attention of the Financial Secretary to its effect on the shipping industry, which I think may be particularly severe. I hope he will look at the effects of the Profits Tax on shipping. On account of the financial structure of the industry and the methods of financing shipbuilding for British shipowners, it may have very serious effects. Moreover, the Profits Tax was designed to reduce capital investment, but surely there can be no question of trying to cut down capital investment in British shipbuilding, because there is no conflict between defence and the civilian side in shipbuilding, since merchant shipping is as much a part of our defence as the Royal Navy.

The Financial Secretary to the Treasury (Mr. Jay)

The hon. Gentleman is making a very fair speech, but may I ask him if he is discussing the initial allowances or the Profits Tax?

Mr. Maudling

I am grateful to the hon. Gentleman. I was referring to the initial allowance. The initial allowance also affects the problem of the balancing charge which falls on a shipping company when losses occur through accidents, which is another very serious matter. A criticism of the Profits Tax, to turn to that now, is the serious effect on com- panies with a very high gearing—those with a large amount of preference capital as compared with a small amount of ordinary capital—and I hope that in future there may be some attempt to deal with that question.

My third criticism of the method of collecting revenue is that it will lead to a good deal of dis-saving. Both the Profits Tax and Income Tax will lead to a great deal of withdrawal of savings, which is a bad thing. I do not think that anything like enough attention has been paid to the problem of increasing personal savings, and I should like to make two suggestions.

First, in regard to National Defence Bonds, instead of increasing the interest on these, why does not the Chancellor increase the premium on redemption several years ahead? This is far more attractive, in inflationary conditions, than an increase in the interest. There is another small but useful suggestion. The premiums paid for deferred annuities are not allowed for life insurance relief, but it is perfectly possible for the Treasury to put a maximum 25 per cent. cash option on a deferred annuity and to allow the premiums paid towards such annuities to rank for life assurance relief. If that were done, it would lead to a very considerable increase in personal savings by precisely those people—the middle classes, professional people and the self-employed—who are finding saving so very difficult today.

I think the reason the party opposite are so strongly in favour of the Budget is that its proposals are obviously designed to soak the capitalist, or to place the burden on the middle and upper ranges of income. I think that is undoubtedly the reason the Budget proposals on the whole have met with their approval. There is a good argument in theory for saying that is the right step at the moment, because undoubtedly the rise in prices of imports, which is the major disinflationary weapon of the Chancellor, will fall most severely on the lower incomes. Lord Keynes has pointed out that it is the poorer people who live by consuming imports. It is those people in the lower ranges of income who will feel most severely the rise in prices.

I hope the purpose is to meet a short-term problem and not a long-term prob- lem, I am sure many hon. Gentlemen opposite like to see a policy of slow equalisation of incomes by maintaining an absolute upper level of all net incomes and then steadily raising prices until equality is reached. I do not think this country will continue to prosper in a society where, comparatively speaking, all net incomes are equalised. So, while this policy underlying the Budget may be acceptable in an emergency, as a long-term policy it would be disastrous.

But I am not sure that it will be effective—that it will exert this disinflationary influence—because it will lead to substantial dis-saving. The Chancellor has not the room to manœuvre. There is not the taxable capacity left, as has so often been said from this side of the House. In fact, he has to do the major part of the job by a rise in prices. When we say that the alternative to taxation should be reduction in Government expenditure we say that that reduction is essential not merely to avoid extra taxation but to avoid a rise in prices. Unless there are reductions in expenditure, which alone now can exert an effective disinflationary influence, further rises in prices are essential. Thus the choice for the public is between economy and a rise in prices. If that choice were to be put fairly, squarely and clearly to the public, they would decide in favour of economies rather than a further rise in prices.

8.43 p.m.

Mr. William Reid (Glasgow, Camlachie)

My first duty is to congratulate my right hon. Friend the Chancellor of the Exchequer not only upon his Budget Statement but upon the Budget itself. No Chancellor of the Exchequer within living memory has ever had such a difficult task in framing his Budget.

The main point I wish to make is not a criticism of the Budget itself, but an expression of regret that at least one other avenue of taxation has not been explored. I refer to capital appreciation and the buying and selling of businesses. I believe that the regulations give the Chancellor power to do that but that they have not been applied as vigorously as they should have been applied. There are certain people who have made large sums of money by such transactions, upon which no Income Tax falls to be paid.

I should like to draw the attention of the Chancellor to a case which has cropped up in my own Parliamentary division of Camlachie and which is typical of many others. An old-established tailoring business has a factory in Camlachie and another in Dundee. It employs 700 workers in each of these factories. It also owns a chain of retail shops throughout Scotland. A few months ago this concern was bought by a well-known city magnate.

A few weeks later the business was re-sold to another multiple firm at a profit, I am credibly informed, of £300,000. As this £300,000 was appreciation of capital, no Income Tax falls to be deducted. In other words, this man could bank that £300,000 on current account and withdraw £200 a week for 30 years without any tax having to be paid. During that period the workers in these factories earning, say, on an average £7 a week, would have tax deducted week after week under P.A.Y.E. while the man who walked off with a profit of £300,000 gets off tax free.

Who ordained that one man who simply buys and sells a business should make more money by that one transaction than any of the workers employed in these factories would earn in a whole lifetime of toil? Who made that law and how long will it be tolerated? I know that there are many difficulties in the way of finding a solution, but the resources of civilisation are not yet exhausted. In the United States of America they have found a solution to that problem, and I would earnestly appeal to the Chancellor of the Exchequer to look into this matter and see if a remedy can be found. If he does, I am sure he will receive the wholehearted support of all sections of the Committee. I will be only too pleased to submit to my right hon. Friend all the facts in connection with this case to which I have referred and which is typical of many others.

Another important matter to which I would like to refer is this. Does the Chancellor think that the import tax on foreign manufactured goods is either sufficient or is being applied properly? I hold in my hand a lady's beautiful silk handkerchief. It is covered with advertisements for the Festival of Britain. It is being used to boost British industry. Surrounding this handkerchief is a bold inscription, "Scotland for Ever." There are also pictures of the Palace of Holy-rood House, Edinburgh Castle, Iona Cathedral, Stirling Castle, Forth Bridge, Melrose Abbey Abbottsford and Burns' cottage.

Immediately this silk handkerchief was given to me, as a patriotic Scot I felt inclined to purchase 50 of them to send to my Scottish friends in America. But stay. On the reverse side of that handkerchief I came across a little silk tab which said, "Made in Italy—cost 1s. each." Come to Bonnie Scotland via Italy! I am informed that the cheapest a silk handkerchief of this kind can be produced in this country is 3s. 11d. It is perfectly obvious that to be retailed at a profit at 1s. per handkerchief, it must be produced under sweated conditions. I shall have much pleasure in presenting this handkerchief to my right hon. Friend the Chancellor so that he may look into this matter.

Finally, I would again congratulate my right hon. Friend on an excellent Budget and I can assure him that any criticism I have made has been made only in a desire to be helpful and constructive.

8.51 p.m.

Mr. David Eccles (Chippenham)

One of the things which takes the asperity out of Parliamentary life is that so many of us have ties outside politics with hon. Gentlemen in other parties. It gives me great personal pleasure to congratulate the Chancellor on opening his first Budget. I should like to think that the clarity and courage of his speech are due in part to the school where he and I spent five years together under the best of headmasters.

Mr. Rankin (Glasgow, Tradeston)

The old school tie.

Mr. Eccles

The old school tie is a very strong bond—and a good thing, too. We have had today an excellent maiden speech from my hon. Friend the Member for Belfast, West (Mr. Teevan). It was short, straightforward and entirely fair—virtues which the House of Commons always appreciates. I am sorry to say that the hon. Member for Wednesbury (Mr. S. N. Evans) is becoming more and more extravagant. He was more useful to us when he was rather more on the middle of the line. Now he talks about milk as being over-produced and I feel he will lose his following in the country. After all, the quantity of milk which is turned into butter has nothing to do with the price of milk. The Ministry of Food give the order about how much milk shall be turned into butter and if the hon. Member has a complaint against anyone it is against his own Front Bench.

I do not know whether he ever goes outside a built-up area, but had he done so in the last three months I think his sympathy for the farmers might have been aroused. I cannot imagine starting a season in more depressing and difficult conditions than those of this year and I do not believe either side of this Committee endorses the attack which the hon. Member for Wednesbury made upon the agricultural industry.

When Sir Stafford Cripps left the Treasury—and we are all sorry for the cause—his departure coincided with a momentous, a fearsome change in the British economy. My hon. Friend the Member for Harwich (Sir S. Holmes) truly remarked that we emerged from the war very poor and then for five years the insecure foundations of our standard of living were concealed under a policy of price stabilisation compounded of such various ingredients as subsidies, rent control, unrepresentative index numbers, the American and Canadian credits and Marshall Aid, exhortations to produce more and wage and dividend limitations. The whole paraphernalia was designed to underpin a range of arbitrary prices for the necessities of life by which alone the pretence was kept up that the cost of living hardly rose under a Socialist Administration.

The Government got away with their hotchpotch of sedatives and sermons because production was increasing just fast enough to meet the Bill for their swollen expenditure and to leave a small annual increase in the goods available for consumption. Of course, if my right hon. Friends had been in charge of the nation's business the increase in consumption would have been markedly greater, and there would have been more of the things which people really want, such as meat and houses, but, as it was, the Socialist contraption—I cannot dignify it by the name of machine—just ticked over fast enough to prevent the public from losing confidence in the value of their money.

But now the picture has altogether changed. The price stabilisation policy is in ruins. We can no more shore it up with fresh subsidies and fresh deceptions than we could put a tarpaulin over Coventry Cathedral and pretend it had not been bombed. As the Chancellor admits, we are in the middle of a spiral in the cost of living. Wages and prices are hopelessly adrift, and no one can tell when and at what altitude they will come to rest. Indeed, by the far most important question to ask about this Budget is whether the twist in the spiral which we are now experiencing is to be succeeded by another and another until the very basis of our society is eaten away by inflation.

This situation is new. That is, it is new for Britain, though it has happened often on the Continent. Throughout the length and breadth of the United Kingdom everyone now expects prices to rise, and no end is in sight. This doubt—which is new—about the value of our money sets up new reactions to Government policy, and today the stock measures, such as more taxes and more exhortations designed to bring about deflation, will not have the effect they had even in Sir Stafford Cripps's time. What could be done when the value of money was taken for granted cannot be done now. Indeed, the strong probability is that tax increases of any kind will now stimulate fresh spending and more demands for increases in incomes unrelated to increases in output. Thus in these changed circumstances—and they are quite new—what was designed for deflation may turn out to be exactly the opposite—a powerful instrument of inflation.

If I could be sorry for any Socialist Minister I should be for the new Chancellor. He took over his office just as the wounds inflicted upon our economy by his predecessors began to fester. The patient's temperature is now rising. Old remedies will not work. Marshall Aid, which brought millions of pounds worth of goods to this market to mop up our surplus purchasing power, has gone. Korea has immensely aggravated the trouble. So the new Chancellor has to do something unheard of in British history: he has to plan in peace-time for a fall in the standard of life of all sections of the people. We have seen in the last few years how the public will swallow atrociously bad government provided consumption is rising ever so slowly.

But now, to have to put up with bad government and a planned fall in the standard of living—that is more than even the patient British will bear. A tremendous storm is brewing over the cost of living; all the artificial devices and all the protective wrappings so dear to the Socialists will be found useless in this tempest. Many of the old landmarks will be swept away, but one day we shall return, by hard work and British common sense, to that stability which comes from living within our income.

In the meantime, the Chancellor has made proposals which seem to me wrongly conceived. His object has been to find resources for the defence programme. That is a terrific problem. We have not, like America, a reserve of industrial capacity; nor, like Italy, Belgium and Germany, a reserve of visible unemployed. It looks as though we have very little room for manoeuvre. That is the conclusion to the array of Government statistics, and the Chancellor endorsed that view. He counts on some increase in production, though he said very little about it; he counts on a once-for-all run down in the overseas balance; and then he plans to close the remaining inflationary gap through rising prices and increased taxation. I do not think he can do it. If the temper of the people is as I have described—angry because the Government do not know their own mind; angry with the rising prices—an increase in taxation may well re-create the inflationary gap, either by stimulating faster spending—most likely—or by slowing down production and savings.

Therefore, while I concede that once this Committee has passed the Estimates we must find the money, I am opposed to the basic philosophy of this Budget, which is to increase the total of taxation in an attempt to check the rising cost of living. This is the old argument about the connection between the level of taxation and prices, referred to today by the hon. Member for Chesterfield (Mr. Benson), to whom we always listen with attention in these Budget debates.

Ever since the war my hon. and right hon. Friends—and we miss Mr. Oliver Stanley, who was so firm and forceful on this very point—have maintained that the size of the Budget was too big and was in itself an inflationary force. Look at it as we will, our contention has been proved by events. The taxes on commodities and the taxes on wages have left the individual with less to spend in a period in which prices were rising slowly, and that has provoked him—perhaps I ought to say, more accurately, provoked his wife—to ask for a rise in pay and thus given the inflationary spiral another twist. There have been other taxes which have added to the pressure on the cost of living because they have slowed down production and savings.

Then the enormous rate of spending by the Socialist Government has been thought to require, as a kind of lubricant, a policy of too abundant and too cheap money which, though it has been somewhat modified, to the credit of the present Chancellor, has continued to diminish the deflationary effect of the Budget surpluses. As my right hon. Friend the Member for Aldershot (Mr. Lyttelton) observed, the pressure on the cost of living of the average family began long before Korea. It was that pressure that made the Government call for the wage freeze. The claims put in by such groups as railwaymen, teachers, civil servants and postmen had nothing whatever to do with Korea. For a long time before war broke out they had been finding it hard to make both ends meet.

Take, also, devaluation which occurred in 1949. That was a confession by the Government that under Socialism British costs and prices were driving our goods out of foreign markets. It is quite true that the aftermath of devaluation was helped by a revival in American business; but this lucky break for the Minister, because that is what it was—certainly did not stop the rise in sterling prices. Indeed, unless hon. Gentlemen opposite really believed that the dollar prices for raw materials would fall by the amount of our devaluation, then they must have known that to chop one-third off our currency would be followed by a large rise in our own cost of living.

In fact, now, in April, 1951, we still have not reached the point where the devaluation consequences have been fully worked out. Korea has hardly begun to have its effect upon the cost of living. But there is one thing about devaluation which is perhaps not often realised—it put a time-limit on the wage freeze. It was an inevitable result that sooner or later wages would become unstuck, whether there had been a war in Korea or not. Korea has increased the pace but not altered the direction in which our price level was being hustled, pushed and driven by Socialism.

Both devaluation and the wage freeze were acts of Government policy for which the Socialist party must accept full responsibility. They were forced to these measures because they had failed to restrain too much money chasing too few goods, and the biggest contribution to that failure was their own financial policy. In past debates, the party opposite and the hon. Member for Chesterfield in particular—he did it again today—have defended the gross size of the Budget on the grounds that the taxes were returned to the taxpayers in the form of social services. That is true, of course, but only of two-fifths of the Budget. It leaves out of account the millions wasted on schemes which never did a half-penny worth of good to any wage-earning family. How much did any of us get out of groundnuts and Gambia eggs? If we add the loss on those two schemes together, they come, I think to £37 million, which is almost twice the total given to the old age pensioners in this Budget.

Mr. Benson

The hon. Gentleman is wrong. It is at least three-fifths that is returned to the taxpayers, and with regard to the loss on groundnuts, it was, it is true, £30 million, but that was spread over five years.

Mr. Eccles

I do not want to argue that with the hon. Member, but the social services are to cost, I think, £1,600,000 out of a Budget of some £4,100,000.

Mr. Benson

Transfer payments.

Mr. Eccles

I said social services, not transfer payments. To go back to the spending on the social services, even if every penny had been wisely spent, the sheer magnitude of the post-war Budgets would have been inflationary because the transfer of such a huge proportion of the national income from individuals to the State causes acute resentment and sets up pressures on the price level which are irresistible.

I suppose that we shall be told by the Financial Secretary—I remember the occasion when he used this point—that the citizen ought to be glad to have his money spent for him by the gentlemen in White- hall. We shall be told that it is scandalous if he makes a fuss about it and tries to shift the load by getting for himself a rise in pay, and, therefore, that the Budget should be framed to cater for men and women as they ought to be and not as they are. That is the kind of Socialist argument that seems to us to be divorced from reality and to ignore the lesson of history, which is clear enough, that Governments which disregard the ingrained habits and strong wishes of the people come to grief.

If my submission is right about the size of post-war Budgets, it follows that it is highly dangerous to look for the resources for defence by increasing taxation. The same would be true about the measures adequate to halt the rise in prices once the increased costs of imports have worked their way through to the shops. I will try to illustrate this point by looking first at the main proposals in the Budget, and then giving a few modest suggestions for a different policy.

Many Members have talked about the inflationary gap. My own view is that it is not as small as £150 million, at which the Chancellor put it. This is a very complicated argument, and I shall do my best to put it as simply as I can. The Committee will have noticed that last year Sir Stafford Cripps said that he must have a surplus on the conventional basis of £443 million. It turned out to be £720 million, but even that did not stop prices rising. This year, as I think the right hon. and learned Gentleman the Member for Montgomery (Mr. C. Davies) said, the water is much rougher, and yet the Chancellor says that he needs a surplus of only £39 million on the conventional basis, which is £400 million less than last year. We can allow the right hon. Gentleman £200 million for the once-for-all run-down in the overseas balance. That still leaves him asking for a surplus of over £200 million less than last year and saying that it will close the inflationary gap.

As the Chancellor very fairly admitted, we cannot make an accurate calculation of this gap but have to use our judgment. I think that his judgment is wrong, and I will give one example why. Surely one of the most vital assumptions in the speech of the Chancellor of the Exchequer was that personal savings this year will be as big as last year. Does any Member really believe that to be so? I am referring to personal savings and not to company savings. When we take into account not only the difficulties of putting by new money, but the certainty that in a period of rising prices and taxes people will draw on their capital more than they did last year, how can the Chancellor of the Exchequer estimate personal savings to remain where they were last year?

There are several other very weak points in his calculations, one of which has been referred to by my right hon. Friend the Member for Aldershot: to say that the £73 million it is estimated the increase in Income Tax will yield will do the job of closing the £73 million of the inflationary gap is sheer nonsense. A large proportion will be found from people saving less or it will come out of company reserves. In the same way, the increase in the Profits Tax will not cut the demand for goods by the amount calculated. A very sizeable proportion of the tax will come out of company reserves.

I believe that industry now realises, that with the vastly increasing replacement costs, that it will be desperately short of capital, and so every extra tax upon profits today stimulates industrialists to pass on the tax to the consumer in higher prices. They feel they must do it to protect the capital in their businesses, and, therefore, taxes of this kind, like the Profits Tax, whatever one may think about them in theory, will, in practice, raise the cost of living. They will have the very opposite effect to that which hon. Members on both sides of the Committee desire to see achieved.

My hon. Friend the Member for Barnet (Mr. Maudling) made a very good point about initial allowances. The small tramp steamer owners, who have lately placed orders for new ships, counting on the high freight rates they have been earning, will be in a difficult position, and if it is possible the Government should make an exception in favour of the shipping industry.

I want to turn to the Chancellor's sins of omission, because I think that the things which he has left undone might well be the elements of a sound policy in the very difficult circumstances of today. If the Committee will allow me I will briefly refer to three points—credit policy, restrictive practices, and economies in Government expenditure. The Chancellor spoke about using the fiscal and monetary policy. I think monetary policy came into the Economic Survey for the first time this year, for which we are grateful, but he did not convince me yesterday that he would use the monetary weapon really seriously. Of course, in dealing with the inflationary gap credit policy is a substitute for taxation. It is much wiser to limit the amount of money going into circulation than to let it get there and then take it back again in taxes

A firmer credit policy in the present conditions of super-boom would, I believe, actually increase employment, in the sense that it would make it more desirable to keep down costs by finding a full week's work for everybody It would make employers more careful about their reserves, less willing to embark on marginal projects, and more willing to turn over to defence production. My noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) and my hon. Friend the Member for Barnet discussed the interest rate, and I hope they will not take it amiss if I differ slightly on this very technical subject. It is often said that a rise of a half or 1 per cent. in the long-term interest rate is the thing to go for, because it would weed out the less desirable capital projects. I think that is too narrow a view of credit policy. The key factor is to put a limit on the quantity of credit available and not simply to screen borrowers on some qualitative principle.

Today, anybody who possesses a planner's certificate gets his money. The cash is always there provided that the borrower has the backing at first or second hand of a Government Department. The joint stock banks find the cash for the increases in their advances by letting their bills run off or calling in money from the market. In former days this action put a squeeze on the money market, but not now. Today, the discount houses go to the Bank of England, which automatically replenishes their cash by buying from them the Bills they could not sell to the commercial banks. The Chancellor will appreciate what I mean when I say that the ghosts of Tooke and Fullerton reign supreme in the Bank's parlour today. In this way, the authorities are still passive about the volume of money. They give the market what it wants, and such qualitative control over credit as there is is not enough. The time has come for the joint stock banks and the discount market to feel a doubt whether the cash will actually be forthcoming.

The right hon. Member for Montgomery very rightly stressed the need to abolish restrictive practices. There cannot ever have been a time when it was more desirable that the Government should make a frontal attack upon a defensive mechanism which is now out of date. The right hon. Gentleman asked why they did not do it. I will attempt to give the answer. The reason is that Ministers have tied their own hands. From the Prime Minister downwards they tell industry that when the Conservatives are back in office mass unemployment will return. Of course, if they go about saying that every man's job will be in danger when the party which obviously has the majority of the country wins the next election, they cannot expect full co-operation in getting rid of restrictive practices. Political jibes at profits and management—the Chancellor is an exception—have won votes in the short run. We fully agree that that is so, but they will not win them in the long run because both sides of industry are learning, partly from the Anglo-American productivity teams that good management, high productivity and a good rate of profit are the basis of good conditions and high wages in individual firms.

Mr. Ellis Smith

The hon. Gentleman is making out a very good case. I am familiar with most of the trade unions and I know of no restrictive practices worth talking about that still apply in the workshops. Can the hon. Gentleman give us examples?

Mr. Eccles

I could give the hon. Gentleman examples from the building trade and the printing trade, but I have promised to sit down within a certain time. I hope to have another opportunity. I now come to the economies in Government expenditure about which the Chancellor threw out a challenge last night. He spoke on this point about honesty, frankness and morality, and expressed the wish that we should all observe those virtues in dealing with the cuts in Government expenditure. I would like to tell the right hon. Gentleman that those virtues have to begin on his Bench, and that he himself has transgressed against them because he has presented to the public a false choice, a choice which is thoroughly deceitful.

He said to the public last night: "You have the choice of maintaining intact the social services together with the existing level of taxation." That was one choice. The other was to cut both the social services and taxation, with the implication that the cut in taxation would relieve the rich and the cut in social services would fall upon the poor. We need not bother about the implication because that was pure party politics. We could cut, if we wished to, the social services, and give the whole of the savings to the poorest families in the land.

We could abolish the £400 million food subsidies and put all that money to pensions and family allowances. That is a matter of policy. The innuendo in the Chancellor's speech was not very worthy, but that is not the important point. The important point is that there is no choice between maintaining the social services as they are and cutting them. The only choice is whether we cut them through rising prices or whether we cut them deliberately. The Chancellor's presentation of the choice does not live up to the virtues which he expressed in his peroration yesterday.

What is the fair thing to do if we are to give the public the facts upon which to choose between the two evils? It is a choice of evils—either rising prices or cutting civilian expenditure. Both hurt. We cannot pay for the last war and get ready to prevent another without being hurt. The question: How are we to be hurt less? The only fair thing to do—and the only people to do it are those with responsibility of office, because it would not be taken as a serious proposition from anyone without responsiblity of office—would be to say to the people. "Here is what would happen if we cut 10 per cent. off expenditure other than the Consolidated Fund. This is what it would mean in changes in policy in social services and also in reliefs to those affected by the cut in expenditure." And the statement should be accompanied by some calculation of its effect upon prices.

Until that is done, there is no fair choice before the public. The public are led to believe that it is possible to go on with the social services as they are. That is not possible. The welfare State is being eaten away by rising prices, and I very much fear that one of the effects of the general financial and economic policy which we are now discussing is that the benefits of the Welfare State will be cut by more, and considerably more, through a loss in the value of money than would be the case if more courage could be brought to the paring of the Budget. Hon. Gentlemen must remember that even today the real value of a savings certificate is declining three or four times as fast as the interest is accruing. That is a very serious thing and it must be stopped. We must get back to stable money as soon as we can.

The policy that I should advocate in place of increased taxation, which I believe to be inflationary, is a combination of a stricter credit policy with large Government economies, accompanied, of course, by reliefs to those who need them most. Of all times in our budgetary history, is it not absurd today still to be paying out money through the social services to those who do not need it? It is ridiculous that we should waste money in that way. Let us combine credit policy with economies and make every conceivable effort to raise production, and particularly by an attack on restrictive practices.

There is also something to be done in the British Commonwealth and Empire. If one reads the Economic Survey it becomes very clear that we are rapidly becoming larger and larger debtors of the sterling area. That is all right provided that we and our main creditors, the leading members of the family, are really running the business together, but I do not see enough signs of that. I believe that sterling can still be, and is, the greatest currency in the free world apart from the dollar—it may be better than the dollar before we know where we are—but only provided that the raw material resources of the British Empire are properly co-ordinated with the manufacturing industries here. If we turn to our people and say, "You need not lose this great slice off your standard of living, but for the time being we must have a sterner monetary policy and some Government economies and we will go all out to mobilise the resources of the Empire and bring them in," would there not be a general response?

What I dislike about the Budget is that it appears to have no faith that the people will respond if they should be given a choice of a tough expansionist policy instead of this policy which is really one of restriction wherever the Chancellor dares to clamp down. I wish the Government would bring in such a policy, because the sooner the better. But what chance is there of that? We are divided in a way in which such a policy cannot be put through the House of Commons. That is only one more reason why my hon. and right hon. Friends on this side of the House are right to press for an election. The situation is so grave, the chances of the whole price level getting out of hand are so great, that we ought to go to the people with a courageous policy, and say "Will you take it, or not?"

9.31 p.m.

Mr. Crosland (Gloucestershire, South)

The hon. Member for Chippenham (Mr. Eccles) has made, both in this House and the country as a whole, a considerable and distinguished reputation on two counts: first for making annual prophecies of gloom of a pessimism unsurpassed anywhere, and, secondly, for being consistently wrong in the prophecies he makes. I seriously suggest to him that, having been so steadily wrong year after year in saying that unless we have higher rates of interest, unless we have more disinflation and more Government economy, the welfare State and full employment are in jeopardy, he should review the whole of his economic and financial philosophy and decide whether it is not there and not in Government policy that the major error lies.

The hon. Gentleman certainly made clear that a fundamental difference in economic policy exists between the two sides of the House, because the general tenor of his speech was that during the last few years, despite our gradually being able to take off rationing, despite the fact that price control has gradually been safely lifted, despite more competitive conditions of trading, we are still in a state of inflation. This can only mean that in his view the general level of demand, despite the fact that total de- mand and total supply are more or less balanced, ought to be cut down below the level at which full employment would be possible. I take that very seriously. I do not wish to make any false accusations against the hon. Gentleman or any other Member opposite, but it fits in with the eulogies which he and others who sit on the Benches opposite have uttered about the Belgian economy, which has been in a state of under-employment since the end of the war.

Many compliments have been paid to the Chancellor, and I wish to add my own offering. On both sides of the Committee it is agreed that his speech was ingenious and well delivered and that he put before us an extremely impressive Budget. The point I wish to single out—it was singled out by the Leader of the Opposition last night—is its honesty and political courage. Even if the Tories were to come back in the next 10 years or so, it would still remain to the credit of the Labour Government that their Budgets have been marked by a very high degree of honesty and courage. The opportunity was always present to introduce concessions which would have been popular, at the expense of the disinflationary policy, but successive Chancellors have refused to do that. It stands to our credit and is in extremely pleasing contrast to the talk of 300,000 houses a year and reducing the cost of living which we hear from hon. Members opposite.

I also think that the view which the Chancellor takes of the temper of the British people is much more attractive than that of the hon. Member for Chippenham. If he thinks that the British people are angry with the British Government because their standard of living is likely to be cut in consequence of rearmament, I would say that I think that the British people are very much better than he thinks.

Everyone agrees that the Budget this year had two purposes, that the Chancellor had two tasks. The first was to achieve a total surplus which will enable us to finance re-armament without undergoing a recurrence of inflationary pressure, and the second was to distribute the burden of re-armament between the different sections of the population as fairly as possible.

Everyone who has spoken or written on the Budget since the Chancellor's speech yesterday—except the hon. Member for Chippenham—has agreed that the first task has been adequately carried out. There was a great deal of speculation, as there always is, before the Budget as to the likely size of the inflationary gap; and it is rather striking that the figure which the Chancellor gave of £150 million was the figure which was also quoted in the estimates beforehand made by "The Times," the "Economist" and the "Financial Times." Apart from the hon. Member for Chippenham, there has been very striking agreement about the size of the gap which the Chancellor had to cover.

In order to cover it, he has been compelled to collect from the public a sum of £150 million extra in taxation. It is particularly sad for him that in his first Budget he should have to collect this extra taxation when he might have expected, with any luck at all, that the first Budget be presented would also have been the first post-war Budget of an easier kind. There is no doubt that but for the war in Korea, this would have been a Budget of concession and relaxation. The Economic Survey made it clear that our post-war recovery had been successfully accomplished by the middle of last year. We had achieved a surplus in our foreign balance and a dollar surplus even before the Korean war broke out, and had largely restored the capital wealth lost during the Second World War. It was clear that, those things having been accomplished, we could have looked forward to a long period in which rising productivity every year could have given an improving standard of life to the people, instead of having to go into either higher exports or capital investment. However, the Chancellor was not in that lucky position, and therefore had this task of extracting another £150 million in taxation.

Many people, including a number of hon. Members on the opposite side of the Committee, have been pleasantly surprised that the figure of the inflationary gap was not a great deal higher than in fact it was. I certainly thought that £150 million was by no means too generous a figure. I thought the Chancellor was very wise not to show the gap lower than that. Even though he put it at £150 million, people have been relieved and surprised that it was not higher. Although the hon. Member for Chippenham will not agree, I will say that the reason the gap is not higher is due to the basic strength and underlying health of the British economy at the moment.

If we consider the extent to which our capital strength has been restored since the end of the war; the rising productivity going on every year—twice that of the inter-war period—despite all the talk about the effect of taxation on incentives, the will to work and all the rest of it, and the flabbiness of the economy; if we consider, on top of that, the fact that in 1950, for the first time for 20 years, we had a large surplus on foreign account, and also consider the dollar surplus as well, it is clear that by the end of last year the economy had reached a stage when it was able to bear this additional burden of re-armament without any very serious or very savage cut in the standard of life. Because of this underlying strength, the burden is only to be at the sum of £150 million.

Apart from the hon. Member for Chippenham, I think that almost everybody who commented on the Budget agreed that the Chancellor was right to keep approximately at that figure. The hon. Member for Chippenham pointed out that, in addition to this inflationary gap, there was the further burden imposed on the people as a whole by the fact of rising prices. Nobody in his senses—certainly not the Chancellor—denies that prices are rising and are likely to go on rising still further. The only dispute is on the cause of the rising prices. Apparently both the right hon. Gentleman the Member for Aldershot (Mr. Lyttelton), and the hon. Member for Chippenham still think that the main reason for the rise in prices has something to do with Government expenditure at home. That is a theory which is really quite fantastic and which finds no sort of support whatever in the facts.

If this theory was true, it is inexplicable that over the last few months, in the last year and, indeed, since the end of the war, prices have risen at least as fast in the United States of America with low taxation and low Government expenditure. Prices have risen much faster in some European countries, with far less taxation and Government expenditure than they have in this country.

Mr. Eccles

That argument is such nonsense that it must be contradicted. What matters is whether prices and wages have both risen. In the United States the amount of dollars which the ordinary wage earner gets has increased by considerably more than the prices. He is much better off. He can buy more. The hon. Gentleman's suggestion is not true.

Mr. Crosland

The hon. Member must distinguish, as I know he does, between what is happening to real wages and what is happening to prices. We could certainly have a separate argument about the behaviour of real wages since 1945. I think that it will be found that the increase in real wages in the United States does not far exceed the increase in real wages in this country. In any case, the point made by the hon. Member for Chippenham was that there was a direct relationship between the price level and the level of Government expenditure and taxation. As soon as one looks at the experience of other countries, it is clear that there is no direct relationship at all between the level of Government expenditure and the level of prices.

Mr. Eccles

The hon. Member is an economist. I should have thought he would have paid attention to Professor Colin Clark who examined this situation in almost every democracy and came to the opposite conclusion to that reached by the hon. Gentleman—namely, that when a proportion of the national income greater than some figure which I forget, but a good deal lower than ours, is taken, then in every case that has been followed by a rise in prices.

Mr. Crosland

I am perfectly familiar with the article by Professor Colin Clark. I am afraid that I shall irritate my right hon. Friend the Member for Bishop Auckland (Mr. Dalton), who is a friend of Professor Colin Clark, but I am bound to say that his evidence was particularly slender and, for what it is worth, his conclusion is not generally accepted among economists. One can only settle this point by examining what is happening in the various countries of the world, and deciding whether the price level is rising faster in the countries with high expenditure or in the countries with low expenditure. Anybody who looks round post-war Europe, or the post-war world as a whole, will conclude that the rise in the price level of any country is dependent on quite different factors.

Nobody disputes in his heart of hearts that the rise in the price level is clearly due to world inflation which is affecting every single country in the world in precisely the same way as it is affecting this country. The idea that the Government can be blamed because the prices of wool and rubber are rising as they are rising now, is surely not one that can be seriously suggested. The theory of the hon. Member for Chippenham that high prices and rising prices can be cured by disinflation, or deflation, will surely not stand up to an examination of what has happened in Italy since the end of the war.

In Italy there was a very strong inflation of prices with a very high degree of unemployment. In view of the experience of Italy. I should not have thought that anybody would have said that rising prices could be cured even by deflation below the level of full employment, let alone by a little more disinflation.

Mr. Eccles

The hon. Gentleman puts into my mouth words I never used. I never spoke of deflation below the level of full employment. That is the kind of thing which hon. Gentlemen go about saying in the country. I did not say tonight that deflation would produce unemployment. That is absolutely untrue.

Mr. Crosland

The hon. Member tries to get out of this a great deal too easily. He has consistently argued over the last few years that rising prices in this country were due, in fact, to inflation in the sense that demand was greater than the supply and he said that even when rationing was ending and price controls were coming off. What on earth that means, if it does not mean that full employment causes rising prices, I fail entirely to see. Most people on either side of the Committee who have commented on the Budget have agreed that the Chancellor has carried through the first of his tasks, which was that of achieving a surplus in order to prevent inflation.

His second task, it will probably be agreed on both sides of the Committee, but certainly on this side, was to make sure that the extra burden of taxation was shared between different groups and sections of the community as fairly and equitably as possible. The first point to notice here, and it is one which is concealed by some of the phrases used in this debate, is the fact that there has been no cut at all in the level of the social services or in the structure of the welfare State.

A great number of people feared that re-armament at the present level could not be carried through at all without a serious cut in the social services. In fact, that has turned out to be too gloomy a view, and we are managing to do it without a cut in the social services, and even with a small increase in them, because the Estimates and the Chancellor's proposals for the coming year show that expenditure on education is up by £8 million, expenditure on old age pensions is increased by £19 million, and the total expenditure on the Health Service, after balancing the higher expenditure on hospitals against the new charges for dentures and spectacles, is up by £7 million, making a total increased expenditure on the social services of £35 million in the coming year, as compared with last year.

I do not think that anybody can deny that it is a very remarkable achievement to be able to find the money for an enormous programme of armaments without any cuts in the level of the social services, and I certainly do not believe that many people in this country would think that that would have been possible under a Tory Government. Despite this fact that the social services have been kept up to their previous levels, there is still the necessity of imposing another £150 million in new taxation. Here, again, the essential principle upon which a Labour Chancellor would act would be that this extra burden should not be shared out equally between rich and poor, but proportionately, according to whether people are rich or poor, and I believe that that is the policy which the Chancellor has followed.

If we consider his decisions one by one, we find that they add up to a genuine attempt to share the burden equitably over the country. His first decision was to increase the Profits Tax, which will involve a cut in shareholders' income in the coming year amounting to £35 million—£5 million in higher taxation, and £30 million in respect of money which the Chancellor estimates will now be put into company reserves instead of being distributed in dividends. The background to this is the increase in dividends which has recently been taking place to the extent of from 10 to 14 per cent. over last year. We on this side of the Committee take the view that it is intolerable that, at this particular moment, dividends should increase faster than any other form of money income in this country.

When the Chancellor referred to this fact in his speech yesterday, one hon. Member opposite interrupted and said, "What about wages?" It is, of course, perfectly true that wages have in many cases already risen, and probably will go on rising during the coming months. It is extremely difficult to see what follows from that fact. Of course, there is no sign that wages are likely to rise as fast as dividends have risen recently. Even if there were, so what? On this side of the Committee we take the view that there is not the slightest reason why dividends should always be allowed to rise as fast as or faster than wages. Certainly the shareholder has not as high a claim as the wage earner to any increase in the national income.

I agree entirely with the Chancellor, as I think will most of my hon. Friends, that if one is going to run a mixed economy, profits are important—if they are a genuine reward for genuine enterprise and efficiency. That is very different from saying, what we on this side certainly do not say, that at a time of re-armament shareholders' incomes should be allowed to increase as fast as they have been increasing in the first quarter of this year. Therefore, I am extremely glad the Chancellor has imposed this extra tax. I do not agree at all with the argument of the hon. Member for Chippenham and the right hon. Gentleman the Member for Aldershot that all this increase in the taxation of dividends is likely to come from company savings.

The first tax I have mentioned is a tax which, in fact, falls entirely on shareholders' incomes. The second is the increase in Income Tax. Taking into account the larger children's and widows' allowances, by far the greater part of this £73 million which is to be collected this year in Income Tax will come from the middle and upper ranks. It will not come from the wage earning classes as a whole, certainly not the very poor section of the wage earning class. It is perfectly clear from the figures, on a rough estimate, that three-quarters of that £73 million will come from incomes of over £600 or £700 a year.

Depreciation allowances only concern one year from now, and they are only a cut in corporate savings and not in personal incomes. As to the extra Purchase Tax on motor cars and, at any rate, television sets, it is very likely that that tax will be paid largely by people who are at least comfortably off.

Lieut.-Commander Gurney Braithwaite (Bristol, North-West)

Go and have a look at the housing estates.

Mr. Crosland

At any rate, people who are buying new motor cars today are not exactly the lower paid workers. If one could make a rough calculation and say the whole of the Profits Tax and three-quarters of the Income Tax, the whole of the motor car tax and a half or even a quarter of the extra Purchase Tax on radio sets, television sets and electrical appliances fall on the better-off groups of the country as a whole, one reaches a figure of £105 million or so increased taxation, which will fall on people with fairly comfortable incomes.

Against that, the increases of taxation which will fall on those people whose incomes are small will be the whole of the Entertainments Duty. It will fall on people who go to the cinema and who are assumed to be the less well paid groups. [HON. MEMBERS: "Why?"] Just for the sake of argument, let us assume that the whole of the Entertainments Duty falls on them, and half the tax on radio sets and electrical appliances. Then let us subtract from that the quite substantial concessions in respect of Purchase Tax on household articles. One then gets a figure of extra taxation paid for by the lower-income groups of the community of £8 million to £10 million. Other additional taxes, such as the Petrol Duty or the remaining quarter of the higher Income Tax, can be considered neutral, in the sense either of being paid more or less equally by all classes, or of falling on groups neither very highly nor very badly paid. On that rough basis of calculation, one gets £105 million of new taxation imposed on the better-off groups, as against only £8 million to £10 million imposed on the poorer groups, with a certain sum which can be considered as neutral from this point of view.

I say seriously that this represents an extremely fair and equitable distribution of the burden of re-armament. I do not say that these calculations are accurate down to the last million pounds, obviously. [Interruption.] At any rate. I can say at least I am more modest in claiming any infallibility for my judgment than is the hon. Member for Chippenham. In view of these figures, how the right hon. Gentleman the Member for Aldershot was able to claim that the bulk of the burden was being placed on the shoulders of those least able to bear it is, to say the least, extremely hard to see. Virtually none of the new taxes is falling on the worst paid. They are falling almost entirely on people better off and able to pay them. The only concession made—on old age pensions—goes clearly to the section of the population which needs it most.

For these reasons we on this side of the Committee—and I think this is the general view—have no hesitation at all in supporting the Budget. I think hon. Members on both sides agree that the Budget is a serious, constructive and honest attempt to bridge the gap and to make sure that sufficient purchasing power is withdrawn to prevent inflation arising from re-armament. I think the right hon. Gentleman the Member for Aldershot made no complaint that too small an inflationary gap had been fixed and too small a Budget surplus had been achieved. I think there is fairly wide agreement on that.

In addition, we on this side of the Committee support the Budget strongly for this second reason: this distribution of taxation has placed the burden fairly on the people who are able to bear the bulk of the burden. We on this side of the House believe that fair shares is a much more important principle in times of scarcity and economic difficulty than it is in times of plenty and economic ease.

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

Resolutions to be reported Tomorrow; Committee also report Progress; to sit again Tomorrow.