HC Deb 12 April 1951 vol 486 cc1196-317
The Chairman

I wish to make an appeal to right hon. and hon. Members of the Committee to be as brief as they find it possible to be in their speeches. There are a great number of hon. Members who wish to express their views. It is quite impossible for the Chair to call more than a very small proportion of them if an undue proportion of the time is taken up by those Members who are called. I hope, therefore, that right hon. and hon. Members will be as brief as possible.

3.41 p.m.

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

We in the Treasury would not, I think, be human—and, strangely enough, we are human—if we had not been gratified at the reception given to a Budget on which we did spend a great deal of time and thought.

Mr. Grimond (Orkney and Shetland)

And money.

Mr. Jay

The right hon. Gentleman the Member for Aldershot (Mr. Lyttelton) was remarkably mild in his criticisms of our proposals yesterday. I was rather surprised by this because the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke), in one of those speeches outside the Chamber in which back benchers opposite helpfully inform us in advance of the tactics of their party, announced last week end that: We as Conservatives are determined to vote against every measure to increase taxation. He said that before he knew what the measures were going to be. Indeed, the noble Lord also said last night that the Opposition would …offer forthright and ruthless opposition to the Budget and the Finance Bill."—[OFFICIAL REPORT, 11th April, 1951; Vol. 486, c. 1111.] I must say that I did not find the right hon. Member for Aldershot in very ruthless form yesterday. The right hon. and learned Gentleman the Member for Montgomery (Mr. C. Davies) made what seemed to me to be, if I may say so, a most constructive and understanding speech, in which he recognised our difficulties and gave, at least, a cautious blessing to some of our proposals. We are most encouraged to have this support from such an authoritative quarter. Indeed, even my hon. Friend the Member for Gloucestershire, South (Mr. Crosland), who was rather severe on our proposals last year, gave us almost unqualified support last night.

There appears to be very little dispute in the Committee, or, indeed, outside, about the size of the budgetary gap which it is the Chancellor's duty to cover. Both the right hon. Member for Aldershot and the hon. Member for Barnet (Mr. Maudling), if I understood them aright, broadly accepted our estimate there, as did my hon. Friend the Member for Gloucestershire, South. We had previously noticed with interest, though with some embarrassment, the remarkable unanimity in the Press and elsewhere outside about the sort of figure we had to cover—about £150 million—which was the one we ourselves had reached. Only the hon. Member for Chippenham (Mr. Eccles) yesterday seemed to dissent on that point, and, as in the last five years he has been always gloomy and not always right, we are not greatly distressed to find that we are all out of step except him. This agreement, incidentally, that the gap stands at something like £150 million and is so much less than the total increase in defence expenditure, is some rough pointer to the reliefs we might have enjoyed this year as a result of the previous few years' recovery had not external events in Korea and elsewhere unhappily intervened.

The right hon. Member for Aldershot tried to argue yesterday that the rise in internal prices in this country was largely or mainly due to devaluation and so was to be blamed on the Government. I am sure that the hon. Member for Chippenham, when he joined in that argument, remembered he was an advocate of devaluation even before we carried it out. I fully agree that devaluation has, of course, tended to raise the internal price level in this country, but it is surely plain that the disappearance of the dollar gap and the recovery of our gold reserves, and, indeed, our independence of foreign aid, could only have been achieved by some devaluation. Because, before devaluation, the fact was we were trying to sell our exports too dear, and to buy our imports too cheap. It therefore follows that such rise in prices as was due to devaluation must be regarded as a necessary sacrifice we had to make in order to secure the recovery of our gold reserves and our freedom from foreign aid.

If the right hon. Member for Aldershot argues that the rise has been mainly due to devaluation and not to world rearmament I am afraid he has the facts against him. Since September, 1949, the date of devaluation, the cost of living has risen faster in the United States of America—which, of course, did not devalue—than in the United Kingdom. Indeed, in February this year the cost of living in this country was 6 per cent. higher than in September, 1949; and in the United States was 8.4 per cent. higher.

Mr. David Eccles (Chippenham)

What in? And what about subsidies?

Mr. Jay

The hon. Gentleman rightly points out that it is partly due to our system of subsidies. The right hon. Member for Aldershot also criticised us yesterday on the ground that misguided efforts at dollar economy, continued too long, had been the cause of some of our raw material difficulties. That is, perhaps— and quite naturally—the impression that the right hon. Gentleman, being wise after the event, as he legitimately may be, gets; but, in fact, it is almost without substance.

Let me recall the course of events. In July, 1949, before devaluation, and when the acute dollar shortage of that year became apparent, naturally and rightly we made drastic economies in dollar imports. Those were continued, since our gold reserves were falling fast, up to devaluation, and for some months afterwards, since nobody at the time, in the late months of 1949, expected the gold inflow to be so heavy or to last as long as it has done. But it was actually as early as March and April, 1950, that we began to relax the restraint of dollar economy on vital imports.

Mr. Walter Fletcher (Bury and Radcliffe)

Then how does the hon. Gentleman explain the failure to buy vital raw materials, not from the dollar area, during that period at prices far lower than those which obtained just after devaluation?

Mr. Jay

I intend to explain that. It was due to the difficulties of physical supply.

I was glad that the right hon. Gentleman told us a secret yesterday about the forthcoming Tory election manifesto. Perhaps I may also tell a secret. The very first thing that the present Chancellor and I did when we returned to the Treasury after the General Election in March, 1950, was to apply this policy of relaxation to the purchase of North American softwood. That relaxation was progressively extended over the spring and summer months of 1950. In the very early weeks of the Korean War we went further, and decided to embark on strategic stockpiling. I do not think it will be suggested that we could have actually foreseen the Korean war before it started. We took action in the Treasury early in July, and the Government's decision to stockpile strategic materials was taken in mid-July last year, actually just five weeks before the admirable letter to "The Times" by the right hon. Gentleman the Member for Ormskirk (Sir A. Salter), who, on personal grounds I am very glad to welcome to the House, in which he recommended the same policy. I derived much comfort from his letter in "The Times" because he endorsed the policy which we were already pursuing.

It is nothing but physical shortages both in respect of dollar imports and non-dollar imports which have limited our efforts to stockpile and to buy imports of raw materials since then. That record would be open to criticism only if it were seriously argued that all restraints on dollar grounds should have been removed, and that raw materials should have been purchased more freely as early as December, 1949, or January or February, 1950. But, as the right hon. Member for Alder-shot quite rightly admitted yesterday, that was a time when exporters were finding markets difficult, and the economic prospect was generally regarded as being one of recession and falling prices rather than inflation. Indeed, this criticism comes rather oddly from the Opposition for they were, at that very time, in the winter of 1949–50, not prophesying a dollar surplus, but were warning us of a further dollar crisis. I remember that it was in the last week of October, 1949, that the Deputy-Leader of the Opposition told us in this House that another dollar crisis was not many months away.

Although there was so much unexpected harmony in the Committee yesterday, I gathered that the main thread of argument in speeches of Opposition Members was to the effect that Government expenditure ought to be reduced still further. The right hon. and learned Member for Montgomery said he regretted that the Chancellor had not said more about efforts to cut down expenditure. I will, if I may, respond to that invitation. It is apparently still suggested that large and unspecified economies could be made without harming anybody or sacrificing anything. Quite naturally, it is said that out of a total of £4,197 million some large sum could clearly be saved. That, of course, could be said with as much emphasis and perhaps as little thought, whatever the figure was.

Mr. Clement Davies (Montgomery)

I did not say "without harming anybody." I asked whether it was not possible to find many instances in which capital and other expenditure is now being incurred which could be postponed without doing irremediable harm, which is a very different matter.

Mr. Jay

The right hon. and learned Gentleman misunderstood me. I was not attributing that sentiment to him. I intended to say that we are already carrying out many of the suggestions which he made.

Let us examine this general proposition, and let us remember that the increase in the gross total of public expenditure as a percentage of the national income in recent years has been partly due to the transfer to public account of various items such as insurance, health, etc., which used to be carried on private account, and which are very likely consuming no more of the national resources than they were before.

Secondly, when the gross figure for expenditure above and below the line is quoted it should be remembered, which I think is not always the case, how much of it is capital spending of one form or another. Even on the rather narrow definition of capital expenditure and transfers to public account in the alternative classification—below the line, as it is called—that total stands at £843 million. There are some who would argue that a large amount of what we spend on education, health and research, which comes to about another £800 million, is in a sense capital expenditure by the nation, as well.

Thirdly, I doubt if it is even now realised sufficiently how much of our budgetary problem of the last five years has arisen from the exceptional circumstance—exceptional in the history of almost any country—that both the school population and the number of old age pensioners has been increasing simultaneously as a proportion of our total population, and at the same time we have been trying to give them both better standards. The hon. Member for Harwich (Sir S. Holmes) said last night that he would have postponed the raising of the school leaving age. We disagree with him on that point. [HON. MEMBERS: "Hear, hear."] But I fully agree that our decision in that respect has laid a burden of expenditure on the Budget. Between 1945 and 1950 not merely has the number of children at school increased, as the Chancellor said, by a million, but the number of women over 60 years old and men over 65 has increased by a further 500,000.

Already dependents and non-working persons total 35½ per cent. of the population. Within 20 or 30 years that figure will rise even further if the age of retirement from work is not raised. Indeed, the total cost of old age pensions and the national insurance benefits to widows and children on the basis of the new rates introduced in this Budget would rise from £419 million in the present year, 1951–52, to £850 million in 1977–78. Since that increase in the number of pensioners is due to better health and longer life, I am glad to find that there has been general agreement in the Committee with the Government's view that we should all push upwards our normal conception of retirement age. We intend to work in that direction within the Civil Service, by discussion, of course, with the staff associations.

The hon. Member for Croydon, East (Sir H. Williams) said on Tuesday night that he wished we could move faster. Well, frankly, so do I. For two reasons in the Civil Service we have not yet been able to go quite so fast as we wish. The first is that in the last two years we have at the same time been trying to reduce the total number of civil servants and to retain the older workers, and that has been a rather delicate combined operation. Secondly, we are most anxious to proceed by agreement with the staff associations. I have already asked the official side of the Civil Service National Whitley Council to propose that the Council should adopt as a general aim of policy the retention of all civil servants of all grades for as long as is practicable and consistent with the efficiency of the public service. I am sure that we can rely upon the staff associations to respond in the spirit of the Chancellor's declaration on Tuesday.

Finally, let us remember, as my hon. Friend the Member for Chesterfield (Mr. Benson) said yesterday, quite rightly, that a higher proportion of total Government expenditure consists of transfer payments, which broadly assist the needy, and, to some extent, restrain the spending of the better off sections of the community without consuming any additional production resources at all.

As the Economic Survey shows, of the total Government expenditure in the calendar year 1951 of £3,990 million, only about £1,940 million is current expenditure on goods and services. Of that, as much as £1,175 million is on defence, so the proportion of total expenditure which is on goods and services other than defence is remarkably small. Having thus tried to set the range of our expenditure in perspective, I should like to examine again, in view of what several right hon. Gentlemen opposite said yesterday, how far, after the continuous economy drive which we have carried out in the past two years, further economies can be made.

As the Chancellor showed, of the total of £4,197 million in this year's Estimates, nearly one-half consists of defence and Consolidated Fund payments. I want to emphasise that we are, of course, determined to continue to secure the utmost economy and value for money on defence just as much as everywhere else, but we cannot possibly reduce the total at this stage. One-half consists of defence and the Consolidated Fund, which is mainly debt, interest. Of the remainder, all but £510 million consists of social services—which, I think we can say, hon. Members opposite do not wish to cut down—and food subsidies.

I am not quite sure what is the policy of hon. Members opposite on food subsidies at the moment, in spite of what the hon. Member for Dorset, South (Viscount Hinchingbrooke), who always expresses opinions on this subject, said last night. If they do not wish to make a cut here, and thereby push the cost of living up faster, then we are left with £510 million on which the main effort—not of economy, because that should apply everywhere—but the main effort of cutting down the total expenditure must be concentrated, as it has been in the last few years. Even that, as the Chancellor of the Exchequer said, includes semi-defence elements for Malaya. Korea, and so on.

The right hon. Member for Aldershot very naturally suggested, and so did the right hon. and learned Member for Montgomery—and this is where I am coming to him—that a larger contribution could be made by general administrative economies and the reduction of the size of the Civil Service. That is precisely what has been achieved in the last two or three years by concerted efforts of economy. I do not think that the figures are perhaps often enough quoted. Between October, 1948, and January, 1951, a net reduction of some 36,000 in non-industrial central Government civil servants has been achieved. That is from 711,000 to 675,000, despite the addition of some 10,000 staff to the service by transfers such as that from Cable and Wireless and from the local rating authorities. Allowing for that, the real reduction was 6½ per cent., and that at a time when the social services were developing.

In the Civil Departments, excluding the Post Office, which has a very large share of the 675,000, and the Revenue Departments, the reduction was nearly 14 per cent. over that period. That reduction has not been achieved without very real effort in re-organisation and economy of administration. It has been partly due to a revised system of control which we introduced in 1948 by which the Treasury, while retaining the central direction, gave detailed control and responsibility to the individual Departments. All that will continue.

Sir Arthur Salter (Ormskirk)

Would the Financial Secretary be good enough to repeat the number of non-industrial civil servants? I ask this because I had a little interchange with the hon. Member for Chesterfield (Mr. Benson) yesterday, and I understood, at that time, that the Chancellor of the Exchequer nodded his head in assent to the statement of the hon. Member for Chesterfield of a figure of between 400,000 and 500,000. I had asserted that the figure was between 600,000 and 700,000.

Mr. Jay

The former omits the Post Office. The total of central Government non-industrial civil servants including the Post Office is 675,000. It is still said that we should go further and faster. I should be the last to deny, having worked for some years in large organisations both Government and private, that in a body the size of the Civil Service there are probably always corners where slackness can exist before it is discovered and taken up. That applies to private as well as to public organisations.

I ask the Committee to consider just what is the range of further saving here in relation to the total of £4,197 million which face us. No less—and right hon. Gentlemen will be interested in this— than 63 per cent. of the total non-industrial civil servants today consist of the Post Office, the Revenue Departments and the Defence Departments. I do not think that it will be widely argued that either the Post Office or the Revenue Departments are over-manned. If we took the remaining 37 per cent. represented by the Civil Departments, and we were to make a further all-round 5 per cent. cut in staff, we should save—I am not saying that we should get it—but we should save about £6 million towards our £4,197 million. A 10 per cent. cut would, of course, give us £12 million; and an all-round cut of 5 per cent. including the Post Office, the Revenue Departments and the Defence Departments would save £14 million towards that total. I say that not to suggest that we should flag in our unremitting efforts at economy, but simply in order that the Committee may see the figures in their true perspective.

Mr. Ian L. Orr-Ewing (Weston-super-Mare)

When the hon. Gentleman quoted those figures, was he quoting the savings in salaries only or the saving in salaries plus the saving in establishment, buildings and so on?

Mr. Jay

I was quoting the figure of salaries, but salaries represent about four-fifths of the total administration expenditure, so it does not make an awful lot of difference.

The Committee may be interested to know, as I was in carrying out these economies, the comparison between this country and the United States of America in this matter. In 1950, our Civil Service was 70 per cent. bigger in numbers than it was in 1939. The total Federal employees in the United States was 110 per cent. greater than in 1939, and that was before the Korean War had developed. I think that this is some evidence that this increase is really due to the development of a modern industrial democracy, and not to the peculiarities or extravagances of the present British Government.

Mr. Oliver Lyttelton (Aldershot)

Perhaps the Financial Secretary would give the rate of the national product as between the United States and this country to make the comparison fair.

Mr. Jay

I am not sure that that is relevant. We all know that the United States had a very large reserve of unused capacity in 1939.

For these reasons, we have set ourselves in these last few years, and my right hon. Friend and I particularly in the course of the last six months, the task of pushing on with general administrative economies and pruning very vigorously expenditure other than the Consolidated Fund and the Social Services. What has been the result? In the year 1950–51 we achieved, as a result of the economy decisions of 1949, a greater saving than we then foresaw. We have continued that drive in drawing up this year's estimates.

I have noticed, in the course of going through these estimates, that a number of deputations from industry, seeking some reduction in taxation, have all told me how their business costs are rising from increases in salaries and wages granted through collective bargaining machinery and from higher prices. Precisely these same increases have faced the Government. Again and again, in these last months, I have found that where administrative economies have been painfully made they have been offset by a rise in wages or salaries arising from negotiations made through the joint negotiating machinery, which I am sure the Committee will agree the Government were right in honouring. Yet, in spite of all that, we have succeeded in reducing, for this year, the total estimated expenditure, other than defence, debt interest and social services, as the Chancellor of the Exchequer said, by £30 million compared with the estimates for the previous year.

I notice, as we remarked last year, that most of those so enthusiastic for economies in general, become not merely indifferent but even actively hostile to economies in the concrete. They discover when we carry this out, as in the case of the Information Services, that any saving in Government expenditure reduces someone's income and sacrifices something which Parliament had thought worth while embarking upon. Indeed. Members opposite are often urging us to increase and not reduce expenditure. Even last night the hon. Member for Barnet (Mr. Maudling), in his very interesting speech, wanted us to increase expenditure on the floating debt by something like £5 million, which in our view is a far from negligible sum.

I have not much sympathy for either the logic or the candour of those who, at one and the same time, urge economies in the abstract and oppose individual economies made by the Government in the concrete, and do not suggest themselves other economies amounting to any significant total. I might add that any further suggestions from the hon. and learned Member for Montgomery, or any other hon. Member, will be thankfully received.

Mr. Maudling (Barnet)

The Financial Secretary will recall that in the summer of 1949, when he was pursuing this theme he told the House that it was moonshine that administrative economies could amount to more than £1 million or £2 million, and within a few weeks the Prime Minister announced economies amounting to millions.

Mr. Jay

That is a misquotation. I said with great care on that occasion that we could not make economies of tens of millions of pounds without a change of policy. We did make a change in policy, and therefore I stand by the statement I made at that time.

If we not merely give verbal support to re-armament but also have the courage to face the cost, logic and arithmetic suggest that we must find the revenue to bridge the inflationary gap. We must judge our proposals for individual taxes not on the question of whether people on the whole would like to pay taxes, because obviously they would not, but on the question of whether there is some better and fairer alternative for raising the same amount of revenue. The right hon. Member for Aldershot did not appear to object very strongly to the increase in the tax on petrol. That proposal helps to achieve the three central aims of the Budget. It gives revenue of something like £35 million, and it draws off purchasing power to that extent. Allowing for our other proposals, it would be hard to find an alternative which would yield so much and spread the burden more widely.

Let us remember in our debates on the increase in petrol tax that, even with this further rise, petrol is still sold in this country a good deal cheaper than in most other countries in Europe. The price of petrol in France stands at 4s. 11d.

Hon. Members

What about the car tax?

Mr. Lyttelton

What about the price of wines?

Mr. Jay

In Italy it is 6s. 8d. In Belgium it is 3s. 5½d., which is rather cheaper than here. In Germany it is 5s., in Switzerland 4s. 10d., and in Spain 6s. 8d., which is a country where, I gather, democratic planning is not much in fashion.

The right hon. and learned Member for Montgomery showed courage in supporting our proposals to increase the Purchase Tax on private cars and some of the other items we include in the list. We should like to make it perfectly clear that our purpose here is primarily to divert capacity to production for export and defence at the present time. It has, of course, been argued from industrial quarters outside that these increases in Purchase Tax may have the effect of cutting down home sales and therefore of raising costs and making export more difficult. That is an important question about which I should like to say a word.

The question here is whether export and defence demands together exceed the capacity available, or whether capacity is surplus to demand. If the demand is in excess, then a tax on home sales must clearly help exports. If, on the other hand, there is large unused capacity, there may be a case for lowering rather than raising the tax. But that attitude cannot properly be argued in the abstract. The case must be made out for each class of product.

In the case of the motor vehicle industry, everyone knows that home and export demands together greatly exceed the supply of labour and materials. The really magnificent export record of the motor industry in these last five years, in achieving a 70 per cent. or 80 per cent. export figure for passenger cars, has been built up mainly by the efforts of the industry, but partly by limitations, including Purchase Tax, on home sales in the face of a good deal of scepticism by the industry of its power to export and rather more sanguine expectations by the Government.

Nevertheless, if it can be demonstrated that, in the case of any class of production Purchase Tax is causing serious unemployment and under-use of capacity impeding exports, naturally we shall examine any concrete cases put forward. That applies to the memorandum which the Federation of British Industries has sent to us and which is now being studied, and also, indeed, to their proposal for some sort of advisory committee on these matters. As to that proposal in general, we think evidence of this kind on Purchase Tax should be studied by the Customs and Excise, who have the job and responsibility of advising the Treasury, but we do not rule out the possibility of some sort of special inquiry on technical aspects of the tax.

I should like to make it clear, however, that the insertion in the final Budget Resolution of a reference to a possible Purchase Tax advisory committee is not intended to imply that we have decided to make such a proposal, but it has been done in order to give the Opposition the opportunity to put down an Amendment and have a discussion of that matter if they so wish. We were given to understand through the usual channels, which are now happily unclogged, that that was the wish of the other side of the Committee, and were anxious that a discussion on it should be allowed.

Broadly speaking, there are two possible conceptions of Purchase Tax. The first is that it should be a general flat rate tax on all consumer goods. We repudiate that, as we have always done, because the burden must inevitably fall most heavily on those with the lower incomes. The second is that it should be a progressive tax, leaving a wide range of necessities exempt altogether, and falling much more on the less essentials right up to the luxury class. If we accept the latter conception some anomalies in such a complicated tax are absolutely inevitable.

Mr. Boothby (Aberdeenshire, East)

The anomalies at present in the Purchase Tax are absolutely fantastic. Could the hon. Gentleman not give some undertaking that the Government will consider the whole existence of Purchase Tax over the entire range without necessarily depending on representations from outside bodies?

Mr. Jay

I will give this undertaking gladly. We shall continue to examine these anomalies continuously, but we must make sure, when we discover an anomaly, that we do not remove it in such a way as to create two or three anomalies more. This is the policy which we have followed and will still follow. It is for that reason and for the purpose of freeing industry for export and defence that we have raised the tax this year on less essential goods which drew on our engineering capacity and removed it from certain necessities used in every household.

I was not quite sure yesterday whether the right hon. Member for Aldershot was opposing the rise in the tax on distributed profits, though he did say it was in some respect a bad tax. We have, of course, often been urged by hon. Members opposite to widen the gap between the Profits Tax on distributed profits and on undistributed profits. We have now done that so decisively that on one it runs at 10 per cent. and on the other at 50 per cent. That should be a potent incentive to company saving and a deterrent to increased dividends.

In the last few months we have also been urged to consider other ideas such as statutory limitation of dividends, a capital gains tax and so forth. Indeed, in a period of rising prices and profits some case can be made out for all these things. We came to the conclusion that an increase in the Profits Tax on distributed profits was preferable, mainly because it achieved the objectives of both restricting dividends and diverting greatly increased profits to the Exchequer with the greatest administrative simplicity and with the very least use of administrative manpower. I do not think there is any doubt that this is a more economic way than any alternative of using administrative manpower.

Hardly any Member of the Committee yesterday argued that in the circumstances we were unjustified in making some change in Income Tax this year. We have, of course, since 1945 given reliefs in Income Tax which—I think this is a remarkable figure—if they were wholly reversed today would yield £1,000 million a year of revenue. That is not only the measure of relief we have given, but also shows the large reserves of taxable capacity which still exist against a real emergency. The right hon. Member for Aldershot yesterday said we had little elbow room left for revenue in such an emergency, but I should have thought that £1,000 million a year in Income Tax revenue was a good deal of elbow room. Compared with that total figure of £1,000 million, the increase we now propose will take only £73 million.

Mr. Arthur Colegate (Burton)

How does the hon. Gentleman explain that he can save £1,000 million from a tax which has never reached more than £1,300 or £1,400 million in total revenue?

Mr. Jay

If the hon. Gentleman will look at the figures for 1945 he will find that that is not so, but what I said was that the reliefs given in Income Tax since 1945, if reversed, would bring in £1,000 million a year. We have taken this opportunity to raise the marriage and children allowances to ease the load on families with children, because we are convinced that today the large family is becoming comparatively worse hit than the single earning taxpayer. Of course, many individual taxpayers with children will actually be better off as a result of this Budget.

It is perfectly true that these three measures of direct taxation, the higher Profits Tax, the Income Tax and the withdrawal of the initial allowances, represent a large increase in taxation on business profits this year. Indeed, in this Budget we have placed a substantial part of the cost of re-armament—though by no means the whole cost because some of the other taxes are widely spread—on business profits and on the better-off sections of the community, as my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) said quite rightly yesterday. We recognise that is so. We think that it should be so, and that for two reasons; first, because business profits, due indeed largely to re-armament and to world inflation, are rising fast; and, secondly, because we believe that that is more in accordance with social justice than any other practicable alternative.

Company profits rose by something like 14 per cent. in 1950 over 1949, and we estimate that this year they are likely to rise a good deal more steeply. We again estimate that, had it not been for the deterrent involved in this increased taxation, dividends would have been rising more steeply still. There seems to be some confusion caused by the figure of £700 million to cover stock appreciation, in Table 26 of the Economic Survey. I should like to make that figure clear. It covers Government Departments such as the Ministry of Food and the Ministry of Supply, as well as private and public industry. The figure for public and private industry corresponding to the £700 million, is about £600 million.

Given, therefore, these increases in taxation and the resulting restraint in dividends, we estimate that profits this year, after providing for depreciation, will be high enough to pay this increased taxation, to pay dividends as high as those of last year, and, over and above that, to enable sufficient profits to be put to reserve to cover the whole of the higher valuation of commodity stocks. That is our estimate, and that is our economic case for the increased Profits Tax which we propose.

I fully recognise—and, like my right hon. Friend, I share the view, that profits are a very good thing in the right place and in the right amount—that there is a limit beyond which taxation on profits cannot be pushed without doing damage to the economy. But I suggest that if there is one really outstanding economic lesson of these last five years, it is that taxation on profits can be pushed to much higher levels than were once thought possible, without any of those evil consequences that many people, particularly in the party opposite, used to predict.

Indeed, in these last five years we have had the highest taxation on profits ever known in peace time and, at the same time, the highest production, the highest investment, the quickest increase in productivity and the highest exports ever known. The right hon. Member for Aldershot spoke yesterday very rightly of the vitality and achievements of British industry in these last few years. I quite agree with him; but that vitality and those achievements were carried out under a system of partial Government control—planning if you like—and under this heavy load of taxation which his own leader told us had broken the mainspring of production.

As a result of this Budget, the average percentage of profits taken by the Government in revenue will rise from about 54 per cent. to 60 per cent. over all companies. If that shocks hon. Gentlemen opposite they may be comforted, and perhaps surprised, to learn that in the United States today, after the most recent Budget proposals put forward, it is estimated—and I think the comparison is rather interesting—that the new rates of tax proposed will mean that 57 per cent. of corporate profits will be taken in taxation. In addition to that, the dividends paid to shareholders are again taxed. It is a fair comparison, as fair as we are able to make. The total taxes on profits—[Interruption.]—I assure hon. Gentleman that this is the fairest and most objective comparison we can make—now proposed in the United States in the aggregate must therefore be at least as high as, if not in some cases higher than, the 60 per cent. which we are here proposing.

Mr. Lyttelton

I am sorry to interrupt the hon. Gentleman but I am only seeking for information. I should like to know whether the hon. Gentleman has taken into account the initial allowances for depreciation before striking his American comparison? If he has not, the whole comparison is invalid.

Mr. Jay

Yes, the comparison takes that into account. In both cases depreciation is deducted before the calculation of the tax on profits.

Our proposals, we believe, will ensure that the re-armament programme is carried out and that the burden is spread in the fairest practicable way. There is no reason, in my view, why this temporary period of re-armament—we all hope that it will be temporary—should be one of diminishing social inequality. It may very well be one of increasing equality. When there is less to go round for personal consumption, the case for greater equality is not weaker but stronger. Indeed—and I think most people will agree with me—in the years from 1939 to 1945 we made greater progress towards equality in this country than before, and so we should in these years of what we hope is temporary re-armament.

If hon. Gentlemen opposite, as almost seemed possible yesterday, are going to give their support to some of our proposals, then I hope that we shall have a happy and harmonious, and almost a Festival Finance Bill. If, on the other hand, they mean to challenge our whole policy of placing the main burden of this re-armament on business profits and on the better off members of the community that is a challenge which we shall be not merely willing, but happy, to accept.

Professor Savory (Antrim, South)

Before the hon. Gentleman sits down I would like to ask him whether the Government are not going to make some reply to the overwhelming case which I made out on Tuesday against the incidence of Estate Duty on ancient family businesses which are now on the verge of catastrophe.

Mr. Jay

Not now, but I am sure that my right hon. Friend the Chancellor of the Exchequer, if he is able to catch your eye later on, Major Milner, will take note of the interesting point which the hon. Gentleman made.

4.38 p.m.

Mr. Osbert Peake (Leeds, North)

Throughout the hon. Gentleman's speech I felt for him a sympathy born from personal experience of the office which he holds. It always seemed to me very curious that the best points were given by the Treasury to the Chancellor, and that the Financial Secretary was not even allowed to announce some of the more unpopular items of new taxation. I will, in accordance with your direction, Major Milner, come straight to the two matters to which I wish to address myself, and which have not so far been very much touched upon; the proposed changes in retirement pensions and the Insurance Fund.

All of us here, especially those who played a part in the framing of the great scheme of social security, must be vitally interested in preserving the integrity of the insurance system, and we must avoid at all costs offering, for vote-catching purposes, improvements in the scheme which may imperil its financial stability. It seems to me at the present time that any and every alteration in the terms of the insurance policy which is given by the social insurance scheme to the people of this country must be designed only to make it more attractive to the elderly to remain at work, and in productive employment. I was interested to hear from the Chancellor, and I endorse his words, that the day will come, in view of the increasing longevity, when the ages of retirement will have to be increased.

I think that the Chancellor's proposals for increased increments to be earned by persons remaining at work, and the relaxation of the rules regarding casual earnings, are improvements which fulfil the two tests which I have laid down; and they have my wholehearted approval. They will encourage persons to stay at work, on the one hand, and they will not imperil the financial stability of the Fund, on the other.

I know that many hon. Members on both sides of the Committee have been generally attracted by the idea of increasing the rates of pension from retirement age itself, but in regard to any proposal of that character it is vitally important to bear in mind that, in the first place, to increase rates of benefit from retirement age would act as a direct incentive to early retirement—it would cut across the first principle that I have laid down—and, secondly, it would also attract, require and necessitate improvement in the benefit rates for sickness and for unemployment. One of the basic features of the Beveridge plan was that the principal benefit rates should be the same. That, I think, might endanger the stability of the Fund, should unemployment, through some unforeseen circumstance such as the shortage of raw materials, rise to even a level even of, say, 5 per cent.

My right hon. Friend the Member for Aldershot (Mr. Lyttelton) yesterday divulged to the Committee that the Government proposals, or something like them, would have formed part of our election manifesto. My right hon. Friend, owing to the secrecy with which this matter has been cloaked, was not quite fully briefed upon this point. I should like to inform the Committee that proposals very similar in all respects to these were intended to be divulged to the House on the Motion to be debated tomorrow in the name of my hon. Friend the Member for Toxteth (Mr. Bevins) relating to the importance of retaining elderly persons in employment. Had my hon. Friend drawn an earlier place in the Ballot, proposals such as the Chancellor has put forward would already have been placed before hon. Members. Imagine, therefore, my chagrin to find that the Chancellor had caught us bathing and had filched our clothes.

Mr. Follick (Loughborough)

The Opposition have no policy now.

Mr. Peake

If the hon. Gentleman will wait, he will perhaps hear a little more about our policy. At this point I must express admiration for the way in which the Minister of National Insurance has concealed the intentions of the Government and parried the many suggestions now embodied in the Chancellor's proposals which have been put to her week by week at Question Time from this side of the House. I suppose it is that the gift of dissimulation without becoming actually untruthful comes to her sex naturally, both by instinct and by long practice. At any rate, never since the days of the virtuous Penelope waiting for Ulysses has an answer in the evasive been given both so persistently and so long. It makes one wonder whether it is quite fair to have women Ministers sitting on the Treasury Bench.

Mrs. Jean Mann (Coatbridge and Airdrie)

May I inform the right hon. Gentleman that it is, I think, the opinion of almost all the women Members of this House that the lady Member on the Front Bench can outshine any man on it?

Mr. Peake

I hoped that I had been understood to have been paying some compliments to the right hon. Lady who now adorns the Treasury Bench. I would add that I should not, after my experiences at Question Time during the last few weeks, sit down at the poker table with her, even if I received an invitation to do so. Further opportunities of referring to the pensions proposals will occur tomorrow, and also on the introduction of the new Bill very shortly.

Therefore, I turn to the Chancellor's proposals relating to the Insurance Fund, which are of great importance. It will be noted that when the Chancellor came to this point in his speech, he invited the Committee to go to sleep—to relax and to go to sleep. I think that he did that for very good reasons. It certainly made me prick up my ears. It is true that the Reserve Fund at present amounts to no less than £1,100 million and that the annual surplus is accruing at the rate of £140 million a year. The Exchequer contribution last year amounted to £144 million and, under the Act, it consists of two parts which are quite separate. The first is an annual contribution in proportion to the contributions of employers and workers. That derives from the old arrangement under which the Exchequer always used to contribute one-third of the Unemployment Insurance Fund and one-sixth of the funds relating to health and pensions.

But, in addition to that proportionate contribution, ever since the National Insurance Act was passed in 1946, there has been an annual block grant which started at £36 million, and which rises by annual steps of £4 million until in the year 1955 it would have attained £60 million a year. The purpose of the block grant was to cover from the outset the cost of allowing people to come into the Fund at ages higher than 16, which was the age on which the actuarial contributions had been calculated.

As it turns out, the block grant has never been necessary. It is now completely superfluous, and the Chancellor could have withdrawn it with my wholehearted approval several years ago. He could thereby, of course, have achieved a corresponding economy on the expenditure side of his Budget. The proposal of the Chancellor today, however, goes far beyond the abolition of the block grant, and it requires most careful consideration in the Committee and in the country. Let me quote what the right hon. Gentleman said. He referred to the annual surplus of £140 million and the cost of his suggested concessions amounting to £39 million. Then he went on: …the Committee will I am sure agree, it is not satisfactory that a separate Fund intended to remain roughly constant, should be increasing at this rate. Many hon. Members know that this enormous Fund has been greatly mismanaged and abused by past Chancellors to bolster up the market in gilt-edged securities, and that in consequence the reserve fund has suffered substantial losses.

Mr. Ivor Owen Thomas (The Wrekin)

Would the right hon. Gentleman specify the Government or Chancellors to whom he refers?

Mr. Peake

Yes. The present Minister of Town and Country Planning was, I think, the primary culprit in this respect. There is also a return which shows the depreciation in tie investments of the funds that has taken place during recent years. There is not the slightest doubt that this Fund was quite wrongly used by investing what should have been put into short-term securities in undated stocks in order to bolster up Government credit. The point I am on now is that the Chancellor, after referring to the annual surplus which he calculated, after the concessions, would amount to £100 million, went on to say: It is desirable, in my view, to eliminate this."— that is, the surplus— I therefore propose to reduce the Exchequer contribution to an amount which will leave the Fund at about its present level. The precise basis of this arrangement…is somewhat technical."—[OFFICIAL REPORT, 10th April, 1951; Vol. 486, c. 853.] The right hon. Gentleman proposes not only to take away the block grant, which is £48 million a year at present—of which I approve—but to go much further and to reduce the proportionate part of the Exchequer contribution to a merely token figure. I reckon he will take all but £20 million of the present proportionate contribution of £90 million by the Exchequer.

It is important that the Committee should realise the historical reasons for the Exchequer contribution. It is the State which dictates the terms of insurance policies. It is the State which compels every citizen, whatever his health, whatever his employment, whatever his risk, to be insured against these different contingencies. For that reason, it has always been held to be right and fair that the State should pay a contribution related to those of employers and workpeople. In the case of unemployment it was fixed at one-third, in the case of health and pensions at one-sixth. I do not know that it matters about adhering to those figures, but they were taken for the purpose of the National Insurance Act. The result is that at the present time the Exchequer contribution is about one-quarter of the whole. If the right hon. Gentleman's proposal is carried out, instead of the Exchequer contribution being one-quarter of the whole, it will amount to £20 million out of a total of £400 million. It will be somewhere in the neighbourhood of 2½ per cent. instead of 25 per cent. at present.

Mr. Poole (Birmingham, Perry Barr)

Five per cent.

Mr. Peake

I beg pardon; it will be 5 per cent. instead of 25 per cent. as it is at the present time. It is, of course, more than 25 per cent. today because of the block grant. I do not object to the Chancellor doing away with the block grant. At this point I must refer to the discussions in Standing Committee in 1946 upon this Bill. The Secretary of State for the Colonies, who was then Minister of National Insurance, replied to a debate upon this matter. The hon. Member for Westhoughton (Mr. Rhys Davies) had expressed fears that some future Chancellor might raid the Fund. The Secretary of State for the Colonies gave this assurance to the Committee and the country: The hon. Member for Westhoughton was afraid that in the future some piratical Chancellor of the Exchequer would raid the Fund, as happened in the old days. I think he had in mind my right hon. Friend the Member for Woodford (Mr. Churchill) and the Road Fund in 1925. The right hon. Gentleman went on: I can assure him that that will not happen in regard to the Fund. It is a point of great importance that he has stressed, and certainly it will not happen as long as the present Government is in power, and I think we are here for a long time."—[OFFICIAL REPORT, Standing Committee A, 28th February, 1946; c. 56.]

Mr. Daines (East Ham, North)

If the right hon. Gentleman refers to the White Paper which accompanied the Bill, he will find that the understanding was that the contribution as envisaged at that time should continue until 1951–1954, when the question would be reviewed. Surely the right hon. Gentleman realises that where the calculation went wrong was in the assumption of 8½ per cent. unemployed? It is for those two reasons that the Chancellor has indicated that the review will be made.

Mr. Peake

Nobody for one moment would object to the statutory review taking place at the due date, which is in the year 1954, but we had an unqualified assurance by the then Minister of National Insurance that there would be no raid upon the Fund.

The Chancellor of the Exchequer (Mr. Gaitskell)

I am not quite clear whether the right hon. Gentleman is saying that these proposals amount to raiding the Fund. I would admit that would be so if the proceeds were to be used either for reducing taxation or for increasing expenditure, but the right hon. Gentleman failed to point out that, in my speech on Tuesday, I made it perfectly plain that they would be used for neither, that there would have to be a corresponding Budget surplus, and that they will therefore be used for the repayment of debt.

Mr. Peake

As I read the speech of the right hon. Gentleman, he said that his intention was to eliminate this surplus. He went on to say that it would not in any way ease his budgetary problem— for, as I have explained already, the disappearance of the remaining surplus means a corresponding drop in savings. It will have to be balanced by a larger Budget surplus"—

Mr. Gaitskell

Read on.

Mr. Peake

—which in this case is automatically achieved by the lower Exchequer contribution."—[OFFICIAL REPORT, 10th April, 1951; Vol. 486, c. 854.]

Mr. Gaitskell indicated assent.

Mr. Peake

The right hon. Gentleman speaks of a higher Budget surplus, but his Budget surplus this year is infinitely smaller. It is only £39 million.

Mr. Gaitskell

But higher than it otherwise would have been.

Mr. Peake

But his Budget surplus has fallen.

Mr. Gaitskell

The right hon. Gentleman must know that that has nothing whatever to do with this proposal. This proposal simply means that the Exchequer contribution will be diminished, that correspondingly there will have to be a higher Budget surplus, and, that because that contribution is diminished automatically the higher Budget surplus is achieved, provided there is no revision of taxation or no increase of expenditure as a result of this.

Mr. Peake

Does the right hon. Gentleman really mean that all future Chancellors will be bound, because of what he is doing in regard to this Fund, to provide for an automatic Budget surplus £100 million higher than they otherwise would have done? If that is the right hon. Gentleman's suggestion, it makes complete nonsense.

This Exchequer contribution was laid down in the Statute of 1946 and holds good until Parliament otherwise determines. What the right hon. Gentleman proposes is to reduce the Exchequer contribution to a virtually negligible figure We shall have to have a close explanation from the right hon. Gentleman of what is being done, in view of the unqualified assurance given in 1946 by the then Minister of National Insurance, who spoke of some piratical Chancellor of the Exchequer raiding the Fund and who gave the assurance that that would not be done. Certainly, the right hon. Gentleman is the mildest-mannered pirate ever to receive letters of marque.

The Chancellor accidentally omitted from his calculations in the Budget speech the fact that the surplus will be even bigger in consequence of the automatic increase in the contributions by employed people and on their behalf by employers which takes place in October next. Under the Act, an automatic increase of 4d. per employee is payable as from October. This amounts to additional taxation and additional revenue to the Fund of something like £16 to £18 million a year. To that extent also will the Chancellor be able to diminish the Exchequer contribution to the Fund, and we shall have the position that employers and workpeople will be finding £380 million a year and the Exchequer, which has hitherto been finding £140 million a year, will find about £20 million only.

I am bound to express my doubts whether it is right and fair to raid the Fund to this extent whilst at the same time imposing further direct taxation by adding to the contributions which people will have to pay. I should have thought it would have been much better, whilst retaining some reasonable size of Exchequer contribution, to have given added inducement to elderly people to remain at work, and to employers to employ them, by forgoing either in whole or in part the contributions now exacted from persons who have already reached retiring age.

Mr. Gaitskell

Does the right hon. Member appreciate that if we were to do that we would, of course, need to have higher taxation?

Mr. Peake

Does the right hon. Gentleman know the cost of that proposal? He had better ask the right hon. Lady the Minister of National Insurance, who is sitting beside him. It amounts to only £12 million a year, compared with the £39 million which the right hon. Gentleman contemplates spending upon the benefits which he has proposed. An extra £12 million spent in inducing elderly persons who are now retiring to remain in employment would be more than gained by the addition to our national effort and production, and so forth, by those persons remaining at work. Money from the Insurance Fund would be well spent if it induced people to remain in work and to add to our production.

The Minister of National Insurance (Dr. Edith Summerskill)

The right hon. Member has forgotten another very important factor. This is not only a financial question. I agree that his proposal might cost only £12 million, but while helping the old people, he would be discriminating against younger workers. He would be encouraging employers to take on old people and thereby, perhaps, putting out of work the younger people.

Mr. Peake

This point can be further discussed tomorrow and again upon the Committee stage of the Bill which the right hon. Lady is to introduce. The output and efficiency of the elderly person is not as a rule so good as that of the younger and middle-aged worker. The suggestion that elderly people, having contributed to the Fund for something like 50 years between the ages of 16 and 65, should be excused further contributions if they remain at work, does not seem to me to be a discrimination against the younger people. If any discrimination is required, surely it is in favour of the people whose efficiency, output and stamina are no longer equal to those of their more youthful colleagues.

I turn from that very important subject to an even more important one, upon which the Financial Secretary and the Chancellor have both touched: that is, the question of economy in Government expenditure. The Chancellor's attitude on this question was very much more welcome and welcoming than that of some of his predecessors. In his Budget speech he said: I hope…that those with practical suggestions to make, on other than trivial points, will make them in the debates to come… That is a good deal more than was usually thrown out upon this point by the right hon. Gentleman's predecessors. Of course, we on this side are always ready to make suggestions, but as a rule it is expected that anyone in financial difficulties will make some proposals of his own for economy in his own expenditure. The advice of one's friends, and even of one's enemies, may be helpful, but one ought to have some point of view and ideas of one's own if one is facing insolvency. Of course, private Members often only get to know the facts too late to stop the waste occurring.

The Chancellor made a brilliant Budget speech, and towards the end of it he said: Again, if anyone thinks that even in this time of rising costs Government expenditure should be cut substantially, let him say so, and say particularly where and how it should be done. That is fair and honest. But it is unfair and dishonest to base a self-righteous demand for cuts on rhetorical generalities, supported by a few flimsy and trivial illustrations."—[OFFICIAL REPORT, 10th April, 1951; Vol. 486, c. 866.] These "rhetorical generalities" have been as much used in the past, and, no doubt, will be used again in the future, to justify expenditure as to criticise it, and I must give the Committee one or two examples of a rhetorical statement used to justify expenditure. Here is one with which the Financial Secretary is extremely familiar. On 23rd June, 1949, he told us, in a debate on the Finance Bill, that the idea that tens of millions of pounds can be saved by administrative economies without changes in policy is sheer moonshine."—[OFFICIAL REPORT, 23rd June, 1949; Vol. 466, c. 520–1.] The hon. Gentleman must recall that within three months of his making that speech, the Government produced an economy plan, now known as the 1949 Economies—about which we shall want to know a good deal more when the Appropriation Accounts for the past year are ready—for a total economy of £250 million, including a budgetary economy of £109 million, and many of those economies were of an administrative character, as the hon. Gentleman claimed for no less than five minutes in his speech this afternoon.

Mr. Woodburn (Clackmannan and East Stirlingshire)

I am sure the right hon. Gentleman does not want to misrepresent the position. I am sure he is aware that these cuts meant the suppression of practically the whole road programme. There is a difference between purely administrative economies and the suppression of policies of development, such as capital development and road development, and it would be fairer to make the distinction.

Mr. Peake

I am not claiming that the £250 million economy programme was all on administration. No one would suggest that. But what the hon. Gentleman said this afternoon about the great administrative cuts made in the past two or three years certainly seemed to me completely to contradict the statement he made in June, 1949, that we could not save tens of millions by administrative economies. It completely cut the ground from under his feet.

Mr. Jay

The right hon. Gentleman continually quotes the passage, but I would point out that I said "without changes in policy" and in the economy plan in 1949 and since then we have made changes in policy. That is why the total has risen into tens of millions, and it is perfectly consistent with what I said.

Mr. Peake

That is all very well, but if the hon. Gentleman will read the speech he made to the Committee this afternoon, he will see that for about five minutes he talked of the great administrative economies achieved by the Government during the last two or three years—

Mr. Jay

With changes in policy.

Mr. Peake

No—and as a result of the comb-out which took place in 1949. I will reinforce the point about "rhetorical generalities" by a reference to a speech of the present Foreign Secretary in October of that year. We were debating the £250 million economy plan, which disappointed the country, and he said: We have made the present instalment of cuts to serve notice on everyone,…that the Government mean business about economy.… Anyone who imagines that the present list represents the end of the Government's efforts to achieve economies is going to be undeceived before long."—[OFFICIAL REPORT, 27th October, 1949; Vol. 468, c. 1554…5.] We have waited ever since and no further list of economies has ever been presented.

We are always met, and I never complain, with requests for specific suggestions. I have made many from this Box in the past, but I would say again that it is much easier for Members of the Government to detect and check incipient waste than for Private Members to do so. Many examples will occur to hon. Members. Obviously, the present Secretary of State for War knew much earlier about the £36 million lost on the Groundnuts Scheme than did hon. Members. Obviously, the right hon. Gentleman who was then Secretary of State for War, the right hon. Member for Bassetlaw (Mr. Bellenger), also knew about the £80 million which went down the drain in black market transactions in Germany long before the matter was divulged to the House of Commons.

The Minister of Labour knew long before this House that the National Health Service, estimated to cost £170 million in the first year, was in fact to cost somewhere approaching £400 million. That fact, the Committee will remember, was carefully concealed from us and from the electors for a period of more than four months pending and during the General Election of last year, by an improper use of the Civil Contingencies Fund.

Each year I have always proposed at least one specific cut. Some Chancellors look surprised and indignant when I do so. I hope that the Financial Secretary will look as if he were going to welcome this one. I hope he will smile—I hope he will hold that smile for a moment. I am now going to give the right hon. Gentleman this year's selection for a cut. This, in racing parlance, is a "nap" so far as I am concerned. It is the strongest tip I can give. It is that the cut this year should be the Minister of Labour—not the Ministry of Labour, but the Minister of Labour—

Mr. Jay

That is a most serious suggestion.

Mr. Peake

I hope the Chancellor, or his deputy, will not brush this off as one of the things he referred to in his speech as a flimsy and trivial example. I hope he will not suggest it is that. It certainly is not that. It is certainly more possible that one could describe the Minister of Labour, his colleague, as "a rhetorical generality," but what a wonderful cut it would be. Here is the man who has been the main advocate of waste and extravagance of all forms inside the Government for the last six years. He is the man who opposed, and successfully opposed, year after year, each and every measure of economy. It is more than five years ago that the Minister of Town and Country Planning said that food subsidies could not be allowed to rise any further, but it all went on just the same. It is more than two years since Sir Stafford Cripps threatened a charge on the National Health Service, but it went on just the same without one. It was all due, as hon. Members on both sides of the Committee know, to the Minister of Labour. It was he who thwarted and threatened and bluffed and blackmailed every successive Chancellor on every Budget. He has been a most expensive Minister and if he were to go big savings would result.

Sir Richard Acland (Gravesend)

Will the right hon. Gentleman agree that since the Minister of Labour has held his present office it is quite possible that he has saved the country many tens of millions pounds by his already brilliant handling of labour disputes?

Mr. Peake

I do not know about that. I do know that the Prime Minister had to get him out of the Ministry of Health before he could impose any economy in that Department.

Mr. Turner-Samuels (Gloucester)

Is it not true that the Opposition are afraid of him?

Mr. Peake

It would be a great thing for the Chancellor, for the House and for the country, if the right hon. Gentleman were to go, but it now appears that he will not. "Under-Secretaries," it was said by Mr. Tim Healy, "never resign, they wait until they are fired." But Mr. Tim Healy, early in this century, never foresaw the day when a Minister, however publicly discomfited and discredited, would go on clinging to office.

Dr. Morgan (Warrington)

Tell us what Tim said of the Conservatives.

Mr. Peake

We are all at this stage, nevertheless, very grateful to the Chancellor. He has stood up to the Minister of Labour. He has called the right hon. Gentleman's bluff, and he has won. He has succeeded where his predecessors all failed; and even if the Chancellor has not yet succeeded in deflating our swollen economy, he has well and truly disinflated the pouter pigeon of the Treasury dovecote.

He has made a good start. I am, however, disappointed that so little seems to have come of the so-called 1949 economies and that the estimates for 1951, after excluding defence, are £400 million in excess of the Exchequer issues for last year. Of course, there are £140 million of stockpiling included in that, but it is disappointing that next year's estimates, excluding defence, are so much higher than the Exchequer issues for the past 12 months.

Mr. Jay

The right hon. Gentleman will realise that the Exchequer issues for the past 12 months were £100 million down because of the Ministry of Food reduction, and that ought to be allowed for.

Mr. Peake

I appreciate that. That always happens every financial year; someone does not spend quite so much as is expected, and the same thing might very well occur in the year which lies ahead. In my opinion, many of the unpleasant and harmful additions to taxation might have been avoided if necessary economies, such as the charges in the National Health Service, had not been postponed too long.

I shall be only a few minutes more, but there is one other matter in the Budget which I think is of great importance, and to which I ought to refer. I am glad to see that the Chancellor has waved a fond and, I hope, final farewell to Sir Stafford Cripps's doctrine of an over-all budgetary surplus. Instead of an estimate as for last year, of £470 million above the line, the present figure estimated by the Chancellor is £39 million for the current year. How that squares with what he proposes to do in regard to the Insurance Funds absolutely passes my comprehension. Sir Stafford Cripps, with whom we all deeply sympathise in his illness, adhered with persistent and often admirable obstinacy to an idea, once it had mastered him. He insisted on providing out of current taxation for all expenditure, whether above or below the line; and that, I think, was wrong.

In my opinion, it is not wrong to provide for permanent assets such as housing out of borrowed money, but it is wrong to extract forced loans and attempt to impose compulsory saving on taxpayers who would be willing, if taxation were lower, to do the saving for themselves. We think it is preferable to give every encouragement, by maintaining a stable value for money and providing reasonable rates of interest to encourage personal saving for capital projects, and I am glad to see that the Chancellor seems to share our view and shows some confidence in the thrift and industry of the British people, to whom he is looking in the forthcoming year for an additonal £170 million or £180 million of savings. I believe that the Chancellor's faith and confidence will be justified, provided he can avoid further rapid deterioration in the value of money.

It is true, as the Chancellor said, that our whole economic and financial future is conditioned by the aggressive attitude of Soviet Russia. We hope and pray that with adequate defensive strength on the part of the free nations of the world the threatening storm may be averted. The tension may be prolonged, the effort required may be exacting, but our hope of salvation lies in our readiness for present sacrifices. To that end we shall be ready, whether by support, or suggestion or criticism of the Government's proposals, as may be appropriate, to make our contribution in good faith.

5.24 p.m.

Mr. Dye (Norfolk, South-West)

I hope the right hon. Gentleman will not mind if I do not follow on the rather delightful, if unhurried, discourse he has given to us this afternoon. I want in a few minutes to reply to the speech made yesterday by my hon. Friend the Member for Wednesbury (Mr. S. N. Evans). He seems to object to the kind of redistribution of our national income which has resulted in a larger portion going to the agricultural community. He harks back to the state of affairs before the war when those who produced the food whereby the rest lived had only a small portion of it for themselves. He alleges that the changes which have recently taken place have led to greater inefficiency in the agricultural industry and are, therefore, harmful to our national economy.

I do not want to do my hon. Friend any injustice, and I will therefore follow his speech rather closely. He based his charges against the agricultural industry on a statement made by the President of on a statement made by the President of the National Farmers' Union, that within the next five years we shall have 375 million gallons of milk more with no increase in the number of cows. Well, if anybody wanted to make a charge of inefficiency against an industry, I should have thought he would have based it on facts, not on an assumption with regard to the future, and if my hon. Friend had looked into the figures for the past he would have found that during the past 11 years our milk production has increased nearly 50 per cent. with only a 10 per cent. increase in the number of cows. If so great an increase could take place in milk production with so small a percentage increase in the number of cows, there must have been greater efficiency compared with the previous situation.

There has been this increase in milk production, and dairy farmers achieved in 1950 a target that was set for them for 1953, so rapid had been the increased production. My hon. Friend condemns the farmers for having done this, not, as I understand it, because of any action on the part of the farmers themselves, but because the Ministry of Food, which controls the Milk Marketing Board, has not devised ways of utilising the surplus milk according to his design. He scorns the idea of greater quantities of ice-cream being made from pure milk, although I should have thought that would be to the advantage of the country. My hon. Friend wants increased butter production, and compares the situation in this country with that in Denmark. Now, I believe it is desirable to compare like with like, and the situation in Denmark is quite different from that in this country. In Denmark farming is based upon milk production for the specific purpose of manufacturing butter for export to this country, whereas the whole basis of our own increased milk production has been to enable a greater production of milk for the liquid market—fresh milk for our own people.

As a result, over the past 11 years the amount of milk consumed in this country has very nearly doubled, and the health of the whole population has improved remarkably. If we are to go in for the production of butter, provision must be made for the necessary machinery and factories, because it would not be possible to turn our milk into butter on the farms, desirable as that might be, for the very simple reason that the labour is not there. Neither could it be done at anything like a cost of production comparable with that of Denmark, which is laid out for that purpose.

My hon. Friend inferred that the inefficiency that existed in British agriculture compared most unfavourably with the situation in Denmark. I think it is beyond dispute that there has been an increase in Britain agricultural production of just over 40 per cent. compared with the average of pre-war years. I have here a statement on the economic conditions of Denmark issued by the Institute of Economics and History in Copenhagen, dated September, 1950, in which it is state that compared with 1935–39 animal production as a whole has increased by 4 per cent. There had been a small increase for bacon and eggs and a slight decrease for beef and veal, whereas milk products—apart from cheese, which is increased very considerably—have come forward in practically the same quantities as before the war. In the period in which we have increased our production by 40 per cent., in Denmark they have increased theirs by 4 per cent. How, then can we make an unfavourable comparison of British agricultural efficiency with the trend of events in Denmark? If anyone is of the opinion that the slight increase in Denmark is possibly because of the high standard of efficiency which they attained before the war, this statement goes on to point out that the amount of milk, which is about the same now as before the war, has been produced from 3,004,000 cows compared with 3,326,000 before the war. I think, therefore, that my hon. Friend is completely mistaken in thinking that British agriculture is less efficient than that of Denmark, or, one might say, of almost any other country in the world.

In one of his statements my hon Friend made the charge that there has been a changeover from wheat production to milk production. He bases that on a comparison between 1938 and 1949 for the County of Norfolk only. He said that he wanted to be fair, but I have looked up the figures from which he made his calculation and I find that he chose to compare the year of smallest production of milk and the greatest production of wheat in Norfolk before the war, with the year of the smallest production of wheat after the war. One cannot come to a sound conclusion about this position if it is based on one particular county or two particular years.

Clearly the facts are that the production of wheat has been increased throughout the country. If we take the figures for the average of the years 1936 to 1938, the weekly output of wheat from home production in those years was 14,000 tons; whereas the production of wheat in 1950 from our farms averaged 30,700 tons—more than double. Our wheat production was more than double, our barley production was more than double, and the same applies to oats. Regarding potatoes they were nearly double—

Mr. Sidney Marshall (Sutton and Cheam)

Would it be impertinent to ask to what part of the Budget the hon. Member for Norfolk, South-West (Mr. Dye) is now referring?

Mr. Dye

I am afraid that it has not dawned upon the hon. Member that we are dealing with the economic condition of our country as well as the Budget. I have always thought that agriculture made a contribution to the economy of our country, and I hope it will continue to do so. What is, of course, outstanding is that its contribution now is so much greater than before the war, and if that is what is bringing discomfort to the hon. Gentleman, I do not wonder at it. He probably holds some responsibility for our condition before the war.

Mr. Marshall

Not the slightest. I, too, am a milk producer.

Mr. Dye

Let us hope that the hon. Gentleman will make some contribution.

The British farmer is producing wheat at a lower price than the farmers of most of the larger countries which have supplied us. During 1950 the British farmer was paid £28 6s. 8d. per ton for wheat; the Canadian farmer was paid £32 2s. a ton, and the American farmer, for No. 2 winter wheat, £32 2s. 9d. It is true that the Argentine farmer was paid £22 3s. 9d., but when the Ministry of Food purchased that, it cost them £45 a ton. So the British farmer is producing wheat at a price very much below that which the Ministry of Food is paying anywhere else in the world. How, then, can it be argued that the British producer is less efficient, even in wheat production, than any other farmer in the world?

What has been done in recent years by the Government to enable greater production has certainly meant that farmers are paid a higher price than the actual cost of production in order that there may be money for capital development, and in order that the farmers may increase their production year by year and make the equipment on their farms more efficient to enable that to be done. I think that has been a very sound policy, and I doubt whether anybody who understands the situation could provide an alternative method by which we could finance our agricultural development.

If we are to be efficient, quite clearly we must have the necessary capital equipment on our land in the form of buildings, stock and so forth. The statement by my hon. Friend certainly called for an interjection from the hon. Member for Leominster (Mr. Baldwin) which was of some importance in relation to this discussion, because he said: I will tell the Committee what 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."—[OFFICIAL REPORT, 11th April, 1951; Vol. 486, c. 1114.] If that represents the agricultural policy of hon. Members opposite, they have learnt nothing from the past or the present, for that is precisely what they asked for and got after the First World War, and it led to so many years of depression in which British agricultural production went down year after year.

I hope that we shall stand by the system of guaranteed prices which has been an integral part of the Labour Party's agricultural policy ever since 1926. We must be determined to continue with our agricultural programme of production so that we can supply the greater quantity of meat and other essential foodstuffs which the rest of the nation needs. This must be our purpose. The Government have stated it clearly, and I hope that the House will pursue it in spite of what is said by my hon. Friend the Member for Wednesbury and the hon. Member for Leominster, who take completely different views.

If we pursue the same policy towards the British farmer as we have done towards the agricultural producers in the Argentine, the same results can accrue, namely, a shortage of meat and any other product that we now require; but I believe that the British farming community will play a most important part in maintaining our food supplies during the next few years and, therefore, I hope the Government will pursue their policy of agricultural development to its fullest possible extent.

5.42 p.m.

Sir Arthur Salter (Ormskirk)

An elderly and somewhat battered bride who, after a short interval, embarks upon another venture need, I believe, neither assume the modesty nor claim the indulgence that is appropriate to a maiden. If therefore the hon. Member for Norfolk, South-West (Mr. Dye), will excuse me from following him into a field which, though relevant, is in a Budget debate somewhat specialised, I will tackle directly the main theme I wish to put before the Committee.

I shall make one prefatory remark, which I believe will find a response in the minds of many hon. Members on both sides of the Committee. We have in this debate to cover a vast ground, and not only that but to do so through a jungle of facts and figures, of Surveys and White Papers and Monthly Digests, through which it is indeed hard to find our way. We have, indeed, been helped by what I may call the luminous lucidity of the Chancellor's statement on Tuesday which made it a real intellectual pleasure to listen to him for something over two hours. Nevertheless, even with this guide the path is hard to find.

I have in my time been a civil servant, and in those bad old days I fear that we sometimes attempted to withhold information from Members of Parliament, thinking, as any bureaucracy is inclined to think, that if its Members, have information they may prove inconvenient. But my successors in the Civil Service have a much more subtle and skilful technique at their disposal. If they or their Ministers should ever desire to divert attention from an unpalatable fact they can usually achieve their purpose by burying it in a jungle of other less dangerous facts; they can drop it in without either emphasis or obvious concealment, with perhaps a smooth and glossing phrase which does not arouse attention but can be quoted if necessary to meet a subsequent charge of omission. As G. K. Chesterton once remarked, "If you want to hide a leaf the best place to put it in is a forest." On the whole, the present Survey is candid and objective, but there are some exceptions.

We have in this debate three tasks. One is to consider whether the Chancellor's tax plan, with its new taxes and reliefs, is the best than could have been devised to meet the £150 million gap, as he calculated it. The second is to discuss whether that gap has been reasonably assessed. The third is to judge how far the general financial situation which confronted the Chancellor is the result of the Government's economic and financial policies and how far it is due to causes—as to a considerable extent, of course, it is—outside the control of the Government and which would have confronted whatever Government was in power. At this stage in the debate I need only comment on the points which seem to me to be of special interest, with the knowledge that my colleagues have dealt, or will deal, with many points more adequately than I now can. A Budget debate is intrinsically much more difficult nowadays when the primary object of a Budget is not, as it used to be, to equate revenue and expenditure but to control inflationary pressure.

With this preface, I would comment on the three questions which I have just mentioned, but in reverse order, starting with the last. The first is the general financial position which confronted the Chancellor. It is, of course, true that it was made worse by some events for which the Chancellor is in no way responsible. In particular, the vital necessity of the increased defence expenditure, on at least the scale contemplated by the Government, is not questioned by any of us, either on this bench or on the benches behind me. The Government would probably be happier if they could make an equally unqualified statement about all their supporters.

Mr. Oliver (Ilkeston)

Do not worry.

Sir A. Salter

What we are anxious about—and the anxiety is grave—is that re-armament should proceed quickly enough and that we should get value for money. It is not monetary appropriations that we want, but men and munitions.

Mr. Follick (Loughborough)

And raw materials.

Sir A. Salter

I will come to raw materials. I shall have something to say about that in a moment. It will avail nothing if the additional financial appropriations are wasted by incompetence or absorbed in higher prices. Equally, of course, the financial position reflects many adverse factors which confronted the Government when they came into power in 1945, as they would have any alternative Government. But if we must not blame the Government for misfortunes outside their control, we must equally not allow them to use those misfortunes as a cover to conceal what does fall within their own responsibility. All the faults and follies with which the Opposition has justly charged the Government over the last five years—the excessive extension and mismanagement of the nationalised monopolies, reflected in accumulated losses as well as increased charges; the reckless ventures at home and abroad, in East and West Africa, in Whitehall and across the river; the progressive reduction or elimination of the incentives to enterprise and efficiency—all these have contributed to the present financial situation.

On this I should like to make one comment. The Financial Secretary referred to administrative and policy economies, and my right hon. Friend the Member for Leeds, North (Mr. Peake), dealt at some length with that part of his speech. I should like to add this. Some extravagances have been dramatically revealed but others have not been equally exposed. It is a plausible but essentially impossible demand for the Government to say that we should not ask for more economies than we can specify in detail. We have doubtless not yet pried open all the whited sepulchres in which the bones of dead ventures still lie hidden. On clear issues of policy—the extent of the food subsidies or charges for patients in the Health Service—of course, it is right that critics should take their full responsibility, but, as regards administrative economies, it is impossible for those not in office to be at once specific and comprehensive.

It is not easy to penetrate the domestic interior of Whitehall, as I well know. When the blitz in London exposed the domestic interiors of many houses which were normally shrouded from public view, it was not unreasonable to suppose that they were a fair example of those that remained concealed. Such explosions and exposures are comparatively rare. When they do occur, and when they reveal gross incompetence, when we see vast risks undertaken at the cost of the taxpayer and without any penalty for failure to the Minister responsible, it is right to regard them as symptomatic of a pervasive extravagance in other spheres. So, too, when we find, in particular cases, instances of fantastically complex control systems and excessive staff, it is reasonable to assume that they are typical, rather than exceptional.

Like other hon. Members, I could give a number of instances if I had the time. I do not pretend that those I could give would add up in total to a figure that would be significant in the Budget problem. But I think they would be greater than the Financial Secretary suggested in the illustrations which he took. He gave us certain possible economies if such and such specified reductions of the Civil Service staff were made, but he did not reckon in his figure the indirect and consequential saving in the accommodation which they occupy, the services which they use, and, what is much more important, in the work which they impose and by their questioning and often unnecessarily hampering control which they exercise upon industries throughout the country, and, therefore, upon the costs of those industries, and, therefore, upon the amount of profits on which taxation can be levied by the Revenue.

Administrative economies are possible, and if we reckon also these secondary and indirect economies, if we take the economies of which almost every hon. Member in the Committee can provide some example, and if they are typical, as I believe them to be typical, of a great number of others, the total saving would not be inconsiderable, though I do not claim that economies of this kind, as distinct from policy changes, would make a major change in the global Budget figure.

The net result of all these factors, and of Government policies and commitments was that, before Korea, we had about reached the limit of tolerable taxation—that is, taxation which would not clearly bring more loss than gain to the national economy—with little or no margin for a later emergency, such as the Korea emergency, should it occur. I do not myself believe in any scientific and static percentage of the national income, such as 40 per cent. or whatever it may be, which, at all times and in all circumstances, marks the point at which the tolerable limit of taxable capacity is passed. Obviously, the point must be different at different times, and, as the hon. Member for Chesterfield (Mr. Benson) pointed out, the extent to which money is raised for redistribution rather than Government spending, is also a relevant consideration.

I agree, too, with the Financial Secretary that "Wolf" has often been cried too early in the past. But I would remind the Committee that, after all, the point about the wolf tale is that, in the end, the wolf came, and the Chancellor's Budget reveals clearly, I think, that the wolf has now come.

Mr. Collick (Birkenhead)

From Ormskirk.

Sir A. Salter

I wish I could have as much effect, though of a somewhat different kind, as the wolf in the fable had.

When we turn to consider the incidence of present and proposed taxation on different classes, one fallacy must be killed at once. The Chancellor yesterday gave us a very misleading statement as to the extent of tax remission since the end of the war, and the Financial Secretary has repeated it. I do not say that the calculation which he made was incorrect on the basis on which it was framed. What I do say is that the Chancellor and the Financial Secretary totally ignored the basic fact, which is behind their calculations, that prices, monetary incomes and the total national income, as expressed in terms of the pound, have all been rising together. The result is that all those whose wages and incomes have increased in correspondence with the rise in prices have, without any increase at all in their real or relative income status, been swept automatically into higher taxation categories and outside the exemption limits.

How absurd a calculation of that kind can be unless that qualification is made, can easily be shown if we imagine a great inflation which might have the result, let us say, of quadrupling all our prices, wages and incomes. Then, if we retained the same monetary limits for the exemptions and for entry into the Surtax range, we might at once double the real burden of taxation in spite of doubling the extent of nominal reliefs as calculated by the Chancellor. It is a fantastic calculation, unless those qualifications are made.

I do not think that the full consequences of rising prices, not only since and during the war, but from an earlier period, have been fully realised by the public generally. I remember that, before the war, we used to think of a Surtax man earning about £2,500 a year as a rich man, and so he was, with the purchasing value of the £ as it was then and with taxation as it was then. Do we realise that today a £2,500 a year man is equal in real economic status to the £750 or £800 a year man before the war, and that the same kind of thing is happening through all the wage and income categories?

Let us look for a moment at rising prices only, and their effect on the ability of different classes to bear taxation. The pound of 1938 had become about 14s. in 1945, and is now about 10s. The pound of 1945 is now about 15s., and likely soon to be a little less.

Mr. Follick

What about the pound of 1914?

Sir A. Salter

If we go further back the figures I have given would be even more impressive, both in themselves and in their context. But I am not now arguing the point which I think the hon. Member has in mind. I am only calling attention to the conclusion that should be drawn from the effect of higher prices upon the whole of our Income Tax structure, and I am speaking in reference to the particular claim about tax relief which was made both by the Chancellor and the Financial Secretary.

Mr. Jay

Will the right hon. Gentleman allow me? I did not want to start interrupting him, although he interrupted me. If he gives the figure of the decline in the purchasing power of the pound in 1945, I think he ought to give the figures for the dollar at the same time.

Sir A. Salter

No, Sir. I interrupted the hon. Member once, and he has interrupted me once. I welcome his interruption, and I do not see why he should object to mine. I should be happy to argue his point with him on any other occasion, but it is completely irrelevant to the argument which I am now putting to the Committee.

The inflationary rise which is inevitable in war, when millions of men and women are removed from producing articles for civilian consumption either to fight or to make munitions, did not stop with the end of the war. It has continued in the five and a half years since the war, and at a rate not so very much less than during the war itself. The consequence of this is that those who have not improved their economic position, either in real terms, that is, in their ability to buy what they want, or relatively to the rest of the population, have been pushed into higher taxation categories and out of the exemption limits by the diminishing purchasing power of the pound. The extent of the net gain or loss can be easily calculated by any individuals knowing their own incomes from the figures I have just given. My immediate point—and I will not develop it further—is merely that the extent of the relief claimed by the Chancellor and his colleague is completely illusory.

I said that what I am mainly criticising in this Budget is the financial situation resulting from previous policy which it reflects. Let me give an illustration from a question to which reference has already been made. The Financial Secretary to the Treasury criticised one of my hon. Friends because he had said, I think in 1949, that he thought there should be devaluation. But it is completely consistent to look at the situation as it was in 1949 and say devaluation must come and at the same time to regret the financial situation which forced that conclusion.

I have never criticised the late Chancellor for devaluing in September, 1949. After all, if one cannot make the real value of the £ equal to its exchange ratio then one must make its exchange ratio equal to its value. The act of September, 1949, was not an act of policy at all. It was a surrender to necessity, a necessity which arose from previous policy. What had, however, become unavoidable was foolishly acclaimed as if it were a meritorious act instead of being, as it was, a barometer of the Government's previous policy. Let us recall what it meant. The Chancellor has emphasised the cost of raw materials and what we had to pay. Dollar costs have increased, but even if they had remained absolutely constant from 1949 to the present day, after devaluation we should have had to pay £143 18s. for the dollars and the dollar goods that we could previously have bought for £100.

I was in New York at the time of the devaluation. I walked along the streets in which shops were displaying British motor cars. They had kept their British prices in pounds and had marked down dollar prices in correspondence with devaluation. I reflected then that the dollars and the dollar goods which could have been earned by the sale of 100 cars the week before would now require 140 cars, with all the extra labour and material that that involved. I do not deny the necessity or of course that there were certain advantages of a different kind. But when we consider the factors that have entered into the rise in prices do not let us omit this. Do not let us forget also that the immediate effect was not anything like so great. There was a long time lag and we have not yet fully worked out the consequences of the devaluation of 1949 on the pound prices of our imported materials. Let us not forget the net result of previous Government policy when we are assessing the increase in the cost of our imports and in all our prices. So it is with all the avoidable losses and extravagances of the last five years.

I come now to the Chancellor's estimate of the £150 million gap. I do not ask for more taxation and, unlike some previous speakers on this side of the Committee, I do not assert that this figure is too low as an estimate of the precise and limited kind he was attempting—that is, not of the sum required to prevent an increase of prices but only to eliminate one factor in price increases, the excess of investment of all kinds over savings of all kinds. Prices will rise, of course, and for other reasons, and rise greatly. It has been made perfectly clear that a very large part of the new burden falling on the country in a reduced standard of living will take the form not of taxation but of higher prices.

On this particular point to which the Chancellor was addressing himself, I do not myself assert that he was probably wrong. I am not indeed confident he is right, and I am sure the Chancellor himself is not confident he is right, because we are here in the field of guesswork where the margin of uncertainty must in any case be very great. I think that the figure may prove not too low for two reasons which we should all deplore—first that the overseas deficit may well be greater than the cost of stockpiling, and that, regrettable as it is, will of course be an alleviation of the actual inflation position. Secondly, rearmament may get into its full swing too slowly. In any case, however, any estimates must be so hazardous that many of us must have wondered whether the Chancellor had in mind that £150 million or £170 million was the limit of practicable taxation and that it perhaps formed the premise rather than the conclusion of this subsequent calculation.

At this moment may I interject one or two points I cannot fully develop and which perhaps are not strictly relevant to this particular stage of my argument. I was struck by the fact that the Chancellor made so slight and cautious a reference to an increase in production. He notably did not repeat the 4 per cent. estimates of the Economic Survey. Perhaps he was wise in that. I am not quite sure that if one has regard both to the losses that will result from dislocation in the transfer from one industry to another and also the shortages likely to occur at different factories through the raw material position we can really have an actual increase this year. I hope we shall achieve it but I think the Chancellor was wise to be cautious. Perhaps he was even not quite cautious enough on that point. He was certainly very reticent.

As to the balance of payments and the future, taking the longer view, I am not sure the future is not gloomier than anything we have indicated to us in the papers put before us, partly because of the prospect of greater external competition, for example from Germany and Japan, and partly for other reasons into which I need not go now. One must also bear in mind the somewhat precarious character of the whole of the sterling area arrangements and not rely too confidently upon their holding together quite as well as they have held in the past. I mention these points because I think it is true, if one looks at the whole field disclosed by the Chancellor and the papers he has given us, that if the present is in many respects anxious the prospect for later years, whether responsibility for policy in those years falls to this Government or to a successor, is probably graver and the task is likely to be more difficult.

While I do not take the view that the Chancellor's estimate of the £150 million is too low, I believe his estimate of the extent to which his measures will produce a counter-inflation to cover it is too optimistic. I am not going to say there is any kind of scientific, economist's definition of a measure that is inflationary or disinflationary. We all should know that the extent to which a measure is one or the other varies a great deal according to the psychological reaction of the different people concerned in dealing with the consequences of that measure, and that differs according to other changing circumstances. But I do not think we can rely upon the new Income Tax, the increase in the Profits Tax and the other measures as being counter-inflationary—and that, after all, is their purpose—to anything like the full extent of the ultimately estimated revenue from them. I should myself doubt whether the counter-inflationary effect would be much more than about half. At any rate, it will be nothing like 100 per cent.

I shall refer to the increase in profits taxation in particular in a moment as illustrating this point. I do not think the Chancellor will get as much extra company savings as a result of that increase of profits taxation as he expects and I do not think he has allowed enough for the practically certain further diminution in personal savings. More was drawn from national savings last year than was put in, if we exclude interest, and I find it extraordinarily difficult, in view of the whole climate of opinion and the environment of rising prices, to imagine that the situation will not be worse in that respect in the coming year.

May I turn now to the third, and narrower, question of the Chancellor's actual tax plan? His field of free choice was obviously small. He was confined within limits which I think Matthew Arnold called, in another connection "The un-o'er leaped mountains of necessity." If we were prepared to ignore the past—as of course we are not, except for the moment and for the purpose of this particular stage of the argument—there is much to praise in the Chancellor's plan as well as to oppose. He has obviously shown courage in relation to his colleagues—and not the least powerful of his colleagues—and his supporters. Gone without a trace or a reference are the wilder ideas of his imprudent and irresponsible Left.

Nor—on this narrow question, and ignoring the past—should I ask for other taxation or oppose the increase in the Income Tax, still less the reliefs; nor in principle, while reserving the right to criticise in detail later, should I oppose the revision of the Purchase Tax. I applaud the concessions and easement, inadequate I think rather than excessive, for pensioners. They do not do more than about cancel the rise in prices which has taken place since 1946. They do not quite do that for the single man and they afford no cushion for the further rises which are inevitable in the period ahead of us.

Indeed, all this part of the right hon. Gentleman's proposals is startlingly similar to the proposals in the Conservative programme. This is what in Victorian parlance used to be called, "Dishing the Whigs." I do not blame the Chancellor for that; it is often irritating to the party dished, but it is the salutary process under which, in our two-party Parliamentary system, national policy evolves and the clash of rival policies is reduced. We on this side of the Committee can at least call attention to the debt which he did not himself acknowledge, or perhaps I should rather say to the fact that the better part of his mind has led to such a striking similarity of his conclusions with our own. My comment on this Budget as a whole is indeed rather like the famous remark of a critic—that there is much that is new, and much that is true; unhappily what is true is not new and what is new is not true. So there is much that is good and much that is distinctively Socialist in this Budget; but what is distinctively Socialist is not good, and what is good is not Socialist.

I turn to the taxes on which I want to concentrate my main criticism—the increase in the Profits Tax, aggravated as it is in its effect by the removal of the initial depreciation allowance. As to the latter, I would ask only this: have the Government considered its implications for industries which, though not engaged in the manufacture of actual munitions, are essential to our defensive preparations? My hon. Friend the Member for Barnet (Mr. Maudling), in a most interesting speech, yesterday referred to shipping. With some knowledge of the rôle of shipping in war, I want to support him. We have not yet replaced the dry-cargo tonnage destroyed in the war. Do we want British shipowners to be forced to cancel their contracts with British shipbuilders and leave our slips to build for foreigners who will be our competitors in peace and might, or might not, be our allies in war?

Now as to Profits Tax, I have these objections. First, it will not, I think, lead to anything like the extra company savings the Chancellor estimated. The tax may check extra dividends. It will not, and for reasons both of justice and expediency, should not reduce dividends. Why should the equity holder, who like others now has a higher Income Tax and like others has the real value of his money reduced by higher prices, now sustain a further and special loss? The charge will, in fact, as directors take these considerations into account, come mainly out of company reserves so that we shall have a form of saving by transfer to the Treasury instead of saving in company reserves, with no net counter-inflationary result.

Secondly, I want to point out that companies cannot afford this depletion of their reserves. I would refer to Table 26 on page 44, to which the Financial Secretary has himself already referred. He has explained that the £700 million, there put against the expected appreciation in stock prices, should be only £600 million so far as companies are concerned. But even when we make that correction and consider the effect of what the Government are taking when the tax is fully operative, it brings the apparent surplus given by the £780 million of undistributed profits in that table to practically zero—and that is without taking into account any allowances anywhere for the very great cost not of paying more for materials but of replacing plant.

Mr. Jay

I am sorry to interrupt the right hon. Gentleman, but of course replacement of plant is provided for in the depreciation allowance which is deducted before profits are calculated for tax.

Sir A. Salter

I shall not go into details on that now, but I think if we look through the figures no hon. Member will doubt that the net result of all these proposals, even if the forecasts are exactly accurate, will bring many companies, I should have said most companies, into a position in which they will have to acquire extra capital. The very increase in taxation will itself make it extraordinarily difficult for them to raise that extra capital in the market and, above all, to raise it in the form of equity capital. Companies will be forced to the banks and their being forced to the banks will have two results: first of all, the credits given by the banks will be inflationary in character; and secondly, the obligation contracted by the company will be in the nature of a fixed charge, a fixed obligation instead of the variable return which comes when the capital structure is on an equity basis.

Mr. Woodburn (Clackmannan and East Stirlingshire)

Is not the right hon. Gentleman assuming that all this extra money can be spent. If the money cannot be spent and orders cannot be accepted for the extra plant, there is no possibility of it having an inflationary effect. If there is control over raw materials, as there is bound to be, quite clearly companies cannot accept orders for increased plant. If the labour and materials do not exist they cannot accept orders.

Sir A. Salter

I did not know that the Government proposed to put the whole of British industry under such a close and crippling pressure as the right hon. Gentleman suggests. I should have thought that companies would have been able to spend such limited resources as they have to spend or can acquire by borrowing, subject to some restrictions but not subject, as the right hon. Gentleman seems to imply, to complete prohibition.

Thirdly, this tax is very unfair between companies, discriminating as it does against those whose capital structure is mainly in the form of preference or ordinary shares as against debentures. I do not think that can be disputed.

I should like to ask the Committee to look broadly at the trends of these developments which have been so aggravated by the present tax proposals. There has been a long-term trend for many years to change the capital structure of our industries from equities to fixed charge loans. It has long been my view that that is a fatal development. It removes the cushion against trade fluctuations and forces premature bankruptcy during a temporary depression. This trend is greatly increased by the present increase of the Profits Tax.

It is time, too, I suggest, to recall the real rôle of the risk-bearing capital provided by the equity holder. It is he who bears the first shock when times are bad. Is he to have no reward when trade is better? Any progressive and advancing economy in a changing world needs to seize the opportunities of new enterprise when the odds are favourable but risk inevitable. What initiative and enterprise can we expect when the man who risks his money—not the rich man but the man below the Surtax level—has to say "Tails I lose what I lose, heads I gain a quarter of what I gain"? We cannot afford to discourage initiative wherever the odds are only two to one, or three to one, and only become attractive when they are four to one or more in our favour. That is why I am opposed to the increase in the Profits Tax.

If the Chancellor says that I must propose alternative new taxation, I say no. He is personally responsible for the conduct of our financial policy. I am criticising not only the tax-plan but the policy of the Chancellor which presents him with this Budget problem. It is enough for me to cite only one instance where he could have saved more by a single act than what he now claims will be the counter-inflationary effect of an increase in Profits Tax. Here I have to change what I intended to say because of the very interesting statement made by the Financial Secretary this afternoon.

I refer to what I still think is the very inadequate or regrettably delayed stockpiling policy of the present Government. I did not know at the time when I wrote to "The Times" in August of last year the letter which the Financial Secretary quoted, that any change in Government policy had been made. I should have expressed the same views in this House had I not been prevented from doing so by the abolition of the constituency which I had represented for 13 years. Being unable to speak here, I did the best I could to start a Press campaign. I was strongly supported by "The Times" in its first leader and later by the "Financial Times."

I did not realise then, of course, that the Financial Secretary and his colleagues were already considering this matter. I still think, even in the light of what he said, that they should not only have turned off some of the restraints against the purchase of raw materials but have positively stockpiled materials of military significance and importance at that time.

I have examined the prices in August of last year and the present prices according to the Board of Trade index. They could have saved I think by this action more than £30 million in the purchase of the raw materials which they are now trying to obtain, that is to say, rather more than the counter-inflationary effect—the exaggerated counter-inflationary effect—which the Chancellor has estimated for his increase in the Profits Tax. That of course is only one instance. I could have given other instances, but as the Chancellor asked us not to try to knock out one tax without proposing some alternative, I have given him one instance of a saving which would have relieved him of his need to impose this increase.

My last word is this. The Financial Secretary said that this Budget debate had been a very mild one. I think he was right in saying that. Why has it been a mild one? I think for this reason. We have, in the main, been looking at the way in which the Chancellor has solved the narrow Budget problem presented to him by the financial situation when he came to frame his tax plan. Within those limits, there is a great deal of good in his plan as well as something that I think is bad. Looking at it as a whole, if we assume and ignore all that preceded the formation of his tax plan, we should not have any very strong criticism to make.

But, of course, if we had really been devoting our minds not to this tax plan but to the financial situation resulting partly from external events but largely from the policies and actions of this Government and its predecessor since 1945, then indeed the tone of this debate would have been very different. For we believe, and we believe more after studying the papers which have now been put before us, that the situation of this country's economy is grave and menacing.

We believe too that all the indications are that if the present Administration and the present policies are continued, that situation will be more grave and more menacing in a year's time. We do not think that the present Government can deal with that situation. We think they are prevented from doing so by the policies to which they are committed, by their dearth of adequate ministerial talent and by their minute and precarious Parliamentary majority. It is time, we believe, that the country should now be given the chance it so ardently desires, and would most certainly seize, of replacing an Administration of misguided, exhausted and incompetent Ministers by another and a better one.

6.28 p.m.

Mr. Jenkins (Birmingham, Stechford)

Three years ago when I made my maiden speech, the right hon. Member for Ormskirk (Sir A. Salter) followed immediately after and said some very kind things about my speech. I confess I did not expect to find myself now almost in the position in relation to him which he then occupied in relation to me. I am afraid I shall not succeed in saying anything so felicitous of his speech as he said of mine; but I should say that on personal grounds we are all glad to welcome him back to this House, and also glad to hear again one of his serious contributions to our debates on economic affairs.

He is, of course, rather a prophet of gloom, but I am not sure that he is quite so gloomy as some of his hon. Friends—not quite so gloomy, perhaps, as the hon. Member for Chippenham (Mr. Eccles), and perhaps for that reason he has not been quite so invariably wrong in the past. Despite the last few minutes of his speech, he joined with his other right hon. and hon. Friends in launching no great frontal attack against the Budget as such. That was certainly true of the right hon. Member for Leeds, North (Mr. Peake) this afternoon and the right hon. Member for Aldershot (Mr. Lyttelton) yesterday.

I suppose the strongest criticism of the Budget which we have had so far came from the hon. Member for Chippenham when he spoke last night, and he rested his criticism of the Budget on what are for him familiar grounds. He thought it was an inflationary Budget, not so much because the size of the gap was wrongly estimated but because any Budget of a size of £4,000 million is, in his view, inevitably inflationary. I think that was the point of view which he advanced last night.

He went on to make an interesting point and became involved in a controversy with my hon. Friend the Member for Gloucestershire, South (Mr. Crosland). He was pointing out, in fact, that there was no direct connection at all between a large Budget and an inflationary situation with rising prices—no evidence at all for this from the rest of the world. He challenged that by getting up and saying, "You forget the famous statement of Colin Clark when he said"—in some article, and I cannot remember where at the moment—"that 25 per cent. or 27 per cent. of the national income going in taxation was the absolute upper limit, and that if we go beyond that the situation is necessarily inflationary."

That is the point—the situation was necessarily inflationary. I think that very interesting because I understand that one of the chief claims of the Conservative Party at the present time is that if they were in power they would hold the purchasing power of the £ and, indeed, possibly put value back into the £. Is it, then, the view of the hon. Member for Chippenham or of the Conservative Party that if they were in power they could carry through this re-armament programme without taking any more than 27 per cent. of the national income?

Mr. Eccles

I thank the hon. Gentleman for giving me a warning that he was going to make these remarks. The point of Colin Clark's article was not that there was any particular figure of the national income above which taxation became inflationary. I would not accept that. The point of what he said is that there is some figure—it would be different according to national habits, and we, obviously, are prepared to pay a higher rate of taxes than the French, and the figure would not be the same for France as for us—but there is some figure, and if taxation goes up above it, the people try to escape the burden by securing for themselves higher money incomes, and that is inflation.

Mr. Jenkins

Well, of course, that is an entirely different and much weaker point, because we can all make our own estimates of what that figure would be, and I would certainly say that, if we take the period after Sir Stafford Cripps' disinflationary Budgets and before we had sharply rising import prices, with our present level of taxation, we had achieved price stability in this country, and, therefore, the evidence so far is that in the present circumstances of this country the figure of 40 per cent. is perfectly all right.

Mr. Eccles

If the hon. Gentleman will only look, not at the cooked indices whose object is to show that there was price stability in this country, but at the claims for wages put in over the last three years, many of which were held up, he will find that the cost of various things people were buying was going up, and that that was one of the causes for the demand that wages should go up—in other words, that in the 24 months before the Korean War broke out the costs had risen. Does he deny that there was that period?

Mr. Jenkins

I certainly think that the cost of living was about stable, and that we in this country in that period came nearer to achieving a combination of full employment and stable prices than any other Government have ever done.

I think that hon. Gentlemen opposite, who have not launched any great criticism against this Budget, may have been reflecting the point of view in the country, where I think the Budget, on the whole, has been well received. I think that people have been surprised that the weight of the burden has been as small as it has been, and that they are greatly impressed by the ingenuity with which the Chancellor has managed to spread it.

After all, it is a very good thing to get away with a Budget in which the Chancellor has to allow for a total of nearly £700 million of additional expenditure because of defence while only raising £150 million in new taxes. And if one looks at the fall in the real standard of living which we may have to accept—as put forward in the Economic Survey, dealing, of course, with the calendar year and not the financial year—and allowing not only for the burden of defence but also for the burden of worsening terms of trade, there was an estimated fall in the standard of life of not more than £50 million or ½ per cent. of the national income. That is certainly a pretty light way of being able to bear this great new burden of defence.

The reason, of course, why we are able to carry this burden so well is the very great strength of the British economy at the present time, and that is a great tribute to the economic policies which the Government have pursued in the last six years. The Opposition have bitterly attacked those policies and have consistently urged us to turn our backs on the road we were pursuing; and they—particularly the right hon. Member for Woodford (Mr. Churchill) and the right hon. Member for Aldershot and the hon. Member for Chippenham too—have consistently urged us to turn our backs on the policies we were pursuing and to follow policies pursued by other European countries.

They said that if we did not we should be facing national bankruptcy and that we could never recover our economic strength and never close the dollar gap—unless the Government changed their policy, or without a complete political change. They ought to be very glad that we did not take their advice, because, after all, they support this re-armament programme and they have even said they want it to be bigger and swifter; but there is certainly no country in Western Europe which pursued the policies that they urged upon us—which they wanted us to follow—which is sustaining or could sustain, without dollar aid and without a crushing effect on its standard of living, anything like the effort we are making at the present time.

What are the factors in the situation which make it possible for us to get away with such a comparatively small extra burden because of re-armament? There were two salient features in the economic position at the end of last year. The first was that production was nearly 50 per cent. above pre-war in the last quarter and that our balance of payments was in a healthier condition than it had been for decades past—in a healthier condition than it had been since 1913; and it is because of those factors that we are able to get away with this comparatively light burden of new taxation and that the Chancellor is able to produce a non-inflationary Budget with only £150 million in new taxation instead of, perhaps, £450 million. If it were not for these factors, he could not go for that smaller surplus which he is going for this year as compared with last year.

I see that some newspapers yesterday said—and I heard something of the same thing in the speech of the right hon. Member for Leeds, North today—that the Chancellor is turning his back on his predecessor's policy of an overall surplus. Now, that seems to me to be a most inept comment on the Budget. It suggests that a Budget surplus was a personal idiosyncrasy of Sir Stafford Cripps. As I understand it, there has been no change in policy whatsoever in my right hon. Friend's approach to this problem of the Budget surplus, and it is the same as that of Sir Stafford Cripps. The Budget surplus has been fixed at a level to balance the capital account and to enable total savings plus a Budget surplus to be sufficient to pay for the total investment. That is what has been done in the past, and is being done now. There has been no change here whatsoever, except that in all these salient features in our economy the situation in this respect, but certainly not in other respects, has been somewhat easier for my right hon. Friend.

The overall surplus in our balance of payments of £229 million has been to him a real substitute for an easily tappable reserve of taxable capacity, and by running it down, as it is certainly quite right to do in present circumstances, he has been able to reduce the Budget surplus by that amount. And in the same way, because there was a high level of production at the end of last year there was a reserve of greater corporate savings, particularly in the form of tax reserves, which helped to reduce the problem of the Budget surplus and enabled the Chancellor to get away with a smaller surplus and, therefore, with smaller increases in taxation.

I fully agree with some hon. Members opposite that this Budget must be seen against a background of rising prices. Prices are certainly going up. I think there is general agreement that the main cause of those rising prices comes from abroad in the sense that it comes in the form of higher import prices. There is clearly some dispute whether or not that absolves the Government from responsibility for these higher prices, and hon. and right hon. Gentlemen opposite are increasingly inclined to say that the Government are in no way absolved from this responsibility because these higher import prices stem directly from devaluation, which has played a very large part in it. I think it is important that for a moment we should try to examine that charge.

Of course, when devaluation came about in September, 1949, it certainly turned the terms of trade against us. That was the point of devaluation—to make our exports cheaper in order that we might sell them more easily in certain countries. But it is very important to remember that the increase in the prices of our imports which followed directly from devaluation was, it appears, not nearly as big as that which has since followed from other causes. "The Times" in its City column some time ago, in a quotation which I remember very well, said that in its view the effects of devaluation had pretty well worked themselves out by the late spring of 1950; not worked themselves out in the terms of goods in the shops but worked themselves out in the terms of increasing import prices.

Between devaluation and the late spring of 1950—May, 1950—import prices rose by 15 points; but since May, 1950, up to February of this year—which I think is the last month for which we have figures—our import prices have risen, not by 15 points but by another 28 points: by nearly twice as much as that which it seemed we could attribute directly to devaluation. Of course, even during the period before the late spring of 1950 the effects of the developing American boom were intertwined with those of devaluation.

To put the point in another way, if the main cause of the higher prices we now have to pay for our imports were devaluation, then the United States ought to have benefited greatly from this in having themselves to pay rather lower prices. After all, what we did was to devalue against the dollar, against the United States, and if as a result of that we were sustaining a great loss, the beneficiary should have been the United States. Certainly there would have been an effect on prices in other countries, but the most direct and biggest effect should have been in our relations with the United States.

In fact, the United States have not benefited. The terms of trade since devaluation have turned not only against this country but also against the United States. That had happened in the first year after devaluation when their import prices went up by 7 per cent. and their export prices by only 5 per cent. Since then that tendency has gone on much more strongly, and that gap has widened much more. I really cannot think of any more striking proof than this of the fact that rising import prices have far more to do with the bidding up of world markets and with the shortages of various commodities than with devaluation. That factor is of much greater importance than the other.

There is another point which is to some extent related to the last, which is also rather a favourite point of hon. Gentlemen opposite, and that is the suggestion that all the improvement in our balance of payments in recent months and years has been due to a fortuitous increase in the prices of certain sterling area commodities, which has nothing at all to do with the goodness or badness of the policy of the British Government. That is another charge which it is important to consider for a moment, because it is certainly very widely used by hon. Gentlemen opposite.

The first thing to be said about it is that the increases in the prices of sterling area commodities have absolutely nothing at all to do with the improved foreign balance of the United Kingdom, and that has certainly very greatly improved in recent years. Yet, even so far as the sterling and dollar reserves of the sterling area are concerned, nobody who studied the White Paper on the balance of payments at all carefully could possibly believe that the increase in the prices of sterling area commodities was the dominant feature. Its effect has been very much smaller than a number of other factors.

I want to go from that to one or two points on the Budget proposals themselves. I imagine that when we come to the Finance Bill, the most controversial item will be the Profits Tax. The right hon. Member for Ormskirk certainly devoted a good deal of time to that this afternoon. There are several things to be said about this increased Profits Tax. One of the things to be said is that it is, I think, inevitable that unless the Chancellor had in his Budget done something about profits along these lines, one of the features of the next year would have been a shift in the proportion of the national income going to wages and that going to profits. There would have been less for wages and more for profits. I would have said that was an absolutely intolerable accompaniment to a great re-armament programme and the imposition of over-all sacrifices at the present time.

This increase of the Profits Tax must also be seen against the background of the very sharp increases in dividends which, in contrast with the previous period, have been taking place recently. I think the figure was 14 per cent. up in March over the same month last year. That is a very sharp increase indeed, and I do not think hon. and right hon. Gentlemen opposite can come along here and say that a thing of outstanding importance which we must respect at all costs are the free reserves of companies, when the companies themselves are depleting those free reserves by paying out additional dividends on this scale. After all, if reserves are so important, then it is the duty, even more of the directors of the companies than of the Chancellor, to safeguard these reserves. If we are in a period when it is very difficult to put enough money to reserve—which I do not believe—that is surely the last moment for them to engage in these dividend increases in which they have recently been engaging.

Of course, the main case, so far as there is a case, of the Opposition against this Budget is the old familiar one which we have had for a number of years now, and that is the general cry for the reduction of Government expenditure. We have not heard much in detail; we do not expect it; but I see that the "Financial Times," representing an important body of City opinion which is treated with respect, certainly on the benches opposite, was yesterday bewailing the absence of any great attack upon transfer payments, which it described as wasteful and illogical. Obviously there is a great body of opinion, which has not perhaps come out very clearly in this debate, behind the Conservative Party which regards the fact that we have to shoulder these new burdens of re-armament as a reason for making at least a substantial retreat from the welfare State. They say it has now become a luxury which we cannot in present circumstances afford. I suggest that to take up such a point of view at the present time is completely to misunderstand the nature of the problems with which we are faced.

The weight of this re-armament programme in over-all terms, because of the great strength of the British economy is not, I believe, at all crippling. It is the distributive effects which are most serious, and its effects upon some people may be very heavy indeed. After all, we are in a position in which we have these rising prices imported from abroad, which must be reflected in the prices charged for goods in the shops. Those have to be paid equally by us all, by those who get wage increases and by those who do not. At the same time, we have had a run of wage increases recently, and that may go on. That affects some people but not all. As a result of the switch-over to re-armament, it may be that we can be discriminatory between increases which are necessary to attract labour but which would not be justified on grounds of social justice. We have all this and a number of other factors tending to produce a great distributive upheaval and worsening the position of some people in relation to others.

I think that the only way in which the Government can attempt to counteract the affect of these forces is by seeing that the welfare State is used at least as much as it has been in the past. From that point of view, the Budget is not a bad Budget. It is a small net gain for the welfare State—the increase in pensions more than balances other changes, and that, in a Budget where the Chancellor of the Exchequer has to find £690 million in total for defence, is not bad going. It is a very different Budget from that which we would have had from a Tory Government.

Therefore, in conclusion, I think that this is a good Budget; I think that it is a Budget which faces the problems, which does close the inflationary gap and does distribute the burden pretty fairly. Certainly if it enables us to face our economic problems this year as well as we faced those problems last year, it will be a very good Budget indeed. I believe that it will do so. It does not achieve all the Socialist objectives, and it does not give us the final fiscal social aims. There is still the great problem of the inequality in the distribution of property which, I believe, a Socialist Chancellor of the Exchequer has to keep firmly before his eyes. I know that my right hon. Friend had a lot of other things to do and to think about this year and, provided he does not forget that problem altogether, I think that he has done very well in this Budget.

6.52 p.m.

Captain Waterhouse (Leicester, South-East)

I want to return to a point which was referred to by the Financial Secretary when he opened our discussion this afternoon. It was a point which was made by the Chancellor of the Exchequer in his speech on the Budget, and which he repeated in his broadcast to the country. He challenged us on this side of the Committee to say where economies could be made. The remarks which he made in the Budget on this point have already been quoted by the right hon. Member for Leeds, North (Mr. Peake). He said that "if anyone, even in this time of rising costs, could show where Government expenditure could be cut, he should say so, and say how and where." I wonder why he put in the word "even" in this time of rising costs. Is it not true that although it may be more difficult to get economies in times of rising costs, it is a great deal more necessary? It certainly is in the ordinary economy of everyday life, and I believe that it is in the economy of the State, too.

As costs rise, so a greater effort should be made to cut out those factors which are, in fact, inflationary. Money taken from the taxpayer and paid out in wages or munitions of war is completely inflationary as compared with money taken from the taxpayer for redemption of debt. We suggest that additional money need not have been taken from the taxpayer this year at all, or, at least, in nothing like the quantity in which it has been taken.

I suggest that economies may be roughly divided under three headings: first, administrative economies; second, modifications in details—cutting out the frills; and, third, a cut in services, which normally means a change in policy. I am going to leave out the third category completely. I am bound to say that I do not agree with some of the expenditure of the right hon. Gentleman and his predecessors, but this afternoon I want to deal entirely with expenditure on the frills and on administration. Quite clearly, when dealing with the administration of somebody else's business or of a business as large as that of the country, one cannot say with precision that we are going to sack this man or we are going to stop that man. What one can undertake is an assessment of the economies in the various Departments.

If the Committee will allow me to digress for a moment I would say that I had precisely this job to do in civil life. It is a most unpleasant one. I had to save thousands and the right hon. Gentleman has to save millions. I had to go to the executive of a fairly large business and say to them that a very considerable sum of money had to be saved each year. They told me that they had been through every detail and it was impossible to save either a wage or a salary. I had to say to them, "If what you say is really true, then I have to warn you that in a couple of years there will be neither wages nor salaries paid by this firm." That is what one has to do in industry and in commerce. In fact, we did achieve economy and we got round that corner.

That is the attitude which I suggest that the right hon. Gentleman should adopt to this particular problem. I preface what I am going to say by telling him that the figures which I shall give—and I am afraid that there are a great many—are taken from the Estimates, and to the best of my ability I believe them to be fair, honest and accurate, although they have not been checked by an accountant. The suggestions I am making are my own and they were in no way made in consultation with my right hon. Friends, and, therefore, they do not tie my party. I believe that they are practicable, and I know that they are indicative of economies that can and should be made.

Let me, before I come to the main part of what I want to say, deal with one small but important point. That is the growth of grants and of grants-in-aid—expenditure which the Treasury have always said they decry and which ought to be minimised, which are given to some organisations outside the control of this House. Once the money is voted, Parliament loses control of it altogether; they can cut off next year's grant, but that is the best that they can do. The object of this in the old days, was, of course, to encourage private benevolence. The Treasury gave out a few thousand pounds here and there to great institutions, great art galleries and the rest, in order to encourage other people to pour their money into the same coffers. These grants are getting so large that they are inevitably drying up this private benevolence, and the time must come when the Treasury have to take a decision, either that an object in which we believe is to die altogether, or that the nation has to shoulder the whole of the cost.

Let me give instances of the way these grants have gone up. In 1939, the Treasury made 19 grants of this sort to a total of £264,000. Today they are making 33 such grants and paying out £3,870,000. In 1939, the Board of Trade did not make a single grant. It is true that later they absorbed part of D.O.T. who were making one or two grants but they are now paying out £1¼ million. The Minister of Agriculture is paying out something like £5 million in grants.

Now I come to the two whackers—the B.B.C., with its £17 million, and the grant to the universities and colleges which today is £23 million and before the war was only £2½ million. [HON. MEMBERS: "Hear, hear."] Hon. Members may cheer, but do not cheer expenditure; cheer results. That is the attitude which we are taking. We want to see the results and we will cheer the results, but merely to take the line which was taken by the hon. Member for Gloucestershire, South (Mr. Crosland), who was encouraged because we have spent £30 million more this year on the social services, is, I am sure, something to which on reflection hon. Members opposite as a whole will not subscribe.

Mr. Baird (Wolverhampton, North-East) rose

Captain Waterhouse

I have a great deal to say and I am not going to give way. If hon. Members opposite will listen to all I have to say, they will have had enough of it by the time I sit down.

Finally, there is the British Council with its £3 million. And so we have £50 million or £60 million of these grants which, once voted, are entirely outside the control of Parliament. I shall be referring later to the B.B.C. and to the British Council. I suggest that if the Chancellor would go through these lists he might well find a fruitful source of economy of perhaps £2 million or £3 million among these grants of £50 million or £60 million. I do not believe that a cut of 5 per cent. on these grants is at all impossible.

I now wish to come to the main theme of my speech. Again, I apologise for the number of figures I am going to give. I have been into the matter with a great deal of care, and the only way I can meet the challenge of the right hon. Gentleman is by giving these figures and giving them with precision. I base my figures on the 1950 Estimates, for the very good reason that when I started these calculations many of the 1951 Estimates were not in the Vote Office, and I am comparing them to a large extent with the Estimates of 1939, the last year before the war.

There are three figures on every Vote which one could take. I could take the net expenditure after deducting the appropriations, or the gross cash expenditure, or the third figure, which is the total expenditure, and brings in not only the cash expenditure but also the expenditure by other Departments on behalf of the Department in question. In giving these figures, I can promise the Committee that to the best of my ability, I am comparing like with like. I am not comparing total expenditure with net expenditure, or cheating in any other way.

Let us look at the right hon. Gentleman's own Department, the Treasury. He has an Estimate now of £3¼ million against an Estimate in 1939 of £416,000. The Treasury and subordinate Departments are therefore setting the example to the rest of the community of spending eight times as much as was spent before the war. Their salaries have gone up from £202,000 to £984,000. The number of people has gone up from 356 to 1,414. Here is an interesting thing, because it occurs throughout the whole investigation—travel. These civil servants are the most restless body of people I have ever come across. The amount of travelling they do is enormous. Even in the right hon. Gentleman's own Department travelling has gone up from the very reasonable sum of £1,400 to the very large sum of £50,000. I think that is a great deal too much. There are other little things, such as special inquiries, which used to cost £1,500 and now cost £30,000.

Here is another example of the whole working of the system. The Cabinet Office is costing £176,000 and employs 322 men and women. Before the war the Cabinet Office was not merely the Cabinet Office but also had the Committee of Imperial Defence and the Supply Board, which was really the Ministry of Supply of those days, and the Economic Advisory Council. All these employed 211 instead of the 322 that are now in the Cabinet Office alone. I am giving these small figures as well as the large.

We are spending £92,000 and employing 126 clever people on making war histories. Is that really compatible with the sort of economies the right hon. Gentleman pretends the Government are exercising? Then there is the University Grants Committee. It is true they are spending a great deal more money, but there are no more universities and very few more colleges. The University Grants Committee has gone up from five to 24 in its staff. The amount is very small, but—

Mr. Janner (Leicester, North-West) rose

Captain Waterhouse

No doubt if the Financial Secretary wants to ask any questions he will do so.

Mr. Jay

The right hon. and gallant Gentleman realises, of course, that there are a great many more students at the universities than in 1939.

Captain Waterhouse

Of course there are, but these are the people who pour out the money in big blocks, and the Financial Secretary well knows it, not to individual students. Then there is Statute Law Revision.

Mr. Janner

Will the right hon. Gentleman allow me?

Captain Waterhouse

No, I will not. Statute Law Revision used to have four people, but now it has 34. It used to cost £3,000, but now it costs £18,000. It is quite a pleasant change to turn to Scotland. The right hon. Gentleman's office in Scotland used to have 26 people. It now has 38, an increase of only 50 per cent., which we can stand. What we cannot stand is this vast increase in a Department which ought to be setting a good example.

I turn now to the Civil Service Commissioners, which I understand is a body of people which selects the civil servants. They have a very difficult task. They are the first official contact a civil servant has with a Department, and therefore the way they conduct their business will have some influence on the way in which he will conduct his. These are most remarkable figures, and I hope that the right hon. Gentleman if he does not know them, is prepared for a shock. This Department cost £14,835 net in 1939, and it is costing £506,000 today—36 times as much. Let us have a look at the staff. The total staff is now 786 as against 161 before the war. The senior staff used to be three, a First Commissioner, an Assistant Commissioner, and Secretary and the Assistant Commissioner and Director of Examinations. To these three have been added a further 10, all with salaries of about £1,000 a year. These are new officers. Why are they necessary? Has anyone been into these figures to make sure that they are necessary?

I cannot believe that in order to choose civil servants, although they have to choose twice as many, it is necessary to have four times as many people. I am perfectly certain that on this Department we could get a saving of £250,000. I forgot to tell the right hon. Gentleman that I put his Department down as being worth a saving of £500,000. Another matter I mention, in passing, is Government hospitality, a subject that is often mentioned in the House. This has gone up from £12,000 to £95,000. I venture to say that our guests go away no more satisfied with their hospitality than they did before the war. That might well be cut by half.

I now turn to a much larger matter, the Foreign Office. It is true that it is not very easy to get a comparison. There have been a good many changes in accounting, but I have done my best to get an accurate comparison. I have taken the first four Votes in 1939 together—the Foreign Office, Diplomatic and Consular Services, including the British Council, and the League of Nations. In that year they had a total estimate of just over £3 million. To get a fair comparison we have to add the section of D.O.T. that was moved into them in recent years, which gives a total of £3,262,000. Today these same Departments doing the same job are spending, not £3¼ million but £34½ million, which is a very material increase. It is perfectly true—and I want to make this quite clear—that there are three large grants included in that, one to Jordan, one to Palestine and one to Burma, which together amount to £10 million. Do not let us think there is anything in connection with the Germans in this, because later on in the Estimates there is a special Vote for Germany of another £8,600,000. The Foreign Office have got the spending of something like £42 million. I suggest that much of this is due to Government policy, or to the failure of Government policy.

Let us now compare the staffs. In 1939 the Foreign Office employed 1,360; now it is employing 11,906. Here, again, they are a restless lot. They will not keep still. Today there are 74 King's Messengers compared with 39 before the war. Why did the Treasury allow that? There cannot be any more messages to carry; indeed, there must be less. Then I invite the hon. Gentleman's attention to this figure, which is staggering. The King's Messengers for travelling spent £11,000 before the war; today the same gentlemen are spending £280,000 on their travelling. Has that money been properly spent? Are these men carrying out their true functions? There are twice as many Messengers and travelling costs are 23 times as much as before the war.

The next figure I want to give I give with some hesitation, because I am not absolutely certain that I have got it exact. It is an extremely difficult one to compute. We were reminded the other day that our internal Post Office expenses are no longer charged against the Government Departments, but the external expenses for postage, carriage, telegrams and telephones are charged. Unless I am wrong in my calculation—and on this I am not absolutely sure—the comparative figures are £152,000 for 1939 against £970,000 today. That is a figure which I suggest might be checked up.

Now we come to the British Council. The British Council in 1939 attracted a Grant-in-Aid of £236,000. In 1950 the amount was £3,600,000 less receipts, which gave a net expenditure of £3,244,000. It is true that there has been a cut of about half a million pounds since then, and my figure includes £1,007,000 paid by the Colonial and Dominion offices for services rendered abroad by the B.B.C. They are spending 13 times as much as they did before the war, and they are spending £615,000 in rent, rates, fuel and office cleaning. That does not spread much culture in the world. It is very hard to see how British ideas are spread about the world by a vast expenditure of that sort.

Look at their headquarters. The general charges at headquarters amount to £221,000 and, on personnel and salaries, to £224,000. The total spent on the headquarters of the British Council comes to £445,000, which is interesting compared with the £514,000 which the whole Foreign Office cost before the war. That is the sort of comparison I want to drive home to the Financial Secretary, and I suggest that the British Council might quite easily save half their expenditure and make none of us any the worse for it.

Then there are the prisons. There is a big jump here, and there must be some reason for it. The cost for the prisons has gone up from £2,195,000 to £6,650,000. Is that money really necessary? I read the other day of the case of a woman who had only a fortnight to go of the remainder of her sentence and she was due then to leave jail. She asked to go before the judge, which was granted. He acceded to her request and gave her permission to stay in jail for an extra month because she said she could not get as good a lodging outside. That is in our welfare State. She was better housed, better clothed and better fed in prison. Let us put down a saving on prisons of £1 million.

I am coming to another large item, the Colonial Office. Let us take the Colonial Office headquarters to start with. In 1939 the expenditure there was £280,000, and now the expenditure is £1,478,000.

Mr. Pickthorn (Carlton)


Captain Waterhouse

We have not come to them yet. The staff at headquarters in 1939 was 465; today it is 1,289. Travelling costs amounted to £3,100, whereas today they are £51,875. Why have the travelling costs at headquarters leaped up in that sort of way? I want to draw attention to a small point at headquarters, and that is the information officers. The Colonial Office were always reasonably well informed. Now they have got a special little body of nine highly-powered officers who are getting between them £7,910, in addition to there being £217,000 worth of services from the Central Office of Information. Therefore, the total information services are about £224,900 today, compared with the salaries of a few men in the days before the war.

We come now to the next 1939 Vote. The total Estimates for the Colonies and the Dependencies—the Colonial Office and Colonial and Middle Eastern Services and the Colonial Development Fund for that year were £5½ million. Today for this same expenditure they are £41¼ million, or eight times as large. There is nobody in this Committee who will grudge proper expenditure on the Colonies. We on this side have always held that they should be maintained and encouraged, not only with our voices but with our sons and relatives in the Colonies. We therefore do not want any cutting down of really valuable expenditure on the Colonies, but can anybody pretend that this vast sum of money is being properly spent? My hon. Friend the Member for Carlton (Mr. Pickthorn), in his usual quick way, mentioned a moment ago the subject of groundnuts. I thought of that myself, and also of Gambia, the muddle in Malaya, and the riots in the West Indies and in West Africa and I am driven to the conclusion by all these things that what is going on in the Colonies does not justify this vast expenditure.

Are we quite sure that the money spent on Colonial Development is being well spent? Are we quite sure that we were wise in putting a journalist from this House, Mr. Garro-Jones, however sound his politics might be, in charge of that fund? Are we quite sure that we were right in our general approach to this expenditure? Surely we can be prepared to spend money on projects in the Colonies which are obviously desirable, we can look out for desirable projects, but we are wrong in advertising for any place in which we can spend money in order that we can say that the Colonies are being developed. On that Vote we can have a saving of £5 million, without doing any harm to any one person in any one Colony, or in any one Dependency.

Now take the Ministry of Education. It cost £59 million in 1939, £206 million in 1950, and it is to cost £216 million in the coming year. The last increase is due in a large measure to the Burnham scale. Nobody will say that the Burnham scale is too high. It is not, but there are other directions in which we have wasted money in education, and the Minister of Education knows it. He has already done some cutting down, with building and with the transport of children. He has found some methods of economy, but there are many more methods which he could adopt. I will give him one. I am putting this stuff over as quickly as I can because I have so much to say.

Mr. Baird

On a point of order. When the debate started we were asked from the Chair to limit our speeches as much as possible. The debate has now gone on for three and a half hours, and during that time we have listened for two and half hours to three speeches from the Opposition. I would appeal to you, Mr. McLeavy, that there are many other hon. Members who want to speak.

An Hon. Member

Hon. Members asked for details.

The Temporary Chairman (Mr. McLeavy)

The hon. Gentleman has not raised a point of order.

Captain Waterhouse

I apologise to the Committee for the length of what I have to say, but I propose to say what I have in mind, as I have the right to do. I was calling attention to certain points for the benefit of the Minister of Education. There are the headquarters administration staff. They have grown in number from 1,000 in 1939 to 2,004 now. The inspectors were 357 in 1939 and they have gone up to 685 today. Extravagance at the top goes right through the whole system.

One economy which I would suggest to the right hon. Gentleman is in an ex- penditure which falls entirely upon him, of £22 million for school meals. For some reason, I do not know why or on what basis it is, the whole charge for school meals has been accepted by the central Government. Therefore the local authorities have no incentive, or virtually none, towards economy at all. I think I am right in saying that this service will cost £22 million. Hon. Members who have seen this service working—I have seen it at work both in city and country districts—will know that hundreds of thousands of children get these meals, at the reduced price of about one-third the actual cost, who do not need them at all, and whose parents are both able and willing to provide them with meals but are not such fools as to do it when they are invited to take the meals from the schools. [An HON. MEMBER: "Would you abolish them?"] No, of course I would not, abolish them.

Let us not cut out the meals from one child who would not otherwise get them—[An HON. MEMBER: "Means test."]—but on this matter as on others there should be a needs test. We could, I believe, save £15 million on school meals alone without doing any real harm to any child. [An HON. MEMBER: "Means test."] I am not going to let that pass. Do not stir up the question of the means test. The whole public assistance system is based on the means test. The whole of our superannuation is based on the means test. Do not let hon. Gentlemen have the idea that they do not use a means test or a needs test.

A further economy which is perfectly practicable would be on school buildings. In one way or another I suggest that £20 million, or 10 per cent. of the expenditure, could be saved, on the education service including meals, without worsening in any degree the education that any children will have received by the time they leave school. By way of pleasant relief I congratulate the right hon. Gentleman on the fact that the Victoria and Albert Museum, the Science Museum and the British Museum have not materially increased their Votes. It is the only section on which I have been able to congratulate him.

The next offender I will take is a very bad one, the B.B.C. Before the war the B.B.C. gave us a reasonably suitable service, at a cost of £3,700,000. Today it is costing £17,285,000, which is—

Mr. Jay

The right hon. and gallant Gentleman is not suggesting that that money is a charge on the Budget?

Captain Waterhouse

I am suggesting that it is a direct charge on the taxpayer. It is collected by the Post Office, but lots of people get a licence and never listen to the B.B.C. at all. It is a licence for having a receiver in the house, and would have to be paid if there were no B.B.C. in existence. The whole of the money collected by licences has now been handed over to the B.B.C. Only a few years ago the proportion handed to them was 50 per cent., then it was 60 per cent., and then 75 per cent. Now it has got up to the whole lot. I suggest that the B.B.C. could give us a perfectly good service, and on a scale which we could far better afford, if we cut them by at least £3 million out of the £17 million.

Now I come to a big block of social services in Class V, including health, housing, labour and insurance. It is obviously not possible to make any useful comparison with 1939 in this instance, but one might have two figures in mind, of £172 million as against £846 million. There has been a substantial rearrangement of Votes. The main criticisms in this direction is in respect of the free Health Service. A "free Health Service" is just as bad a thing to talk about as was Mr. Lloyd George's old cry "Nine-pence for fourpence," when he was trying to persuade people that if they came into his Insurance Fund they would get nine-pence for every fourpence that they subscribed. The right hon. Gentleman and his Friends are trying to persuade the people that they get free services, although they pay 9s. 1d. per week for them and a vast amount in taxation. The Health Service is not free at all, but is paid for very dearly through the taxes and by a proportion of this heavy weekly contribution.

I suggest that the Chancellor has taken the right method in the two charges which he is proposing to put on. There is a third charge, which was suggested some little time ago, on medicines, and which was going to produce £14 million. That proposal has been dropped, and I see in the evening papers—which are not always wrong—that yesterday morning in a certain place in the precincts of the Palace of Westminster consideration was given to this matter, and that it was suggested that it might be possible to find ways and means of getting by economies the sum that the right hon. Gentleman wants without putting on those two charges. We on this side of the Committee entirely agree with that. We believe that ways and means of economy can be found and should be found as well as—not instead of—these reductions.

If we can get an economy by an administrative act, is it not to the advantage of everyone who benefits from the National Health Service that that administrative act should be made? If there is to be a charge for teeth and glasses, is it not right and proper that there should be some charge for hearing aids. This is my personal view, and I go further than that. It would not be at all a bad thing if a small charge were made for consultations. I know of consulting rooms which are crowded out to such an extent each morning that the doctor cannot conceivably see all his patients and of hospitals with out-patient rooms crowded out. On the other hand, I know that there are crying needs for new hospitals to be built. Money is being wasted in many directions in this Service and it could be far better spent in other directions.

Mr. I. O. Thomas

Do the patients go there for pleasure?

Captain Waterhouse

I suggest that a further saving of about £20 million might be made on this service, and I have indicated the ways in which it could be done.

In 1939 the Ministry of Labour cost just under £8 million; today it costs £22 million. A curious thing is that the National Assistance Board today costs £59 million as against £44 million before the war and yet these are times of the welfare State and full employment. Why is this greatly increased expenditure?

Mr. I. O. Thomas

More generous scales of relief.

Captain Waterhouse

I believe there is a real chance of material and administrative economy in this regard. I put down the Ministry of Labour for a cut of 10 per cent., which is £2,250,000. We have a new Ministry which started life not long ago as the Ministry of Town and Country Planning and is now the Ministry of Local Government and Planning. It is spending £1,362,000, with £45,000 on travelling allowances. I should close down that Ministry altogether. I should move housing to where it ought naturally to have gone when it came away from the Minister of Health, and that is to the Office of Works. I should give certain other Departments the small remaining duties which ought to be left to Town and Country Planning. That would provide another substantial saving. I cannot expect the hon. Gentleman opposite to accept this because it is really a change of policy.

I now come to one of the main expenditures of the whole lot, that of the Board of Trade, which my right hon. Friend and I both know so well. It has become a vast Department. It has had many new responsibilities forced upon it. The expenditure in 1939 was just under £1 million, allowing for the sum of £600,000 from the closing down of D.O.T., but today the expenditure is just over £9 million. There has been some decrease compared with the previous Vote but it is not really a decrease in the direction I want because to a very large extent it is a paper cut. Half a million pounds has been taken off for what was never spent on cotton and £400,000 for Far East chattels and things of that sort. Almost all this is really a book-keeping entry and does not count.

Here are the main points in the Board of Trade today. We have a vast Industries and Manufactures Department employing 1,098 people and a Distribution of Industry and Regional Division employing 94 at headquarters and 863 in the regions. If the whole of that section were cut down to its pre-war size, industry throughout the country would breathe a sigh of relief. It was started for a most useful purpose during the war when there were such shortages of raw materials and labour that we had to concentrate plant and buildings for various essential purposes. Most of those purposes have now ceased to exist and we have outgrown the Department. If the right hon. Gentleman would do away with it, his action would be greeted with relief.

As to the adjusted figure of staff—I have added in as best I can the staff which came from D.O.T. and I have deducted from the other side the export licences and factory and storage space sections to try to get as fair a balance as I can—there has been a remarkable change. In 1944 there were 4,275 men and women on the Board of Trade staff and today there are 7,710. Seven people are working there now for every four at the end of the war when our difficulties were at their height. If the hon. Gentleman thinks my figures are wrong, he may challenge them, but I can assure him that if he goes into them as carefully as I have done he will find that they are substantially right, though maybe not to a dozen or a score. They are fair and comparable figures.

These men in the Board of Trade are harming us in another way. They are working like mad preparing forms, and all these forms have to be filled in by trade and industry in the country. For every man in the Board of Trade I should think there are three or four in the counting houses in the country doing work put on them by the Board of Trade. The whole of the system ought to be simplified, and at least £2 million or £3 million a year would then be saved on the Board of Trade Vote.

Another big Vote in this time of the welfare State and full employment is that for services in development areas. Why have we to pay £6,961,000 to buy land and erect buildings and make loans to industrial estate companies in a time of full employment? Is that necessary any longer? I am sure that it is not really necessary, but I suppose the machine has got going and we do not want to stop it altogether. I agree, but I am certain that we could make a saving of £2 million here.

Mr. Wilkes (Newcastle-upon-Tyne, Central)

Does the right hon. and gallant Gentleman appreciate that in the former Distressed Areas which are now the Development Areas, unemployment, although very much less than it was before the war, is still much in excess of the unemployment figures for other parts of the country? Does he really suggest that these services to attract new industries and industrialists to the former Distressed Areas should in any way be cut down?

Captain Waterhouse

I have just said that I think they should be cut. I think they might well be cut by one-third and I will tell the hon. Member why in a few words. Because we see now a quite substantial, natural movement to these areas. We saw the other day, for instance, that Paton and Baldwins, one of the biggest spinners in the country, have set up a factory in one of these areas without assistance. This can be done. Happily, these areas have been cured of their disease to a large extent. They are no longer depressed areas. [HON. MEMBERS: "Hear, hear."] Do not let hon. Members opposite cheer in that self-satisfied way. Long before their party was in power this matter was being tackled, and effectively tackled—[HON. MEMBERS: "Nonsense."]—by a Conservative Government. [HON. MEMBERS: "You created it."]

I ask the Committee now to consider the Agriculture and Fisheries Vote, which has grown from £3¾ million in 1939, with a staff of 2,000, to £16½ million with a staff of 8,000. And a host of new departments have been formed. I know that hon. Members opposite, with their love of agriculture, will be interested to know how these staffs are employed. There are 1,439 photographers, typists, clerks and office keepers; 447 economists and statisticians; 157 on crops and feeding-stuffs, 570 on livestock, 132 on machinery, 1,029 on animal health, 1,927 on educational and advisory services and, finally, 434 on infestation control. They are all extremely useful no doubt, but does anybody pretend that agriculture today would not thrive well without this horde? Some of them have changed names. The infestation gentlemen used to be called pests officers. Today they are called rodents. I do not mind which name is used, it is equally applicable in any case. I suggest that today if we can hold prices the farmers will produce the stuff. If we can give the farmers a fair price, or even if we cannot, they do not want this host of officials behind them, and the right hon. Gentleman might consider an economy of £2 million in this Department.

I do not want too grossly to weary the Committee, therefore I will go even quicker over one or two other Departments. [HON. MEMBERS: "Go on!"] Here is one that will sting a bit I think: The Scientific and Industrial Research Department which has gone up from £740,000 to £5,370,000. There are only 274 employed in new branches, all the rest are in the old branches swollen. There is a building section. What have we got the Office of Works for? We are building far fewer houses than before the war. The building section is now employing 739 against 135.

Mr. Mulley (Sheffield, Park)

Building research section.

Captain Waterhouse

What are they researching into? And what is the Office of Works doing with their vast expenditure? Food investigation has gone up from 83 to 222. What is the Ministry of Food doing? Fuel has gone up from 143 to 293. What is the Ministry of Fuel doing? These are all additional. And roads; here is one direction in which there has been no increased expenditure. Why is it, then, that we have so many people researching into roads? There were 159. Now there are three times as many, for they have gone up to 435. Water—10 before the war, 117 now.

I met a scientist a little time ago who said that he voted for the party of hon. Gentlemen opposite at the last election because before the war science was starving and he thought it ought to have some money poured into it. Now he says he will vote that way no more because he sees all about him inefficiency, extravagance and waste. That is what we see, and that is why I am speaking here now. I suggest there should be a cut of £2½ million in this direction.

The Office of Works has gone up from £1,681,000 to £10,300,000—a gross expenditure of five times what it was and a net of 13 times what it was, and a staff three and a half times as large as it was. I suggest we could quite well have an economy of £2 million there. [HON. MEMBERS: "How?"] Public buildings-pre-war expenditure, was £3,700,000; today it is £43 million. New works have gone up from £1 million to £10 million. And here is something for hon. Members opposite to take back to tell their wives: fuel, gas and electricity—

Mr. Daines

The right hon. and gallant Gentleman can talk!

Captain Waterhouse

Fuel, gas and electricity—

Mr. Daines


Captain Waterhouse

—things that, without any impertinence from hon. Members opposite, are scarce enough in this country today. [Laughter.] And they are not matters that hon. Gentlemen opposite have any right or any need to joke about. One finds that expenditure under these headings in 1939 was £300,000 and it has gone up to no less than £4,700,000.

As regards the Ministry of Food, I will make no comment at all about the food subsidies for that would obviously be outside the scope of what I am saying. However, they have a staff of 34,000 people. I suggest it is absurd that they should have that today when, at the very height of their activities, they had only 47,000 and four years ago, when many more things were rationed than they are now, they had only 38,000. I am not quite sure of that last figure, but certainly they have 34,000 people today occupied in doing a job which in my view could be done with far fewer.

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

What are the total millions saved in all that?

Captain Waterhouse

That is a perfectly fair question. The total saved would be somewhere between £70 million and £80 million without any material cuts in any service. That ties up with what my right hon. Friend the Member for Aldershot (Mr. Lyttelton), said yesterday, that he thought some £50 million could be saved on administration alone. I have not been through the whole list. [HON. MEMBERS: "Oh."] There are 149 Votes and I have not been through more than a score of them, even in this lengthy speech. I am perfectly certain that on all those heads there is a saving of about £150 million—as much as the right hon. Gentleman has raised by all his taxes on this occasion.

There is one last point to which I want to draw the attention of the Committee, the expenditure of three Departments: the Ministry of Fuel and Power, the Ministry of Transport and the Ministry of Civil Aviation. They have this in common, that they are all responsible for nationalised industries. Why should these vast sums of money have to be spent by Ministries which are in charge of nationalised industries? Why should one need a staff of, in the case of the Ministry of Fuel and Power, 7,222 people where before the war in the Mines Department of the Board of Trade there were 442? Why should an expenditure of £6 million be needed today in the Ministry of Fuel and Power when £250,000 was enough before the war?

The Ministry of Civil Aviation is a completely new Department. The Ministry of Transport before the war had a large staff of 3,053; today, they have 6,980. These three Departments together are costing the taxpayer about £22 million. What are we getting for it? We are getting a loss of £15 million a year on their services and we are not allowed to ask a Question in the House about the day-to-day working of any of these nationalised industries. Everyone knows that it is its day-to-day working that makes an industry profitable or unprofitable; and if we cannot ask Questions about day-to-day working, what are these right hon. Gentlemen and their vast staffs doing?

I am not suggesting an economy in this direction, because it would be a matter of policy, but I suggest as a matter of policy something which will be considered, if not by the present Government, by some future Government: that all these three Departments should be merged into one. If we must have nationalised industries, we should have a Ministry of Nationalised Industries, a Ministry which answers for all of them and, what is more, would answer for them in the House, and which would have a staff commensurate with a control and not an administration. They have this great mass perched on top of the rickety structure of nationalised industry, which makes the whole thing ridiculously top-heavy. I apologise for taking up so much of the time of the Committee, but I hope that hon. Members opposite will thank me for giving them so much healthy instruction and I commend what I have said to the attention of the Financial Secretary.

7.53 p.m.

Mr. Mulley (Sheffield, Park)

There is a great temptation on this subject for one to spread his remarks over a wide field, to his great personal satisfaction but to the very great irritation of other hon. Members who wish to contribute to our deliberations. The Committee will, therefore, be relieved to know that I am confining myself to four points and that I do not propose to follow the right hon. and gallant Member for Leicester, South-East (Captain Waterhouse), in his endurance test. I remark in passing, however, that the right hon. Member for Aldershot (Mr. Lyttelton), who encouraged us to pay great attention to the remarks of the right hon. and gallant Member, was unable to stay to the end of those remarks.

The right hon. and gallant Member made three points which he should not be allowed to get away with now. He gave us suggestions for every possible economy, but without any figures of their total saving. He forgot, however, to say that we could save money by watering the Post Office ink. He also made the outrageous suggestion that children's milk should again be the subject of what he preferred to call a "needs" test.

Mr. Jack Jones (Rotherham)

He talked about healthy instruction.

Mr. Mulley

Obviously, in the case of the National Assistance Board and so on, I do not object to a needs test, but if the right hon. and gallant Gentleman knew anything about the psychology of children; had he himself gone, as many on these benches have gone, as unemployed men's children to elementary and to secondary schools, he would know how wretched it is for the poor child, who can do nothing whatever about it, to have a social stigma placed upon him by his classmates.

The right hon. and gallant Gentleman showed an abysmal ignorance of the purposes of research. If he but knew it, he would realise that the reactionary attitude he has expressed is the reason for one of the major causes of our economic difficulties.

Mr. Jack Jones

And world hunger.

Mr. Mulley

If the right hon. and gallant Member were to ask his industrialist friends, he would find not only that they are spending far more money now on research than ever before, but that they realise it is necessary to have specialist institutions. The steel and cotton industries have specialist institutions to carry out their research. The right hon. and gallant Member's rather silly points about the Ministry of Works doing the building research and the Ministry of Food doing food research, are therefore quite irrelevant.

Dr. Morgan


Mr. Mulley

I now come to the Budget and to the Economic Survey. Since I want to raise only four points of detail, and as I do not propose to tell the Chancellor or the Financial Secretary of the points in the Budget with which I agree, I congratulate the Chancellor on a very good Budget and the method of its presentation. On the whole—and Budgets must be taken on the whole—it was both sound and ingenious, and reflects not only the competence of the Chancellor but the strength of our economy, for which the Government as a whole and the previous Chancellor of the Exchequer in particular can take credit.

It has been said that some of the features of the Budget are the old-fashioned remedy of "dishing the Whigs." Hon. Members will know that the famous example of dishing the Whigs was when Disraeli introduced the Reform Bill of 1867. It is, however, quite inappropriate for hon. Members opposite to say that we have stolen their ideas, because the Whigs had propounded those ideas for 20 years. Hon. Members opposite, when they see we have done something which they recognise to be reasonable and popular, want to claim the credit for themselves. We have never seen so much retrospective wisdom as we have seen in the last five years.

Mr. Jack Jones

They are always too late.

Mr. Mulley

The classical example is meat. When the negotiations were first started with the Argentine, right hon. Gentlemen on the Opposition Front Bench said that we must fight the rising cost of living and that we must be tough with the Argentine, but when we failed to get it, in order to get some political credit they ratted. That is how the Opposition go on from day to day.

I turn now to old age pensions. There is no doubt that the rising cost of living hits hardest the elderly, the sick, the widows, and those with large families. The Chancellor has met in some part the position of the families by the new tax allowances and the maintenance of food subsidies, but I am not satisfied that he has done enough for the severest cases among the elderly and the sick. I do not subscribe to the extravagant views about the basic old age pensions which are expressed in various quarters. In fact, in my constituency, when I have been met by old age pensioners, I have explained to them that the problem is not a matter of money. In a fully employed economy it is a matter of goods, and if the standard of the old people is to be raised it must be done at the expense of some other section.

I do not suggest, therefore, that it is possible at the present to increase the basic rate of pension above the amounts that have been proposed. The right hon. Member for Aldershot told us that that step forward was part of the Tory election programme. Its secret nature and the way it is drawn up were rather given away by one of his right hon. Friends, who said instead that this was a matter to be used on some other occasion. This gives an insight into what the Conservative programme will be when it becomes known, and how much it represents the real thought and opinion of Members opposite. Certainly the fact that the increases of these pensions satisfy hon. Gentlemen opposite for election purposes means that they are very rosy proposals.

But I do not think that sufficient has been done to improve the lot of the very severe cases, and I should like to have seen a clear statement about what is to happen to National Assistance benefits. Clearly, there must be some amendment, otherwise the very severest case—people over 70—receiving National Assistance benefits will not get the proportionate increase on their basic pension. I know that National Assistance benefit is a matter of detail for the National Assistance Board, but I would have preferred the Chancellor to have made a definite statement that he would be prepared to spend up to £20 million on a general uplift of the whole range of National Assistance benefits. Because some hon. Members opposite have suggested that the National Assistance benefits should be increased rather than the basic pensions, I point out that the increase I advocate would be in addition to the increase in the basic pension.

I turn to the Purchase Tax on cars. Because of the acute need for revenue, I support this increase. I can see that the revenue is necessary, but I do so with great personal reluctance as I am one who has been waiting for a very long time for a car and will have to pay the higher tax which many others have avoided. Incidentally, I also missed the boat in regard to spectacles under the National Health Service. I suggest to my right hon. Friend that in the Purchase Tax on new cars he has not dealt with the very great scandal of the prices for secondhand cars.

I know that capital gains taxes in general are very difficult to administer, but I suggest that this one would be very simple. Every car has to be registered when it changes ownership and it would be a simple matter to impose a tax on the transfer of ownership of a car for the first time, say within three years of its original registration, and make it so that the original owner shall pay something in the region of £200 to get the car transferred to the buyer. When we read in the papers that a car which a year ago, new, cost £400 is now being sold for £1,150, I think the case for such a tax is self-evident. It would still leave the seller of the car a very handsome capital gain even if he had to pay £200 into the Treasury.

My third point is more of a point on the Economic Survey than on the Budget. It is to discuss the estimate in the Economic Survey of the increase in production for this year. That figure is given as 4 per cent. and has been criticised by hon. Members opposite as being too low. I wonder if the true criticism is not more likely to be that it is too high an estimate of increased production in this year, having regard to raw material difficulties. Whereas in previous Economic Surveys increased productivity has been underestimated, that has had the result in an increased surplus, an estimate of a too optimistic kind will have more serious consequences unless it is that the defence programme is also held up for lack of raw materials. I would, therefore, urge my right hon. Friends to take all possible steps to press this on the United States Government, who are mainly responsible for the shortage of raw materials in many key industries.

My final point is concerned with rising prices. I think it necessary to contrast the cost side of increased prices and the demand induced side of increased prices. Clearly, the object of the Budget was to see that the demand induced inflation did not appear. We all know that the cost induced inflation or increase of price will continue and I ask hon. Members opposite, because they make a point about this, what can be done about it? I think we should examine it rather carefully. Quite clearly, one way of reducing the level of prices is by increased productivity. I think I can claim that no Government has done more to increase productivity than this Labour Government. The increase in productivity over the range of manufacturing industry since 1947 is between 20 per cent. and 30 per cent.

Therefore, when hon. Members opposite, as they did in the last election, and as I prophesy they will do in the next election, put up large posters saying "Attack the rising costs of living, vote Conservative," we should know what they mean. In order to help them to clarify their minds we ought to break up the cost of any particular article and see of what it is comprised. In the last analysis any article consists of raw materials, wages and profits. Therefore, the only way we can break down the cost of anything—ignoring increased productivity, for which the Government have done the maximum and no Government can do more—which of the three would hon. Members opposite reduce?

Mr. Godfrey Nicholson (Farnham)

May I make a suggestion, a helpful one? Ought not the question of taxation to be included as the fourth factor?

Mr. Mulley

Generally speaking, all economists recognise that direct taxation does not enter into the cost of a particular article. I cannot debate the matter, but if the hon. Member will read the Colwyn Report, he will see the evidence given before the Royal Commission.

Mr. Nicholson

We do not accept that.

Mr. Jack Jones

We do not expect hon. Members opposite to do so.

Mr. Mulley

The basic costs are raw materials, wages and profits. No matter what Government were in power they would still have to pay increased prices for imported raw materials. They might argue that bulk purchase is an example of where economies can be made. If they do, I would mention the case of New Zealand sheep and ask them to compare the increase in the price of New Zealand mutton, bought under bulk purchase, and the increase in the price of wool, sold by auction in the manner they advocate all commodities should be traded. If they make a comparison of the increase in the cost of mutton with private enterprise wool, they must admit that if we did without bulk purchase we would have to pay even more for raw materials.

The only valid point of criticism made by the right hon. Member for Ormskirk was that we ought to have stockpiled raw materials earlier. The answer is that it is very much easier to write a letter to "The Times" than to find the right raw materials. If raw materials were the same price in either case, clearly to reduce the cost of living we must either reduce wages, or profits, and I have never heard an hon. Member opposite say that profits were too high and must be reduced. There must be one of three reasons behind the posters advocating attack on the rising cost of living.

Either hon. Members opposite are merely making political capital out of the hardships of the people, or saying that private industry is grossly inefficient—because 85 per cent. of industry is under private control and prices increases have been greatest in the private sector, or—and this is probably the plausible reason—that they are quite sincere in their desire to reduce prices and the cost of living and that behind the poster is the unspoken threat of unemployment and wage reduction. That is the only other way—if it cannot be done on raw materials and if they will not do it on profits—of bringing prices down.

We have the historical basis for this in the fact that the right hon. Gentleman who now leads the Opposition was Chancellor of the Exchequer in 1925 in the most serious instance of deflation which this country has ever known, and which was the direct cause of the 1926 strike. As I told the people of Sheffield at election time and shall tell them again, that is what is behind these posters: There must be unemployment, because we cannot otherwise bring down wages in a fully employed economy. We must, first of all, have the unemployment with which to bring down the wages, and, by bringing wages down, we can get what almost every hon. Member opposite who has spoken in this debate has mentioned—more value in the £—but at what social and human cost?

I therefore ask hon. Gentlemen opposite to tell us which of these three explanations they offer for their posters, because I think it is only fair, and, is, in fact, the constitutional duty of the Opposition, that they should not only criticise but offer alternatives. When they do not do that on this question of the rising cost of living, as on everything else, we can only conclude that they are prepared to make party political capital out of the difficulties and hardships of the people.

8.11 p.m.

Mr. Baird (Wolverhampton, North-East)

I have listened to the whole of this debate, and to three Opposition speeches which have taken something like two and a half hours. I would have no complaint about that, if I thought those speeches have had anything in them, but I am afraid that they contained very little.

The right hon. and gallant Member for Leicester, South-East (Captain Waterhouse) spent over an hour telling us how the expenditure of various Departments had gone up considerably since 1939, and how, since they have gone up, there must be waste. I agree that, perhaps, there is some waste, but the hon. and gallant Gentleman never in any instance proved to us that there had been waste. The expenditure of all Departments has gone up to a great extent, because of increased costs and wages, and also because they are now giving far better service to the community. It may be true that there has been waste, but the hon. and gallant Gentleman spent an hour in proving nothing.

The right hon. Member for Ormskirk (Sir A. Salter) spent three-quarters of an hour in proving to us that he was now an enthusiastic convert to the Tory Party, while the right hon. Member for Leeds, North (Mr. Peake) spent another three-quarters of an hour in making a very humorous and frivolous speech, all the constructive suggestions in which he could have said in a quarter of the time. His references to my right hon. Friend the Minister of Labour were very ill-considered. He sneered at the Minister, and suggested that he had cost the country considerable expense. I take it that the right hon. Gentleman meant that the Health Act itself had cost the country a considerable amount of money, and, of course, it has, but it has also saved the country a tremendous amount in the improved health of the people.

I do not want to waste the time of the Committee, but I should like to congratulate the Chancellor upon a Budget which has been accepted, to a great extent, by this side of the Committee, and, it seems, also by the Opposition, and which has also gone down well in the country. There are, however, one or two features of it with which I disagree. For instance, I believe that the increase granted to the old age pensioners will create many anomalies. I will not go into the details, but I think my right hon. Friend could broaden the improvements which he has suggested. A major criticism of the Budget is that I believe that it is not financing re-armament out of taxation to the extent which it might. As a matter of fact, as I see it, re-armament will be financed to a great extent by reducing purchasing power, by increased prices, and that, of course, will bear more heavily on ordinary people than on the wealthy classes.

However, in the short time at my disposal, I want to deal with another matter, on which I want to make a rather important criticism. It is the question of the charge for the National Health Service. When I first heard that there was to be a charge for false teeth and spectacles, like most hon. Members, I said "That is not a very serious matter." For a considerable number of years, dentists have provided good material for music-hall jokes and for cartoonists, and, at first sight, this charge on the dental service may seem a very minor matter, but, when I looked at it again, I realised that it was much more important than I first thought.

I believe that, first of all, it was completely unnecessary, and that, secondly, a major principle is involved. There are some people who are arguing that there have been considerable abuses of the Health Service Act, and that, by making a charge for dentures and spectacles, we shall stop those abuses. It is true that there have been considerable abuses, so far as the dental side is concerned, but those abuses have come, not from the patients, but from the dentists. I do not say that every dentist is involved, but that a small section of the dentists have abused the Health Service Act and that nothing has been done to stop them. As far as the patient is concerned, the great majority have needed the treatment, and many of them could not afford to pay for it.

I therefore hope that this proposal will be withdrawn. I do not believe that, as far as dentures are concerned, a charge is necessary at all, because, during last year, the dental estimates have fallen by something like £10 million, and, since the beginning of this year, the demand for dentures—and I should have declared my interest as a practising dentist—has fallen, according to my calculations after consulting many of my colleagues, by something like 20 per cent. The great demand is now satisfied, and, as a matter of fact, I have received figures from the dental mechanics' trade union, which is a small craft union, showing that in the London area there are 120 members on their books seeking jobs; while, a year ago, a dentist could not possibly employ such a man without waiting many months to find him and without paying him extortionate wages. The charge is completely unnecessary, because the demand is falling away, and, if the charge is made, it will not produce anything like as much money as the Chancellor has suggested, when the demand is not there.

My second objection is that I believe it is wrong in principle to have a ceiling for the Health Service, and I appeal specially to hon. Members on this side of the Committee. Why is it necessary to have ceilings for great social measures like the food subsidies and the Health Act, when there is none for other forms of expenditure? It is said that there are ceilings of a kind for other spending Departments, but, if there are, they are very flexible ones, while that of the Health Department is very rigid. I consider that it is a very dangerous principle indeed to establish a ceiling for the Health Service. So far as the Service Departments are concerned, I believe there is considerable waste, and yet I have not heard the Chancellor making any suggestion at all for cutting it out.

As I promised to be brief, I would say that my principal objection to the Budget is that the charge to be imposed for services under the Health Act is a very dangerous departure from the principle for which we on this side fought for a very long time, and I ask my right hon. Friends where it is going to end. It is true that the estimates for the dental and optical services are falling rapidly, but, as far as other branches of the Health Service are concerned, costs are likely to go up. If the cost of living goes up, the cost of the hospital services will go up.

As the Chancellor himself said, we have a growing problem so far as the aged are concerned and there will be an increased hospital population of aged and chronic sick which will throw further cost on the National Health Service. Doctors are demanding increased remuneration, and I believe that compared with other branches of the Health Service they have a very good case. That is going to cost more money. If the cost goes up and the ceiling remains at £400 million where is this next charge coming? Already the right hon. and gallant Member for Leicester, South-East (Captain Waterhouse) has said that we should have charged for visits to the doctor. Perhaps the Tories would make a charge for beds in hospitals.

Hon. Members must know that this is not going to stop at a charge for false teeth. This is the beginning. When the Road Fund was established it was said it was only a temporary measure. When the Purchase Tax was introduced it was only a temporary measure and Income Tax may have been introduced as a temporary measure too. But once a tax is introduced and accepted it is very difficult to remove it. Let no one think that it is going to stop at the introduction of a charge for false teeth. I ask the Chancellor to think seriously about this matter.

Mr. Pannell (Leeds, West)

My hon. Friend is making a point—and he has a vested interest in this matter—that the charge will not stop there. We have heard the Chancellor's Budget speech. Every Budget speech stands by itself and my hon. Friend is only getting approval from the other side of the Chamber.

Mr. Baird

Hon. Members know I am not an advocate of the dental profession. I have declared my interest. I have made many speeches on this subject before my hon. Friend became a Member of Parliament. I think I have justified my argument by proving that when a tax has been imposed in the past it is very difficult to remove it afterwards. My hon. Friend can disagree if he likes but that does not alter my opinion.

We on this side of the Committee have fought for this free Health Service. There have been abuses of it, but on the whole I think that those who have been interested in this Health Service on both sides of the Committee must admit it has been a much greater success than we thought would have been possible three or four years ago. The dental service is an integral part of the Health Service and it is doing a fine job of work. We are now producing a new race of young people who will go through most of their lives without false teeth. The demand for false teeth is going to drop.

The Financial Secretary to the Treasury told us tonight that there had been a saving of £1,000 million in remissions of taxation since the end of the war and that that gave a considerable amount of elbow room for further taxation in the future. If there is a £1,000 million elbow room the Government should hesitate before jeopardising this free Health Service for the sake of a mere £13 million. I ask my right hon. Friend the Chancellor to think again before he introduces the Bill to impose this charge.

8.25 p.m.

Mr. Ewart (Sunderland, South)

There are one or two points in the Chancellor's statement with regard to which I find myself in rather strange company today. We have been told by the Opposition that certain of the proposals in the Budget have been advocated by right hon. and hon. Members opposite and that certain other proposals would have been found in the General Election programme of the Conservative Party. That makes me wonder whether acclamation of the Budget speech is right or not.

The Conservatives may, of course, tell us that they have envisaged certain advances in our social services contained in the Budget proposals and would have gone to the country with these proposals in their programme for the next General Election. But I remember the statement made by the Leader of the Opposition during the debate on the Iron and Steel Bill, when he told us that election promises and election programmes did not matter very much if one had the votes and won the election.

We have to look at this Budget from the point of view of the relief it is giving to or the hardship it is imposing upon the community at the present time. We should examine carefully what has been said from the Opposition benches today. The right hon. and gallant Member for Leicester, South-East (Captain Water-house), put a morass of figures before us in a speech lasting over an hour. Out of the whole gloomy procedure he arrived at the conclusion that the social services could be slashed, that school meals could be cut and that that very desirable project, the machinery to attract new industries to the development areas—for the condition of which the Opposition must take full responsibility before the war—could be cut by at least one-third.

People in my constituency, miners, shipyard workers and factory workers, must be asking themselves tonight, "Can we reconcile the restraint on wage claims that has been responsible, through managements and men, in bringing this country to the point of economic security at which we find ourselves today with what we can expect from the Tory Party when they are in power? Have the wage restraint, the austerity and self-sacrifice, and the long hours imposed on industry in a voluntary spirit by the Trades Union Congress and accepted by the whole of the organised workers in the trade union movement, which have made this vital contribution to our stable economy, been worth while in the face of Opposition arguments that we should look upon profits as sacrosanct and not embark upon any measure for the raising of the tax on profits?"

These people must look at the steep increase in profits, and dividends and the modest increase in wage rates since 1948 and ask themselves where their confidence can be placed in future. I believe that the Chancellor of Exchequer in this magnificent Budget, which has had the general acclamation of the country, has had a sobering effect on the nation and particularly upon the wage earners and industrial population of this country. They can see in this Budget that where it has been necessary, extra taxation in the form of Purchase Tax has been levied on luxury articles, and that in respect of household essentials, whatever relief could be given has been given for the purpose of equalising and levelling the reliefs on the community. Any reliefs in taxation have been given in an endeavour to stem, if at all possible, rising prices and to maintain the present standard of living in a situation in which we are bound to have increased prices in the next few months. Because of that, industrial workers and the trade unions will look with favour on the Profits Tax and on the increased Purchase Tax on luxury goods.

There is, however, one rather disturbing aspect of the Budget, in that we are led to believe at first blush that there is to be an increase in old age pensions. In fact, that increase is only going to benefit old age pensioners over 70 years of age in the case of men and women over 65 if they are not at present receiving a supplementary allowance from the Assistance Board. The Chancellor has got to look at this matter in relation to the very desirable improvements which have been announced in the White Paper in respect of pensions, widowed mothers' allowances and increased children's allowances. He has got to consider the number of old age pensioners between the ages of 60 and 65 in the case of women and 65 and 70 in the case of men, and he should ease the burden in the form of increased prices which is falling on those people, by reorganising the assistance scales. I believe that relief will be forthcoming if it is at all possible.

I should like to refer to the charge for dentures and spectacles. The National Health Service has been a boon to the community at large and has contributed to the rise in the standard of living of all the people in the country, and if there are to be any savings. I believe that the Chancellor has applied those savings in the right direction. He has applied the savings in a direction where their necessity is non-recurrent for several years probably, and where the burden might reasonably be expected to be borne. He has excluded by National Assistance and by school services the needy cases of school children, expectant mothers and people in receipt of old age pensions where the burden would fall very hard, and they will be able to avail themselves of National Assistance to enable them to meet the increased cost.

I would request my hon. Friends who asked, "Where is this to end?" to ask themselves into which Division Lobby they went two years ago when they voted on whether there should be a charge on prescriptions. If they did not vote for a charge on prescriptions, they are at liberty in conscience to make the sort of statement which was made by my hon. Friend the Member for Wolverhampton, North-East (Mr. Baird). But an attack on the National Health Service, a charge on consultants' fees as envisaged by the Opposition and a charge on medical or hospital services, would inevitably mean a reduction in the standard of living of the whole community We have to resist that with our strongest possible endeavours, and I believe that the Chancellor has taken the right steps in this connection.

This is a unique Budget which has not only the acclamation of the nation but even, in the last resort, the support of the Opposition. Yesterday the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) said that the party on the other side of the House would lead a remorseless and relentless opposition at all stages of the Budget and the Finance Bill. If the speech of the hon. and gallant Member for Leicester, South-East, in which he ploughed through a morass of figures for over 61 minutes, is supposed to be either remorseless or relentless, then the Opposition have lamentably failed in what they seek to do.

As there are so many hon. Members who wish to speak, I have promised to keep my remarks short and, in conclusion, I would say this as a trade unionist: it the Chancellor has done anything in this Budget, he has recognised the dynamic effort which has been put into industry since 1945 by the working population of the nation. They are the people who have accepted the advice on wage restraint, who have raised not only production but also productivity so as to bring us to the proud moment of independence from Marshall Aid. The Chancellor has assessed the value of their contribution by giving such benefits as could be given at this critical stage in our history to the people whose standards must, wherever it can be done, be preserved at the highest possible level.

8.37 p.m.

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

Like the two hon. Members who have preceded me, I have given an undertaking to the Chair in the matter of time and I hope they will acquit me of discourtesy if I do not follow in the internecine strife raging between them. Indeed, I should be a particularly unsuitable person to do so because I have succeeded in reaching three-quarters of the allotted span of life laid down by the Psalmist with all my own teeth.

The Chancellor is not in the Chamber at the moment and must, in any case, by now be fully satiated with praise, but for the purpose of record I should like to say that I have had the honour of being here during 19 Budget speeches and have never heard one better than his. I thought the right hon. Gentleman's performance was particularly laudable in that he was presenting to us the third Budget since the House re-assembled after the Easter Recess. We had the Budget introduced by the Postmaster-General, bringing in swingeing taxes—they were nothing else—in the form of higher postal rates. We had another Budget from the Minister of Transport raising railway freights. The right hon. Gentleman the Chancellor of the Exchequer was far and away the most lucid of the three. None the less, this piecemeal introduction of taxation takes some of the gloss from this annual occasion when we review our national finances.

The Chancellor is also to be commended for his manner of tackling what was, after all, a fearful inheritance. He did not create the present financial position. He followed two others who took no thought for yesterday or for the morrow. He was left with this very large baby upon his doorstep.

All Budgets have a popular nomenclature. I have seen some suggested for this Budget in the Press. "The dead end Budget" said one popular newspaper; "Give and grab Budget," said another. But I think there is another title that we could give it. The Financial Secretary, opening the debate today, appealed to us to tackle the later stages in a Festival spirit—saying how happy we could be altogether doing that. Well, it is an idea; and I see sitting opposite to me the Minister of Works, who is now responsible for that enterprise; and I think, in deference and compliment to him, the present Budget might go down in history as the "Slap and tickle Budget." It has tickled the old age pensioners, and slapped everybody else.

I venture, in the short time I promised to take, to deploy to the Committee—and to the right hon. Gentleman now that he has returned—three suggestions. All of them have been made by me on previous occasions—and all in vain—to his predecessors. Each of them at the time did, however, attract a considerable amount of support from both sides of this Committee of Ways and Means. I venture to rehearse them again now that we have a new Chancellor of the Exchequer. The right hon. Gentleman claimed that he had spread the burden as widely as possible, and that he had tried to be fair to all in the imposition of his new taxes. I think that that is broadly true of those who pay up; but the right hon. Gentleman has done nothing at all about the vast community which does nothing of the sort and has no intention of doing so.

I want to refer to those who engage in various under-the-counter transactions, generally known as the black market, in which large quantities of cash change hands that are never returned for taxation purposes, and are never banked for the obvious reason that the investigators of the right hon. Gentleman would then find out all about them. There are millions of taxation being paid by all of us and our constituents outside unnecessarily because of the large number of people who are dodging their dues in this manner, and who ought to be rounded up. The way to do it is perfectly simple. The existing fiduciary issue should be called in on a certain date, and an announcement should be made that the present Treasury notes will no longer be legal tender and will have to be surrendered and others issued in their place of a different colour. If I am told, as I may be, that that is an impracticable suggestion, let me inform the right hon. Gentleman that it was done in France with rather interesting consequences—

Mr. William Ross (Kilmarnock)

And in India.

Lieut.-Commander Braithwaite

—because some 40 per cent. of the fiduciary issue of that country was not surrendered for replacement and redemption. In other words, the gentlemen—who, in France, must be far more numerous than they are here—engaged in these nefarious transactions, sooner than be caught by the taxation machinery, did not surrender their notes, and the fiduciary issue, to that extent, was freed of a liability, and hundreds of millions of pounds were saved by that process. It would be extremely helpful to the right hon. Gentleman and all of us at this time. There has been a "spivs'" paradise ever since the present Minister of Local Government and Planning became Chancellor of the Exchequer, and it is time it was stopped.

My second suggestion is that the time has come for a new definition of unearned income. I am one of those who believe that there should be a discrimination between earned and unearned income at all stages, including Surtax, but I do plead with the right hon. Gentleman that we are living in a time when there are very large numbers of people in this country—I have no idea what the number may be—who, by thrift over a long period of years, have managed to accumulate a sum of money, to which they have always looked forward, and which, on retiring, they have invested. It is often insufficient at the moment as things are. People of that sort, starting often from the bottom of the ladder, make provision for themselves in their old age by investing their money. To call the income from that saving unearned income and to tax it accordingly is a little harsh. I myself would discriminate between income derived from saving and inherited wealth, and I think that the time has come for that to be considered by the Treasury.

I come to my last point. I was very much shocked that the right hon. Gentleman, in that excellent speech, found himself unable to devote three sentences or three minutes to the subject of post-war credits. They must be a severe headache to him, as to his predecessors. He must wish that he could rid himself of the problem. If I were in his position, I think there are three things he could do. One is to issue savings certificates against those post-war credit certificates. After all, it is our money. Second, it may be appropriate to set them off against Income Tax claims, as was done in the financial year 1945–46; so there is a good precedent for it. Or he could re-fund the whole thing. I understand that there are £650 million outstanding. I think British credit could stand this at the moment at 3½ per cent.; it would get rid of this burden and the people would get their money. If none of these things be possible, then the time has come for the Government to start paying interest on this money. Six years have passed since the end of the war.

Of the new taxes, that which I think will press most hardly is the Petrol Duty. Not very much has been said about it today, but it will enter into the costs of distribution and play its part in increasing the cost of living to all and sundry of all income groups. The taxation of television sets—praised last night, rather to my surprise, by a neighbour of mine, the hon. Member for Gloucestershire, South (Mr. Crosland)—is, of course, a geographical tax; it affects the south and west of England while the north largely goes free, because over a very large area of the north of England they have got no television. I am wondering whether this is not a punishment or flagellation of the south and west of England for the sweeping Tory gains there in the last Election.

In the years 1945 to 1950, £4,000 million were voted for defence and dissipated, we know not how. The result is the position in which we find ourselves today. The spending spree of 1945 to 1950 is over. It is very doubtful to my mind whether the increases in old age pensions will not have been wiped out by the time 1st October arrives, when they come into force, by further price increases. I think that something more should have been done for the disability pensioner, and consideration should have been given to the long service pensioners from the Army, Navy and Air Force, but we can talk about that when the promised Bill is introduced.

The right hon. Gentleman, in a speech out of doors, recently predicted export difficulties for this country. Certainly, we are gravely handicapped in selling our goods abroad at competitive prices owing to coal and freight charges under the nationalised industries. The sellers' market has had the new stimulus of a shot in the arm through the re-armament programme, but the main problem remains. It is upon the value of sterling in other countries, and the purchasing value of sterling at home, that our whole budgetary position rests. I should have liked to see the £ set free. I am not an inflationist or a deflationist. I am a no-flationist. I believe in the £ finding its own level, and I believe its own level to be higher than that at which it stands today, which would enable us to buy our goods more cheaply from abroad, and would enable us to deal with the rising cost of living at home.

The right hon. Gentleman has placed his feet for the first time on the Road to Damascus. My view was shared by a popular newspaper in its leader the day after the Budget statement. Not yet has a blinding light come over him, but he should know how he is persecuting the taxpayers of this country. Let him take it to heart. He is learning in a hard school. I am sure he has done his best according to his lights, but he requires a decade of further experience, this time in opposition, during which he can ponder upon the wreckage of his Socialist dreams, and resolve to tread the path of rectitude in the years which lie ahead.

8.50 p.m.

Mr. Pargiter (Southall)

I do not propose to detain the Committee long. There was one point in the speech of the hon. and gallant Member for Bristol, North-West (Lieut.-Commander Braithwaite) on which I would like to comment. That is his suggestion about the withdrawal of Treasury notes and their re-issue. This was a matter which I endeavoured to impress on a former Chancellor of the Exchequer in 1946. My appeal fell on deaf ears then, and I am afraid that it has fallen on deaf ears since. I am satisfied, however, that there is a large amount in Treasury notes floating about the country, and that if something of that kind were done, it would be to the benefit of the whole community and the trade of this country. I hope that the Chancellor of the Exchequer will give some consideration to this point.

I want to refer to one or two points of omission which are a matter of concern in all Budgets. I hoped that the Chancellor would find it possible to evolve a single system of licensing duty for motor cars. I think that the retention of the dual system for cars produced before 1st January, 1947, and those produced after that date, ought now to be altered. It seems to me that people who are often compelled to use pre-war cars ought not to be treated as unfairly as they are in comparison with the owners of the newer cars. I think that the time has come when the range might be altered.

I see no reason why the tax should remain at £10 for cars in excess of 20 h.p. After all, the intention of that taxation was to encourage the production of a type of motor car which would sell in the foreign market. It is not the cars above 20 h.p. which are selling in large numbers in the foreign market; it is the medium-sized cars between 12 h.p. and 15 h.p which are finding a ready market overseas and nothing should be done to discourage that production When we get into the larger car market the tax could well be increased, and out of that surplus, relief could be given to the people who use the old cars and are often compelled by circumstances to continue to do so. I hope that at some stage the Chancellor will give consideration to this matter.

Another question which rather worries me is the taxation on betting. I believe that there is a Commission sitting—although I do not know whether it is sitting or sleeping—on this question of the possibility or otherwise of legalising gambling. It has been sitting now for a very long time, and it appears to be extremely dilatory in the production of its report. We have heard nothing about it for a long time. It is many months—years now, I think—since I gave evidence before it on the question of administration. I thought that they were then getting to the stage of presenting a report.

I hope that the Chancellor will not wait much longer for that report, but will take the bull by the horns and take the money very readily available to him by general taxation of gambling, rather than by the discriminatory forms of taxation which exist at present. I believe that if gambling is to be recognised at all, it should be recognised in its wider rather than in its narrower sense. No useful purpose is served in admitting the right to gamble on racecourses and ignoring the right of persons to gamble in the street. This is a matter which should be put right one way or the other. I think that the Chancellor ought to think about collecting some money from this gambling.

The health charges are a matter of considerable difficulty. There is one service where a small charge is permitted, and where the local authorities ought to be able to have a wider discretion of charge. I am referring to the day nursery service. That service run by the local authorities is a rather expensive one. It is a service that ought to be run, but local authorities are not running it as well as they should, and the tendency is to close down the day nurseries because of the small charge which they are permitted to make. In many cases people who are receiving considerable benefits from them could, without hardship, afford to make a greater contribution.

Many local authorities, my own in particular, are gradually closing down day nurseries, and eventually there will be none for those who are in dire need of them. If the Chancellor would look into this question of charges, it might be possible to have some scheme which would operate more fairly. I think it will be generally accepted as being beneficial and will promote, instead of closing down, a wider extension of day nurseries.

The only other point to which I wish to refer is a matter on which some of us have been having discussions for some time. I am referring to the steps to prevent the transfer of profits to one business from another to avoid Profits Tax. We shall be interested to see how this operates. It is extremely interesting, because it is undoubtedly one of the means by which a good deal of money that ought to have gone into the Exchequer has not done so.

I am pleased to note that my right hon. Friend will tidy up the whole procedure in regard to bonus shares whereby money can be placed to reserve at 10 per cent. and subsequently distributed, and in that way avoid tax. The fact that steps are being taken to prevent that, is one of the better features of the Budget, and something which I hope we shall see operating as quickly as possible. I know the arguments used against bonus shares. We know that they change hands very quickly after they have been issued, and usually at a premium. These are exceptionally good points in the Budget, and I hope they will have the effect we expect, which is that all financial transactions will contribute their proper liability to the Exchequer.

I congratulate the Chancellor on the Budget. I recollect the Budget of 1949 when we were all expecting some relief from taxation and did not get it, with the result that everyone was downhearted and all sorts of adverse things were said in the country; but on this occasion we were all expecting something much worse, and because that has not happened, we are all congratulating the Chancellor of the Exchequer. To those congratulations I add my meed of praise.

8.58 p.m.

Mr. Assheton (Blackburn, West)

The hon. Member for Southall (Mr. Pargiter) certainly set the Committee a good example by the length of his speech, although I cannot hope to equal him in that respect. He did make a constructive contribution to the debate. I appreciated much more what he had to say, gathered from his experience on local government, than what he said about bonus shares, gathered from his inexperience of finance.

We are debating today not only the Budget, but also the Economic Survey and the general economic situation. The Economic Survey is not a happy document. It is so gloomy that I can only hope it will prove to be as unreliable as some of its predecessors, although I fear not. Previous Economic Surveys, as my right hon. Friend the Member for Alder-shot (Mr. Lyttelton) reminded us, failed to foresee the fuel crisis, the convertibility crisis and so on, but this Economic Survey is franker and certainly more realistic.

It is more realistic because it clearly implies that our planned economy is at the mercy of world affairs, and is not within the control of those who seek salvation through a planned economy at home. One gets rather tired of the economic jargon of some of these documents. The Government started with a plan and then they had a global target. This global target became a series of flexible assumptions. As a matter of fact, a great deal of it is based on wishful thinking. I suppose we get used to these documents, but I am bound to say that their language to me is evasive.

I notice, for instance, that the Government never deflate; they always disinflate. The difference apparently is that under disinflation prices continue to rise. The Government never call for cuts but for "necessary adjustments and restraints," and even register on page 36 of the document a grant from the United States as a minus grant by the United Kingdom. As far as one can see, the net result of the Economic Survey is that the public are going to spend £600 million more on personal consumption and they are not going to get anything more for it. As Mr. Schwartz in the "Sunday Times" says, there will be more money about than ever before with everybody complaining that there is less money about because of the rise in prices.

Mr. Ellis Smith

He is not much of an authority.

Mr. Assheton

I think he is one of the most interesting writers in the week-end Press, and I am very glad of the way he entertains and instructs all of us.

Like my right hon. Friend the Member for Leeds, North (Mr. Peake), I am very glad that the Chancellor this year at any rate has not planned for a large Budget surplus. It is quite clear to me that the Government's plan for avoiding inflation and for closing what they call the inflationary gap by a Budget surplus has failed. It has failed because we have got inflation. It has been going on while this policy has been in operation for several years. I say that we can avoid inflation only by keeping money sound through a credit and a monetary policy. This Budget could have been balanced without any new taxation, and the money could have been found for increased old age pensions, which are so necessary on account of the rise in prices, by cutting down the Estimates and spending less.

When one has said that on previous occasions, there have always been shouts of, "Where," but there have been so many illustrations today that the shouts have rather died down. There is something I should like to say about a Budget surplus and it is that I hope the Chancellor will pay regard to it. A large Budget surplus inevitably leads to extravagance, because Departments are apt to say to themselves, "If the money is there, let us spend it." I think that is rather a serious argument.

It is quite clear to me that Treasury control has weakened very much in recent years. What is that due to? In the first place, it is due to the enormous and intolerable size of the Budget and the vast field over which the Treasury has now to try to exercise control. It is now too big and this bigness is due to Socialism and to nationalisation. Secondly, there are, of course, the extravagant notions of the Ministers, who are not very good at supporting the Treasury, with the result that there is a grievous burden of taxation under which the country is now groaning.

But there is a third reason to which little attention has yet been given. The Treasury is one of the smallest Departments of State in spite of all its increase in numbers. It is very highly skilled Department, and it is dependent upon the work of a handful of faithful and very brilliant officials. Sir Stafford Cripps, the reason for whose absence we all deplore tonight, not only grievously impaired his own health, but he grossly overworked a willing staff. This had most serious consequences. Some of the most brilliant men have left the service of the Treasury and the Inland Revenue and others are suffering from years of overstrain. I hope the right hon. Gentleman will bear that in mind.

The weakening of the Treasury is all part of the immense pressure put upon the whole economy of the country by the inflationary system under which we are and have been living for the last five years. The hectic inflation of credit, and what my hon. Friend the Member for Chippenham (Mr. Eccles) called "the super boom" in trade, are all part of the same story. We are trying to do too much at the same time. The planners are now finding out what a lot of sensible people knew before, that we cannot fully plan the economy of this country because we cannot plan the economy of the rest of the world upon which we depend.

For instance, we are suffering from the inflation of credit not only in this country but in the United States of America. The Council of the O.E.E.C. passed a resolution on 10th March urging the adoption of such fiscal, credit and other measures as may be necessary to keep demand within the limits set by available resources. This can be done in two ways, either by the war-time method of widespread physical control or by a more stringent fiscal and monetary policy coupled with a minimum of direct controls, as my hon. Friend the Member for Chippenham suggested last night. If we are to be driven back to the first method, it will be disastrous, and I do not think it would work. I think that the Chancellor of the Exchequer agrees with me. We must aim at a more natural system. We must reform our monetary policy. Artificially cheap money is a short-sighted policy. The discipline of the rate of interest is essential in the end. It will certainly have to be restored and it is already being to some extent restored today.

Ministers promised in 1945 at the General Election: Labour will protect your savings against rising prices. That was what one of their leading Ministers said in a speech. We all know what has happened to that promise. Under Socialist control the £ is constantly losing its value. That hits us all but most of all the people with fixed incomes and the old people. It hits everyone who tries to live on a fixed income, whether pensioners, retired teachers, retired civil servants or business men, and of course it hits the saver. I think that the Socialists honestly believed that they could keep prices from rising, but the planners forgot that they could not plan the whole world. They cannot do it because rising prices in the world reflect themselves here, though there is much that the Government at home can do to stop a rise.

The rise is due, as my right hon. Friend the Member for Aldershot told us yesterday, to many causes, and above all to the effects of devaluation, which was brought about in 1949 largely by the previous extravagance and mismanagement of the Government. Do you remember, Major Milner, that Sir Stafford Cripp's broadcast indicated that the rise in prices would be very slight and how he played it all down? [Interruption.] I have brought his broadcast with me. I have read it through very carefully, and I am prepared to read it to hon. Members, if they want me to. It will not contribute much to their comfort. He certainly played it all down. It meant our paying 44 per cent. more for everything we bought from America and a good deal more for what we bought from elsewhere. It has been the prime cause of the rise in prices, and it came along long before the Korean war and American re-armament. The burden of it is now falling on the shoulders of all the people, including the very poorest, and the Chancellor tells us that nothing can be done to stop the rise in prices.

But what does he do in the Budget? He adds to it. Income Tax raises prices, because everyone who pays it seeks a higher income. But he has put Income Tax up. Duties on petrol raise prices, but he has put up the duty on petrol. All this vast volume of taxation is, in the circumstances, inflationary, and it is only by cutting down expenditure that the inflation can be checked. In the country's mood today, more taxes mean more inflation. They enlarge the gap and do not close it.

The Chancellor told us that he has three great troubles, the defence programme, the fact that import prices were rising a great deal faster than export prices and the shortage of material. Unable to cut down his Estimates any further, he has been forced to impose further taxation. Re-armament has to be paid for, of course, but finding the country already taxed up to the hilt by his predecessors in his own party, he seeks further revenue instead of cutting expenditure. I do not accept the argument of the Financial Secretary that we are not taxed to the hilt. I thought that my right hon. Friend the Member for Ormskirk (Sir A. Salter) exposed that fallacy very well in his speech. What the Chancellor is going to do is to get most of his revenue at the expense of business reserves.

The Financial Secretary and he are wrong in thinking that it will come largely at the expense of the reduction of dividends. I can assure them that that will not be the case. By taking another £236 million from business—that is, the initial allowances and the Profits Tax added together—the Chancellor's new measures will mean, even on the Financial Secretary's basis, that business will hardly have what is necessary to keep going, let alone anything for expansion and development. The leading article in "The Times" on that subject put it very well, I thought, and, to me, these proposals are by far the most serious and damaging of all the proposals for taxation which the Chancellor has put before us.

I prophesy without hesitation that in the coming years the shortage of capital in business, and especially of risk capital and development capital, will be the outstanding feature of our economy. Taxation is destroying accumulated wealth at a tremendous pace. Penal taxation has taken away the surplus of the rich who used to provide a great deal of the risk capital. Where is it to come from in the future? My right hon. Friend the Member for Ormskirk talked about it in his speech and stressed the increasing amount of capital which would have to be raised through the market in debentures instead of by the issue of ordinary shares, and that is a most damaging feature which is coming into our economy.

Mr. I. O. Thomas

Will the right hon. Gentleman give an illustration of the statement he has just made? Will he state in what branch of British industry development has been prevented because of a lack of new capital?

Mr. Assheton

It would take some time to answer that question—

Mr. Thomas


Mr. Assheton

—because it is a very wide and extensive one, but any hon. Member who is not aware of the difficulty of this problem is simply not aware of what is going on in British industry. I cannot argue the point now.

Mr. Thomas

Give us one illustration.

Mr. Assheton

I do not need to argue it when the Chancellor of the Exchequer is sitting on the Front Bench. I am sure that he agrees and will pay urgent attention to this matter.

Mr. Thomas

Give us just one illustration.

Mr. Assheton

If the hon. Member wants illustrations he should look at the Imperial Tobacco Company. The immense amount of money they have had to find owing to the stocks that they have to carry; this has forced them to borrow enormously from the banks, a thing they never thought of doing before the war. I could give a hundred illustrations.

Mr. Thomas

But they are not in the bankruptcy court.

Mr. Assheton

They are not in the bankruptcy court and I do not want to see British industry in the bankruptcy court.

The major criticism of this Budget is that we have stretched our taxable capacity to the limit and have refused to recognise that we can only cope with our re-armament policy by cutting something else. It is the Estimates which are too high, the taxes follow from them. We cannot afford to spend as much as we are spending. Many hon. Gentlemen have made suggestions today for cutting expenditure, and I am sure we all enjoyed the speech made by my right hon. and gallant Friend the Member for Leicester, South-East (Captain Waterhouse). Hon. Members opposite may think he spoke for a long time, but think how long it would have taken Mr. Gladstone to deal with that.

Mr. Daines

Gladstone is not on your benches.

Mr. Assheton

My right hon. and gallant Friend was quite right; we have to look at the expenditure of every Department of State. Is there a single Department of State which could not cut down its Estimates if really pressed? The right hon. and learned Gentleman the Leader of the Liberal Party, which is so conspicuous by its entire absence from the benches tonight, asked whether we cannot postpone some expenditure? How right he was. There is now an overwhelming record of admitted extravagances and mistakes, and doubtless there are many of which we are still unaware. Groundnuts, Gambia poultry and the Festival of Britain are in the past. No doubt there are lots of other things in the present about which we have not heard.

Let us look at a few illustrations, because one can only make illustrations in a short speech. For instance, there is the provision of Government offices. Was it really necessary to set up a thousand new offices for the Ministry of National Insurance? Could we not make economies by housing that Department with the Ministry of Labour and assistance boards? Could they not be placed in the same buildings so that they could use the same staff and thereby save a great deal of money? They should economise by pooling their resources.

Then, again, are the Government really wise to refuse the advice of the Select Committee on Estimates on the question of free services by the Post Office to the Departments? The Postmaster-General made a reply to me the other day saying it would take 2,000 additional staff to make charges against Departments. Yet when I pressed him in a Question yesterday, he said—I always accept anyone's apology— I am sorry that thinking of a different operation I inadvertently misled the House in saying that 2,000 additional staff would be required to make charges for Post Office services against other Departments. I should have said about 100. Additional staff would also be required in the other Departments."—[OFFICIAL REPORT, 11th April, 1951; Vol. 486, c. 84.] If hon. Members will look at the amount of money spent by Government Departments on telephoning, they will see some startling things. They spend £12 million a year in telephoning. The Ministry of Works spend £369,000, the Ministry of Supply spend £820,000 and the Air Ministry spend £4,265,000. If anybody on that side of the House does not think there is room for economy in the Service Departments, here is a good illustration of it.

Then, again, can we really afford to keep such large staffs in the employment exchanges of the Ministry of Labour under present conditions? I throw out the question. My right hon. and gallant Friend the Member for Leicester, South-East, told us that we were spending 10 times as much on the universities as before the war. Are we getting value for money? Are we getting a proportionate increase in results? Are the young men being turned out by the universities up to standard? Is it possible that we are sacrificing quality for quantity?

I congratulate the Chancellor on his courage in standing up to the irresponsible elements in his party and making a beginning on the Health Service. I am sure the public do not understand what is involved in an altogether free service. Think what it would mean if we had a free transport service, and what pressure that would put upon the transport system. Many of the people who needed to travel would never be able to get on a bus, tram or train at all.

Similarly, many of those who most need the Health Service find themselves pushed aside. We all want to get the best we possibly can out of the Health Service, and I think that the step proposed by the Chancellor will go some way to improving the present position. I am not at all sure that the present system of centralised control over the hospitals can be at all effective. It is not in the best interests of hospitals, and I think we ought to have an independent inquiry, as my right hon. Friend the Member for Aldershot suggested in his speech on the radio last night.

The strongest indictment of the Health Service comes from a somewhat unexpected quarter—the Socialist Medical Association—in their pamphlet called "The £.s.d. of the National Health Service." It is well worth reading. Looking at the Health Service, I am prompted to ask whether the general practitioner, for example, has any incentive to prescribe economically or whether the patient has any incentive to use the service economically. All these things need going into, and an independent inquiry might throw some light on them.

I could give many other illustrations, but I refer lastly to the expenditure of local authorities. The rates have been going up alarmingly all over the country, and many local authorities will say that they have little control over the expenditure which is forced upon them by the central Government. We had a recent example of the extravagance which is forced upon them because the Minister of Education had the courage to issue a circular reducing the standards upon which he had previously insisted. There are other economies also which could be made.

It is very difficult for one not in the Government to know exactly what is going on and where all the savings could be made, but the Chancellor of the Exchequer has asked for suggestions. Many of us on this side have honestly and sincerely tried to put forward suggestions for his consideration, and I hope he will accept them in the spirit in which they are given. I am convinced that enough savings could have been made to avoid any new taxation at all.

On the question of taxation, there is a point which I should like to ask. I am old-fashioned enough to believe that one of the prime duties of Members of Parliament, of all parties, is to see that their constituents are not taxed too heavily and, certainly, not unnecessarily. It is the duty of the Government to provide the means of collecting the taxes which the House of Commons imposes, and the Government have no moral right to ask for more taxes if they fail to collect the taxes already imposed. This Government have been in office for nearly six years, but they have failed to provide enough trained tax inspectors to collect the taxes which they persuaded Parliament to impose during that time.

Tax collectors are trained men, but we have no more of them now than we had before the war. Think of the increased work they have to cope with. It takes three years to train a tax inspector, but the Government have had six years in which to tackle this job. At the end of the 1949 accounting period, there were £844 million of taxes in assessment. Of these, the Inland Revenue expected at some time or other to get in £310 million. This can be seen in paragraph 11 of their 1949–50 Revenue Report of the Comptroller and Auditor-General. If the Chancellor of the Exchequer gathered in that amount a little faster, he would not need to impose so many taxes. My hon. and gallant Friends the Members for Scotstoun (Colonel J. R. H. Hutchison), and Bristol, North-West (Lieut.-Commander Braithwaite), who made such agreeable contributions to the debate, both touched upon the same point.

Without any question, the country is suffering from over-taxation and from an over-planned economy, which is leading to rising prices. That is the most serious matter in the minds of nearly all men and women today. The rise in prices is the thing which is worrying everybody most. We can always learn from the past, and although history does not repeat itself, historical situations recur, as somebody much wiser than I said once before.

I was reading the other day a passage in Professor Woodward's "Short Journey." He was referring to the striking similarity between the legislation of today and that of the Roman Empire in the time of Diocletian and Constantine. He told us there that the emergency legislation which was intended for a time of crisis was perpetuated in the later Roman Empire with immense consequences to Western civilised society. We know what those consequences were; they were the collapse of a top-heavy bureaucracy and the Dark Ages. He ends by suggesting that it might be worth while for public authority to know something about the conditions which made possible the Dark Ages.

How many Members of Parliament, he asks, know anything about this previous warning that there are limits to the amount of "planning from above" which civilised society can bear without loss of vitality, initiative and, in the last resort. power of self-defence against the incursions of barbarians. [Laughter.] Hon. Members may laugh at this, but I am suggesting that they should take it seriously. Professor Woodward asks whether hon. Members know about this. I dare say that the hon. Member who laughed does not know, but I am telling him. I hope the Chancellor, who is well informed on these matters, will read his Gibbon again. Gibbon is the only English historian of the 18th Century whom modern research has not set aside.

Two major errors in Roman statesmanship are revealed. First, the spirit of peace and humanity seems to have impaired the instinct for defence of that great people and secondly—I am quoting J. C. Stobart— The whole Roman world was being slowly strangled with good intentions. The bureaucracy had grown so highly organised and efficient that everybody walked in leading strings to the music of official proclamations. Paternalism regulated everything with its watchful and benignant eye. The triumph of the system may be seen in the famous Edict of Prices issued by Diocletian in 301 A.D. [Interruption.] I know that the hon. Member opposite does not want to know anything about this.

Mr. Carmichael (Glasgow, Bridgeton)

It is an hon. Member opposite who is making the noise.

Mr. Assheton

Mr. Stobart goes on: Here we find scheduled maximum prices for every possible commodity and every kind of service and trade is forbidden to fluctuate under penalty of death. Benevolent officials swarmed all over the Empire spying and reporting on one another as well as on the general public. Traders were ruined and the restrictions placed upon commercial freedom brought about a shortage of food.

Mr. I. O. Thomas

Why not tell us about "The Lays of Ancient Rome"?

Mr. Assheton

I am doing so. Gibbon tells us of the appalling increase of taxation which resulted and quotes from a contemporary writer of the time: when the proportion of those who received exceeded the proportion of those who contributed. Money became so debased and worthless that the world went back to the system of barter. The Roman Western Empire and a great civilisation perished and there was darkness and misery in Europe for many hundreds of years.

All this happened, not in the reigns of the wicked Emperors, but in the time of high-minded, benevolent and humane statesmen and bureaucrats who wished to do their best for the world, but who failed to understand human nature and to foresee the inevitable doom to which their violent attempts at levelling led. They were the Crippses, the Gaitskells and the Attlees of their time. I can assure the Committee that that sort of attempt to uplift the masses never succeeded and never will. Can the Chancellor and his colleagues feel quite certain that we are not travelling the same road? There is still time, and I say that what the country needs is a new Government which has the courage to lead it along the right road.

9.31 p.m.

Mr. Douglas Houghton (Sowerby)

I think we now know where the Tory Party go for their descriptions of present-day Britain, because much of the quotation which we have just heard about conditions in the Roman Empire was strangely like the words the Tory Party use about conditions in Britain today, and, as one of my hon. Friends remarked, the Roman Empire lasted an awful long time, nevertheless.

This Budget is so good that the Opposition want to claim most of the credit for it. The right hon. Member for Aldershot (Mr. Lyttelton) yesterday let the Committee into a secret. He said that the proposals of the Chancellor with regard to National Insurance retirement pensions would have appeared in the Conservative Party programme at the next election. I am quite sure that that came as a great surprise to many hon. Gentlemen opposite, but that it came as a greater surprise still to the right hon. Member for Ormskirk (Sir A. Salter), because he has not yet been in the Conservative Party long enough to find out what their policy is.

It is not enough for the right hon. Gentleman to say that these proposals would have found a place in the Tory Party manifesto. The important thing to know is in which part of the Tory Party manifesto it would have been found. Would it have been in Part I, the obligatory or mandatory part, or in Part II, the optional part, because we remember that the right hon. Member for Woodford (Mr. Churchill) said on 7th February: I do not admit as democratic constitutional doctrine that anything that is stuck into a party manifesto thereupon becomes a mandated right if the electors vote for the party who draw up the manifesto."—[OFFICIAL REPORT, 7th February, 1951; Vol. 483, c. 1752.] It is not enough to know that these proposals would have found a place in the Tory Party manifesto.

With regard to the release of Purchase Tax on a wide range of household articles, the right hon. Member for Aldershot, in a broadcast last night, I understand, said that this met with the approval of the Opposition, and that they were glad that the Chancellor had taken their advice. I wonder if it occurred to the right hon. Gentleman that we on this side of the Committee from time to time offer our advice to His Majesty's Ministers, and that there are times when our advice is listened to with singular effect? I think that what the Opposition were trying to do was to find out what advice hon. Members on this side had given to our Ministers, and then, if they thought it had some electoral advantage, to proclaim this advice as their own.

The right hon. Gentleman said the Conservative Party had been thinking about the proposals for improvements and adjustments of the retirement pension for a long time. They would have produced some variation of the scheme which would have made it even better and more scientific. I think we are entitled to ask how long is "a long time" because we have not heard of this before. They did not even make a present of it to the right hon. Member for Ormskirk when he was a candidate at the recent by-election, but we are told it was to have been announced to the world and to the Conservative Party in the course of the debate tomorrow.

It is a great pity for their sake that, knowing what advice had been given on this side of the Committee, they did not make haste to produce their own plan—this better and more scientific plan. They had plenty of warning but they did not avail themselves of it. It is as well to put on record that these proposals for the adjustment of retirement pensions do follow in almost every particular the representations and advice which were offered to the Minister of National Insurance by a representative body of Members on this side of the Committee.

We realised that in the present circumstances we have to look at the National Insurance scheme to combine the need to encourage workers to stay on at work after reaching the normal retiring age with better provisions for those who have to give up. When we bear in mind that there are 20,000 workers reaching retirement age every month and that we desire the continuation of their services in industry, it is a sensible and urgent step to adjust the scheme to make it more attractive for them to remain at work.

There are two surprising things about the number of persons who have passed retirement age and who are still at work. One is that the number who remain at work after reaching the retirement age, despite the attractions which the scheme offers for them, is less today than was estimated at the time of the White Paper issued when the National Insurance Act was introduced. Not only that, but, so far as the figures show, the number is smaller today than it was in 1936, when no such attraction to remain at work were included in the scheme and economic and labour conditions were vastly different.

Clearly, in face of those two important factors it is desirable now to review the scheme and to offer better inducements to remain at work after retirement age, to make it easier for those who have to give up their normal ocupations to earn money in marginal or part-time employment for which they are suited by physique and experience, and so do something for themselves which in present circumstances would impose an additional burden on the National Insurance Scheme to do for them.

There are a number of points which in the course of our debates on the Finance Bill we shall no doubt have to suggest, but I think the Committee will agree that when the time comes we shall all join in passing into law a Measure the main principles and framework of which are regarded with general approval. Indeed, there has been no criticism of these proposals, and the right hon. Member for Leeds, North (Mr. Peake) approved of them in principle as being in keeping with the integrity of the National Insurance Scheme.

As regards the National Health Service and the proposed charge for certain dental and ophthalmic services, there has been criticism on this side of the Committee but none, so far as I have heard, on the other side. We have to bear in mind that so long as the National Health Service is a charge on revenue and, therefore, a factor on the expenditure side of the Budget, it is important—indeed, it is inevitable—that the expenditure on this branch of the social services shall be fitted into the general pattern and plan of national expenditure having regard to all the calls that are being made on our resources.

If the need arises, as it may, and, indeed, as it has, for fixing a ceiling to the expenditure on the National Health Service, then there are two alternatives from which we have to choose. One is that if the service cannot manage on the ceiling of expenditure which is fixed, we either get some deterioration in the service or some check on the expansion of the service because of inadequate funds, or we have to face the need for some charge for some services in order to see that the service does not suffer. That is really the basis of the proposals which the Chancellor has made.

I should like to deal with some aspects of new taxation, and my preface to my remarks on this subject is that on the whole I think the Budget has struck all as being fair in its distribution of new burdens. We have the Profits Tax, or as I would prefer to call it, the dividends tax, because that is what it is intended to be. There is the Income Tax with its levy on the higher ranges of income, with reliefs for those lower down, and there is the Purchase Tax on new motor cars, wireless and television sets which, generally speaking, will be a levy on those who are better able to bear it. There is the petrol tax which, in one aspect of its incidence, will be a charge on pleasure motoring but which in its other aspect will be thinly spread over the whole of passenger and road transport. That is nicely balanced as between those able to bear these additional burdens and those upon whom extra taxation and charges at this time would prove irksome, and the Chancellor has realised that many of the people with lower incomes will be making their contribution to the cost of defence through the inevitable rise in prices.

I want to pass to the Profits Tax or what I prefer to call a dividends tax. The right hon. Members for Ormskirk (Sir A. Salter), Blackburn, West (Mr. Assheton) and Aldershot (Mr. Lyttelton) all keep telling us that this Profits Tax will come out of company reserves, that it will not be met out of a fall in dividends. All I can say to that is that if this Profits Tax, or dividends tax, is coming out of company reserves, then the directors of companies are not discharging either their public duty or their duty to their shareholders in so doing.

I see that the "Manchester Guardian" this morning, under the heading "Budget well received," says: The Budget was remarkably well received on the Stock Exchange. Considering that the profits tax will heavily discourage any further raising of dividends and may enforce dividend reductions "— which I would have thought was to be the likely consequence of the increase in this tax— the brisk marking up of industrial share-prices was astonishing.

Mr. Assheton

Would the hon. Gentleman allow me to tell him that the reason why ordinary shares have risen on the Stock Exchange is quite clearly that the Stock Exchange is frightened of inflation, and that is the reason Government stocks have fallen. When it comes to the question of dividends, why does the hon. Gentleman suggest that directors of companies are not doing their duty in trying to maintain the income of their shareholders?

Mr. Houghton

The simple reason is that the Chancellor said in his Budget statement that profits had recently risen quite sharply and in advance of either wages or salaries. Dividends are, after all, unearned income and in many cases permit substantial capital gains to be made on stocks and shares transactions which are not subject to tax.

In those circumstances surely the Chancellor is putting his finger on the right spot when he seeks to drain off to the national resources excess yield on invesments which, in present circumstances, it is improper to give to shareholders. If that is not the effect of this tax, then the Chancellor will have to consider alternative ways of achieving his purpose. When the right hon. Member for Blackburn, West, was reading the classics I was consulting the financial columns of the newspapers, and I noticed from this morning's papers that in the Canadian Budget there has been a steepening of the tax on profits in Canada. [An HON. MEMBER: "They had not read Gibbon."]

I want to turn now to the question of Income Tax. The right hon. Member for Aldershot criticised the figures given by the Financial Secretary of the reduction in Income Tax since the Labour Government came into power, and the right hon. Member for Ormskirk suggested that those figures were a fantastic calculation of tax remission—those were his words—because, he said, in estimating the total amount of tax remission in the last six years we had to take account of the fall in the purchasing power of the £.

I think the right hon. Gentleman probably has not studied some of the details of tax remissions, not in their grand total but in their effect upon persons of particular incomes. Take, for instance, a married man with two children who is earning £500 a year. Since 1946–47 his Income Tax has been reduced by 70 per cent. On £600 a year it has been reduced by 60 per cent. On £700 a year it has been reduced by 54 per cent. On each of those income levels, the married man with two children is given relief in the current taxation proposals. On £1,000 a year a married man with two children has had his tax reduced by 30 per cent. On £1,500 a year he has had it reduced by 21 per cent.

I could give the right hon. Gentleman other figures to show the striking reduction in direct taxation in the last six years. For instance, we find that a married man receiving £8 a week, with two children, paid 6s. 3d. a week tax in 1946–7 and paid 1s. a week tax last year. Under the Budget proposals he will pay 1½d. a week, in contrast with 1s. a week which he paid before the war. These are important figures which cannot be denied when we are looking at the effect of reduced taxation on individuals.

I want to say something about tax evasion. I do this with great diffidence, because the hon. and gallant Member for Bristol, North-West (Lieut.-Commander Braithwaite), says that whenever I speak on Income Tax, although the hand is the hand of Esau the voice is the voice of the tax gatherer. I must declare my interest. Although I am not a tax gatherer and many years have passed since I was, I am, as many hon. Members know, secretary of the Inland Revenue Staff Federation. I am sure the Committee is always interested to hear direct from the bench, so to speak, when skilled workers want the tools to do the job; and the need for the tools to do the job is no less in the skilled occupation of tax gathering than in many other occupations.

There is no doubt that there is a good deal of tax evasion going on at the present time, and attention was drawn to it in the Report of the Comptroller and Auditor-General for the year 1949–50. He reported that 1,886 taxpayers had been stung for £5,000,000, but the important thing to notice is that last year's harvest of back duty, as it is called, fell short of that of 1935, when tax was exactly half the rate of 1950; and in the last three years 4,000 fewer investigations have been made than in the three years 1937 to 1939. That underlines very markedly indeed the comments made by the right hon. Member for Blackburn, West, that the Inland Revenue quite evidently had not got the tools for the job.

The Comptroller and Auditor-General in the Inland Revenue report states that evasion is serious and widespread and that but for it there would be a substantially increased yield of revenue. The yield of taxation last year was £1,400 million. What is a substantial increase on £1,400 million? Is it 7 per cent.? That would mean another £100 million in tax gathered in as a result of the investigation into evasion. The Inland Revenue must have, in my submission, more power to deal with evasive taxpayers and those who are seeking, by one means or another, to avoid paying their full dues, and I think that the Chancellor should really set about this problem, if he can, in this year's Finance Bill.

My right, hon. Friend has had plenty of advice on this subject on such thorny questions, which were dealt with by the Royal Commission 30 years ago but have not been dealt with since as, should the existence of bank accounts be disclosed by the joint stock banks? Should the names and addresses of all account holders be disclosed? Should taxpayers be required to make a declaration of wealth as well as of income? Should there be a power of inspection of books and accounts such as Customs and Excise have for Purchase Tax purposes? Since they have, one would think that the Inland Revenue might have similar power for Income Tax purposes. Then there is the very controversial question, should the Inland Revenue have the power to prescribe the form of certificate which accountants give on behalf of their clients as taxpayers?

These and other suggestions are all matters which are well worthy of the consideration of my right hon. Friend at this time, and I am quite sure that the country would welcome a determined effort to clear up what is undoubtedly a fiscal scandal. If the Chancellor is now looking for some controversial parts for his Finance Bill, since we are not going to have any on the tax side of the Bill, I commend these suggestions to him.

Much has been said about the savings which could be made in public administration, and the right hon. Gentleman said a few minutes ago that the Civil Service was now too big for the Treasury to control. There is one respect in which Treasury control is as tight and exacting as ever, and that is pay. The Financial Secretary said recently that the increases in pay in the Civil Service had offset the savings in staff and work which had been secured as a result of continuous investigation into Civil Service methods and business. But the Treasury turned down applications for pay increases, and those increases that have been given were awarded by the Arbitration Tribunal; which does, I suggest, show that the Treasury hold on the pay of the Civil Service is as strong as ever.

But there is much in the public service which, I am sure, can be looked at with beneficial results for the Civil Service and the public administration and the public. There is the Organisation and Methods Division of the Treasury which was founded by the hon. Member for Bath (Mr. Pitman), which is a model way—a model, I understand, to many business houses—in which the Treasury have centralised and specialised on office machinery, on methods of organisation, and in seeking the very best way of doing public business.

Now I want to say a word or two about the cost of living. The Conservative Party put out a leaflet a little while ago which said: The Conservative Party don't just talk about the high cost of living. This was dated certainly after the middle of last year. Examples were given of woollen blouses and other clothing which had increased in price since 1945 when the Socialists came to power. In this leaflet they said they had ways and means of dealing with the cost of living; the food subsidies were going to be adjusted in some way; present high taxation was going to be reduced, and the crushing burden of taxation was going to be lifted by the vigorous activity of the Conservative Party if they got office. They are only talking about the cost of living now. They have not made a practical suggestion for bringing down the cost of wool; they have not made a practical suggestion for bringing down the cost of many other raw materials that we are bound to purchase from overseas sources, for both civilian and defence needs.

I notice that nothing has been said in any of the speeches made from the benches opposite about the fact that in 1950 we secured our economic independence. In 1949, 13 per cent. of all our imports came under Marshall Aid. It was inevitable that by 1952 we should have to pay some price for getting free of Marshall Aid, unless by that time we had balanced our overseas account. We have done it in 1950. Just as the terms of trade have gone against us, so they have gone against the United States and the dollar area, because they need commodities which come from the sterling area.

We have had a review of some of the aspects of the Budget and its background which have been mentioned in the speeches of right hon. and hon. Gentlemen opposite. I noticed that last year, when the hon. Member for Flint (Mr. Birch) was giving His Majesty's Government one of his annual flagellations—for which, if I may say so, he is well suited by name and temperament—he said that we on this side of the House were completely uncertain of where we were going; wandering, he said, between two worlds, one dead and the other powerless to be born.

I say that hon. Gentlemen opposite have not even started to wander; they are still living in the dead world. It may be that the new world is powerless to be born; it is too early to say. If it is not born, it will be due to the folly of the world and the wickedness of man, who has all that the world can provide at his disposal, but, for some amazing reason, he cannot live in peace with his neighbour.

The British people have all the resources needful to meet the strain on our effort, on our optimism and our vigour, if hon. Gentlemen opposite will only be honest with the British people, and will stop talking mischievously about muddle and mismanagement, when they know that we have more to be proud of and less to be ashamed of in Britain today than at any time in this century.

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

Committee report Progress; to sit again Tomorrow.