FINANCE BILL

HC Deb 08 May 1951 vol 487 cc1765-912

Order for Second Reading read.

3.39 p.m.

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

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

In introducing the Finance Bill a year ago I said, Our supreme economic aim in these last years has been to close the dollar gap and to achieve economic independence at the end of the Marshall Aid period."—[OFFICIAL REPORT, 16th May, 1950; Vol. 475, c. 1019.] It was mainly with that aim before us that we constructed last year's Budget, and those of the preceding few years. None of us knew a year ago that we would in fact achieve independence of Marshall Aid 18 months before the target date, and in advance of any other country. Still less did we know then that within a few weeks of our Second Reading debate the Korean war would break out and alter the whole economic and financial as well as political scene.

Those two events have brought to an end the series of Budgets and Finance Bills that aimed primarily at freedom from dollar aid, which we have now achieved, and have given us a new background and a new aim this year. This year we seek, first, to finance a major re-armament programme, in a period when the movement of import prices against us has actually imposed an even heavier burden than the increased defence bill this year; second, to avoid stimulating inflation by excessive internal demand; and, third, to maintain both our hard-won economic independence and the structure of our developing social services.

Those aims taken together make up a formidable task; and, as we have always sought to make clear, it cannot be performed without some sacrifice in current living standards. Let us always remember, therefore, when we measure the effect of rising import prices on our cost of living, that this is part of the bill we have to pay for achieving our aim of economic independence, in a world where so many countries are re-arming.

In framing our proposals we have, therefore, sought to curtail excessive demand, which would pull up living costs further, to place the main burden on profits and high incomes, which always tend to come off best in a period of rising prices, and to restrain the load on industrial capacity needed for defence and exports. It may be said that in raising the main extra revenue, as we have, by a higher tax on distributed profits, by higher Income Tax and by indirect taxes on goods mainly consumed by those with the middle and upper incomes, we have forgotten that, though the earnings of the wage earner have greatly increased since 1945, nevertheless it is—as some would say—the salary earner and black coated worker who have come off worst.

This neglects, however, what I think many people have genuinely not noticed, the very substantial reliefs in Income Tax given cumulatively since 1945 to a great number of salary earners as well as wage earners. There were some hon. Members opposite who were surprised when I said, in the Budget debate, that a return to the identical Income Tax rates of 1945 would yield an additional £1,000 million a year in revenue today. If they are surprised, it is perhaps because they forget that our national production has risen by over 40 per cent. since 1946, and that we have given very large tax reliefs in these years to the middle as well as lower incomes.

Sir Arthur Satter (Ormskirk)

If the hon. Member will allow me to interrupt, has he not forgotten, when making that calculation, that prices have risen so much as to make his calculation of relief given completely illusory?

Mr. Jay

That is one reason why the money national income has risen; but the calculation of additional revenue is, I assure the right hon. Gentleman, perfectly right.

I was about to say that a married man with one child today earning £300 a year will pay this year, after the changes we have made in Income Tax in this Bill, 100 per cent. less in tax than he did in 1945—he will pay nothing instead of £26. If he earns £600 a year, he will pay 63 per cent. less. If he earns £2,000 a year, he will pay 27.6 per cent. less. A married man with three children will pay 100 per cent. less at £500 a year, 68 per cent. less at £800 a year, and 31.6 per cent. less at £2,000 a year. Above the Surtax level the reduction has been proportionately much smaller; so that we have over these years carried out a sweeping redistribution of the burden within the Income Tax field.

It was with those facts in mind that we decided this year as the main feature of our Budget—though some people seem not to have noticed it—to put the chief load on profits and higher incomes through a rise in Profits Tax and Income Tax. After these changes, tax on company profits—Income Tax and Profits Tax together—will average 60 per cent., which compares with 53 per cent. in 1947–48 and 31 per cent. in 1938–39. There have been some protests, though the Opposition notably refrained from voting against the higher Profits Tax in the Budget debate, that these high rates of profit taxation will be paid out of reserves and that those will be depleted unduly.

Mr. Arthur Colegate (Burton)

If the hon. Gentleman will allow me to interrupt, surely in certain cases the total deduction will be as much as 13s. 3d. in the pound, which is more than 60 per cent.?

Mr. Jay

The tax, as I was pointing out, on companies will vary according to the amount paid out and the amount put to reserve. As I was saying, whether or not the reserves suffer will depend on the rate of dividend paid, and those who raise dividends really cannot complain at the same time, when we have left the rate on undistributed profits as low as 10 per cent., that it is Profits Tax which is depleting reserves. There has not been much criticism of our decision to withdraw the initial allowance—[HON. MEMBERS: "Oh!"]—and I think it is generally understood—

Mr. Sidney Marshall (Sutton and Cheam)

Wait and see.

Mr. Jay

Well, if there is criticism, we shall answer it. I think it is generally understood that this is not the best time to stimulate physical investment with an interest-free loan from the Exchequer, which is what the initial allowance really is.

The hon. Member for Renfrew, West (Mr. Maclay) asked in a speech in the Budget debate whether, in the case of ships, something could be done for exceptional cases where contracts have already been signed under which work may have already begun, and instalments been paid, but delivery and final payments will not take place until well after April, 1952. My right hon. Friend and I have since examined this, and in view of the very special importance and circumstances of shipbuilding, we have decided to put down an Amendment on the Committee stage. This will except from the suspension of initial allowances any payments, even though they may be made after 5th April, 1952, on account of ships that were in course of building for a trader on Budget day, that is to say, 10th April, 1951.

Mr. Maclay (Renfrew, West)

The hon. Gentleman says, ships in course of building. Have he and his colleagues considered ships for which contracts have been signed, and are they included in his statement or excluded?

Mr. Jay

Excluded. We have considered that, and we have decided that the best arrangement would be to confine this to ships in course of building.

I do not think there was much disapproval in the Budget debate of the changes in Income Tax included in this Bill, which should, as I have said, be seen against the sweeping reliefs of earlier years. By raising the allowances for married persons and children we have, I hope, managed to win some virtue out of necessity; and actually, where the family is concerned, to carry the process of relief a bit further.

We are constantly being urged by hon. Members in all parts of the House to tighten up measures against evasion and avoidance, both of Profits Tax, Surtax and Income Tax. I may say that, quite apart from the proposals included in this Bill, the Board of Inland Revenue are, with the help of the additional expert staff now available, embarking on a major administrative campaign against evasion by those who understate, or fail to return, their profits.

A number of Clauses in the Bill are also designed to stop legal avoidance by closing further loopholes. In a year when our major financial aim is to pay for rearmament, and, indeed, when actual fighting is going on in more than one part of the world, I think the House will agree that it would be intolerable to allow a small minority either to defraud the State or, by schemes of legal avoidance, to contract out of their fair obligations to the rest of the community. Such schemes are as unfair to the great majority who scrupulously pay in full on Death Duties, Surtax, and Profits Tax, as to the even larger number of taxpayers who cannot possibly escape the workings of P.A.Y.E. or, for that matter, tobacco or beer duties.

In Clause 28, therefore, we have included a general provision countering any scheme in which a main purpose, or in certain circumstances the main benefit, is the avoidance or reduction of liability to Profits Tax. Although this may at first sight appear drastic, it is only a straightforward reproduction of a provision which was in force throughout the war affecting E.P.T., which proved necessary and workable. As in the war, it is necessary now to counter types of avoidance that are steadily increasing.

Secondly, in Clause 27 we have sought to stop a type of Profits Tax avoidance which is at present legal and has actually occurred, by which previously earned profits put to reserve are capitalised, and then handed back to shareholders immediately, or almost immediately, in the form of capital repayments.

Thirdly, in Clause 32, we have decided to reinforce the present powers of the Treasury to prevent United Kingdom companies from transferring overseas, in order to avoid their fair contribution to Profits Tax and Income Tax and so to the finance of the re-armament programme. Our existing powers derive from the Exchange Control Act and have been administered primarily on exchange control grounds. Quite apart from the need for strengthening these powers to prevent manipulations which might get round the existing law, we think that action by the Government which is really intended on tax evasion grounds, rather than on exchange control grounds, should be taken by powers specifically designed for tax purposes. Here again, similar powers existed during the war. We are, in effect, reviving these powers and extending them to cover any avoidance devices in this field.

Clause 32, therefore, provides in substance that a United Kingdom company may not transfer abroad, or carry out a transaction equivalent for tax purposes to transferring abroad, without the consent of the Treasury. The Treasury recognise that there will be cases where there are compelling reasons of operating efficiency and the development of trade for a transfer of control. In exercising these powers, therefore, we shall weigh carefully any new facts or circumstances advanced by the company concerned as a compelling reason for the proposed transaction; but we shall also, in fairness to the great majority of companies who do not resort to tax avoidance schemes, and indeed to the humble, ordinary taxpayer, take full account of any loss of tax which might result from the transaction. It is because of this unfairness to the ordinary taxpayer of the less worthy type of company migration that we have felt bound to lay down heavy penalties for anybody who, in the last resort, disregards the obligation to obtain Treasury consent.

I must tell the House quite frankly that disturbing cases have come to our notice recently, such as one where it was proposed that overseas subsidiaries' shares held by a large and wealthy United Kingdom parent company should be transferred to a new creature of the company, to be set up in a British Colony, where there is no Income Tax or Profits Tax at all. The parent company had no apparent commercial reasons for creating a company in the Colony to hold these shares, and the only possible conclusion was that this was part of a scheme designed to avoid United Kingdom tax on the dividends from overseas subsidiaries. The parent company might then have received payments from the subsidiary in the form of non-taxable capital sums. In our view, it would be indefensible to let such devices go scot free; and we are satisfied, after much consideration, that the proposals embodied in Clause 32 are necessary to stop them.

Also with the purpose of checking evasion, we have provided in Clause 23 that any bank or other relevant trader should make returns to the Inland Revenue of certain interest paid or credited without deduction of tax. I see it has been suggested that this will infringe the confidential relationship between the banker and his customer. That relationship is, of course, most important; but it should not be abused for tax avoidance. Interest received on a bank deposit is, in fact, income just as much as wages and salaries. It has long been recognised as proper that employers should be required to tell the Inland Revenue the wages and salaries they pay—we have all had experience of that.

Sir Waldron Smithers (Orpington)

Does that apply to the Post Office and to trustee savings banks also?

Mr. Jay

Yes. I was going to say that had the hon. Member allowed me to continue.

There is no reason why bank interest should not be returned to the Inland Revenue in the same way. The Inland Revenue will itself, of course, treat any such information as completely confidential, as it does all information about the individual taxpayer. Nor, in any case, will the Inland Revenue get any information, as a result of the Clause, that it would not have had already about any taxpayer who was making an honest return of his income. After all, a bank already returns information about the wages and salaries of its employees, and it seems to us not unreasonable that it should do the same with interest on the deposits of its customers.

Mr. Summers (Aylesbury)

Has the Financial Secretary formed any estimate of the amount of revenue which, it is believed, escapes taxation and for which purpose the Clause is designed?

Mr. Jay

No. I should not like to put a figure to it, but I can assure the hon. Member that those who handle these matters are satisfied that it is important enough to make the Clause necessary.

The proposed changes in Purchase Tax, both up and down, which the House accepted without a Division a month ago, are included in Clause 12. The increases are, of course, intended not merely to raise revenue but to free engineering capacity for defence and exports.

Mr. Henderson Stewart (Fife, East)

My hon. Friend the Member for Orpington (Sir W. Smithers) asked a question about the position of the Post Office Savings Bank and the trustee savings banks. Would the Financial Secretary tell the House what he intended to say on this matter?

Mr. Jay

I thought I said it in reply to the hon. Member. As the Bill shows, the proposal to make returns of interest payments applies to the Post Office and to other similar savings banks.

Since the Budget debate I have discussed the proposed increase in Purchase Tax on motor cars with spokesmen of the Society of Motor Manufacturers and Traders, who showed a welcome understanding of the requirements of the defence programme, which led to our decision to raise this tax; but they expressed alarm about the possible effects of the tax upon the industry in quite different circumstances, when the pressure of demand might be much less, and they asked whether the Government regarded this increase as temporary or permanent. In reply, I can certainly say that it would not be our intention to maintain this tax at the level of 66⅔ per cent. at any time when the demands of defence, exports, and the home market together might fall seriously below the capacity of the industry.

Mr. Manuel (Central Ayrshire)

Has my hon. Friend considered what has happened in the case of sales of secondhand motor cars, which have become an absolute ramp? Would he not consider the advisability of imposing some kind of tax on such sales, to be collected either from the buyer or from the seller, or both, and thus make available for Budget purposes a large sum which is very much needed in the present circumstances?

Mr. Jay

We considered that very carefully before the Budget, but if my hon. Friend has any additional information I hope he will let us have it.

I am glad to say that we can add one further small relief to the Purchase Tax exemptions introduced in the Budget, which I think were welcomed by everybody. We there proposed a Purchase Tax of 66⅔ per cent. on portrait photographs made from materials which had not borne tax. Owing to the inevitable need for Budget secrecy we could not have as detailed discussions with the trade on the proposal as we would have liked. Talks have since shown that the necessary definition would in practice be too difficult; and we shall, therefore, ask the House on Committee stage to delete that proposal from the Bill. The Opposition did pluck up their courage to vote against the Petrol Tax on the Budget Resolutions——

Mr. Oliver Lyttelton (Aldershot)

If the hon. Member is seeking to draw any conclusions on our attitude to the Budget Resolutions he will merely force the Opposition to vote against all of them and that would be a practice which would be extremely tedious. I warn him that the attitude he is now taking is extremely dangerous from the Government point of view.

Mr. Jay

I am not drawing any inference. I was merely recording the facts which have occurred. I was saying that the Opposition did vote against the Petrol Tax on the Budget Resolutions, but the right hon. Gentleman the Member for Aldershot (Mr. Lyttelton), I think he will agree, did not specify in great detail at that stage his reasons for objecting to that increase. Therefore I do not think I shall attempt to reply to that until we have heard the reasons and also how it is proposed to raise the £35 million needed in some better way. Hon. Members opposite also voted against the Entertainments Duty, and I could not discover any very specific reason given for that.

Mr. Lyttelton

I must really ask the hon. Gentleman to make it quite clear that the Budget Resolutions are not debatable. The whole of this argument he is putting before the House is highly tendentious in character and really should not be advanced from the Treasury Bench.

Mr. Jay

I am merely supposing that the Opposition might have had some reason for the votes they did or did not give on the Report stage. To be perfectly fair, I was going to say that the right hon. Member for Saffron Walden (Mr. R. A. Butler) did say that if we happen to oppose one or two… Resolutions on Report it will be by way of a token."—[OFFICIAL REPORT, 16th April, 1951; Vol. 486, c. 1575.] Whatever that may be. So perhaps it was an accident. We do not believe that the small rise in Entertainments Duty will be unduly burdensome, as a contribution to defence. It means that the ordinary cinema seat will only cost 2d. more, and there will be corresponding rises in other forms of entertainment charged under the same scale. There again we are trying to sweeten the uses of adversity by arranging that a share of the increased revenue should go to the British Film Producing Industry, whom I think the whole House are anxious to foster.

A number of minor improvements on the Customs and Excise side are included in the Bill. We seek in Clause 5 to pass into law the definition of value of imported goods, which was adopted for international use by the Convention on the Valuation of Goods for Customs purposes signed in Brussels in February, 1951. That follows over two years work by the European Customs Union Study Group. We are also carrying out the U.N.E.S.C.O. Agreement for the international exemption of certain educational and other goods from import duties; and in Clauses 8 and 9 we are improving further the machinery for drawback of import duties on exported goods. We hope this should further assist the export trade.

In Clause 11—and it is pleasant in the Finance Bill to be liberating, not restricting, somebody—we are taking power to issue licences for the sale of tobacco to mobile shops, such as travelling fish and chip vans. This need, we think, has become pressing because of the development of new housing estates and new towns, at a time when the building of houses clearly must have priority over the building of shops.

I hope we shall also have general support for the minor reliefs from Estate Duty included in Clause 29, as part of our proposals arising out of the Gowers Committee Report on country houses of artistic or historic value. The Committee proposed rather far-reaching tax concessions to private owners. As my right hon. Friend the Chancellor explained in answer to a Question on 26th April, we have not accepted all these proposals, because we do not think that the grant of tax exemptions to private owners and occupiers is the right way to assist in the preservation of these houses. We prefer to see them either in the ownership of a public authority like the National Trust, or receiving grants under Parliamentary control. But we do propose in this Bill to exempt from Estate Duty the contents of houses given or bequeathed to a public authority, and also to exempt gifts or bequests to public bodies—not just the National Trust as is the present law—of houses and land and endowment funds accompanying them. I was glad to see that at the Royal Academy Banquet—not always a non-controversial occasion—no less an authority than the right hon. Gentleman the Leader of the Opposition gave his general blessing to our proposals here; and I hope that the right hon. Member for Aldershot does not mind my referring to that.

In Clause 36 we propose to give exemption from Stamp Duty on transfers of stock issued by the International Bank, thus according to the Bank the same treatment in this country as it enjoys in the United States. That proposal is made to assist an issue by the Bank of sterling securities, to which we have already agreed in principle. The Clause carries out the spirit, and actually goes a little beyond the letter, of the Bretton Woods Agreement.

Such are the main proposals in this Bill. I do not think any recent Budget has stood so well as this year's the test of discussion in the House and the country, or, in its essentials, gained so much support. It has, indeed, become clear that no alternative financial or economic policy to our own has been, or is being, offered to the country, at least certainly not by hon. Members opposite. The Opposition have, however, lately grown somewhat in candour; and, as a result, their inability to find an alternative policy has become even plainer. They support the re-armament programme we have proposed and, therefore, the need for a disinflationary Budget.

They support also, they tell us, the present level of social service expenditure. Indeed, the right hon. Member for Saffron Walden disowned most specifically in the Budget Debate the main proposals for economies on social services which had been made by his right hon. and gallant Friend the Member for Leicester, South-East (Captain Water-house) earlier on. The right hon. Member for Aldershot also told us that the Opposition were opposed to any reduction in food subsidies at the present time. As another of his colleagues, the hon. and gallant Member for Pollok (Commander Galbraith) since the Budget Debate has described the subsidies as the only single source from which a great reduction in expenditure and consequently in taxation, could be made, it is, therefore, now perfectly clear, on the Opposition's own showing, that they could make no material reduction in Government expenditure or taxation. As hon. Members opposite presumably do not intend to increase the subsidies, they do not appear to have any plan for restraining the rise in the cost of living either.

Finally, in this same burst of candour, the right hon. Gentleman the Member for Aldershot has also told us, according to a report in "The Times"—and he can let us know if it is not correct—that his party no longer believe it possible to build 300,000 houses a year "in the circumstances of today," because of the rearmament programme. It is perhaps a little strange that hon. Gentlemen opposite did not come to the conclusion last autumn, as we did, or even last winter, that our Defence obligations make this impossible.

Therefore, after these candid confessions from the opposite side of the House, if they go on trying to persuade the country that they can either reduce taxation or the cost of living, or build more houses, they will find, as perhaps they know, that they are creating false expectations, which may one day recoil pretty fiercely on their own heads. We prefer not to create any such false expectations. We believe—as hon. Members will see clearly enough from this year's Budget and from this Bill—that the nation's security, and obligations to its Allies, requires an austere Budget and economic policy, based on restraint and fair shares. We say plainly that this year's Budget and Finance Bill are, for that reason, neither easy nor popular. But it is in the belief that the great majority of our people fully understand the need for fair and honest measures that, despite some recent controversies, we commend this Bill with great confidence to the House and to the country.

4.12 p.m.

Mr. Oliver Lyttelton (Aldershot)

In all the time that I have been in this House I have never heard a thinner speech delivered from the Treasury Bench upon the Second Reading of a Finance Bill. The hon. Gentleman's considerable dialectical powers were not displayed this afternoon when he sought to show that the Bill has received universal approbation. He had only to look over his shoulder to see that there are certain faces missing. If it received such acclamation elsewhere, it certainly received no unanimity in the Cabinet itself. Therefore, that passage in his speech in which he sought to show that the Opposition were divided upon the matter could hardly have been more infelicitous.

He then passed on to make a few misquotations from a speech of mine. I never said anything about 300,000 houses not being possible. I said that it would be a counsel of despair to reduce the target below that figure. It obviously could not be attained as quickly today as six months ago. I also pointed out in that speech, although what that has to do with the Finance Bill I do not know, that it might even be necessary to plan for houses perhaps 50 feet less in size than the present scale.

Mr. Jay

The right hon. Gentleman accuses me of misquotation. I merely read but the report in "The Times" in which he said that it would be a counsel of despair to reduce the target below 300,000, but that it would be useless and dishonest to say that they could reach that target in the circumstances of today. I do not want to argue about words, but that is the report in "The Times."

Mr. Lyttelton

The hon. Gentleman said that he read out the report. He did not do anything of the kind. He read out that part which happened to suit his particular argument. However, perhaps it is unnecessary to pursue the matter further. If the hon. Gentleman wishes to know what I did say upon the subject, I will repeat it. I think that it is a counsel of despair to reduce the target. It cannot be reached so quickly as it could have been reached six months ago, and it may even be necessary to reduce somewhat the size of the houses from their present standard.

I have no wish to cover all the ground which I covered in the Budget debate, but it is still necessary to fill in some of the background which the Financial Secretary to the Treasury has been careful to leave out of all account. It remains true that the outstanding feature of our financial policy is that we have virtually used up all our taxable resources. I say that without for one moment forgetting what the Financial Secretary said a week or two ago, and what he has repeated this afternoon; namely, that there is, theoretically, a reserve of £1,000 million per annum available to us through Income Tax. I want to examine that claim.

It is no doubt true that another £1,000 million could, theoretically, be tapped by raising the standard rate of Income Tax to 10s., by reducing the earned income allowance from one-fifth to one-tenth, by lowering the exemption limit from £135 to £110, by reducing the personal allowance for single persons from £110 to £80 and for married couples from £180 to £140, and the children's allowance from £60 to £50. Arithmetically, this would add up to £1,000 million; but, of course, such a claim is altogether too facile. For one thing, taxes cannot be regarded, as the hon. Gentleman sought to regard them, in isolation; they must be studied in relation to the whole body of existing taxes.

When Sir Stafford Cripps and, later the Financial Secretary, made this claim about taxable resources, they omitted, for obvious reasons, to mention that other taxes have been greatly increased. Thus, the Customs and Excise now bring in £1,651 million compared with £1,130 million in 1945–46, which is an increase—[Interruption.] I hope that I am not interrupting the Secretary of State for War.

The Secretary of State for War (Mr. Strachey)

I fear that I was interrupting the right hon. Gentleman. I will do it aloud. I was pointing out to the Financial Secretary that trade has increased very largely since 1945, and that that largely accounts for the increase in revenue.

Mr. Lyttelton

I am discussing the amount of taxes raised from various sources. The Customs and Excise are now bringing in £520 million more. Perhaps the Secretary of State for War, with his knowledge of financial matters, will realise that that argument is extremely relevant to the amount of taxable resources that remain at any given level. I am glad, although somewhat disturbed, to find that he agrees with me. Surtax brings in £13 million more and Death and Estate Duties bring in £65 million more. Therefore, taking the estimates of revenue for 1951, compared with those for 1945, the amount raised by taxes will have increased from £3,225 million to a little over £4,000 million. It is rather a sad reflection to think that this increase in the amount of revenue raised would have been sufficient to pay for the whole Budget, or very nearly, in 1936.

But, of course, the heaviest burden which the population has to bear is the constant rise in prices and the constant fall in the value or purchasing power of their money—that is to say, all that income which is left to them after the tax gatherer has finished—and the constant fall in the value of their savings. In the handicap of life, the taxpayer of this country is already top weight on taxes. Now another crushing burden—the weight of rising prices—is to be added.

It is wrong to imagine that these taxable resources are in fact £1,000 million. It is an arithmetical calculation which bears no relation to the realities of today. The Oxford University Institute of Statistics—and I choose the other university from my own, though that is not usual in these matters—has estimated that a married man with two children, who, of course, gets substantial allowances, would have to earn £1,225 today to buy the same things that he could have bought with £500 in 1939. If the Chancellor of the Exchequer wants to make a comparison with 1929 he is welcome. I have not got the figures here.

It is altogether too facile—I avoid for the moment the word "misleading"—to talk about taxable resources of £1,000 million a year from income still being available. An increase on anything like this scale in the burden of Income Tax would lead to a further fall in savings and further pressure for increases in wages and salaries. When we are discussing the methods by which the Chancellor of the Exchequer proposes to raise revenue, we must do it against the background of a national balance sheet in which there are left virtually no taxable reserves. What I have said would be serious enough if we were facing only the problem of financing an armament programme for 1951–52; but, unfortunately, that is not all the story. We have to look, in 1952–53 and 1953–54, for higher and progressively higher, expenditure; and even that is not all. We have to remember that there is a possibility, which God forbid should ever come about, that we might have to finance another great war.

Before I get to the more detailed parts of the Bill, I want to make a second broad statement. I want to underline what I consider to be the other dominant feature of the Government's present fiscal and economic policy. It is that we have now reached, and I believe we have passed, the limits of the Socialist concept of restrictionism, which is at the root of all their policy. We used to hear in the old days a great deal about "the economics of scarcity." This was the Socialist taunt at a time when supplies, sometimes I think quite wrongly, and other times perhaps rightly—I do not want to set myself up a judge in these matters—were restricted in order to maintain prices, and to prevent the producer from going bankrupt and carrying with him in his bankruptcy his workpeople into unemployment. But at least in order to have this taunt levelled at you, you had to live in a world where supplies were over-plentiful. The Socialist State is unlikely to be assailed on that score. The words "Thou shalt not" are written into the very spirit of the party opposite and into the policy which dictated this Finance Bill.

A new mind, a new kind of policy, and a more expansionist outlook is required if we are not to be faced simply with despair. The road we should travel, or so it seems to me, should be one to increased production, more incentives and fewer deterrents—fixed bonuses for success, not fines. So desperate and straitened are our finances that I feel that some risks must be taken, and some wider and bolder imagination come to life, some audacity to inspire us in all these matters. The Finance Bill has none of the imprints of these.

The most remarkable feature of the Budget speech of the Chancellor of the Exchequer was not what he said but what he omitted to say. He omitted nearly all mention of increased production. There was a great deal about reins, but very little about spurs in his mentality. The recipe from his cookery book appears to be, "Add up the bill; put in a few half-hearted remarks about economy, and at this point ask the Opposition to present its Budget"—always a rather curious request—"and then tax the people for what the addition comes to." No mention of production. Instead, there are phrases like that in which it was said that this was the first increase in the tax since before the war, and in his opinion it was overdue.

That is the most fantastic statement ever made by a Chancellor of the Exchequer. Thou shalt not have petrol any cheaper than thy neighbour, even if we produce it and he does not. Thou shalt not escape from the blessings of the Welfare State except under a penalty of a fine of £10,000 and two years' imprisonment. Thou shalt not spend thine own, in life, and in death the tax gatherer shall take the rest from amongst the funeral meats, and shall remove the pennies from the corpse's eyes.

Is it not time that we began to ask ourselves other questions about our methods of raising revenue? These are the kind of questions we should ask. Does the new tax raise the cost of production? Does the tax add to the rising cost of living? Does the tax work, in the ghastly jargon of 1951, as a disincentive, or, as I should prefer to say, does it act as a deterrent to greater effort or higher production?

Mr. Churchill (Woodford)

Non-undis-incentive.

Mr. Lyttelton

I prefer to use the word "deterrent" rather than follow even my right hon. Friend into the fuller mysteries of Civil Service terminology.

As I come to a more detailed study of the Bill, I will try to apply this test to some of the taxes which are imposed. First, I will deal with the Petrol Tax. Only about 16 per cent. of the petrol used in this country is used by the private motorist. I do not on this occasion wish particularly to go into the question of the heavy burdens which the private motorist has to bear. None of us, I think, even right hon. Gentlemen opposite—overdue as the tax is according to them—likes these highly selective imposts. I wish to point out, as we did last year, that the effect of the increase in the Petrol Tax means increased costs of production and distribution.

The increased cost of production is perhaps not so obvious at first sight as is the increased cost of distribution, but there are many industries and many key industries which use—and have to use—motor transport for conveying components from one factory to another in the course of processing, assembling and finishing. That is one of the ways—by using this light road transport—in which we have been able partially to overcome the immobility of labour, which itself is largely due to the shortage of houses. So the increase in the Petrol Tax is, in the instance I have given, a direct increase in the cost of production. There are many other instances which will occur to hon. Members.

I do not think it necessary to say much about the extra costs of distribution through the increase of Petrol Tax; it is perfectly obvious. I referred last year to the position of a city like Birmingham, which, from the very middle of our island, plays such a large part in our export trade. It has to bring in all the raw materials from the ports by road and rail, and then move the finished product back again to the seaboard for shipment overseas. It is impossible that the competitive power of export industries in the Midlands will not be affected by this further rise in the cost of petrol.

I turn to the Entertainments Tax. The principle—the hon. Gentleman touched on this point—by which our entertainment should be more heavily taxed in a time of national emergency is not one against which much criticism could be levelled—clearly not—if it were not for the fact that Entertainments Tax is already very high. In my submission it becomes clear that in the case of Entertainments Tax we are reaching a point at which the law of diminishing returns will begin to operate. I do not think that it does so yet, but I think that will begin.

Quite apart from that general argument, I suggest to the right hon. Gentleman that the time is long overdue when these taxes should be levelled in a more sensible way, so that sensible men can understand what is happening. From these benches we shall, during the Committee stage, draw the attention of the Committee particularly to the tangle of expedients, special measures, provisos and schemes with which the Government have wrapped up the cinema industry—and cinemas provide about four-fifths of the total product of the Entertainments Tax. A few months ago, at one of the cinema trade's anniversary dinners, I told them that I did not think that any Chancellor was likely to forgo, in these times, revenue derived from an entertainment like the cinema, but that I did think—I was trying to help the right hon. Gentleman—that there was a very strong case for revising the methods by which the tax was raised. I stand by that view now. I do not wish to pursue that point far now; it is better left for the Committee stage, but I believe, and I hope that the Chancellor will refer to this, that there are negotiations now going on with the industry.

Before leaving that subject I would remind the House that the Government set up an independent inquiry into the film industry which reached a conclusion that has never been contradicted or, I think, qualified. It said: When full allowance is made for errors of computation, it remains abundantly clear that the average receipts fall far short of the minimum average cost of production.

The Chancellor of the Exchequer (Mr. Gaitskeli)

The right hon. Gentleman means on the production side of the industry?

Mr. Lyttelton

That is so, but the whole of the receipts of the industry are directly affected by the amount that the Treasury is taking out in Entertainments Tax. All I am trying to say is that a system of swingeing taxation on the one hand, and virtual subsidies on the other through the losses that will be incurred and are being incurred by the National Film Finance Corporation, show that a thorough reform of this patchwork is absolutely necessary. That is one of the matters that we wish to raise on the Entertainments Tax during the Committee stage.

I turn to Purchase Tax. Here, again, the principle which the hon. Gentleman mentioned and which I do not think we on these benches would in these times wish to attack, is that by levying high taxes upon luxuries or upon unnecessary or less necessary goods, we tend to divert resources of men and materials away from those goods and towards those others which are more useful in the cause of national defence, for example. A statement like that about Purchase Tax appears quite sound in principle, but we must satisfy ourselves about one or two matters before we can accept it.

The first qualification is whether the things which are subject to Purchase Tax are really things that people can do without? Or does the list still contain a number of articles which any sensible man or woman would regard as necessities? The second qualification is whether the labour which will be released from the manufacture of the so-called luxuries is suitable in skill on the one hand, and sufficiently mobile on the other, to make any notable contribution towards the re-armament programme or the high priority programme, if Members opposite prefer that phrase.

During the debate on the Purchase Tax last year the hon. Member for Blackburn, East (Mrs. Castle), who I am sorry is not in her place, indulged in a little vituperation at my expense, and seemed to suggest that we on these benches were trying to reduce the price of mink coats. I think that was the general line of her argument. During that debate I challenged the hon. Lady and the Government, and said that if they would knock £15 million off the total return of Purchase Tax and apply that sum to taking out of the schedule those things which any independent body considered to be household necessities, I would, there and then, withdraw the Opposition Amendments. Of course, I received no response from the Government, and I went home with the sad feeling that I had embarrassed the hon. Lady and interrupted the silver stream of her oratory, and had got nothing for the housewives.

Today we find, as on so many other occasions, that the Government have, a year or two late, and in a rather niggling manner, begun to follow the suggestions of the Opposition, and have exempted from Purchase Tax a number of necessities or near necessities. Of course, they have not gone far enough, and we shall wish to know later the broad philosophy and outlook on life which exempts a hot water bottle from tax because it is a necessity and taxes a toothbrush because it is a luxury.

I have devoted some thought to this matter, and I have an explanation to offer. I suppose that one is bound to get cold feet in a Socialist State, which accounts for the hot-water bottle being exempted, and that, on an 8d. meat ration, we shall soon come to regard our teeth as an unnecessary luxury. After all, if one really wants them one can always get them out of the National Health Service, at some cost or other, according to the position occupied in the Labour firmament by the right hon. Gentleman the Member for Ebbw Vale (Mr. Bevan). I hardly think that the tax will prevent the inflationary brushing of teeth up and down the country.

I turn aside to make a request to the Government which we made last year. That is, that an independent committee should be set up on Purchase Tax. I had a moment of exhilaration when I thought that the Government had accepted that proposal, but I understand that the part of the Budget Resolution which refers to it, is in order that the proposal should be discussed, and that the Government have not taken up any position on it yet. I need not go over the argument, which I think is well-known to every Member. If Parliament is not to fall into some disrepute about this matter, we wish to avoid what my late right hon. colleague called a "Dutch auction" over individual items of Purchase Tax. On the other hand, the idea that the Executive can levy upon the public any charge, either general or particular, without Parliament having the right to subject it to close scrutiny, to criticise it in detail, and if they think fit to modify or abolish it, is utterly repugnant, I am sure, to every Member in every part of the House.

This is not a party matter. We are faced with a problem. I believe that the proposal for an independent committee, which I think was first advanced by my hon. Friend the Member for Croydon, East (Sir H. Williams), is at least the most helpful suggestion which any of us has so far heard. I would emphasise that we quite agree that this committee would be purely advisory, but if it is strongly enough constituted, the advice which it tendered would carry great weight and would, I feel sure, reduce debate upon doubtful items to quite small proportions. At the same time, the age-long right of the House to exercise its powers over taxation and the imposition of charges on the public would not be in any way eroded by that procedure. I very much hope that the Government will be sympathetic to that proposal. On the other hand, it would, of course, greatly restrict log-rolling and the interminable extension of our debates over hundreds of items which are included in Purchase Tax.

I now turn to speak generally about Clause 23 of the Bill. I attacked the Clause, to which the hon. Gentleman has referred, because it encroaches unnecessarily upon the liberty of the subject. This is the Clause which deals with the relations of bankers and their customers. I am concerned this afternoon not with the bankers—they must look after themselves—but with the customers. There is a long tradition in this country that the relations betwen banker and customer are as sacred as the secrets of the Confessional. I think that they are being broken down by this Clause, and we shall seek much more than the assurance which the hon. Gentleman has given us. If we do not oppose the Clause in every line we shall seek to introduce an Amendment to take the teeth out of it.

I have, of course, like every hon. Member, a moral indignation at the idea of anybody evading tax, but I have also a practical indignation, because if people avoid tax it means that the rest of us, who pay our taxes, or try to, have to pay more. Here is a matter on which we are all agreed. Let me assure the right hon. Gentleman that while this Clause will break down for ever the confidential relations between banker and customer, it will do nothing, or hardly anything to prevent the artful tax dodger—and there are very many fewer of them in this country than in any other—from getting away with his untaxed gains.

The object of the Clause has nothing to do with interest. It is not the interest upon which tax is to be charged that is really the pre-occupation of the Inland Revenue. They have, in their unworldly way, a sort of vision of a vast body of bookmakers, street vendors, pin-table men, spivs and second-hand dealers—in short the "wide boys" who do not live in the wide open spaces—who transact all their business in cash and never pay any tax upon their gains.

This is the sort of picture which this rather retiring Department conjure up in their spare moments. I have no doubt there are dealers who transact all their business in this way, and at present I dare say they use the common form of business currency, namely, the cheque. But the effect of this Clause will be to drive them away from using the banker's account, and into using currency notes. I do not think that the abuse of transactions in cash is nearly as extensive as the Inland Revenue imagine. I am all for stopping it if we can, but this Clause will not do that. It will only mean that more transactions will be carried out by people holding a dirty roll of notes between the thumb and the forefinger.

Long past are the days when the Treasury dreamed of trying to attract foreign business and balances to this country. That has all gone by the board, and I shall have something to say about that later. The extra disclosure asked of the foreign depositor with an account in this country may mean—and I know instances where, since the Bill was published, it has meant—that the foreign depositor will prefer to carry his balances in countries where the information required is less irritating, and where the intrusions of the tax inspector are not at all pervasive as they are in the England of the Festival of 1951.

Now I come to the Profits Tax and the suspension of the initial allowances, a subject to which the hon. Gentleman hardly did justice and to which he hardly referred except to say that he imagined that we were entirely in favour of it. He also said that the taking away of the initial allowances did not matter in the least because they were only a tax free loan from the Treasury. But, surely, if they were heralded as of considerable use when they were introduced, the hon. Gentleman ought also to use the same argument when they are removed—or is that too simple for him?

Mr. Jay

The right hon. Gentleman may recall that I said in the Budget debate that this was a suitable instrument to use at a time when we wanted to encourage a rapid improvement in our balance of payments, but not when industries have to turn over to re-armament.

Mr. Lyttelton

I am quite aware that the hon. Gentleman said that, but let me deal, first of all, with the Profits Tax in general, and then I will deal with the initial allowances as part of the set-up.

Again, at first sight, in a time of national emergency there is little to be said in principle against taking profits, and it may be that the subject is merely a matter of degree. But today things are not as simple as that. All of us who run industrial companies are seriously concerned about the depletion of industrial capital with taxation at the level it is today. Hon. Members will notice that recently Imperial Chemicals revalued the manufacturing assets of their group on the basis of their replacement costs on 1st January, 1950—not even 1951. That revaluation has shown that the replacement cost is about £96 million above the book cost, and I think I am right in saying that the book cost would be about £128 million.

I do not want to weary the House with a detailed analysis, but this means that the depreciation allowances allowed by the Inland Revenue are wholly inadequate when viewed in the light of the replacement cost of these productive assets. The same is true, in greater or lesser degree, in all industries. I hope the House will bear with me if I try to reduce this rather technical problem to simple terms. I assure the House with every sincerity that this particular question probably concerns the labour side of industry more than any other single aspect of the Budget. I say this because it will be impossible to maintain the competitive position of our industries in the export market, impossible to maintain the standard of life, and impossible to maintain anything like the present level of real wages unless our industrial capital is kept intact and our plants are up to date in every respect. We can brush aside those arguments which say that it does not matter because we are going to re-arm. It is a matter of vital importance.

Let us imagine a company with a capital of £100,000. Suppose that this liability is represented by £10,000 in cash and by installations, plant, land, buildings, and so on, now standing in the books at £60,000. If that were the set-up of the company, its debtors would exceed its creditors by £30,000. Let us suppose, again, that the fixed assets were acquired since 1938 for £150,000, and that they have been written down to the figure of £60,000. For taxation purposes, the Revenue authorities would allow a charge of about £9,000 or £10,000 a year against the profits of the company, and that would be used to write down plant to below the £60,000 as it stands in the book. But if the fixed assets—and this is what happens today—which cost £150,000 had to be replaced, they would now cost about £350,000. That means that this depreciation charge of £9,000 or £10,000 is utterly inadequate to keep the plant and installation efficient.

The depreciation charge on my imaginary company—if it is to maintain itself in a modern condition—should be at least about £20,000. In other words, with the present depreciation allowances, it would take 30 years to write off or amortise the cost of the present plant as an asset, and in the 20th century there is no industrial asset which has a life as long as that. We have in this country a body of workpeople—and I never lose an opportunity of saying it—whose skill is not surpassed, and, if I were questioned, I would say is not equalled by any other body of workpeople in the world. The idea is utterly repugnant to everyone that this body of workpeople should be asked to produce more and more with obsolete tools, yet the cancellation of the initial allowances and the imposition of extra Profits Tax is working in that very direction. Let hon. Members opposite realise that that is true.

Having dealt with the aspect of depreciation and initial allowances, I now turn to the Profits Tax itself. How does a company, which finds that the rate of depreciation allowed by the Inland Revenue for tax purposes is manifestly inadequate to fulfil the function for which depreciation allowances are intended, arrange to keep its plant in condition, to renew it when it is becoming obsolete, and to replace it when it is worn out? The answer, of course is that it supplements the depreciation allowed by the Inland Revenue out of profits. I said that these depreciation allowances had got to be made up out of profits, but industry is now being mulcted by one of the steepest rises in taxation which I suppose has ever been imposed, namely, by the rise in the Distributed Profits Tax from 30 to 50 per cent.

Of course, it is perfectly open to hon. Members to argue that since this steep rise in taxation is upon distributed profits, it will not affect industrial capital. That would be a correct impression if shareholders were to receive a dividend smaller by the amount of the new increases in the tax. But hon. Members must learn for themselves that shareholders are a class of people who have to be looked after like anybody else. These are extremely difficult times for those living on fixed incomes, and a great many people who do live on fixed incomes live on incomes from shareholdings. These are times when we want to promote savings, and a great mass of savings is represented by shareholdings in our joint stock companies. If they are to have their dividends reduced because the Profits Tax has gone up, some will be reduced to penury, and all will suffer great hardships. Their interests have to be watched as well as those of others.

I seldom have out of my mind the 50,000 or 60,000 people employed by my company, but I also have to think of the 20,000 shareholders whose bread and butter depends on the rate of interest they receive. One does not want to get into a prejudiced state of mind, but this Profits Tax will tend to deplete industrial capital, and will also impose intolerable suffering upon small shareholders. But the cancellation of the initial allowance next year and the addition of 20 per cent-Profits Tax places an extra burden of £236 million on industry in a full year. It is a tax—and make no mistake about it—which is directed at production. It is like taxing the tools which the workmen have to use, and it is thoroughly unsound in principle.

I also wish to say this, which arises from what was said this afternoon, and I apologise for keeping the House so long. I was completely dissatisfied with the preliminary statement made by the hon. Gentleman about the initial allowance in regard to shipbuilding. As I understand it the Chancellor has only given an undertaking that the original rate of initial allowances will be maintained where a ship is actually under construction. But there are all sorts of contracts which have been entered into where building has not begun, where specifications are not complete; where owners have contracts for ships, components or machinery, but where they have not yet placed an order for the hull.

We shall want many more assurances on this subject. The Chancellor has gone not nearly far enough, and I would remind him with all the force I can that shipbuilding is a defence industry; for the output of our yards will be very heavily reduced if he persists in his present course, and does not extend his. concessions to ships placed on contract as well as ships in the course of construction.

At this point I wish to make a general observation and I will try to do it in as polite a manner as I can. The Chancellor made a very grave mistake when he omitted from his Budget speech all mention of several Clauses which, quite apart from their fiscal aspect, are of very great constitutional importance. I would refer to two or three of these matters to which none or very scant reference was made in the right hon. Gentleman's Budget speech. The first, Clause 28, is, I submit completely indefensible. This is the Clause which I will now briefly discuss. There was a remark made by a learned judge in pronouncing judgment which was often quoted at our time. He said, in effect, that no taxpayer was obliged to arrange his affairs in such a way that they attracted tax. That was Lord Sumner in the case of Irwin v. The Inland Revenue, in 1928. Clause 28 of the Bill has indeed boxed the compass in this matter. I am sorry, but I must read to the House the beginning of it: Where the Commissioners "— not Parliament— are of opinion that the main purpose or one of the main purposes for which any transaction or transactions was or were effected (whether before or after the passing of this Act) was the avoidance or reduction of liability to the profits tax, they may, if they think fit, direct that such adjustments shall be made as respects liability to the profits tax as they consider appropriate so as to counteract the avoidance or reduction of liability to the profits tax which would otherwise be effected by the transaction or transactions. That really is boxing the compass, because what it says is that if, in the opinion of the Commissioners, any action by the taxpayer avoids or reduces his liability for tax, the Commissioners have a right to rearrange his affairs in such a way as to suit the tax gatherer. This is indeed one of the most fantastic innovations that the Executive ever sought to write into a statute. I know quite well that the right hon. Gentleman will quote one or two of the war-time regulations regarding E.P.T., but that argument is completely irrelevant to a peace-time Measure such as we are now considering. The Inland Revenue are to be given executive powers to re-arrange the affairs of the taxpayer in such a manner as best to suit the tax gatherer. This Clause simply will not do in its present form.

I now come to a still more unpleasant subject, Clause 32, to which the hon. Gentleman again made the most perfunctory reference. This is the Clause under which a company domiciled in Great Britain, which may be carrying on business in South Africa, or South America, or Rhodesia, or any other part of the world, or all of them, is not permitted to change this domicile except with Treasury consent; or if it does so without consent the directors become individually liable for a fine of £10,000 plus a couple of years in prison. This Clause is extremely interesting from other aspects besides the legal one, because it is an assessment by the Socialist Government of the fines necessary to keep a joint stock company within the beneficent frontiers of the Socialist State.

It is interesting, too, because it is perhaps the loudest and clearest announcement which we have yet heard of the fact that the burden of taxation in this country is so intolerable that the Government fear that all those who are here would get away from our shores if they could—"Abandon hope all ye who enter here." However, these two open confessions, startling though they are, are really very small things compared with the astonishing and extraordinary isolationism which here, as in so many other aspects of Socialist policy, is stalking the land in all its nakedness.

We are a great manufacturing country taking raw materials from overseas and working them up into the finished goods. We are a great entrepôt country. Once upon a time the business of the world used to flow into London in order to make use of the unique banking, insurance, shipping and free market facilities which the metropolis of our country used to offer. Nobody in his senses, carrying on business in another part of the world, is going to domicile his company in London and make use of our facilities——

Mr. Follick (Loughborough)

Who broke down the free market?

Mr. Harrison (Nottingham, East)

The party opposite.

Mr. Lyttelton

I suppose we shut down the Liverpool Cotton Exchange and the London Metal Exchange? The hon. Member for Loughborough (Mr. Follick) is an expert on many other things, but not on this.

Nobody in his senses will domicile his company in London and make use of our facilities when he knows that he can never get out—except, of course, by spending a couple of years in one of His Majesty's prisons and paying the Chancellor £10,000 or so besides, for the pleasure. No more Monsantos, no more Fords will come into this country.

Nor is this all. I would remind the House that this is a time when it is imperative to open up every source of raw materials in the Dominions and in the overseas possessions of this country. Yet here we have a Clause which, in effect, is going to shut out British enterprise from developing and opening up these resources. The Clause as it stands is one of the most restrictive in the whole of this highly restrictive Measure. The message of the Chancellor goes something like this: "We must have more raw materials, we have them undeveloped in the Colonies and overseas; but if you are such a fool as to try to develop them with a company domiciled in London, with an account at one of the joint stock banks, shipping by a British line, insuring with a British insurance company and marketing its products in Mincing Lane, then, my boy, you are here for keeps, with a couple of years in prison for you if you try to get out."

I have very little to say this afternoon about Income Tax as a method of raising revenue. This was for long the principal source from which this country financed itself. Finance by Income Tax has at least one great merit, of which I think that all of us in this House are aware. It is that generally speaking—and I admit that there are exceptions although there are not many—no industrial company or trading concern finds it necessary to bring the liability or the amount of Income Tax for which they will ultimately be liable into their calculations of cost. The Income Tax has many other effects upon the development and construction of a company, but when I have to quote a price for an export order, the price which I quote is roughly the same whether Income Tax is 6s. in the £ or 9s. in the £.

Of course, in a country where the finances have been properly run and which was faced by an emergency, the natural method would be a rise in Income Tax. In a well-run country it would be said by the monthly journals that an increase in the Income Tax reduced the inflationary spiral, that the tax took out of the pockets of the private citizen money which he would otherwise spend upon a diminishing volume of consumer goods. Put the money, it would be said, into the hands of a prudent, even parsimonious Government, which watches the spending of every penny with the jealousy of a miser. If, indeed, the Government spent the taxpayers' money at all, and did not just use it for cancellation of debt, it could be relied upon to spend it in ways which would be more fruitful than those of the private citzen.

Of course, all this kind of argument has long ago ceased to have anything but a nostalgic interest. Personally, I do not go so far as to say—and I must make this quite clear—that all increases from the present level of taxation are inflationary. I think that is an over-statement that is sometimes made. But what I do say most emphatically is that, at this level of taxation and with this profligate volume of Government expenditure, increases in taxation are far less deflationary than they should be, that in certain strata of Income Tax payers, they are positively inflationary, and that the traditional advantages of raising revenue by Income Tax have been largely spoilt in our cloud-cuckoo-land by the financial mismanagement under which we have lived and suffered for six years. It is against this background that we must judge this Government, which proposes to raise Income Tax to the highest level ever reached in peace-time, and which still increases indirect taxation to astronomical figures.

In conclusion, let me remind the Government that no actions which they take and no amount of planning will permit them to escape the economic consequences of what they are doing. It is high time that everyone became aware of the very great dangers that face us. Unless we are careful, the end of all this is going to be naked inflation. In that inflation, unless it is checked by wiser methods, it will not be the entrepreneur who will suffer most, nor will it be the workman. What happens is that, although profits and wages rise—they cannot help it—the class that is wiped out, and I have seen with my own eyes how it was wiped out in Germany, is the middle class and those who live upon fixed incomes.

This conjures up for most of us the picture of a small shopkeeper. It does for me, but not to the exclusion of other pictures which I have in mind. It conjures up in my mind the picture, for example, of one of the most brilliant and enlightened men whom I have known during my lifetime. He was a Jewish professor in Germany, and, when he sold his furniture and his books, he took the only course which the middle class or the professional class can take in a galloping inflation. He chose to try his chances in the next world, since he found that the opportunities in this, had been removed from him by the debauch and debasement of the currency.

Looking back upon my knowledge of Germany, which at one time was fairly close, I should say that the rise to power of the Nazis happened very largely because the middle, the professorial and professional classes, had been wiped out by inflation. They are the classes which are particularly fitted to oppose mere political banditry by the forec of intellectual enlightenment. This is what inflation means to the so-called middle classes. It also means, of course, great hardships for the wage-earning classes, but, to them, the effects are not so fatal. I say that it behoves us to consider the phrase "social security" in all its meanings, instead of only one or two. There is no social security unless we can defend ourselves, and the value of the contributions which employer and employee have poured into the social services will, in a famous or infamous phrase, become "meaningless symbols" and scraps of paper unless some measures are taken to preserve their purchasing power.

5.4 p.m.

Lady Megan Lloyd George (Anglesey)

It is plain from the speech made by the right hon. Gentleman the Member for Aldershot (Mr. Lyttelton) that the Conservative Opposition have revised their first opinions of the Budget, and that they have found reasons for attacking it root and branch. I do not intend to follow the right hon. Gentleman in the detailed criticism which he has made of the Finance Bill, but only to make one or two general observations.

This Finance Bill is based on the grim necessity of accelerating the re-armament programme. It is a measure which the British people always undertake with reluctance. It is a measure which they regard with abhorrence and with fear, but I believe that, faced with this situation, we have to say either, as the hon. Member for South Ayrshire (Mr. Emrys Hughes) says quite frankly and honestly, there are other means of securing peace than by building up our defences, or we have to acknowledge, as I think most hon. Members do, that this is the only course we can take. But we have to face the consequences of our decision. I believe that the Chancellor of the Exchequer is much to be congratulated on facing up to this responsibility and producing a courageous Budget, when he could so very easily have produced, and when he must have been so sorely tempted to produce, an electioneering Budget instead.

We do not really know what the extent of the liabilities of the course we have undertaken are going to be. We have laid down certain sums for defence for this year and for the next few years, but that is not to be the end of the liability. With the complexity of, and continual changing in, modern warfare and arms, it is very difficult, if not impossible, to put a ceiling on re-armament. That ceiling has been raised twice in the last eight months, and who is going to say how soon it may be before it may have to be raised again? No one knows; no one can tell. We do not know whether these burdens will be on our shoulders for three years, or five years, or for more. We cannot set a time limit to the re-armament programme. It is for an indefinite period. Therefore, it seems to me that it is in the light of these circumstances—of a liability to which at the moment we can set no term, a liability to which at the moment, we can set no limit—that we have to ask the question whether this Finance Bill is harsh enough, whether it is too harsh, and above all, whether it is equitable and fair.

We have heard from the right hon. Member for Aldershot a great deal about the hardships imposed on certain classes of the community, on those who have to pay the Profits Tax and so on. We have heard a great deal in our time about equality of sacrifice. I believe that it is almost impossible, if not quite impossible, to spread the burden evenly by demanding a contribution from all sections of the community, because if we are going to impose an obligation or charge on the working classes in this country, however small it may appear to be, it will, in most cases, place an intolerable burden upon them. I believe that that is one factor which we have to take into consideration, and it is one on which we have heard nothing from the right hon. Gentleman this afternoon.

For these reasons I am very glad that a term has been set to the Bill imposing charges for dentures and spectacles, and that it is going to be reviewed at a later date. The right hon. Member for Ebbw Vale (Mr. Bevan) warned us that this charge is only the beginning of an insidious attack on the social services. From these benches, we would resist any attack of that kind, if it were made, because we believe that we must ensure that this inroad in the social services is not allowed to develop, as well it might develop, in to a gradual erosion which would, in fact, undermine the foundation of our social services. We on these benches, at any rate, would be determined to resist any such attack.

We are glad, therefore, that there has been an easement—although it is not part of the Finance Bill, it is part of the Budget—for the old age pensioners, although we wish it could have been more. We are glad—and I think the right hon. Member for Aldershot made no reference to this in his speech—that there have been reductions in the Purchase Tax on certain household goods.

Mr. Lyttelton

I did refer to it.

Lady Megan Lloyd George

I beg the right hon. Gentleman's pardon and withdraw that statement. At any rate, I am very glad these reductions in Purchase Tax on household goods have been undertaken in the Budget. But the truth is that those reliefs will be swallowed up in no time by the rising cost of living. It is perfectly true that the costs of living are rising everywhere in all countries of the world; but I cannot believe that that is a complete alibi for us in this country.

I believe we can and should take action to arrest the rise in the cost of living. I should like to see the Government making an inquiry into the distributive costs in industry in this country, and taking action to deal with the situation. At the moment the position is in many respects fantastic and indefensible. It has been estimated, for instance, that out of every £ the housewife spends in this country between 6s. and 7s. go on the cost of selling. The other day the hon. Member for Coventry, South (Miss Burton) quoted the specific instance of vegetable prices in this country, where the grower receives 4s. 6d. per cwt., the wholesaler sells for 6s. a cwt. and the average price paid by the housewife in the London shops is 28s. a cwt. It is really time the distributive costs in industry were reviewed and some action taken to bring them down.

The Financial Secretary to the Treasury dealt very faithfully, if I may say so, with the proposals that have often come from the benches above the Gangway that large-scale economies should be undertaken in Government expenditure. The right hon. Member for Aldershot in his speech the other day brought his overall figure down to the modest sum of £50 million to be lopped off merely administrative expenses. The drastic slashing of expenditure has now been reduced to a little gentle pruning. The Government have converted their saw into a pruning hook. There is one point which the right hon. Member for Aldershot raised in his speech on which I think he would carry the whole House, and that is the necessity of watching with a very vigilant Treasury eye the stopping of waste in what is notoriously the most wasteful of all expenditure—expenditure on armaments.

Surely, the real anxiety of the Chancellor, if he is to realise his expectations is to secure an increase in our production. The right hon. Member for Ebbw Vale said that the armament programme was dead because we could not get sufficient raw materials. Even the Economic Survey says we cannot count on getting the raw materials required for a 4 per cent. increase in production. I should like to ask the Government what steps have been taken to deal with this matter. Last week we had a debate on the shortage of raw materials but I do not really know that we were very much clearer at the end of it as to what is being done at the moment not only to allocate but to increase the production of raw materials.

We know that as a result of the Prime Minister's visit to Washington last December the International Materials Conference was set up. That conference set up a number of Commodity Committees. The duties of those committees are to consider and to recommend to Governments specific action which should be taken in the case of each commodity. That sounds all right and we are told that the first Commodity Committees have begun their work. But the Economic Survey informs us that the results of their work will not be known for some time.

I cannot believe that the Chancellor, or the Government, will feel that this is the dynamic organisation which is going to meet the acute shortage of raw materials and is going to make possible that 4 per cent. increase in our production which is absolutely essential to the realisation of all the right hon. Gentleman's expectations in the Budget. I should have thought that in a situation which is as critical as this is there should be set up once again a Combined Raw Materials Board such as we had during the war, which had at its disposal the surplus raw materials of the allied world and made the allocations. The right hon. Member for Aldershot was familiar with its working. It seems to me the time has arrived when, if we are to secure these raw materials, some organisation of that kind should be set up.

I believe there is great danger of cutting the investment programme too drastically. After all, one of the vital problems with which we are faced today is to improve the productivity of our own resources. I hope therefore the Chancellor will resist, as far as is practicable, cuts on certain capital improvements which I believe are essential to our increased efficiency. When the Anglo-American productivity team made their report on electricity they pointed out that one of the prime factors in American industrial efficiency today was that two or three times as much electric power is used per worker in America than is used in this country.

For the same reason we regard with certain misgivings the suspension of the initial allowance. I cannot believe the Chancellor undertook that measure except with extreme reluctance. After all, it took years of pressure before the war to get these allowances. They were resisted by successive Chancellors of the Exchequer—do not let us forget that. It is most essential that the Chancellor should reconsider this matter. It does not help to starve industry. One does not have to kill the goose that lays the golden eggs—all one has to do is to send it to Gambia for a while.

On the other hand, I believe the increase in the Profits Tax is in another category, despite everything the right hon. Member for Aldershot has said. At a time when the Trades Unions representing many low-paid workers in the country are being asked to use restraint in wage claims, at a time when the Government are spending vast sums on defence orders, and inflated profits will be made, it is right and fair to increase the Profits Tax. It is done in war-time with the consent of all parties, and I should have thought it was equally justified at a time when we are spending a higher proportion of our national income on armaments than we have ever done before in peace-time.

We have to pay the price of making our defences sure. We have to fulfil our obligations to the free nations of the world, but, I would say, not at the expense of the standard of living of those who have only just risen above the poverty line, not at the expense of those who are still below the poverty line—and there are far too many of them still in this country, in spite of all the efforts which have been made to improve their conditions. We on these benches welcome the re-distribution of wealth which is represented by the social services in this country. We recall with some pride that the foundations of the Welfare State were laid by Liberal hands in a Finance Bill 42 years ago in this House. I would give to the right hon. Member for Aider-shot another commandment—he gave us plenty this afternoon—"Thou shalt not impair the structure of the Welfare State."

5.21 p.m.

Mr. Woodburn (Clackmannan and East Stirlingshire)

We have listened, as we always do, to a very charming speech from the noble Lady the Member for Anglesey (Lady Megan Lloyd George). If I were to make any comments upon her speech it would be merely to cross the t's and dot the i's of the good sense which she uttered in her speech. Perhaps in view of her rather rapier-like criticism of the Opposition above the Gangway, it is as well that she gave them solace with her witticism about Gambia—to show her impartiality, I presume.

The right hon. Member for Aldershot (Mr. Lyttelton) dealt with this Budget in rather a curious way. At the end of his speech I came to the conclusion that he had no real criticism to make of it at all. The curious thing was that the main plea he made was on behalf of a section of the population for which I am sure the general public has least sympathy. They are the people who are neither hewers of wood nor drawers of water, but the rentiers of the population—the persons who makes no contribution to the production machine but merely draw the profits which come from it. I cannot imagine any tears of sympathy flowing from the eyes of the general public for that section of the population.

Moreover, I think the right hon. Gentleman forgets that one of the purposes of the Chancellor in imposing a 50 per cent. tax is to curb a very much increased profit distribution made by companies throughout the country. Therefore, it is actually a deterrent on the over-distribution of profits, in order that they shall be kept in the companies and put back into the production machine. That also contradicts his argument about the depreciation of reserves. Clearly if a company puts more back into its reserve, those reserves will be available for any development of the company and for any replacement of machinery that is desired, in addition to what is obtained by depreciation allowances.

I think both the right hon. Gentleman and the right hon. Member for Aldershot (Mr. Lyttelton) missed the fundamental point. If the machine tool industry is hard put to it to supply the machine tools for the re-armament programme, then it simply cannot supply machine tools for the civil engineering programme and for the replacement of tools in firms which have no concern with re-armament. We have got to choose what the machine tool industry is going to work at. If we say that the machine tool industry must work on re-armament, then quite clearly it cannot accept orders for the replacement of machinery in non-re-armament firms. With the hon. Lady, I regard this discouragement of the improvement of plant as one of the sacrifices which apparently must be made for the re-armament programme. Quite clearly, it is going to mean a sacrifice in our future productivity increases if we are not able to keep up our rate of capital improvement. We must regard that as a sacrifice, just as other sacrifices are having to be made.

Mr. Snow (Lichfield and Tamworth)

Is my right hon. Friend satisfied from a scrutiny of the initial allowances which have been allowed that there has been sufficient care taken to see that claims are not made for things which are not really essential investments—in other words, luxury building in industry?

Mr. Woodburn

Depreciation, of course, is allowed on existing plant, and any re-purchase only becomes due for depreciation allowance when it is in existence. I take it that what the right hon. Gentleman is objecting to is that the initial allowance, which is to encourage people to go ahead with replacement and development is being withdrawn. It is being withdrawn not for the purpose of handicapping industry but to divert production to the re-armament programme.

Mr. Nabarro (Kidderminster)

I think it would be instructive if the right hon. Gentleman would tell the House what part of the general plant and equipment installed during the last five years which has been subject to initial allowances, has comprised machine tools. If he has not that answer ready, may I say that only one-fifth is machine tools and four-fifths is general plant and equipment.

Mr. Woodburn

A large part of the production of such general plant uses engineering capacity which must be diverted to the production of arms. Therefore, it cannot be available for the production of plant or the replacement of capital equipment in existing firms.

The right hon. Member for Aldershot seemed to me to be unduly anxious about protecting the tax dodger. His complaint about the secrecy of the banks and this desire for delicacy on behalf of the people who are drawing interest and not including it in their returns to the Inland Revenue seems to me to be undue sympathy for someone who is cheating the public. There will be no disclosure of a secret to the Revenue in the case of those people who already include the information in their returns. The only new information which will be given to the Revenue will be in the case of people who do not at present put it in, and therefore any objection to this would seem to be with a view to protecting the dishonest person rather than protecting the honest person. I hope the Opposition will not adopt that defence.

The right hon. Gentleman also took great exception to the fact that the Commissioners were going to be given discretion to decide what was right and what was wrong in regard to taxation, but if I may refer him to the Finance Act, 1943, which was passed by a Government of which he was a Member, he will find that in Section 24 (a) and (b) and (1) and (2) almost exactly the same words are used there giving power to the Commissioners. All the Chancellor is doing is following a well-established precedent. I am not sure how the right hon. Gentleman can contend that the allowances handicap the replacement of machinery and yet are a burden on the shareholders at the same time. Clearly both the shareholder and the replacement of tools cannot be suffering at the same time. If the reserves go to the replacement of plant I quite agree that the shareholder may suffer, but the tools benefit. The two things do not benefit or suffer together.

I should like to make some observations on two general points. The Finance Bill is no longer merely a method of raising money from the public for the payment of expenses of Government activities in the country. It is also an instrument of planning, economic control and carries out the transfer of incomes from one section of the community to another. It is not possible, therefore, to regard it merely from the financial point of view. I am quite prepared to accept the Chancellor's masterly presentation of the general picture, which he gave in his Budget speech, but I should like to comment on two points—the fairness of the proposals and the danger of conflict between the mere accounting part of the Finance Bill and the economic realities which lie behind it.

A great deal of heat has been engendered about the part-charges which are to be made for dentures and spectacles. Personally, I think some of the criticisms have been extremely unfair, if we take into account the general picture in which these charges were presented. Nevertheless, we must realise that these charges have aroused some heat, not because of accident but, as the noble Lady the Member for Anglesey has said, because they are bearing on a section of the population who might feel that the charges are unfair and who consider that a burden is being placed upon them which is not being equitably shared by more fortunate members of the community. But the Budget as a whole was accepted favourably and was well received by the great majority of the population.

Indeed, even in the case of the charges on dentures and spectacles, it has been remarkable how few people who are affected have raised objections. I think more objection has been raised by those interested in the charges politically than has been raised by individuals who are likely to be concerned. I have found among our workers a great deal of resentment at certain abuses which have taken place within the Health Scheme. When this matter was previously under consideration some two years ago, there is no doubt that many people felt that something should be done to stop the exorbitant incomes of dentists which disclosed some exaggerated use of the scheme. Secondly, even then it was quite clear that the dental industry could not deal with the whole population and that there was some justification for reserving the industry in the early stages to priority classes, such as children, mothers and people who needed emergency treatment.

If my hon. Friends who have become so heated on this subject had kept in mind the other aspects of the problem, I do not think they would have brought this particular item into such limelight and they would not have put rather a bad taste on a Budget which, as a whole, was a splendid Budget and was so received by the great majority of the population.

Mr. Manuel

The right hon. Gentleman's chastisement of those of us who hold these conscientious beliefs appears to be entirely based upon the question of abuses. That is all the right hon. Gentleman has given us so far. If that is the case, surely the correct way is to deal with the people who are causing the abuses and not with the needy section of the community who require either dentures or spectacles.

Mr. Woodburn

Even under the present proposals, nobody who is in need of dentures or spectacles will be refused them free if he cannot afford to pay for them. The question is—is it right to levy charges at all? The principle of the finances of this country is that people pay according to their ability to pay, and if we are to ask people to pay according to that ability, we must estimate in some way what that ability is. It is a little belated of my hon. Friends to object to the method adopted in these proposals when the same method was introduced last year in dealing with people who have to pay to travel to hospital, when the Assistance Board was introduced as the supervisory department. No exception seemed to be taken then.

I have not been chastising anyone but simply pointing out that, taken out of its context, there might be a reasonable justification for strong feeling on this subject, and that people who feel strongly about it do so because there tends to be an element of unfairness in the incidence of the charges which are to be made. The only valid objection to a charge is that it is unfair or that it causes unbearable hardship. The real difficulty about these charges is the comparison which is made, in the eyes of the masses, between the charges on such essentials and the ostentatious waste which goes on around them.

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

On a point of order. For the guidance of the House, is it in order to repeat on this occasion, the arguments of the Committee stage of the National Health Bill, with which we dealt at such length last week?

Mr. Deputy-Speaker (Colonel Sir Charles MacAndrew)

It is not strictly in order but, of course, this subject was included in the Budget speech.

Mr. Woodburn

In any case, I can assure the hon. and gallant Gentleman that I have finished with that point. I was merely commenting that the heat which has arisen from this distribution of the incidence of taxation among the community has arisen because of the comparison in the eyes of the masses, between their sacrifices and a great deal of extravagant waste. I can assure hon. Members that, time and again, this question has been raised in my presence—this question of the stupid waste, the ostentatious waste which goes on, and hard-working people find it very irritating and obnoxious at a time when the community is asked to accept such austerity. [HON. MEMBERS: "Such as the fun fair."] Well, there might have been too much money spent in the fun fair, but that is another point.

I recognise that this country has perhaps gone further than almost any other country in the severity of its taxation. I have often explained to my folks that if nobody was allowed to retain after tax more than £2,000 a year, that would bring to the Chancellor of the Exchequer only another £55 million a year. This would be equal to about 1s. a week spread over the 20 million workers, or about 2d. a day. Against the background of those figures, it is ridiculous to talk about the incidence of additional taxation not falling upon the working classes because, quite clearly, any large sum to be raised nowadays must mainly be raised from the incomes of the working classes.

If that is the case, we have reached a position in which it is no longer a question of whether those who work should pay or those who do not work; it is a distribution of the incidence of taxation amongst the different sections of the working classes themselves. One of the unfortunate things about the controversies which take place, taken in isolation, is that it is a case of one section of our people struggling to obtain more benefits at the expense of another section of the population. If one section obtains increased insurance benefits, then the man working for a family has to pay more in the way of contributions, and so it goes round in a merry circle, switching the money from one section to another.

It would be extremely unfortunate if we were to get to that position. I believe that we must look at the whole pattern. Nevertheless, when I have explained to people that practically no one in this country receives more than £3,600 a year net—that there are only 11,000 people who do—they laugh at me. The fact is that all around them, they see people living at a standard which could not possibly be maintained on £3,600. They see people buying cars which cost that amount of money. People grumble about not being able to obtain new cars, but I know of a city where we can go along a road and see nothing but a mile of new cars parked at both sides. All about us we see exhibitions of spending which could not possibly be done within the limits I have indicated.

I am very glad, therefore, that in this Bill the Chancellor of the Exchequer is introducing a measure to check on those who are drawing incomes upon which they are not paying tax. From the statistics it appears to me that a large number of people are not recording their true incomes. If they were, we should find that a great many more than 11,000 people were receiving net incomes of over £3,600 a year.

Mr. Osborne (Louth)

Would not the right hon. Gentleman agree that a good deal of this unwise spending—and I agree with him that it is unwise spending—is being quite legitimately done by people who are living on their capital because Death Duties are so heavy that there is no further incentive to save? The consequent normal human desire is to spend what you have, and that is quite legitimate.

Mr. Woodburn

I have friends who might be considered wealthy but I am glad to say that most of them regard their wealth as a responsibility. Simply because they have wealth they do not behave in the way I have previously outlined, nor do they squander it merely because the State takes a considerable proportion of it when they die. Our objection is not to people who behave with social responsibility but to the butterfly fringe who behave in an undignified and irresponsible manner which irritates the decent part of the community.

If the Chancellor of the Exchequer can do something to collect some of that wasteful expenditure he will not only help the community by getting in more money but he will also improve the general morale of the population. He will also make it possible for people to meet with good will the sacrifices which are proposed to them in connection with the rearmament programme. I welcome the proposals to tighten these regulations.

I want now to say a word about the economic purpose of the Bill. The aim of the Bill is to transfer from the public to Government spending power which would use labour and materials for private consumption so that the Government, in their turn, may use them for a public purpose. If the Chancellor of the Exchequer is successful in this aim, then of course inflation will be avoided, but there is a great danger that the purpose the Chancellor has will be threatened if we have wholesale demands from all sections for increased income. Clearly, there is no point in the Chancellor trying to reduce incomes in order to stop inflation if, on the other hand, we are to push them all back again and leave things where they were.

While many of the demands for increased income may be justified on their merits, there is a danger that, carried to extremes, they will frustrate the whole anti-inflationary policy of the Chancellor. The Chancellor has been accused of making a ceiling to the Health Service. But it is not the Chancellor who makes the ceiling. The ceiling is made by the limitation of the "gross product" of our incomes; that is the ceiling. What the Chancellor has to do is to see that, within that gross product, all the essential services of the community are kept working and that no damage is caused by the wrong distribution of the national effort.

For example, we all feel very sorry about the restriction on the use of dentists and opticians under the National Health Service, but nobody has shed a tear of sympathy with the poor Minister of Transport who has been shorn of all ability to make new roads. He can scarcely put right roads which are a danger to the population, because his capacity to use labour and materials has been virtually removed by the need for economies.

When the Chancellor has kept all the Departments within a gross product, and when we have taken away every power of, for example, the Minister of Transport to use new materials and labour, then it is clear that in order to make additional savings some other service must also make sacrifices. Every Department is squeezed to the uttermost. If the Health Service is to expand to a large extent then that will compel either the reduction of other services or some other part of its own service since, of course, we have to keep within the gross national product.

Financiers are apt to think in terms of money, and so we talk about the gross product of our efforts being £13,000 million this year. But if all the processes of inflation continue we might next year be talking about the gross product as £26,000 million. I am sure nobody with any sense would think that thereby there had been an increase in wealth. To continue increasing money tickets is just about the maddest way there is of trying to make progress. It is like the dog chasing its own tail; the dog ends up exhausted or probably dead. Certainly it does not go anywhere.

It is most important, therefore, that we should all exercise self-discipline in this matter and should realise that when the Government put before us such a considered scheme we should accept their guidance. We must stand with the team so long as the team is carried on in a fair way and so long as everyone gets a fair deal. Our country has shown great restraint during the last four or five years in building up its well being, and I do hope—and this is what I would say to the hon. Member for Louth (Mr. Osborne) who talks about his friends who want to spend their capital—I do hope that people will realise that it is not a matter merely of the Chancellor's imposing discipline on people: it is the duty of the people in the community to observe self-discipline and to conduct themselves well, without having to be drilled into it by any legislation. I do hope that the people in our community will exercise that self-discpline and carry us forward through our crisis.

Mr. Osborne

All classes alike, of course?

Mr. Woodburn

Certainly. I do hope nobody will ask the Chancellor to take his foot off the brake, because if we once get on the speed course, we shall go down the hill into disaster.

The use of money to direct labour is a proper method, but there is a danger in thinking that by shifting sums of money from one column to another we thereby shift men, too. There is an important factor to keep in mind. There is a geographical limit and there is also a limit of skill. It may be possible to shift men from road work to forestry, but it is not possible to make road workers or foresters into skilled factory workers and engineers, for instance. So in thinking about shifting money from one purpose to another, and in planning to do it through the Budget, we must continually remember economic realities.

Let me give an illustration. Suppose it were said we should stop road making in the Highlands of Scotland. That would appear to be a saving of some money to make it available to be transferred to other purposes. But it would not be anything of the kind. It would simply mean that people at present producing wealth would be idle and would produce nothing at all, which would not be at all a good thing—for it would be contrary to all our social policy and would transfer population from an already depopulated Highlands to Birmingham and London.

I feel rather that our financial policy should be used to direct industries to where people live. I suggest to the Chancellor—it may be an idea for a tax in the future—that, as a great many industries are all hankering to get near London, he should put a special tax on any industry which wants to go to London or Birmingham or any of the congested areas. If they do go there they should pay for it.

Mr. Nabarro

Will the right hon. Gentleman allow me? Surely under the present arrangements for the distribution of industry, and the control that the Board of Trade exercises, it is impossible to set up a factory in Birmingham. It is impossible because of these restrictions.

Mr. Woodburn

The hon. Gentleman cannot have heard the ingenious arguments that are put forward by firms to show that they must be in London or in Birmingham. He can have no idea how often the soft heart of the Board of Trade yields to these arguments. I say that if they go to London or Birmingham or the congested areas, they should pay a tax. It would be better if they took their works to where the people are living.

Mr. Poole (Birmingham, Perry Barr)

If my right hon. Friend studies the figures he will see that the industrial trend during the past two years has been to move out of London. Greater London is less industrialised than ever before. My right hon. Friend wants a special tax on industries that want to come to London, but they cannot come to London, and there are inducements to them to set up factories in the Development Areas.

Mr. Woodburn

There is no reason why it should not work both ways, but there ought to be a handicap against firms coming to London and Birmingham, and such congested areas, from other parts of the country.

Mr. Douglas Houghton (Sowerby)

Why not tax them wherever they are?

Mr. Woodburn

I think the Chancellor does that pretty well as it is. However, I have already spoken longer than I intended, and I want to close with two further comments. I have said that self-discipline is a very important element in the success of our policy. Therefore, in addition to taxation we should encourage self-renunciation in spending by savings. I do hope that hon. Members on both sides of the House are going to help the Chancellor in his campaign to induce people to save, because the more people decide for themselves that they can refrain from spending the easier it will be for the Chancellor. Of course there are people who cannot save, I agree; but as distinct from taxation it is left to the individual to decide whether he can save or not.

The success of our national policy depends on self-discipline and self-restraint amongst our population. The self-restraint of this country has been the admiration of the world, and if every section of the community looks for its leadership to the Government of the day, and carries out the advice it gets, I am quite sure that this country will triumph over any difficulties of the present time and march forward to a greater prosperity.

5.51 p.m.

Mr. Arthur Colegate (Burton)

I shall not attempt to cover a very large part of the field, because it has been already dealt with very ably by my right hon. Friend the Member for Aldershot (Mr. Lyttelton) and I see a great many other Members on both sides of the House who want to speak and who will, I am sure, cover other parts of the field. I want to limit myself to the effect of the Budget on industry.

The noble Lady the Member for Anglesey (Lady Megan Lloyd George) said, "Do not impair the foundations of the Welfare State." The Financial Secretary said, "Do not imperil our hard won economic independence." On those two things we can say a great deal. I do not want to impair the foundations of the Welfare State, and I do not want to imperil our hard won economic independence. But what is the foundation of the Welfare State? Not the legislation that we may pass here. What could imperil the economic independence of this country? There is only one thing that could imperil any of these things, and that is the failure of our productive agriculture and industry. That is the sole basis upon which all our plans and hopes and aspirations are built. If that fails the Welfare State fails, and our economic independence will be imperilled.

Let us look at the effect of the Budget on industry. Today, industry is already hemmed in and surrounded by restrictions, and this Budget increases them—increases them very considerably. There is this to be said about industry. I do not believe merely in bringing British industry up to date. That too often means bringing it up to the level of technical achievement in Germany or the United States. I say that we ought to take the part which we have taken so well in the past, of initiating great improvements and great inventions which have improved the productivity of industry. Therefore, when we think of the effect of legislation on industry do not let us just think of maintaining industry at that level of just being up to date.

We want industry to expand to a far higher degree than exists at the present time. I have recently seen a plant in this country, which cost over £1 million, which far exceeds anything which exists in Germany or the United States, and which will bring to us considerable wealth. We can consider industry after industry and say that, given the capital, given the opportunity, it will make as great advances in the future as there have been in the past. In fact, the tempo of technical improvement tends to increase as we make further improvements. I therefore look forward to a state of affairs which I have always preached—the realisation of the doctrine of high wages and high profits. But do not think that we shall get high wages and a great productivity of industry if we spend our time sneering at profits, trying to limit them, trying to restrict them, and generally in bringing in the disincentives from which this country has suffered in the past.

Let me remind hon. Members of one or two things. To start with, if we want capital for industry we have to go to the Capital Issues Committee. I am quite sure that that Committee consists of very distinguished people for whom I have a great respect, and I am quite certain that they are honest; but no committee can foresee what will be the successful future industries in this country. Nobody can foresee that. After the First World War the wireless industry was an insignificant thing. It hardly existed. One had a bit of crystal and, if one was clever, one could hear people playing at a station in Holland. No committee such as the C.I.C. could have foreseen that that industry would become one of the most successful industries both at home here and in the export market.

The Capital Issues Committee is one of the restrictions on industry today. Projects—I know many—are being held up at present because the Committee will not give permissions for issues. Incidentally, I think it would be very helpful if the C.I.C. would give its reasons for refusing, when it refuses, to allow people to raise capital. At present, the refusal is done in secret. Secrecy is never a good thing in this country; people do not like it. We have a democratic way of life in which we like to know the reasons for things. I have no doubt that the Committee's reasons in many cases are excellent, and that some demands to be allowed to raise capital should be refused, but let us know what the reasons are, because such knowledge forms an essential part of the financial policy of the country.

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

The hon. Gentleman will agree, will he not, that the capital resources of the country should be placed where they will be to the national advantage in view of the economic situation?

Mr. Colegate

Was not that my argument? Was not that the reason why I was advocating that the C.I.C. should give its reasons? Then we should know more of its policy, and if there were any criticisms it could be constructive, which would be an advantage to all parties.

We have now to bear increased Profits Tax. We have already to bear increased Income Tax. Some people talk as though industrial shareholders do not have to pay Income Tax or Surtax. They pay those already and, in addition, we have this increased Profits Tax. My right hon. Friend was perfectly right in saying that firms have no right to disregard the rights of their shareholders. They are legally bound to look after them. They are trustees, and can be prosecuted—and some directors have been prosecuted—for ignoring the interests of their shareholders. I do not know why someone's savings should not be allowed to get a reasonable return through industry, but should be reduced, although the interest of a man who puts his money into gilt edged stock—which is not nearly so valuable a thing to do as to put it into industry—will not be taxed so much. One who puts his savings into industry will be taxed more heavily and have his income reduced by reason of the Profits Tax.

At the same time we have suspension of the initial allowances—all at the same time. I think that there the Chancellor is suffering from a seriously mistaken view. He is, in fact, saying, "I have got to spend a great deal of money on re-armament. I must maintain the essential social services." We agree there. "I am going to damp down my productive resources. For some years I am going to hold back British industry and I am going to hold agriculture back." That is, in effect, what he is saying, when he ought to be thinking, "How can I stimulate industry, especially in the export trade, and how can I stimulate agriculture, to produce all the wealth which I want to use for re-armament and for maintaining the essential social services?" I think that is a very great mistake indeed at the present time. One restriction is necessary and that is the restriction on the raising of capital, but not these other irritating restrictions.

I want to refer, in particular, to the capital not of the big public companies and the limited companies but of the relatively small family businesses. They are being desperately hit by Death Duties. This is not true of the great concerns. When a large shareholder dies, whatever the rate of Death Duty it has to be paid; it does not effect the resources available to the company. That is not true of the businesses which belong to families of which there are hundreds and thousands in this country, particularly in the Birmingham area which is the great area of small businesses. They are being adversely effected by the drain of Death Duties on their capital. I had hoped that with regard to Death Duties we should have heard something from the Chancellor showing that he recognises the difficulty of these family businesses.

There are several other points which I could comment on which would perhaps better be dealt with in Committee. I ask that there should be a serious effort on the part of the Chancellor and those who work with him to reconsider their views about industry. They should not regard it as something to be hit and at times to be almost savaged, but as the very foundation of a higher standard of living which we all wish to see. If the industrial community can feel that the Chancellor is not its enemy and that the State wants to encourage it and to see that there is greater productivity, then I think we shall get a response which will surprise us.

If we are to have that increased productivity industry must have some confidence that the spirit in which it is regarded by the Government has changed, and that it is not merely a matter for abuse and taxation, but a matter for pride and something to be encouraged. It is something to be used in the most fruitful way, by producing that wealth without which we shall never get the high standard of living which is the ideal of us all.

6.4 p.m.

Mr. Ian Winterbortom (Nottingham, Central)

I understand that the Second Reading of the Finance Bill is in a sense a licensed extension of the Budget debate. I am encouraged in this view, Mr. Deputy-Speaker, by the Ruling given by your predecessor in the Chair today and by the speech of the right hon. Member for Aldershot (Mr. Lyttelton), because I propose to tread the same territory as he did but by a different path.

I want to answer one point which the right hon. Gentleman made. He claimed that we were starting on an inflationary road to ruin and compared that inflationary condition to the state of affairs which existed in Germany in 1924 and 1928. I think that that was a bogy raised to frighten a certain section of the population. There is no parallel whatever in the two cases. The inflation of 1924 was an act of deliberate policy by Schacht and his colleagues to wipe out a debt which the Germans had incurred during the war, and the collapse of German commerce in 1928, 1929 and 1930 was due to the collapse throughout the world, including America, of the free enterprise banking system, the repercussions of that collapse spreading throughout Western Europe. There is no parallel between the two cases.

In the speech of the right hon. Member for Aldershot on the Budget, and which he repeated today, he remarked on the limited field of manoeuvre that the Chancellor of the Exchequer possessed when drafting his Budget. I think that there is some truth in that argument, although I must say that, given that limited field of manoeuvre, the Chancellor's Budget was an extremely successful one. He managed to hold the balance fairly between various sections of the community and his Budget had a clear policy and a clear aim. I cannot say that I share the view of certain hon. Friends of mine on this side of the House when they say that the forecasts of the Budget will not be fulfilled. I am strengthened in that belief by the visit of Mr. Wilson, the United States director of defence mobilisation, to this country, and the assurance that he has given us that we will get our fair share of the world's resources.

I think that this year we can surmount all hurdles and obstacles. The great problem facing us is the expenditure which we must face next year and the year after. That is the real problem. We have to find another £400 million a year over and above what we find this year during those two forthcoming years. It is clear that an extension of existing taxation—Income Tax, Purchase Tax and Excise—would make life, to say the least of it, a little arid, and yet this burden has to be borne. For this reason, I regret that the Chancellor of the Exchequer this year was not more experimental in his search for sources of revenue, although he may be keeping various little devices up his sleeve for next year and the year after.

With some diffidence, because I am not myself an economist, I would like to suggest to him and to his colleagues two sources to which they could go to look for money. Perhaps one of these will illustrate the point made by the right hon. Member for East Stirling (Mr. Wood-burn). The first proposal is that there should be a tax on capital gains. Capital gains are considerable during a period of rising prices, and we have been experiencing rising prices from 1939 onwards. Many people have maintained their standard of living not by fiddling, not by living on capital but by capital appreciation which they are using for day-to-day expenses.

One of the proofs of the fact that there has been a steady accretion of capital is that in spite of heavy Death Duties the distribution between various levels of capital in this country has remained remarkably stable during the last 10 years. Death Duties are admittedly extremely heavy. Nevertheless, capital distribution remains remarkably stable, and I also would like to quote from the Bulletin of the Oxford Institute of Statistics which shows that, in 1936, 1 per cent. of the population of this country owned 55 per cent. of the capital of the country. Ten years later, in 1946, that 1 per cent. owned 50 per cent. of the total capital. If we take that 10-year period, the amount of capital in estates of £25,000 and over dropped from 40 per cent. of the whole to 35 per cent.

We see that in this period, despite heavy Death Duties, there has only been a decrease of inequality of 5 per cent. and, therefore, there has been a regular accumulation which must have been approximately equal to the Death Duties imposed. It may be argued that a capital gains tax is complex and difficult to administer. I think that is true. A good deal of thought would have to be given to this matter before we could launch on a capital gains tax. It is, however, standard practice in the United States.

I have spent a little time studying United States tax forms. In many ways I am glad to be British; having studied these forms I am more than ever glad to be British and to feel that I do not have to fill them in. I believe that although it is complex it is possible. United States policy shows that it is possible. I, therefore suggest to the Chancellor of the Exchequer that he might look at this particular source of income when he starts his next year's Budget.

Mr. John Arbuthnot (Dover)

Before the hon. Gentleman leaves the question of capital gains, would he also include in his proposals that there should be a repayment from the Exchequer where there are capital losses? Can he also tell us what the figures for America have amounted to, because America allows for capital losses to be taken into account as well as capital gains.

Mr. Winterbottom

I am grateful to the hon. Member. In America, of course, the system works both way. If a capital loss is made it is offset against a capital gain, but I cannot give the details, because I have only seen the forms and not the U.S. Budget.

The second source of revenue is related to the first, and that is that I should like to see taxed the capital gains arising from gambling. Quite frankly, more people are accumulating over £50,000 in one year by gambling than in either commerce or industry. If we look at the returns of Littlewoods' Pools we find that they are only too proud to tell us how Mr. So-and-So won £100,000. There is a photograph of the winner and everyone is pleased, and quite rightly so. The man who makes £50,000 in a year in industry or commerce is extremely heavily taxed, whereas the man who wins it is not taxed at all. Yet the man who has made £50,000 has rendered a service to the community which the man who wins it by gambling has not.

The gambling turnover in this country is heavy. In 1947, the British people spent roughly £1,000 million on gambling, and in the last three years the average was £700 million. It is perfectly true to say that national resources are not diverted to the extent of the figures of the turnover. The actual cost of administering this particular activity is about £70 million a year. About 43,000 people are employed full-time on the job, but the total result of all this transaction is that £700 million circulates, £70 million of which sticks in the bookies' pockets and in the administrative machine, so that about £630 million passes from one pocket to another among the population.

In my view this circulating money should pay some tribute. The tote on the greyhound track does pay something, at the moment, but I feel that the whole of this large turnover should make some contribution to our search for money. I am not one who frowns on gambling as such. I think it is justified in giving spice to our dull lives; it gives hope to lives without hope. One of the backgrounds to this enormous betting is the housing shortage. Many people are hoping by pool betting to make a killing, and with that killing to buy themselves a house. It is true to say that this activity is not an essential to survival, and that the heavy taxes we are imposing on ourselves are imposed because we are struggling to survive. They are not permanently necessary. They are heavy, but they will not be crushing and I am certain they will not be permanent.

There is today a change in the atmosphere. I myself am feeling more hopeful at the moment. Thanks to the gallantry of the United Nations Forces in Korea, and particularly that of our own men, and the gigantic defence effort being made by the whole of the North Atlantic Treaty nations, the balance of power in the world is shifting in our direction, which is a hopeful sign. Because of the peaceful nature of our way of life, we know that these forces will be used for peaceful ends. I only raise this point in concluding, because when we look at the heavy burden we are asking the country to bear we must not forget the aims of our policy when considering the means.

6.15 p.m.

Mr. Walter Fletcher (Bury and Radcliffe)

The hon. Member for Nottingham, Central (Mr. Ian Winterbottom) will excuse me if I do not follow him in his remarks, particularly about gambling. It is encouraging to think that the traditional activity of this country has his mild support as long as there is the consolation of the public drawing from it in the form of taxes. The Chancellor of the Exchequer and his advisers have probably gone into all this at considerable length, and have appreciated that the difficulties of collecting this taxation are very great.

I should like to refer to one or two points mentioned by the right hon. Member for East Stirling (Mr. Woodburn). It was very interesting to see how he came out clearly and squarely, and said that the Budget, which, traditionally, had been looked upon as a national balance sheet and the means that were going to be taken to balance it, was no longer that. It had become something totally different. It was an instrument for carrying into effect all sorts of social policies that had no real connection with finance.

That is the main source of many of the great difficulties in which we find ourselves today. There are many other opportunities for bringing into being the different social changes that the Government of the day may think desirable, but if the essence of the Budget is taken away from the realm of pure finance, to make it an instrument to advocate and implement certain undertakings that means a very dangerous path indeed is being trod. The point which nearly every hon. Gentleman opposite sooner or later finds himself let into is a reference to dentures. May I just give some practical advice on that? The right hon. Member for Ebbw Vale (Mr. Bevan) has produced a class distinction in dentures. He talks about the upper and the lower. Whether the example of an Upper and a Lower House, which has been an obsession with him, led him along that path I do not know, but I would suggest to the right hon. Gentleman that he pays for one half himself, gets the other "on the 'nye'" and then lets them fight it out.

The Chancellor of the Exchequer himself departed entirely from the traditions of announcing in his Budget speech what later should appear in some solid and workable form in the Finance Bill. It was an over-modest tiny toot on his tin trumpet which later blossomed into Clause 32. All he said on that subject was: Finally, I propose to provide against avoidance of Profits Tax, in particular against arrangements for reducing Profits Tax liability by the issue of bonus shares coupled with redemption of capital, and also against avoidance of Profits Tax and Income Tax by switching profits from one associated concern to another."—[OFFICIAL REPORT, 10th April, 1951; Vol. 486, c. 857.] I think the reason he said so little about it is not very far to seek. He and his advisors felt very uncertain about this. Some of the advisors may have advised against it, those that are the better informed and who think a long way ahead. The others who were looking at the matter in a much narrower fashion and from the more immediate angle of a short-term policy, said, "We can get the money quickly this way."

The effect of Clause 32 was not only as was described so admirably by my right hon. Friend the Member for Aldershot (Mr. Lyttelton), but it goes much further. I am not going to make any plea in favour of those, who go in for unfair methods for the avoidance of taxation. What may have that appearance, particularly when regarded from the oversea angle, is probably something quite different. I have been concerned a good deal all my life in the practical development of resources overseas. The ideal set-up has always been that the head office should be centred in the City of London. That has been the case with all the great organisations which have developed the resources of the world, not only within the Commonwealth but in other countries—that built the Argentine railways, for instance. In the City of London there was always available to you not only the advice of the Bank of England—in the old days disinterested advice which is not longer available owing to the Bank's having been nationalised—but every sort of means for those developments—insurance, technical engineering, transport, and market "know how." The City of London produced the £2,000 million cushion which we found very comfortable at the beginning of the last war. It brought employment through invisible export and through every sort of way.

This Bill is the death knell to that form of development. It is perfectly clear that although the Clause is meant to be permissive, it is in actual fact punitive. Every company will know that in its long-term development plan it may have a spoke put into its wheel by the Treasury, for reasons that the Treasury may think good at the time. We know perfectly well that the large number of people who are willing, even now, to risk capital, cannot if they have any sense of responsibility, start anything large-scale in the form of oversea development. We have had many lectures on the duties of risk capital from hon. Members opposite who have never risked a penny. I would draw the attention of the Chancellor to the great long-term danger that is contained in this Clause. We have given an increasing amount of self-government to every part of the Commonwealth. It is obvious all over the world that that is the present pattern. If, at the same time, we make it almost certain that economic progress cannot keep pace with the increased power that is given locally, we are preparing the most terrible deception for those whom we are pretending to help.

Where is the money to come from? I suggest that we should read in conjunction with Clause 32, Lord Reith's remarks that have just been issued in the report of the Colonial Development Fund. There we see what appeared to be a very large sum—I remember very well questioning this point on the Committee stage—most of which has now been frittered away or placed in considerable jeopardy. Where is the Colonial Development money to come from? If ever there was a moment when we ought to be having a long-term view of finance and devoting the maximum amount to colonial development in order in the end to preserve our standard of life—because otherwise we shall not be able to do it for long—it is now. Clause 32 will prevent it to a very great extent, if there is a risk, when we wish to increase capital on overseas holdings or wish to remove part of a company and its activities overseas for various reasons, that we shall not be allowed to do so. What is the result?

The finance of these undertakings is usually provided partly by the capital of the company itself and partly by bank credits. The bank credits will not be available beyond a certain ratio to the financial structure of the company. The Treasury, seeking evil where there is none and sniffing it out where it does not exist, seem to think that wherever there is an increase of capital by the issue of debentures or ordinary shares out of normal reserves for reasons which are not entirely anchored into the business, they ought to say, "All this is a method of tax avoidance." It may be that in a certain number of cases that is true but, by their extreme, anti-capital attitude the Treasury are altering the whole structure and pattern of oversea development.

They are also opening wide the door to expropriation. We have had several examples of it fairly recently. Consider the capital structure of a big group which used to be centred in London—if things were properly managed, London would still have the opportunity of remaining the world's greatest development centre, thereby supporting its own currency to a greater degree than by any other means. If the Treasury really understood that problem they would know that many companies have their associated and subsidiary companies not only in the Commonwealth but in other countries. The laws of those other countries do not run entirely in line with our own.

What happens? Under Clause 32, the British shareholding directors in a company in France say, "We shall go to gaol for two years and have to pay £10,000, unless we stop you from increasing your capital," but the local directors say, "We disagree. We want to increase our capital because our business is getting greater and it is the right thing to do," we have created a tension—this is a perfectly realistic example—that in the end will drive those countries along the path of expropriation.

What should be done is exactly the opposite of what Clause 32 is doing, to release in the maximum degree possible capital for long-term investment on a big scale, by those who, in risking their capital, are not so careless as we have seen from Lord Reith's report. They go overseas and create, not only the real wealth which has always been the source of our greatest strength, but the certainty that what we have always held out to the people in those countries in the way of Dominion status and advancement will not be brought to rain because there is nothing to ensure that economic development keeps pace with political developments. This Clause 32 is the most narrow-minded, short-term Clause, pernicious in every possible way. There is no hope of tinkering with it and repairing it because the thought behind it is the typical one of the Socialist, "If possible, let us find somebody to punish and restrict," instead of the infinitely wiser one which has always prevailed in this country, "Let us find someone to encourage and protect, to create the real wealth."

We are talking a great deal about growing productivity in this country, but that is only one side, only part of the picture. We are worrying about raw materials. I am not going to be tempted to make the speech on raw materials I wanted very much to make in this debate, but we know that unless we develop our raw material resources not only in the Commonwealth but in other countries we shall not have a hope here in any way at all when the present shortage disappears—which it will—of maintaining that proportion of our hold upon world commerce which we have got together. We know that countries, which have been primary producers of raw materials are now in the secondary stage and are producing manufactured goods. We know that the competition from cheaper-producing countries like India and Japan is getting more dangerous. The only fortification which we can build against that competition must come from a long-term financial policy based upon the complete contrary to Clause 32.

I hope that the Treasury will reconsider the whole of this structure. Many hon. Members have spoken of our being able to maintain our standards and prove that "three into one will go" and not that it will not go. The re-armament programme, the social programme and the export drive are the three things that must "go" into our financial framework. Those are three things which all have to be drawn from one source of revenue. That source of revenue has to expand, and the only way in which it can expand on a long-term basis is in conjunction with the countries which need development and by persuading them once more to come to London for finance and capital goods.

Do not let us be selfish about this. We should say to countries like America which have great resources, that we shall be glad to see them develop our Commonwealth. But to an American investor the first thing he sees in this Clause will be that it contains so many dangers and restrictions that he will never look at it again. It is a very dangerous thing in these days to shut the door in the face of our great partners who have shown signs of going in for a form of development which they have never done before because they had so many opportunities in their own country.

The long-term effect of this Clause is about as nefarious a thing as I have ever seen. I only hope that there will be a little more imagination, a little less suspicion and a little more knowledge drawn to the Treasury, not from their immediate entourage of officials. Even the chief planner might occasionally be asked about these things: he was once a partner in a firm which had a great deal to do with Colonial development, exports in metal and other commodities; and if he were not kept in a glass case as Exhibit "A" the advice he would undoubtedly give would be that we should follow the lines I have tried to indicate. Has he been consulted?

I do hope that later on when we reach the Committee stage there will be no higgling and haggling over Clause 32. It must go out; it is bad; it is restrictive and the long-term implication of it is the most disruptive thing for the Commonwealth which I have seen for a very long time.

6.32 p.m.

Miss Burton (Coventry, South)

I am particularly glad to have caught your eye, Mr. Speaker, because I hope that the somewhat narrow point I wish to raise will commend itself to all parts of the House. The hon. Member for Bury and Radcliffe (Mr. W. Fletcher) will absolve me of discourtesy if I do not follow him particularly in view of the fact that that is usually most faithfully done by my hon. Friend the Member for Coventry, North (Mr. Edelman).

In common with most hon. Members I sat most faithfully through four days of the Budget debate because I wished to raise this matter and I am very grateful that the rules of order permit me to raise it tonight. Before Christmas the House was able to make a concession to our men in the Forces, which was very much appreciated both at home and overseas. I am referring, of course, to the free 3 lb. parcel which was sent by airmail to our men in Korea. Since that time I have had a great many letters from soldiers out there and one from a journalist on a national daily who was in Korea at the time. I thought the House might be interested to know that he said that the result of that concession was a perfect avalanche of parcels, that he had seven sent to him for handling and that his main difficulty was finding anyone who had not a parcel.

Mr. Speaker

I rather gather that the hon. Lady is talking about postal matters and there is nothing about postal matters in the Finance Bill. That being so, postal matters and concessions on parcels to Korea are not in order on the Second Reading of the Finance Bill.

Miss Burton

May I seek your guidance, Sir? Obviously, I did not want you to get up and say that to me. Before the debate I did seek guidance, which, I hope, was not less skilled than yours, on this matter and I was informed that on the Second Reading of the Finance Bill it was thought you would find it in order if I did not comment necessarily on the Clauses in the Bill but on an additional Clause which I hope may be inserted in the Bill. I hope I have not expressed myself inadequately, but that is what I proposed to do. I was hoping I should be able to speak to the insertion of a Clause in this Bill dealing with airmail parcels, because these are not the responsibility of the Post Office but of the Treasury, and I was wondering if I might be permitted to go on if that were in order.

Mr. Speaker

This is outside the Finance Bill. To introduce a new Clause about something which is not in the Finance Bill at all, and not connected with it, would mean that we might talk about all sorts of things. There must be a limit. I am very sorry, but postal facilities to Korea are not part of the Finance Bill.

Miss Burton

With very great respect, Sir, may I make this further point? I was going to ask, with reference to the defence programme, that the Chancellor of the Exchequer should make a grant with regard to this particular matter, which does concern the defence programme. Would you allow me to continue on one of those lines?

Mr. Speaker

Even the defence programme is not part of the Finance Bill. The hon. Lady would find that very difficult; she and I would have to cross swords before very long.

Miss Burton

I would rather cross swords with anyone than with you, Sir. May I pursue my point on these lines? I wish to ask for a grant from the Treasury for this matter and it can only come from the Chancellor of the Exchequer. As the House will be aware the airmail postal service to the Forces overseas consists of varying rates which reflect great hardship on men in our Forces. I wish to ask the Chancellor tonight if in, this Bill, he will consider the advantage of such Clause as he may deem suitable to give us a grant towards this particular purpose.

Mr. Speaker

That, also, would be out of order as it would increase the charges, and increased charges are rather difficult to put into the Finance Bill. I think that a Clause which would add to taxation is generally out of order.

Lieut.-Commander Gurney Braith-waite (Bristol, North-West)

With great respect, Sir, was not the hon. Lady asking the Chancellor if he would favour a new Clause on the Committee stage of the Bill, in which case I believe it would be in order?

Mr. Speaker

That is possible, as long as it is not developed at too great a length.

Miss Burton

I am extremely grateful to the Opposition and I hope very much that you will not have to rise again, Mr. Speaker, or I shall have to resume my seat. I am not only asking for increased expenditure, but also proposing some way by which the Chancellor might recoup himself at the same time.

I hope, therefore, that I shall be in order if I illustrate the background of what I wish to ask by explaining the reason for it. In so far as Korea is concerned there is no airmail parcel service as such, and by means of a special concession it costs the families of our men out there 63s. to send a 4 lb. parcel. It costs the families of our men who are in Germany 6s. 6d. to send a 4 lb. parcel. It costs 22s. to send a 4 lb. parcel by air to Egypt and it costs the families of men stationed in France, which is the cheapest of all, only 6s. to send a 4 lb. parcel.

If an effort is made by the families of these men overseas to send their parcels by surface mail, it takes so long to distant countries that the things deteriorate in the sending. As the Financial Secretary will be aware, it takes five or six weeks to send to Korea, and I feel that air mail rates for parcels to our men in the Forces should cost the same wherever those men are stationed. Earlier this year the Government were pressed to make concessionary rates for Korea in so far as air parcel services were concerned and they had to turn it down because it was too costly——

Mr. Speaker

I must ask the hon. Lady not to develop this point any further. It has nothing to do with the Finance Bill. The Bill deals with Customs and Excise, Purchase Tax, Income Tax, Profits Tax, Death Duties and miscellaneous taxes, but I cannot see that postal services come into it in any degree.

Miss Burton

May I, then, immediately explain what I want to ask the Chancellor to do? Would you, Sir, rule out further examples from our men overseas as to the effect of that? I wish to ask the Chancellor if he will make it possible for the air mail rates for parcels for our troops overseas to cost the same from this country wherever those men are stationed? To make it specific, I suggest that there should be a similar rate to the Forces anywhere up to and including 4 lb. in weight, and that the rate should be 9s. for 4 lb. or 2s. 3d. for each pound or fraction of a pound.

I explained to you, Sir, that I was finding a way of bringing additional revenue to the Treasury. That suggestion would mean that the relatives of our Forces in Germany and France would have to pay a little more. In so far as Germany is concerned, it would be an additional 2s. 6d. for 4 lb. and in France an additional 3s. It would mean a saving of 13s. for the families of men posted to Egypt, and 54s. less for those posting to Korea, Hong Kong or Malaya. It is quite unfair that men who are stationed in different parts of the world should have these different rates——

Mr. Speaker

I think I have been very, very patient. I cannot see what this has to do with the Finance Bill.

Miss Burton

May I thank you, Sir, for having let me continue so long? I hope that the Chancellor will take note of what I, thanks to your patience, have tried to say tonight.

6.45 p.m.

Mr. Hamilton Kerr (Cambridge)

So many hon. Members wish to speak in this debate that I shall certainly be lynched in the Lobbies unless I restrict my remarks. I therefore hope that the hon. Member for Coventry, South (Miss Burton), will forgive me if I do not follow her, though I thought she was about as skilful as Blondin on his tightrope across Niagara. I cannot resist referring to one remark made by the right hon. Member for East Stirling (Mr. Woodburn) when he urged the country to save. May I remind him that Lord Catto, the Governor of the socialised Bank of England, remarked today, "Not even a Scotsman can save."

I want to submit to the Chancellor, for his consideration, a new principle relating to works of art and to the payment of Death Duties. If I understand that position aright, any owner of an heirloom need not pay Death Duties on it provided it remains in his family. Similarly, any owner who bequeaths works of art to the nation in a house taken over by a public body, such as Ham House or Osterley, likewise does not pay these duties. In the Gowers Report, which the Government have accepted, it is understood that works of art remaining in houses scheduled as national monuments likewise do not pay duty.

But outside the range of these decisions there exist in the country today a number of works of art which are sold year by year, and, more often than not, find their way abroad, and principally to the United States. I want to suggest to the Chancellor a means whereby those works of art, instead of finding their way abroad, can find their way to the Government houses in our great Dominions and our embassies overseas.

I imagine that the main function of an embassy is to show the life and achievements of the people it represents to those who pass through its doors. I believe the French understand this principle to perfection. When one enters a French embassy in any part of the world one sees works of art—tapestries, pictures, furniture, glass, which evoke an atmosphere of elegance and culture and give a fine picture of the achievements of France throughout the centuries. Of course, the French enjoy the great advantage of possessing the garde-meuble, drawn from the former Royal collections, and any French ambassador can draw out from this Aladdin's cave of treasures anything he wishes for his embassy overseas. We do not enjoy such an advantage. More often than not, the visitor to a British embassy overseas is confronted by the stern figure of Queen Victoria and, if he is timid, he may be pardoned if he quails before the gaze which is supposed to have made even Gladstone falter.

My proposition to the Chancellor would enable this country to achieve something similar to the French garde-meuble. I suggest that he appoints an advisory committee composed of members of the leading museums, say, the National Gallery, the Tate Gallery and the Victoria and Albert Museum. This advisory committee would judge works of art which private persons were willing to leave to the nation.

Let me give an example. Say Mr. A. wishes to leave a collection of pictures and glass to the nation. If these works of art are considered of sufficient value to be accepted, the assessor, appointed by this advisory committee would, at the time of the death of the donor, credit his estate with the sum he agreed to. Say the sum was £30,000, then the heirs and the inheritors of Mr. A.'s estate would have to pay Estate Duty on an estate worth £30,000 less. I believe this small concession would not cost the Chancellor more than a few hundred thousands a year, but it would make the nation the possessor of many fine works of art.

May I try to give the Financial Secretary a picture to fire his imagination? If this principle were accepted, one might see in the British Embassies overseas not only portraits of Queen Victoria but pictures of the best schools—of Reynolds and Gainsborough and of those countless minor artists who so truly represented our life. There would be the great sporting pictures of Stubbs, Ferneley and Herring; the sea-paintings showing the ships of the line riding at anchor at Chatham and Portsmouth; the tea clippers racing up the Channel; the sporting prints of the great bruisers of the past and the pictures of coaches going at a spanking pace up the Great North Road. There would be fine furniture—Chippendale, Sheraton and Regency. In the dining rooms there would be spendid examples of English and Irish glass and china—Waterford and Cork glass and Rockingham, Crown Derby and Royal Worcester china.

Would these not provide a great opportunity, both in Government houses abroad and in our Embassies, to give a true picture of our achievements through the centuries, a picture we do not have at present? I ask the Chancellor to think over this proposition and, if I raise the point on a later stage of the Finance Bill, perhaps to give a favourable answer to it.

6.50 p.m.

Mr. Snow (Lichfield and Tamworth)

May I say, first, what great charm I found in the speech made by the hon. Member for Cambridge (Mr. Hamilton Kerr)? His mellifluous words will, I think, strike a responsive note in most parts of the House. I think that the French have one additional advantage—and here I digress from the view which has been expressed by my right hon. Friend the Prime Minister. They also have a Ministry of Fine Arts, with a direct departmental responsibility which, in my view, is lacking in this country.

To come down to a somewhat more mundane subject, I should like to discuss toothbrushes. [Laughter.] I see that hon. Members laugh, but let me say that the longer the tooth, the bigger and better the toothbrush that is necessary. I should like to address myself, in general, to Clause 12, which relates to Purchase Tax, and specifically to Group 31 (b) of the Schedule of Charges for Purchase Tax, and to draw the attention of my hon. Friend the Financial Secretary to the very curious anomaly about toothbrushes.

The bad state of the dental services in our country at present seems to me to make it highly important that we should give every encouragement to those aids which prevent dental decay. I speak as a layman, but I cannot help feeling that a layman has as much right to discuss this subject as a dentist. In group 31 (b), charged at the rate of 33⅓ per cent. Purchase Tax, we find these items: Toilet brushes, bath brushes, clothes brushes, eyebrow brushes, hair brushes, hat brushes, nail brushes, shaving brushes, animal toilet brushes and toothbrushes.

I have been reading a very interesting article in a professional paper called the "Dental Practitioner," which draws attention to the fact that there are three important factors relating to dental hygiene which are of major importance: First, that the knowledge of oral hygiene has not penetrated into society as far as it should have done; second, that the Purchase Tax is very high and militates against the buying by ordinary people of toothbrushes; third, that there is a tendency for toothbrushes to be used for too long, anyhow.

I find from this same paper that some time ago a test was carried out in a London factory where 3,000 men and women are employed. The test lasted about six weeks. Every patient who reported for dental treatment was asked to bring his or her toothbrush, and 288 toothbrushes were examined. Of that number, 47 per cent. were in such a bad state that they should not be used at all, 23 per cent. had some further use although they showed signs of wear, and 30 per cent. were satisfactory.

If we examine the build-up of the price of toothbrushes, I am advised that for a toothbrush at present costing 2s. it would be something like this. The factory price is 7d.; the wholesale price is 1s. 2d. The noble Lady the Member for Anglesey (Lady Megan Lloyd George), whom I see in her place again, referred earlier this afternoon to the need to investigate costs of distribution. It seems to me quite unreasonable that it should cost 7d. for a toothbrush to get from the factory to the wholesale point. Then there is 33⅓ per cent. Purchase Tax, which is another 5d., and then comes the retail margin of profit, which is 5d. One therefore must ask whether a reduction or abolition of the Purchase Tax would result in increased sales. There is a fairly strong case for assuming that that would be the case.

In 1947, the average sales of toothbrushes in this country were 24,500,000. Then, with the incidence of Purchase Tax—the dates do not exactly correspond, but I think there is a strong inference here—the sales in 1949 were approximately 18 million—a fairly substantial drop. I have carried out a rough and ready calculation, and I think that probably the income derived from this particular Purchase Tax item amounts to something like £375,000 a year, which is. I suppose, not an inconsiderable figure.

One cannot help feeling, however, that it is wrong to equate with the other forms of brushes like animal toilet brushes, eyebrow brushes, nail brushes, and things like that, toothbrushes which are an essential, and not a luxury, item. I therefore ask my right hon. Friend whether he would consider amending the Purchase Tax Schedule so as to reduce the retail price. If I may refer again to what the noble Lady the Member for Anglesey said earlier, I think that the abolition of the Purchase Tax on this item should be accompanied by a very close scrutiny, and that if necessary one of the Statutory Rules and Orders which we are always debating in the House should be imposed on the trade to effect a reduction in the wholesale and retail margins of profit.

6.57 p.m.

Mr. Osborne (Louth)

The noble Lady the Member for Anglesey (Lady Megan Lloyd George), in her contribution to the debate, said, I think, "Do not let us impair the structure of the Welfare State." The noble Lady was rather afraid that certain provisions in the Bill would tend that way.

Lady Megan Lloyd George

Would lead or tend that way.

Mr. Osborne

There are three points about the proposals in the Bill about which, I think, hon. Members on both sides would agree: first, that the taxes proposed are extremely heavy and we would all like to see them lower; second, that with the exception of the Ebbw Vale contingent, we all agree that the money for re-armament must be provided.

Mr. Lyttelton

May candles be brought in, Mr. Speaker?

Mr. Speaker

Yes, I think so.

Mr. Osborne

I come back to the point made by the noble Lady, that if the Welfare State is to be maintained, if the cost of living is to be kept down and if money is to be provided for re-armament, there is only one remedy: that is, immensely increased national productivity. We all agree on that. The point which I want to emphasise is this. I do not believe that any Government, of any party, will get that increased productivity from the industrial workers—never forget that it is from them that it has to come—until we make them realise the position of the country and its desperate economic outlook.

I should like to base my remarks on some words of the Chancellor of the Exchequer who, when speaking in the Budget debate, said: And let us not altogether forget in the forthcoming debates the setting of this Budget. It is a setting physically remote from this Parliament of ours…"—[OFFICIAL REPORT, 10th April, 1951; Vol. 486, c. 867.] The danger is that we all tend to look at the Budget in isolation and to forget the world setting in which it is placed. I should like to remind the House how the nature of the Finance Bill has changed twice in the last century. In the old Gladstonian days, the idea behind the Finance Bill was that it should take as little money as possible from the pockets of the taxpayer and it should be spent wisely, carefully and frugally; and the ideal was retrenchment.

The noble Lady's father, who was Chancellor of the Exchequer in 1909, changed all that. He brought into the Finance Bill a new motive, a new directive. He used the Finance Bill not in the Gladstonian sense, but to try to obtain greater social justice. It may have been a case of 9d. for 4d., but his ideal was greater social justice by taxing those who were better off and by giving, through the social services, to those who were poor. That was a new emphasis in the Finance Bill. That new force lost its impetus during the war when we had 100 per cent. E.P.T. and 19s. 6d. in the pound Income Tax and Surtax. It could go no further.

The second great change in emphasis was introduced by Sir Stafford Cripps in 1947. The House will remember that he was not only Chancellor of the Exchequer but also Minister for Economic Affairs, and his capacity as Minister for Economic Affairs was, in his mind, more important than his duties as Chancellor of the Exchequer. Consequently, we now have a Finance Bill which aims not merely at social justice but at social security through national economic planning. The idea is that somehow, by using the taxable capacity of the nation, by the planning that we on this side of the House feel has been overdone and in many cases badly done, but to which hon. Members opposite still cling, social security as well as social justice will be given to the masses of the people in this country. I say that that is not realisable unless we can say to the workers what the Chancellor said to us in the House—that we must remember the setting of the Finance Bill and not merely what it contains.

I want to point out a few of the important settings that surround this Bill. First of all, we live in a desperately hungry and frightened world, a world that is short of raw materials, and the most desperately short raw material of all is human food. In other parts of the world—in India, for example—between now and September there are 20 million people who will be in danger of dying from sheer starvation: five million may die of starvation. But it is almost impossible to get people in this country to realise that it might happen here. If we want the food, we have got to go into the world's market to compete with other buyers for it, and the danger that is so acutely facing India today might very well face us in another six or 12 months' time.

The "Daily Mail" had an article on Friday, 20th April, from which I would like to quote. It said: Those who die in India…are the early victims of a world disease. For if man's fertility continues to outpace nature's fertility on the present scale, there will come a moment when there will be no hope of saving famine victims. The food will not exist in the world. What I am saying to the Financial Secretary is that we shall never get the extra productivity that is really required to save us, perhaps not from those extremes but from dire poverty and hunger, unless we first of all say to our workers, "These are the facts, and against these facts it is not politics nor Clauses in the Finance Bill which will help you. You have got to help yourselves by greater productivity."

Mr. Pannell (Leeds, West)

I was interested in the last point which the hon. Gentleman made, in which he said that the people ought to be told the plain facts. Would he please say why he has been associated with a party which on the occasion of every crisis, whether it has been petrol, potatoes, bread, or anything else, has always advocated a principle of "free for all" and not one of reasonable control?

Mr. Osborne

I do not think that that is a fair interjection. My party has not always advised a policy of "free for all." I do not think that even my hon. Friend the Member for Orpington (Sir W. Smithers) could be accused of such reckless extravagance as the monkey-nut scheme which hon. Members opposite supported. However, that is taking me from the serious point I wish to make.

My second point is this. The peoples of Africa and Asia, the black and the brown, are going to demand a higher standard of living. Indeed, we are rightly encouraging them to expect it. But since they are 10 times greater in number than the whites, a 1 per cent. increase in their standard of living means a 5 per cent. or 10 per cent. reduction in our standard of living. Their aim will not be achieved unless there is an enormously increased productivity.

Another point which the Chancellor has failed to put over and which the Government have failed to put over is that since the war our position has changed radically and for the worse. Before the war, 25 per cent. of our imports of food and raw materials came to us free. They came to us as interest on our loans. We therefore enjoyed a higher standard of comfort than we really earned. As a result of the war, which affects the Budget which is before us, we are a great debtor nation and we are having to export a considerable amount of manufactured goods for which we get no return at all. Consequently, we are compelled to earn a higher standard then we are able to enjoy. Those are facts which, I suggest, not one industrial worker in a hundred really believes or comprehends, and I believe there are many hon. Members opposite who do not really believe them.

On top of all these changes we had the greatest political disaster since 1945—the disaster of devaluation. Sixty per cent. of our raw materials and 40 per cent. of our foodstuffs come from abroad. The Exchequer knows very well that dollar prices are world prices, and when we devalued the pound, we automatically put up by 40 per cent. the cost of all our imports and thereby reduced our own standard of living.

Now, on top of all this, we are faced with a re-armament programme which we all support except the Socialist "fringe"; it will take something like two million men and women out of productive industry and will either put them into uniform or into armament factories to produce equipment. Consequently, if our people are not to have a lower standard of life, if the foundations of the Welfare State for which the noble Lady is so concerned are not to be undermined and destroyed, we must say to the working population of this country, "We want not shorter hours and less effort, not more pay and less work; if we are to survive at all we have got to put a great deal more into the common pool than we have been taking out."

I should like to finish with this question. In his Budget speech the Chancellor said: …we have to recognise that there must be some reduction in our standard of living."—[OFFICIAL REPORT, 10th April, 1951; Vol. 486, c. 827.] When he replies would the Chancellor please say by about how much? Would he say by 10 per cent. or 20 per cent.? If the Chancellor were to give the nation an estimate by which he thinks that our standard of life would be reduced, I think that he could get the extra production to allow us to carry the cost of re-armament and all the burdens imposed upon us in this Bill, and yet not have to suffer that cut. I believe that the Finance Bill only gives to the people half the picture. We, on both sides of the House, ought to put the other half before our constituents, whether it gets us votes or loses them. We are in for a much more difficult time than any one in the House has yet dared to tell the country. I appeal to the Chancellor to tell us the worst, because I am convinced that the English people will always face the worst and that they do their best when they are told the worst.

7.11 p.m.

Mr. Norman Smith (Nottingham, South)

I do not know if any hon. Gentleman has been frightened by the speech of the hon. Member for Louth (Mr. Osborne). I have not. I am inoculated against it. I have been listening to him speaking in that strain for the last six years. As for the analogy between India and this country, he suggested that many people in India are in danger of starving, which I believe to be true. He suggested that five million people here might starve before very long, which I believe to be fantastic. I suggest that he should go to the Library and get the admirable research department to dig out for him the comparative figures of the horsepower installed in India per hundred of the population and the horse-power installed in Great Britain per hundred of the population.

I pass now to the more serious aspects of this Budget, and I propose to be critical about this Finance Bill. I am concerned with its omissions, which are serious and numerous. The first omission is that it holds out no hope whatever for the future of any substantial relief from taxation. It does not indicate any important source of new revenue for the future. I propose to indicate an important source of new revenue which will be immediately lucrative and which would rapidly expand with the progress of time.

This Bill does not provide really adequate defence for the poorest section of the population against the rising cost of living. That is a burning political question, and I am interested to note that the "Financial Times" and Conservative leaders, including some in my constituency, are already hedging on this subject. They are under the impression that they may get into power before very long. They have to state now that they cannot stop the rise in the cost of living. I will show them. I know.

My third complaint about the Finance Bill is that it does nothing whatever about what is a burning subject among the working class, namely post-war credits. Post-war credits are not irrelevant to the present situation. We all hope there will not be another war, but we had better make our financial dispositions in case there is. I can imagine that in a future war we shall pile up debt, not to the lenders of money, but to munition workers and other producers. I can envisage a state of things in which the munition workers will receive in cash only part of their earnings. Everything above a certain ceiling will be given to them in the form of Government Bonds carrying interest but not to be negotiable until after the war. That would not be a bad thing for munition workers, because in war-time consumer goods are always scarce. They could not spend the money advantageously then, anyway. That kind of thing may well happen in a future war, and this is where post-war credits come into the picture.

It is my experience that, owing to the devious processes of Treasury finance in this respect, the working class have a wholesome mistrust of everything connected with the Treasury. We could not work the sort of war-time financial arrangements I have suggested unless there was confidence among the working class. There is no such confidence, and I shall try to show why. Many people die before they reach pensionable age. It is easy to imagine a family being deprived of its post-war credit over many generations, merely because of the recurring impact of sub-normal longevity. The working class people understand that. Again, I have a case in my constituency which is by no means isolated, that of a young married woman with children, daughter of a man recently deceased. She has to wait 30 years to draw her deceased father's post-war credit, merely because the old gentleman, though well over 65 years of age, had neglected to encash it.

I suggest that these credits ought to be liquidated now—not all of them, but the hard cases, among which I include women who become widows and men who, for medical reasons, are either unable to earn the rate of wages prevailing in their locality or are unlikely to reach the age of 65. One of my constituents, aged 50, eleven years younger than I am, is dangerously ill in a sanatorium with tuberculosis. If his wife becomes a widow, she will have to wait 12 years for his postwar credit.

I shall be told by the Treasury that the cost is prohibitive. If there were liquidation of all hard cases, it would have to be done retroactively and I have an idea that the cost in the first year would be of the order of £100 million. That is a guess, but I have reason to think it might be something like that. The cost would be less in subsequent years. I suggest that it could be met successfully by a public loan with the interest and subsequent repayment tied by a sliding scale to the cost of living. It is my firm belief that the Treasury—and I wish they would work this out—would be most agreeably surprised at the response to such a loan, if it were properly advertised and if the prospective lenders could be convinced that their savings would not be eroded by the rising cost of living. Of course, the disinflationary effect of such a loan would far more than outweigh any contrary effect of the thawing of these credits.

It is my complaint that all through the debate on this Bill no hon. Gentleman has indicated an alternative source of revenue to taxation—a non-tax source of revenue. I propose to do that. I propose to put my finger on what I conceive to be the real evil. My right hon. Friend the Chancellor of the Exchequer is not master in his own House. He has to share with other people responsibility for the nation's finances. He has to share the responsibility with the commercial banks, and sometimes he is pulling one way and the commercial banks are pulling the other.

What I am proposing, which would bring immediate relief to taxpayers and would open up a wonderful avenue of non-tax revenue, increasing from year to year, is simply this—and it ought to be in this Finance Bill because it is relevant to the day-to-day financial practices of the country—that the prerogative of creating credit, and the profits of so doing, should be transferred from the commercial banks to the Treasury.

In the five years, 1946–50 inclusive, no less than £643 million of Budget surpluses, wrung out of unwilling taxpayers, was applied by the Chancellor of the Exchequer to reduction of the National Debt. That was disinflationary. But at the same time the London clearing banks, which of course operate all over the country, increased their total deposits by £917 million. That was money created within those banks and having no tangible existence; money circulating very merrily indeed from one current account to another by cheque. Everybody knows, I suppose—and if not, it is time this House began to realise it—that in all countries banks make the financial laws by which the Governments must abide. The overriding law of the banks is that money may not be created by the forgers, coiners or Governments, but only by banks.

Mr. Arbuthnot

Does the hon. Gentleman suggest that the banks are printing money and circulating it to the public, or how is he suggesting that the banks are creating money?

Mr. Smith

I anticipated some sort of kindergarten interruption. I have brought a witness, precisely against such an emergency as that intervention. I quote from the late Mr. Reginald McKenna, who was for many years Chairman of the Midland Bank, addressing his shareholders in January, 1924. I suppose that everybody except the hon. Member will have read it. He said: I am afraid the ordinary citizen will not like to be told that the banks can, and do, create money. The amount of money in existence varies only with the action of the banks in increasing or decreasing deposits. I will not go any further with that quotation. In the five years I have mentioned, every time the Chancellor of the Exchequer disinflated painfully to the tune of £5, the bankers reinflated to the tune of £7. It was like the old sums we used to do about what would happen to the bath when the taps were open and the plug was out at the same time.

It is pertinent to examine the position of the commercial banks in this respect. In those five years these London commercial banks increased the number of their branches and sub-branches by 517 to 9,770, an increase of 5 per cent. in five years. Moreover, in the last three years of that period they increased the number of their employees by 3,300 to 88,100, an increase of 4 per cent. in three years. During the whole of these five years the net profit of these banks showed a steady increase, until in 1950 they amounted to 14 per cent. of the paid-up capital. Very respectably, and conforming with the views of Sir Stafford Cripps, in those five years these banks kept dividends to the shareholders constant, and they amounted last year to 8 per cent. of the paid-up capital.

I have referred to the increase in the number of branches and sub-branches. I well remember the late Mr. Walter Leaf, who was for many years Chairman of the Westminster Bank, referring once to these branches all over the country, many of them situated on valuable street-corner sites as the hidden reserves of the banking system. It is obvious that when there is a constant distribution of dividends to the shareholders, and a steadily increasing net profit, there must be a continuous and massive increase in reserves.

These reserves are hidden away in these redundant, superfluous branch banks all over the country, many of which have been depreciated down to nearly nothing in the books. Hon. Members opposite are delighted to talk about hordes of civil servants swarming in unnecessary Government offices. I invite the attention of the House to the waste entailed in this system by which the commercial banks, in order to hide the profits they derive from lending created money, multiply unnecessary and competing branch premises.

Now I want to show why this business of bank-created money adds substantially to the cost of living. I do not intend to go any further than my own constituency in this respect. If, as I have advocated, the Treasury were the sole creator of credit, it would be convenient for a Socialist Government to divide all loans into two categories—social loans and business loans. There is no reason why the interest on social loans should exceed, shall I say, one half of one per cent. per annum.

If one is lending money which one has created out of the blue, out of nothing—and I have further high authority for that statement if the hon. Member for Dover (Mr. Arbuthnot) wants to interrupt—the rate of interest is a purely arbitrary matter. Its upper limit is fixed by what the traffic will bear—by what the borrower is willing to pay. Its lower limit is fixed by the clerical expenses inside one's office. The clerical and administrative expenses inside the banks need not be—and they are not—any greater in the case of a loan of £20,000 than in the case of a loan of £20 million, provided that the repayment is spread over the same period in the two cases. It means in both cases just the same dipping a pen into an inkwell and making entries in a book.

In my constituency, the City of Nottingham is borrowing a large sum at 3 percent, to build 1,350 houses, repayment being spread over 60 years. I received this morning from the City Treasurer certain interesting figures which I was anxious to obtain. The key figure is that an extra half per cent. on the interest rate, the City Treasurer tells me, would cost Nottingham City Council 2s. 4d. a week more for each house. If, therefore, the interest rate were reduced from 3 per cent. to a half of one per cent., which would much more than cover the cost of the bank's clerical and administrative labour, the saving to the Nottingham City Council in the interest on a house in my constituency would be 11s. 8d. a week. That would permit the immediate abolition of the Government subsidy of 6s. 4d. a week a house; it would simultaneously permit the immediate abolition of the rates subsidy of 2s. 2d. a week a house, and it would still leave 3s. 2d. a week less rent for the tenant to pay.

Rates down, rents down and taxes down—that is merely one example of how the cost of living would be reduced by the transfer from the commercial banks to the Treasury of this prerogative of creating credit. Further, the beauty of it is—and hon. Members opposite have been talking about punishing and hating, and I do not want to punish any capitalist and I do not hate any Tory—that these savings could be effected without hurting anyone, except in so far as the process would take away some of their power from the banks, whom the invention of the chequebook more than a hundred years ago quite fortuitously and accidentally placed in a position where they could hardly help surreptitiously filching away the right of issuing and creating credit. The right to issue and create money had for centuries been guarded jealously by Governments or by the Crown, but the accidental invention of the chequebook in the reign of Queen Victoria, or just before, enabled those banks to filch that right away. That is the position, I have no doubt that the bankers are personally very worthy men, who act according to the best of their lights; but the arcana they administer constitute a vicious system An instance of that is provided by the 3 per cent. housing in my constituency, where out of 37s. 6d. a week, gross unsubsidised rent of these houses, 24s. 11d. or nearly two-thirds will go in moneylending charges, that is 13s. 5d. interest at 3 per cent. and 11s. 6d. loan repayment. Out of the total rent, two-thirds goes in this fantastic, tortuous, esoteric ritual of moneylending, practised in Whitehall by the alleged Local Loans Fund, disbursing to local authorities money which in its origin is bank-created money. That is something which this Finance Bill ought to have remedied.

I shall refer only briefly to my third point, which is that there is very little in the Finance Bill to protect the poorest of the poor against the impact of rising prices. The reason for that is—my hon. and right hon. Friends on the Treasury bench do not really understand why the cost of living is going up and I propose to enlighten them—[Laughter.] Neither of course do the party opposite. The cost of living is going up because there is plenty of money about. The first law of capitalism is that the price of a thing is what it will fetch. There is plenty of money about because there is full employment, and there is full employment because there is massive capital expenditure. The right hon. Member for Alder-shot (Mr. Lyttelton) tried to raise a scare about the inability of firms to extend their capital equipment owing to the abolition of certain allowances.

The obstacle there is not financial but physical. Already one-fifth of our labour force is engaged on work of a capital nature—that is why there is plenty of money about. And capital expansion, like defence production, pays out money in wages without a corresponding flow of consumer goods. Thus the retail market is flushed with money, and private enterprise snaps up that money simply because it is there. In their business jargon, the enterprises raise prices to what the traffic will bear. That is the reason why capitalist private enterprise, under the flush money conditions of full employment, works to the detriment of widows, old-age pensioners and everybody else who has to live on a small fixed income.

I deeply regret that the Finance Bill contains no provision whatever for a sliding scale to tie Welfare State benefits to the cost of living. Recent events have taught us that we are always up against the dilemma that unless and until credit is socialised in the way I advocate, the cost of living will soar when there is full employment, and when the cost of living is low there will be masses of unemployed. That is the constant experience of the working-class, which everybody on this side of the House knows full well.

I say to my right hon. Friend that there is no way of expanding the revenue unless he transfers from the commercial banks to the Treasury this lucrative right of creating credit, which the banks have usurped by accident. The right hon. Member for Aldershot was quite right to be nervous and embarrassed as he was in opening his speech, because the party opposite believe, so they say, that they will soon be the Government, and the right hon. Gentleman believes he will soon be a Chancellor, and he does not like the look of the job. This Finance Bill—and the Finance Bills of the next year or two, all the more so—will do more than anything else to divert into the channels I have indicated the thoughts of people who are beginning to realise that the existing financial system of bankers' debt-money has outlived any usefulness it might once have had.

I warn my hon. Friends that no amount of nationalisation, no matter how intrinsically good it may be, no amount of economic planning, however inherently good that may be, and no amount of Socialist expedients, however innately good they may be, can be made permanently effective unless and until there is public control over the flow of money from start to finish, public control over the issue of new credit, now left to private banks, and public control over the retiral of credit through retail prices, now left to private enterprise. Let them ponder these things, not because these things are the politics of the next decade, but because the Labour Party, having enacted its declared programme, must now find another one. [Laughter.] The party opposite do not need to have a programme. The only time in my lifetime when they had one was in 1906 when I was Tory Prime Minister in my school. They had a programme of tariff reform, and down they went. But we must have a programme if we are to get support. Unless we do as I say, and find new financial techniques appropriate to this epoch, there will be no survival for this country in the atomic age, which is now coming in fast.

7.35 p.m.

Sir Waldron Smithers (Orpington)

I have never heard, from the point of view of the hon. Member for Nottingham, South (Mr. Norman Smith), a more brilliant speech. How I envy him the way he can get up and roll off figures and statistics without a note. He talked about plenty of money, but what sort of money? What is the pound sterling worth today in purchasing power? If I am allowed to do so, I shall make a speech of a very different character, and I shall speak from my heart; and I hope that I shall get a good hearing.

The opening speech of the Financial Secretary was in my opinion complacent and self-satisfied. It showed no awareness of the gravity of the situation and the critical state of the country. Hon. Members may have thought that the speech of my hon. Friend the Member for Louth (Mr. Osborne) was pessimistic, but he was telling the truth. I have listened to a great deal of this debate, and I wish to try to dig deeper than most of the speakers have done—deeper into the basic causes of the difficulties and our troubles all over the world due to the application of wrong principles. The success or the failure of this Finance Bill depends on how those difficulties are faced and what principles are applied to their solution.

The leading article in "The Times" on 10th April said: But it will be hoped that Mr. Gaitskell will make his first Budget memorable for no more than a workmanlike attempt to make the best of the impossible legacy bequeathed to him. Part of that impossible legacy is the result of six years of Socialist mis-government. I am supported in that by a letter I received this morning from a big business man in the north. [An HON. MEMBER: "HOW big?"] I beg hon. Members, if they realise how serious the situation is, to give me a chance to put across what I want to say. This business man wrote: I regard the position as ghastly. The whole economic position has been turned upside down in the space of less than six years. The State is helping everybody, and as a member of a local authority I see the way the purse is being pulled at. In its leading article on 7th May "The Times" referred to the Finance Bill as "amorphous." I looked it up in the Oxford Dictionary, which says, "Having no determinate shape," "unshapely," and "belonging to no type."

I ask the House to believe that I am not making a personal attack on anyone. I am attacking the principles enunciated in typical examples by three Members on the Government side of the House. Those examples have a direct influence on the Finance Bill because they are examples of the "impossible legacy" bequeathed to the Chancellor. The Ten Commandments say, "Thou shalt not steal," "Thou shalt not covet." The present Minister of Local Government and Planning left his position as Chancellor of the Exchequer under disgraceful circumstances. To have behaved, as head of a business firm in one of our big cities, as he did, would have meant that honest men would have refused to deal with him. He was compelled to resign his position as Chancellor and was made Minister of Town and Country Planning. It is interesting to note that his predecessor in that office was not in the Cabinet, but directly the right hon. Gentleman was appointed to that post he was made a member of the Cabinet. I should like to know what compelled the Prime Minister to put him into the Cabinet, and what evil influence the late Chancellor——

Mr. Shurmer (Birmingham, Sparkbrook)

On a point of order. Has who was made Minister of Town and Country Planning anything to do with the Finance Bill?

Mr. Deputy-Speaker (Colonel Sir Charles MacAndrew)

I am not quite sure yet. I was waiting for the hon. Member to make his point.

Sir W. Smithers

When that right hon. Gentleman was Chancellor of the Exchequer, he spent millions of public money—I have never been able to find out exactly how much he spent, but some say it was as much as £800 million—to buy up the gilt-edged market to a 2½ per cent. basis at par. When he had got it there, he paid off local loans of 3 per cent. which were held by thousands of small investors, and, although it was not absolutely necessary, they had really no option but to take up the 2½ per cent. issue. We in the City call them "Dirty Daltons." The result was that the then Chancellor robbed those people of half per cent. of interest.

These Treasury 2½ per cent. loans are now standing at more than 30 discount. That sort of thing is nothing short of robbery with violence, and if the right hon. Gentleman had been the head of a big firm he would have been up at the Old Bailey. It would be interesting to know how much money over which the Government had control, was used to buy up the market to that extent, and what is the loss today. The cheap money policy now being pursued is wrong, and the bank rate ought to be put up. Had the Bank of England remained a free agent instead of being nationalised, the bank rate would have gone up, and it would have had a healthy effect on our economy.

My second case regarding the impossible legacy bequeathed to the Chancellor, is this. On 11th March, the Minister of Food said in a speech in Blackburn that we were better fed today than we were before the war. To prove his argument, he went on to say that we were now spending more money on food than we used to. He used carefully selected figures and stated: Before the war, each person was spending on an average 8s. 9d. weekly on food. This figure had risen progressively up to 1950 to 14s. 10d. a week. But the London and Cambridge Economic Service Bulletin, taking 1938 as 100, stated that food prices rose to 173 in 1950. In addition, the average annual consumption of fresh and frozen meat dropped by 260,000 tons in 1950, compared with the period 1934–38. We also ate 100,000 tons less bacon and ham, 129,000 tons less butter, 343,000 tons less sugar, and used 35,000 tons less tea. That shows that the Members of the Government will go to any lengths to hide up their failures.

My third case of an "impossible legacy" comes from the Prime Minister himself. In his political broadcast reported in "The Listener" on 5th April—I want to take two typical points from that broadcast—he said: It is the fact that despite the grumbles, the general level of wellbeing in this country is higher than ever before. I say that is not true. The right hon. Gentleman ought to see my post every morning, and that of most hon. Members. There is more misery and distress about today than ever before. The second point he made was as follows: Practically the whole of the rise in the cost of living is due to what are called 'external factors,' that is, to the rise in the cost of food and raw materials that we have to import from abroad and over whose price we have no control. Rudyard Kipling answered that in a sentence. He said: A servant when he reigneth Throws the blame on someone else. The main reason for the rise in prices is bulk buying which inevitably involves bulk selling, which, again, is part of the disastrous Socialist policy.

Mr. Ivor Owen Thomas (The Wrekin)

Will the hon. Gentleman give way for a moment?

Sir W. Smithers

No, I am afraid I cannot.

There is no conflicting principle between the budget of a humble home and the Budget of a country. If people spend more than their income and borrow money the crash will be all the worse the longer they put off the day of reckoning.

Mr. Follick

On a point of order. Can you tell me for my guidance, Mr. Deputy-Speaker, when the hon. Member now speaking is going to discuss the Finance Bill?

Mr. Deputy-Speaker

I understood that he was showing that the high expenditure causes the high taxation.

Sir W. Smithers

I do not want to create further trouble, but hon. Gentlemen opposite are so ignorant that they do not see the import of the points I am making. As I was saying, if people spend more than their income, then the more they borrow and the longer they put off the day of reckoning, the greater will be the crash. That is the position in this country today.

In 1900 our Civil Estimates were £23 million. This year, they are £2,600 million. That sort of thing just cannot go on. Compared with 1900, the purchasing power of the pound today is only 5s., and compared with 1938, only 10s. Unless there is a drastic cut in Government expenditure financial disaster is inevitable. A family in difficulty economises and Works harder. The difficulties of the Chancellor this year are increased by the policy of Socialism implemented and pursued since 1945. The Government blames world shortages, but the real reason for the enormous increase in world prices is bulk purchase abroad and State control at home. No one can violate principles with impunity. Again, if I may quote—or rather misquote—the way Rudyard Kipling put it. In the 1945 Election we were promised abundance for all, By robbing selected Peter to pay collective Paul; But, though we had plenty of money, there was nothing our money could buy, And the Gods of the Copybook Headings said: 'If you don't work you die!' We have just completed the first half of this century, and I think that this House and the public should realise how our finances have altered since the beginning of the century. I will give just three figures. In 1900, the Budget receipts amounted to £140 million. This year, they are £4,074 million. In 1900, the National Debt was £689 million; the latest figure available for 1949–50 is £25,802 million. In 1900 the note circulation of the Bank of England was £28.9 million, and on 4th May this year it was £1,318 million—1,318 million pieces of paper which we can neither eat nor wear. It is owing to the want of faith in this Government, both at home and abroad, that the purchasing power of the pound has continued to go down.

The Bulletin for Industry for April, 1951, which is published by the Treasury, begins with the sentence: Now that shortages of raw materials have moved into first place as industry's main problem, it is natural that people should be asking, 'How long are they going to last? ' I can give the true answer. It is, so long as this Government remain in power and so long as they pursue this policy of bulk purchase abroad and nationalised industries at home.

I have here some very instructive figures of eight major requirements. They have all arisen owing to the fact that State trading has taken the place of healthy competition. That is the main reason. The first figure I shall give is 1938; the second, 1945; and the third, 1950.

—	1938	1945	1950
American cotton (pence per lb.)	4.93	12.75	36.15
English pig lead (pounds per ton)	171/16	291/5	1115/16
Tin (pounds per ton)	19331/32	300	7441/5
American wheat (shillings per quarter)	39s. 3d.	63s. 7d.	107s. 9d.
Jute (pounds per ton)	1721/32	39¼	1127/16
Wool, Victoria (pence per lb.)	18½	31½	1577/16
Wool, Adelaide (pence per lb.)	815/16	1515/16	98⅛
Rubber, smoked sheet (pence per lb.)	75/16	18	335/16

The Socialists claim credit for our recovery since the war, but that recovery is due to the demobilisation of thousands of men and new inventions. It has been achieved because of Marshall Aid and the sellers' market. It has been achieved in spite of Socialist policy, but much more would have been achieved if men of experience and knowledge had been free and unhampered by Government trading and bulk purchase—which entails bulk selling—and nationalisation and steady progress towards the collectivist State. The policy of State control means delay. There is an old saying that time is money, in financial circles we call it velocity of turnover. Delay, because of control from Whitehall, ties up money; stops it from going round and round and is one of the reasons for the disastrous position in which we find ourselves today.

The philosophy of Socialism has collapsed and has been proved to have collapsed. Let me quote three or four examples. We have lost £40 million on nationalised British Railways; we have lost £40 million on civil aviation; we have lost £36½ million on groundnuts and £825,000 on Gambia eggs. There was a little mistake of £1 million over the Battersea Fun Fair. Nationalised industries have either lost heavily or the goods and services which they provide have gone up in price. We are importing coal and we get only eight pennyworth of fresh meat a week—and what meat! As the Food and Agricultural Organisation commented on 28th March, we are the only country in the world where meat and bacon are still rationed. What a condemnation of Socialist misgovernment.

My hon. Friend the Member for Louth (Mr. Osborne), referred to the devaluation of the pound. It was devalued arbitrarily from 4.03 dollars to 2.80 dollars. I said at the time that it was another case of Socialist expedient after expedient leading to crisis after crisis. Now we have to import with a devalued pound, and as the trade figures begin to show for the first three months of 1951 a deficit of £238 million, which is on an annual basis of about £950 million a year.

I do ask hon. Members in their economic and financial thinking to remember this: that Britain is different from any other country in the world in that she is not and cannot become self-supporting. It is true that the Socialist Party have been able to carry out some of their promises made at the 1945 Election——

Mr. L. M. Lever (Manchester, Ardwick)

All of them.

Sir W. Smithers

—by the help of Marshall Aid and the sellers' market. We have 50 million people in this country, I am talking in round figures, and we can support only about 25 million. We have to import from a half to two-thirds of our food and raw materials. Now the time has come when Marshall Aid and the sellers' market is over and we have, at whatever necessary sacrifice and effort, to export goods and services at world competitive prices, or starve.

We have men at the head of our affairs who are just slogan-mongers and who have no business experience. The nationalised services do not believe in competition or the profit motive, but these are the parents of efficiency and assure us more and better goods and services at lower prices. Freedom gives play to two honourable incentives which make for prosperity, national as well as individual. They are the fear of loss and the hope of gain. Socialism takes away the fear of loss by advancing the delusion of a Welfare State which ruins character. It takes away the hope of gain because grinding taxation is needed to support the top heavy structure of Socialism which kills incentive. Britain today needs at the helm, in politics and business, men of character and enterprise, men like the crew of the "Amethyst" who risked all, even life, for their freedom.

If our country is once more to take her rightful place in the world she must be rescued from the consequences of six years of Socialist misrule. The Socialists refuse to admit failure and, as this Bill shows, they must either assume dictatorship or abandon their policy. The philosophy of Socialism must lead to Communism. We have been warned: Beware of false prophets which come to you in sheep's clothing, but inwardly they are ravening wolves. Take heed lest any man deceive you For we wrestle not against flesh and blood, but against principalities, against powers, against the rulers of the darkness of this world, against spiritual wickedness in high places. Wherefore take unto you the whole armour of God. The principle behind all this bulk buying is that if we restrict consumption we restrict production. I would quote this as an example of what I mean. When bread was rationed in this country the world wheat markets knew the population of this country and what our ration was. Therefore they knew approximately our requirements. They, naturally, said Why grow more?" I am quoting from memory but I think the Minister of Food said the other day after the Argentine Agreement was signed, that, having now bought the meat it would encourage the ranchers in the Argentine to increase their production.

If I had my way, I would stop bulk buying at once. Bulk buying means bulk selling. If an agent from a meat firm goes out and has trouble with a rancher in the Argentine no one hears about it, but when our Minister of Food and Senor Peron have a row it has a diplomatic and international complexion, and that applies to other countries. I recently had a talk with some of the big meat and timber importers, and they said that, if they were free, Britain could have all the meat and timber she wanted, but that it would take them months to overcome the difficulties created by State trading and to give free enterprise full rein. The removal of State control and a return to free enterprise, they said, would encourage producers all over the world to produce more.

Another thing I would do would be to re-open the Liverpool Cotton Exchange and restore trade completely to those firms in London, Manchester, Liverpool, Birmingham and other great centres who have had years of experience and who are the men who know their business. The only hope of recovery is to put the responsibility for that recovery on the individual shoulders of the men who know the job.

In this Bill, Socialists are attempting to overcome the difficulties of mankind by State legislation designed to protect the individual from the cradle to the grave, and are thus destroying the spirit of grit and determination which was once the proud tradition of our race. All parties are alike implicated in the measures of relief now in force. All are agreed that destitution ought not to be tolerated, but are we all quite happy that, in giving John Smith State benefits in this wholesale way, we are not, at the same time, taking away from him something which will make him poor indeed? Those words were spoken by my dear old friend, as he then was, Mr. Stanley Baldwin.

It is good in these debates to have a reaction from one of the main Dominions in the Commonwealth. The Rev. E. J. Springett made a remarkable broadcast recently, and I believe it was due to the presence of a Socialist Government in this country. He said this: There is something definitely wrong with the people. They are largely apathetic. They seem to take with a sort of complacency all that is happening. Burden after burden, restriction after restriction are borne and accepted with a sort of 'It cannot be helped, nothing matters now' attitude that is appalling. This state of mind still exists. It cannot be regarded as being one of patience or of fortitude. It is something which is steadily sapping the morale of the people and tending to various excesses, and is dangerously near breaking down those basic principles and innate decencies which have been for so many centuries the backbone of the Anglo-Saxon character. There is scant leadership in State or Church. Conflicting statements are repeatedly made by responsible officials, contradictory policies are making the daily lives of the people more and more complicated. In the realm of religion, while many honest attempts are being made to arouse the people to the need of spiritual awakening, there is a general futility of purpose which in the last analysis can be traced to the basic lack of knowledge. They do not know; therefore they do not consider. The philosophy of Socialism tends to destroy personality and individuality, and tends to make people into marionettes whose strings are pulled by Socialist Ministers. We are fast becoming a race of robots.

Mr. Ivor Owen Thomas

On a point of order. May we take it that it will be in order after this long speech has concluded, for a lecture to be given on the philosophy of the breakdown of capitalism?

Mr. Deputy-Speaker

I understand that the hon. Gentleman was trying to show why Socialism has lead to high taxation.

Sir W. Smithers

I said at the beginning of my speech that I was going to speak from my heart, and if an hon. Member cannot speak from his heart and say what he believes to be true without incessant interruptions, I must ask for a better hearing.

I also want to bring to the notice of the House and the Government the opinion expressed in a remarkable leaflet published by the Federation of British Industries entitled "The Economic Background." It was published in December, 1950, and it said this: Financially, the load of taxation which this country already carries is one which no country can long support and remain economically sound, and it would be disastrous if it were to be increased. Despite repeated representations, the Government has not effectively overhauled its expenditure to meet the new situation. We cannot escape the conclusion that substantial cuts must be made in national and local government expenditure, apart from re-armament, which, from its very size, is, with the consequent high taxation, the strongest among the forces maintaining inflationary pressure. The alternative of yet higher taxation in peace-time would merely aggravate the situation and intensify the disincentives to effort. The Government, with its huge expenditure, has an overriding responsibility to bear its share in meeting the new situation. When will the Socialist Government listen to men who know their job? To back up what has been said by the F.B.I., when this Government came into power in 1945, the Budget receipts were £3,401 million; for this year, they are £4,074 million. They have made no attempt to economise, no attempt, such as would have been made by any good company, to provide a reserve fund.

I now want to turn to another point. Another instance of the inability of State control and the policy of the collectivist State to organise efficiently the complicated system of the industry of Britain can be illustrated as follows. I say quite frankly that I have done my level best to get exact and up-to-date figures, but it is not easy to do so, and I give the best figures that I can get. In February, 1948, the Prime Minister made an appeal which was issued as a White Paper for the restriction of dividends, profits and wages.

It is officially acknowledged—the figures were published in "The Economist," on page 213 of the issue of 27th February, 1951—that, in the case of 2,708 companies, their gross trading profits for the previous year were £1,067 million, and, for the last year, £1,157 million, an increase of £89 million. I am giving round figures. The preference dividends of these companies for the first year were £34,100,000 and for the latter year, £34,500,000. The ordinary dividends in the first year were £129 million, and, in the later year, £133 million, an increase of only £4,750,000, but, for the last three years since the Prime Minister made his appeal the total has been remarkably steady.

Let it be noted that, when the companies gave an undertaking for 12 months not to increase their dividends, they did so on a specific assumption that action would be taken to stabilise wages and make reductions in Government expenditure. It is recognised that there has been moderation and restriction in dividend distribution. The truth is that, since the Prime Minister made his appeal, the companies have respected that appeal, but, since 1948, wages have increased on an annual basis—and here again I cannot get the figure exactly—of between £300 and £400 million. Further demands are coming in and are being granted since February last. This proves that the Socialist Government is not master in its own house, as the hon. Member for Nottingham, South, said, and is unwilling to put its foot down when wages increases are demanded, because such demands come from the Government's masters and paymasters, the T.U.C.

On 19th April, 1951, a writer in the "Daily Mail" said: In 1950 wages rose by £240 million and this followed an increase of £230 million in 1949. As far as I can make out, wages have risen by over £400 million a year since the Prime Minister made his appeal. The important point, however, is that to grant increased wages in paper pounds does no good to the recipients or to the country. It simply means inflation, and purchasing power goes down and down. The wages must increase overheads and cost of production and impede or destroy our ability to compete in the markets of the world.

Like my hon. Friend the Member for Louth, I say, "Tell the truth." What is the good of thousands of paper pounds a week if they are worthless? I have 20,000 Reichsmarks of 1918 at home. They were nominally worth £1,000 but they were not worth the paper they were written on. One could not get one's boots cleaned with them, but because Germany is a more or less self-supporting country she was able to depreciate the currency and at the same time to build up her war machine to fight the war. We cannot do that.

The demand for higher wages continued at the Easter conferences of various organisations. For example, the Distributive and Allied Trades advocated a minimum of £6 10s. a week, but they do not realise that no Government can guarantee a minimum wage. The only way one can guarantee a minimum wage is if the workers themselves produce goods and services of their own free will at world competitive prices.

Two thousands years ago—and this applies very much to the Finance Bill—we were given a command: Seek ye first the Kingdom of God, and his righteousness; and all these…"— or material— things shall be added unto you. In the 1945 General Election, the Socialists put the cart before the horse. They sought first the material benefits of the Welfare State, family allowances, the National Health Service, free meals and so on; but putting the cart before the horse has spelt disaster. Applying that saying to the conditions of today, we must above all else in this island of ours which depends on international trade, first of all seek integrity, confidence, prestige and credit. None of these things can be shown in the balance sheet of a company or in the Budget or in the Finance Bill in terms of pounds, shillings and pence, but they are basic to material prosperity.

In my election address I said this—[Interruption.] I want to justify myself and I am telling the House the truth. I said: I refuse to make promises in detail. It would not be honest to do so. No man can possibly foretell the future. I am not a Socialist. I stick to my principles, which experience has proved to be right. I promise you this: that to the solution of the grim problems with which we are faced I shall try to apply Christian and Conservative principles, for through them alone can we revive hope and return to a happier and freer way of life. I trusted my people and they trusted me. My majority in 1945 was 4,200 and they put it up to 10,500 last time.

Mr. Deputy-Speaker

That hardly comes into the Finance Bill does it?

Sir W. Smithers

That is my answer to the Welfare State.

I want to call the attention of the House to an article bearing on what I have just said, by Mr. W. J. Brown in the "Sunday Graphic" of 6th May entitled, "Who will bat for Britain?" In it he said: Two things are necessary above all. The first is clear-sighted, courageous leadership, the second is sufficient strength to make our word respected in the world. The unhappy truth is that the word of Britain has never been less respected than now. I agree with him, because we have not in the Government people who command the respect of the world.

I come now to the reason why this Finance Bill cannot be a success. God in his wisdom gave us Ten Commandments for the guidance of the human race. The Government is trying to run the country on 25,417 commandments and they have recently taken power to make those permanent. The number is always on the increase and from January, 1950, to January, 1951, 1,693 have been added. Broadly speaking, the task of a Government is to punish people who break one of the Ten Commandments and then to allow them to use the talents God has given them to stand or fall by their own decisions and initiative. Rules and regulations being man made, are capable of breaking down and so another and yet another rule has to be made to try to rectify the mistake.

Mr. Ivor Owen Thomas

When did God sanctify capitalism?

Sir W. Smithers

I now come to perhaps the most important thing I have to say. The worst Clause in this Finance Bill is Clause 32. It has been referred to by several hon. Members including my right hon. Friend the Member for Alder-shot (Mr. Lyttelton). "The Times" in their leading article of 7th May stressed three points on this Clause. First, it insulates the country for which international trade is now vital. Secondly, the confidential relations between customer and bank, including the Post Office and Trustee Savings Banks are assailed. "The Times" said the Clause had retroactive effect for one year and the leading article ended by quoting Adam Smith's first principle, "The tax which each individual is now to pay ought to be certain and not arbitrary."

The third point made by "The Times" was that the present form of the Clause is so comprehensive that it could expose an individual to a criminal sentence for going to live outside the United Kingdom. Of course, as my right hon. Friend the Member for Aldershot pointed out, and as was also said by my hon. Friend the Member for Bury and Radcliffe (Mr. W. Fletcher) while this Clause exists, no foreign company will come here and set up business, yet we are the only country in the world which must get as much foreign business as possible.

I am encouraged—[HON. MEMBERS: "Hear, hear."] The other day I spoke at Poplar Town Hall and I assure hon. Members that I had a better hearing there than I have had here tonight. I am encouraged to try to drive home these truths—[An HON. MEMBER: "Who by?"]—because on 2nd November, 1944, I made a speech on a Motion welcoming the Government's intention to establish a large and unified scheme of social insurance with a system of family allowances. I pointed out then that the foreign consumer refuses to pay the cost of our social services when that cost is added to the cost of our production, as of course it must be.

These social services are meant to bring us security, but they have faced us in the greatest peril. I also said then—it is quite true of this Finance Bill—that after the war when Lend-Lease stopped, Mexico would not send us oil or Brazil coffee or America beef if we can only pay for them in Socialist slogans. I also quoted a saying of Commissioner Lamb of the Salvation Army, who ought to know about the poor of this country. What he said is equally true today. These are his remarks: The country has during the last decade spent over £1,000 million on the relief of able-bodied men and women and got nothing for it but a heritage of misery and demoralisation. If hon Members will not listen to me quietly, I will ask them to read a book. It is appropriate to consider it on this Finance Bill. It is "The Road to Serfdom" by Dr. Hayek in which he states: It is necessary to state the unpalatable truth that it is Germany whose fate we are in some danger of repeating. Britain is further down the totalitarian road than we realise, and the further down we go, the harder it will be to turn back. It shows itself in Clause 32 of this Bill. If I had time and hon. Members opposite would listen to me, I have a number of quotations which Ministers uttered in the past. There is one I want to quote, because it is most important. The Secretary of State for War holds a vital position in these dangerous times and he said once, "Like all Socialists I believe"— —

Mr. Ivor Owen Thomas

On a point of order. May I seek your Ruling, Mr. Deputy-Speaker, whether the hon. Member for Orpington should not be requested to observe some regard for the fact that other Members wish to take part in this debate. The average length of all previous speeches today except one from the Opposition Front Bench has been 20 minutes, and the hon. Member, who is now addressing the House, has been on his feet for nearly an hour. There seems to be no end to it. It is ruling out the possibility of a large number of other hon. Members who wish to speak.

Mr. Deputy-Speaker

That, of course, is not a point of order, but it is a fact that there are a great number who wish to speak and I hope the hon. Member for Orpington will not prolong his remarks unduly.

Sir W. Smithers

I would point out that this is exempted business and it can go on all night. It is the one opportunity in the year when one has a chance of saying what one wants to.

I was referring to what the Secretary of State said, and I think it is important that it should be known. He said: Like all Socialists I believe that the Socialists society evolves in time to the Communist society. I should like to know if he still believes this to be true, and whether he has ever publicly repudiated it.

I want to bring some further first-class evidence. In the May, 1950, "Review of the National Provincial Bank" there is a remarkable article by Mr. H. G. Hodder on "Government and Industry." This is written objectively by one of our big bankers and is not for the benefit of any political party. He said that in addition to the eight industries already nationalised by the Government, the Government by means of working parties, development councils, rationing and licensing have now got a stranglehold over the economic and financial activities of our business and of our homes.

Mr. Deputy-Speaker

The hon. Gentleman is giving a tedious repetition of his arguments against nationalisation and I must ask him not to pursue that line any more.

Sir W. Smithers

Even Sir Stafford Cripps said in his Budget last year:

" But unless there is a comparable increase in production, wage increases cannot take place without serious financial consequences."—[OFFICIAL REPORT, 18th April, 1950; Vol. 474; c. 65.]

There is one point I want to make here. We ought to be trying to cut down expenses. I cannot find out the exact figures of the numbers in the Civil Service now compared with pre-war because the Government very cleverly altered the basis of the computation which they made last year. The increase in the number of civil servants for the nine years ending 1949 is 760,000. That is the best guess we can make. After making inquiries from authorative sources, it is impossible to draw any accurate comparison between the present and the old figure, but we have the reason to believe that the number of persons in national and local Government service is about 761,000 more than before the war.

Here is a point I should like hon. Members to notice. An accountant friend of mine has worked it out that if we reckon what they earn as drones in the hives and what they might earn as bees in the hives, they are costing the country £1,500 a year each.

Mr. Deputy-Speaker

I think this is rather irrelevant to the Finance Bill.

Sir W. Smithers

I am trying to persuade the Government to reduce the number of civil servants and reduce expenditure. May I be allowed to finish this point? It is only two lines. If we multiply 761,000 by £1,500 it comes to £1,140 million a year. Even if the calculation is not quite correct, it shows the enormous amount involved in paying civil servants who do not produce anything, and which industry has got to pay.

We are today faced with a similar crisis to 1931. I would remind hon. Members of what Mr. Ramsay MacDonald, who was then Prime Minister, said of that 1931 crisis speaking in Kilmarnock in 1933. It is absolutely the same position today and the same remarks apply. He said this: The working classes of this country are not having their interests served by the Labour section of the Opposition. Two years ago the problem we had to face was not merely the distribution of wealth, it was the question of the existence of wealth itself. Writing in "The Times" on 3rd October, 1931, Lord Grey of Falloden, one of our finest Englishmen, wrote: My own belief is that the policy of the present Socialist Opposition would lead to national ruin and consequent distress and suffering, such as this country has never yet seen, and the severity of which is immeasurable. True today. The late respected Mr. Bevin said this: As an old trade union official I do not want £10 a week if I can buy only £2 of stuff with it. I would rather have £5 a week with which I could buy £5 worth of stuff. Will the Socialists never learn from past experience, or are they determined to enact their ideologies and damn the consequences?

I have come to my last point. [HON. MEMBERS: "Oh."] I want to say something constructive. [Laughter.] "As the crackling of thorns under a pot, so is the laughter of the fools." If I were the Chancellor of the Exchequer—[HON. MEMBERS: "Oh."]—in the interests of the poorest I should apply certain principles, and the first thing I would do would be to send for the heads of the Civil Service of each Department of State and ask them which of the 25,400 rules and regulations affected their Departments. I would call a meeting of experts, men and women of practical experience as opposed to theorists and slogan mongers, and representing bankers, merchants, industrialists, trade unions, insurance companies, wholesalers, retailers, produce brokers and housewives, and I would say to them, "There are 25,400 rules and regulations"—[An HON. MEMBER: "Burn them up."] You have said it. "I am going to take them off in six weeks or at most six months. Tell me how that can be done with the minimum dislocation. But they are coming off." Undoubtedly, this would create difficulties, but the difficulties would be due to six years of the application of false principles; but those difficulties would be as nothing to the complete disaster that will come if we do not remove those controls. I would remove all controls——

Mr. Deputy-Speaker

I do not think the Finance Bill refers to Statutory Instruments.

Sir W. Smithers

I have tried very hard to put my point of view. I have never had a worse behaved audience in my life.

Mr. Shurmer

The hon. Member puts Danny Kaye in the shade.

Sir W. Smithers

When will hon. Members realise that the war is on between good and evil, that the war is on between Christianity and Communism? It is a battle in the hearts of men. [An HON. MEMBER: "Which side is the hon. Member on?"] The only chance we have got now is to get men of vision like my right hon. Friend the Member for Woodford (Mr. Churchill), who commands respect in the world—to get them to lead our country; and the only solution to our difficulties is to have a General Election to let the people say what they really think, and to give them the chance to elect a better Government to lead the country.

8.34 p.m.

Mr. Harrison (Nottingham, East)

I do not think I have ever heard so bewildering a speech in all my life as the one to which we have just listened from the hon. Member for Orpington (Sir W. Smithers). I have never before heard so many high sounding phrases put together in one speech in this House. I have seldom heard such a long speech. I think the hon. Member has been addressing the House for well over an hour.

Mr. Follick

An hour and 10 minutes.

Mr. Harrison

We have listened to a series of three speeches. The first was by the hon. Member for Louth (Mr. Osborne), who prophesied that in less than a year there would be a famine in this country—a famine on the scale threatening at the present time on the Indian continent. That was the cheering opinion of the hon. Member.

Squadron Leader A. E. Cooper (Ilford, South)

My hon. Friend is not in the House at the moment, and on his behalf I must say that he really did not say that at all. He said that such a thing could happen in this country—which is a very different thing.

Mr. Harrison

He not only suggested it could happen, but he prophesied that it would. I very carefully listened to what the hon. Member had to say.

The second speech was by my hon. Friend the Member for Nottingham, South (Mr. N. Smith). He told us that if we did not adopt social credit in this atomic age, we were in for some really rough times. Following that, we had the speech by the hon. Member for Orpington, who began by saying that the country's position was ghastly.

Sir W. Smithers

I did not say that. I read a letter from a business man in the north who said that he backed up what I really believe.

Mr. Harrison

I was under the impression that the hon. Gentleman himself said that the whole position was ghastly. If he did not actually say so, the whole of his speech inferred that we were in a ghastly mess and that nothing could be done about it. I would draw attention to the fact that these three speeches predicted dire possibilities in the near future. I think that is a wrong attitude to take at the present time, particularly towards this Bill. I think we ought sincerely to recognise that in the existing situation my right hon. Friend the Chancellor of the Exchequer has produced a wonderful Finance Bill.

It is not my intention to take up the time of the House in describing all the circumstances that exist at present, but I would like to mention two or three matters referred to by the right hon. Member for Aldershot (Mr. Lyttelton) The first was his suggestion, which was also referred to by the hon. Member for Orpington, that people who wished to transfer the nominal headquarters of their businesses to any other country seriously risked imprisonment for two years or a terrific fine of £10,000. I have seen reports during the last 12 months of companies who, with the purpose of avoiding legitimate taxation, have transferred their nominal headquarters from London to other parts of the world.

One of the most impertinent methods used lately by big companies to deliberately and maliciously avoid taxation has been the practice of transferring their nominal headquarters to other countries. There is, in the main, no transference of capital equipment or of capital. It is mainly the nominal transference of headquarters to avoid taxation. I feel that if there is anything in the Bill to stop this pernicious practice, we ought to give it our support. I am surprised at the right hon. Member for Aldershot having the impertinence to stand up and oppose, in the way he did, the Clause dealing with this matter.

Mr. Remnant (Wokingham)

I am sure the hon. Gentleman will agree that the entire assets of many of these companies have never been in this country.

Mr. Harrison

I agree that the entire assets of a good many of these companies have never been in this country, but I am saying that the real headquarters of these companies has been for many years in London, and that a good many of their assets are in this country or in the British Empire.

Mr. Remnant

Yes, in the British Empire.

Mr. Harrison

The capital has been raised, in the main, in this country and the shareholders, in the main, live in this country. The object of the transference of the nominal headquarters is to avoid taxation and in that way to increase the dividends of the shareholders. That is a pernicious practice and something which we feel strongly about on this side of the House. We congratulate the Chancellor on inserting a Clause into the Bill which will deal with that situation.

The second point to which I wish to refer relates to the fixed income group. The right hon. Member for Aldershot referred to the fixed income group in this country as one consisting in part of those people who played the Stock Exchange, people who live on income from shares. He suggested that that section of the community was a fixed income group. Anybody with the slightest and most elementary knowledge of finance knows that those who are accustomed to getting their living by drawing dividends from shares, who usually play the Stock Exchange and the share markets, are not people with fixed incomes. Their incomes vary considerably according to their luck and according to their play. I am speaking of people who indulge in dealing in stocks and shares regularly, speculators on the Stock Exchange. There is no other group of people who have a greater divergence of incomes.

Lieut.-Commander Braithwaite

Does not the hon. Gentleman understand that people who, as he calls it, play the markets and speculate, have fixed incomes in every sense of the word? Does he not understand that he is embracing in his condemnation holders of trustee stock, Government securities and, indeed, all nationalised industry stock?

Mr. Harrison

No. I am fully aware that trustee stock and Government securities are not stocks which are usually played about with in this manner; they are fixed interest bearing stock in the main, and it can be predicted precisely what moneys those stocks will bring in.

The group referred to by the right hon. Member for Aldershot did not include that group of persons. He was talking about other people—people who would be touched by the Clause relating to disclosure by banks of their clients' business and interest in the banks. It was those disclosures about which the right hon. Gentleman was protesting. To justify his position he brought in this class of the community which he described as a fixed income group, I am sure that every hon. Member knows that the class at whom this Clause is aimed is not the class of people who deal in trustee stock or fixed interest bearing securities, but the speculator. It was the right hon. Gentleman's desire to protect the speculator that caused quite a lot of concern and annoyance on this side of the House.

Those are the two points I wanted to bring to the attention of the House—the point of the transfer of the nominal headquarters of companies, and the point about the right hon. Gentleman's desire to protect the speculator from taxation which he should rightfully pay. In the interests of the mass of the people this Bill, in present circumstances, will fulfil the description which has been given to it, namely, that it is a people's Budget designed in conditions of stress to protect the majority of citizens from any unscrupulous imposition that might be placed upon them by these big companies or by the speculators who try to avoid the payment of legitimate taxation.

8.45 p.m.

Mr. Aubrey Jones (Birmingham, Hall Green)

Throughout this debate there seem to have been two standards of thought. The first was the short-term standard which characterised the Treasury Bench. The exhortations we had from the Financial Secretary to the Treasury were that we should look at the Finance Bill from the point of view of the disinflationary effect it would have over the next 12 months. That seems to be essentially a very narrow point of view. There has also been expressed in the debate—it came from the Liberal benches—a point of view which can be put into a sentence, "What will be the effect of the Bill on the economic strength of the country over a period of years to come?"

I thought that one of the truest things said in the debate was spoken by the noble Lady the Member for Anglesey (Lady Megan Lloyd George), who said that there might be no short term to the re-armament programme, that the possibilities were that we should have to carry out a re-armament programme for quite a number of years and that the international situation did not merely require arms now, but required that we should attend to our economic foundations so as to sustain the burden of defence in the future.

Judged from that point of view, what was the position before this Finance Bill? I want to give the House one or two figures which were published a short time ago in connection with the E.C.E. Economic Survey of Europe for 1949. The figures fall into three sets, and they deal with industrial investment in this country as compared with that in other countries. In 1949, we allocated to industrial investment some 56 per cent. of our total savings, and to social investment—by local authorities, hospitals, etc.—44 per cent. In France, the respective figures were: industrial, 77 per cent.; social, 23 per cent. The figures for Sweden were: industrial, 63 per cent.; social, 37 per cent. [An HON. MEMBER: "Hear, hear."] An hon. Member said "Hear, hear." I do not object to these proportions provided that what we are doing by industrial investment is absolutely greater than elsewhere—only in that way can we sustain our volume of social investment—but it is not.

Here is another figure, of net investment in industry per head of the population. In 1949, the figure in this country was 60 dollars; in France, 100 dollars; in Sweden, 130 dollars; in America, 200 dollars. I will give a third figure, of the ratio of industrial investment to output, which, I think, is a fair measure of the current industrial development of the country. In the United States this ratio is about one to 10; in Norway, Sweden and France it is much higher than that, and in this country it is much less. From these figures one obtains a criterion from which to judge our ability to sustain a higher level of defence expenditure in the future.

In that respect we were, before this Bill, most inauspiciously placed. Does the Bill do anything to improve the position? That is the test, and I wish to apply that test to two provisions. The first is the suspension of the initial allowance and the second is the increased Profits Tax. We were told by the Financial Secretary to the Treasury that there was no opposition from this side to the suspension of the initial allowances, but I had the very strongest objections.

I quite understood that the Chancellor was placed in a dilemma. On the one hand, re-armament required him to sustain investment for the future, and, on the other hand, the fact that he was imposing re-armament on an economy which is in a state of near-inflation required him to compress investment. There was the long-term consideration and the short-term consideration. Which did he choose? He chose the short and discarded the long. Surely that is a condemnation of his policy. He not only abolished the initial allowances, but he proffered no alternative method of alleviating the difficulty which the allowances were designed to meet—the rising replacement costs. By so doing he hampered industrial development for the future and aggravated our main economic weakness.

Further, even from his own short-term point of view—that of compressing investment now, while we are undertaking rearmament—what, in fact, did he do? The suspension of the initial allowances cuts industrial development, but it leaves investment by local authorities untouched. Again, that is an aggravation of one of our main weaknesses. During the Budget debate some of my hon. Friends suggested to the Chancellor that he should raise the rate of interest, and he replied, "You have no right to do that because that is the equivalent of suspending the initial allowances and compressing investment." But the two things are quite distinct. The rate of interest might be an instrument which might cut blindly, but there is no more blind and more indiscriminate method of cutting investment than the suspension of the initial allowances, as the example of the shipping industry shows. The suspension hits hardest precisely where the need is greatest. It is the most unjust and most undesirable method of compressing industrial development.

I turn now to Profits Tax. I understand the Chancellor's motive. It is a perfectly good one; it is to prevent the dissipation of industrial capital. But I suggest to him that the argument he has used in support of the Profits Tax goes far to defeat his own ends. What was his argument? It was that profits as a measure of efficiency are perfectly all right, but profits in general are the result of nobody's exertion and, therefore, must be taken away—that there is a generality of profits and we want to cut them. I am astonished that so distinguished an exponent of progressive thought as the Chancellor should be propagating such a medieval conception—a conception which, I believe, was born on the plains of Lombardy some six centuries ago, that profit is something to be measured with reference to the original cost, to what was first spent, rather than with reference to the cost of replacement, even if it is much higher.

It is all very well for business men in the turmoil of the City to have that belief, but surely the Chancellor of the Exchequer, seated sagely above all these mundane matters, should be teaching them different things. Indeed, his talk of profits is belied by his own figures. If we look at Table 3 of the White Paper on National Income and Expenditure we find that the increase in profits for 1950 was £237 million, but that to replace stock at the new level of the higher prices would cost another £198 million, leaving a net increase in profits, disregarding other things such as the increased cost of machinery, of only £39 million.

The fact of the matter is that the most striking thing in the financial scene today is not a high level of profits but a shortage of cash. Let hon. Members look at the accounts of company after company. What do they see? They see a falling ratio of cash to current liabilities and, accompanying it, a growing volume of indebtedness. What were these dividends to which the Chancellor objects? They were an attempt on the part of companies to stop that indebtedness and to stake a claim to what risk capital was coming on the market.

In so far as the Chancellor succeeds in his design of limiting dividends, what is he doing? He is driving companies back to indebtedness, and should a turn in trade come, those companies will, as a result, be unable to weather the storm and unemployment will be precipitated.

Mr. Harrison

Will the hon. Gentleman allow me——

Mr. Jones

No, I am trying to be brief this evening, because there are many hon. Members who wish to speak. Hon. Members opposite flatter themselves that they have found a cure for unemployment, but the cure is essentially an artificial one. It is the injection of extra money into the system the whole time. Whether that is a permanent cure or not is very much open to question.

The sound cure, the more lasting cure, is to stabilise the psychology of business men from within; in other words, to restrain the exuberance with which they see paper profits which are not real profits, and equally to allay the alarm and despondency with which they view paper losses, which are not real losses. The Chancellor, by his Profits Tax, has aided and abetted the exaggeration of paper profits. By so doing he has invited the corollary, which is that when a turn in trade comes these business men, of their own accord, will exaggerate the paper loss and, by a hurried reaction to it, will scatter depression and create unemployment all round.

Having made those criticisms of two features, I wish to put before the Chancellor what I hope will be a positive suggestion. It does not seem to me that hon. Members opposite, in their speeches today, have shown any appreciation at all of the vicious circle in which we are moving. What is that circle? It is that we try to stop inflation by adding to taxes, and the more we add to taxes the more people will try to resist and to maintain their standard of living, until we are driven to piling on the taxes and penalties on those who avoid taxation. If a revolutionary were to come to me and ask for a prescription for saddling the totalitarian State quietly and unconsciously on a people, surely this is it. In accordance with that development, the whole spirit of this Bill is penal from start to finish.

I suggest to the Chancellor that instead of penalising sin in this way he might do what any enlightened moralist would do in these days and encourage virtue—virtue, in this context, being savings. I suggest, with all the diffidence with which a back bencher has necessarily to make these suggestions, that he should consider exempting from Profits Tax, and possibly even from Income Tax, such portions of the profits of companies as are neither distributed nor invested but held in the form of monetary reserves. That is one of the few tax concessions he could make by which he would gain an equivalent increase in private savings to offset his reduction in public savings. Further, if he did that, he would restrain dividends and curb investment during the launching of the re-armament programme without the defects attendant on his own method.

The Financial Secretary to the Treasury opened his speech this afternoon by saying that the burden of re-armament must be borne by the rich rather than by the poor. The hon. Member for Anglesey (Lady Megan Lloyd George), took up the same refrain. There was a time when such talk was perfectly valid. To the hon. Lady I would say that it was valid in 1906, but that to launch upon that talk now is to attempt to apply the ideas of 1906 to the very different circumstances of 1951.

The more that hon. Members opposite pursue that equality, the less can they talk of burdening the rich rather than the poor with re-armament. The proof of that, surely, is the Bill, because its new imposts do not fall on individuals; they fall on corporate bodies industrial companies. I remind hon. Members opposite that it is to those bodies that they look, not only for a reluctant re-armament, but for the maintenance of the living standards which they profess to cherish.

9.1 p.m.

Mr. Douglas Houghton (Sowerby)

The prevailing mood of all the speeches to which I have listened from the benches opposite throughout the day has been one of unrelieved gloom and discouragement. Even the right hon. Member for Alder-shot (Mr. Lyttelton) finished on a similar note, despite the emergence of his customary jocularity at certain parts of his speech. There is something in what the hon. Member for Hall Green (Mr. Aubrey Jones), has just said, that we on this side understand. He said, for instance that the suspension of the initial allowances proposed under the Bill was an indiscriminate way of cutting capital investment. My right hon. Friend the Chancellor of the Exchequer admitted the limitations of the Budget as an instrument of achieving some necessary economic and industrial planning with the increasing pressure of re-armament. I remember that my right hon. Friend admitted the bluntness of this instrument, but said that the alternative—that of elaborate and complex physical controls—was one he had had to reject in favour of the fiscal means of achieving his purpose.

Mr. Aubrey Jones

If the hon. Member is prepared to admit that the method adopted by his right hon. Friend is indiscriminate, what is his objection to a rise in the rate of interest, which on my showing is less indiscriminate than the method he himself has chosen?

Mr. Houghton

Because a rise in the rate of interest would have far-reaching consequences in many other directions. It would at once send up enormously the cost of our whole housing programme. It would at once send up the cost of many other public works which are dependent upon borrowed money at a relatively low rate of interest.

Mr. Aubrey Jones rose——

Mr. Houghton

No, I cannot give way. I promised I should not be long. The hon. Member should be satisfied that I am spending a little time dealing with the remarks that he made; I am trying to follow his remarks, which we on this side found of great interest. In the early part of his speech, however, he referred to the obvious difficulties under which the country is now placed in trying to support the enormous burden of defence expenditure and, at the same time, to sustain a reasonable measure of capital development and replacement, and the maintenance, as unimpaired as possible, of our wide and complex system of social insurance and social services.

There is no doubt that we have a very serious economic problem to solve and none can see any distance ahead in the difficult and troubled conditions of today. But if that is accepted on both sides of the House I am the more surprised that the right hon. Member for Aldershot, for example, and other hon. Members opposite, particularly the hon. Member for Bury and Radcliffe (Mr. W. Fletcher) criticised so viciously the action the Chancellor now proposes to take to stop tax evasion on a large scale.

There is no doubt at all that there is a great deal of tax evasion at present. If hon. Members and right hon. Members opposite will read the Revenue Department's Appropriation Accounts for 1949–50 they will see the remarks of the Comptroller and Auditor-General on fraud and tax evasion. He reports, in that document, the opinion of the Board of Inland Revenue that evasion is serious and widespread and the Inland Revenue authorities say that a full campaign against evasion would substantially increase the yield of revenue. We are often asked what is the measure of tax evasion? What would it amount to in the course of a year? Is it £50 million, £100 million, is it more, or less? The total yield of Income Tax is close upon £1,500 million and if we reckon tax evasion as being "serious and widespread"—if the Inland Revenue opinion that a full scale drive against evasion and avoidance would lead to a "substantial" increase in revenue, which is their word—is 7 per cent. too much to expect from a full scale drive on tax evasion? If it is not too much to expect there is £100 million a year to be collected by applying the administration of the tax with greater efficiency.

Another remark made by the Comptroller and Auditor-General was to the effect that although the number of traders assessed to Income Tax has increased by 400,000 since the end of the war it is still likely that a systematic search for new cases would yield another 5 per cent. The best estimate I can make of this 5 per cent. is that there are between 75,000 and 100,000 businesses in Britain today which are not within the Income Tax net. That is a serious leakage of revenue which will require some time to overtake. I will not offend hon. and right hon. Members opposite by saying that they will be fully aware of the ways and means which are adopted by those who practice tax avoidance and evasion, but all of us who are familiar with business practice and with things which we know to be going on have a fairly good idea how much of this tax evasion and avoidance is perpetrated.

In Clause 23 of the Finance Bill my right hon. Friend is seeking to apply a check against possible avoidance and evasion. The right hon. Member for Aldershot was rather indignant about the proposal in the Clause which will require banks and other concerns on demand by an inspector of taxes to make a return of interest paid without deduction of tax to their clients and others who are doing business with them, provided that the amount of untaxed interest in the year exceeds £15.

The right hon. Gentleman the Member for Aldershot castigated this proposal on the ground that it was a violation of the traditional secrecy of the relations between banks and their clients. I really do not know where the secrecy between banks and their clients has come from. Bearing in mind that none of us is allowed to have secrets in other directions from the Inland Revenue authorities, why should a disclosure of bank interest be a violation of the Holy Writ when the most intimate personal details of our affairs have to be disclosed?

On Clause 23, I would remark that it is now 30 years since the Royal Commission on Income Tax in 1919–20 drew attention to: …considerable evasion in regard to bank interest credited to deposit and other accounts… Thirty years ago they suggested that the revenue authorities, in conjunction with the banks, should agree upon the best method of stopping this loss of Revenue, either by production of lists, by deduction of tax or otherwise. Nothing, as far as I know, ever came of that recommendation. It is true that the Royal Commission of 1919–20 felt unable to support a proposal made to it from several quarters that banks should be obliged to allow inspection of the accounts of their customer's, but they did recommend that the banks should, on receiving a request from the inspector of taxes, say whether or not a person had an account with them.

Surely there is nothing hurried or revolutionary in my right hon. Friend's proposal in this Finance Bill, more than 30 years afterwards, to do something about a recommendation of that Royal Commission. It is true, as I think the right hon. Gentleman the Member for Aider-shot, said that the Inland Revenue authorities will be interested in more than the mere fact of the payment of an untaxed interest to any client. I note that a leading article this week in a periodical called "Taxation" says: It will be obvious to all practitioners— that is professional men— with experience of back duty cases that once an account of this kind is disclosed the Revenue will probe it to the bottom, no matter how far it may go back, in order that they may be satisfied as to the source of the lodgments made in the account. It is as well that that should be frankly admitted as part of the intentions of Clause 23. I make no apology whatever for frankly admitting that that will be so. Indeed, if it is not, it should be so. It is plain that much evasion which is now taking place may be stopped or checked by knowledge which can be demanded under this Clause by the Inland Revenue authorities and used for the proper purpose of seeing that taxpayers pay their proper duty to the country.

There was a reference about foreign balances. The right hon. Gentleman the Member for Aldershot suggested that some overseas depositors of moneys in this country were already getting a little frightened of Clause 23 and were trying to do something about it. I would draw the attention of the right hon. Gentleman to the Clause. It provides that only such information as the inspector of taxes asks for need be supplied by the bank or other undertaking. I think it is very unlikely indeed that the instructions which Inland Revenue officials will receive will lead them to make inquiries about balances in which they are not interested from a revenue point of view, and which, if they make inquiries about them, might conceivably be some discouragement to overseas depositors. I think that the right hon. Gentleman is exaggerating his fears as to the effect of this Clause—it seems that he is saying something in a muttered undertone.

Mr. Lyttelton

If the hon. Member objects to my undertone, I would tell him that since he informed the House that in his opinion this Clause would be used as a means whereby the inspector of taxes could probe all the transactions of a customer's account in the books of the bank, my worst fears are realised.

Mr. Houghton

Not at all. The right hon. Gentleman must know full well that in the course of many investigations undertaken by the Inland Revenue there is already the production of bank pass books and the details of banking accounts. There is nothing new in this provision in principle. What is new in principle is the requrement on the bank to furnish certain information on demand.

In any case, the right hon. Gentleman and hon. Gentlemen opposite must surely weigh up the balance of advantage in a matter of this kind. Do they stand for the continuance of tax evasion? Do they condone it? They have dissociated themselves from any desire to protect the malpractices which are resulting in considerable loss of revenue. Indeed, the right hon. Member for Aldershot said that he had a personal interest in seeing that delinquents paid their proper tax because the more they paid the less he and the rest of us would have to pay. We all have that interest. If the amount of the leakage amounts to anything like £100 million a year what could the Chancellor have done in this Budget with that sum to relieve more contentious charges in the Budget?

The Chancellor, as we all recognise, has had to piece together his obligations on the expenditure side, and to match them by revenue and economies and by the introduction of charges in the social services in order to provide a proper balance for the whole of the national accounts. It is of great importance, not only fiscal importance but social and moral importance, that our system of taxation should be adjusted to meet the leakages which we know are taking place.

Clause 32 was another Clause which received considerable criticism from hon. Gentlemen opposite. I think the criticism, especially that of the hon. Member for Bury and Radcliffe lost sight of the fact that the Clause has one object and one object only, that of checking tax avoidance. The hon. Gentleman made a very unjustified remark in his speech when he said that this was, of course, another example of a Socialist Government wanting to stop something, wanting to make regulations about something. [HON. MEMBERS: "Hear, hear."] If hon. and right hon. Gentlemen opposite really believe that then they are more stupid than I thought they were. How can they apply the sort of epithet which the hon. Member for Bury and Radcliffe applied to this Clause, realising, as he does, that this is an attempt to do one thing alone, namely, to stop the transportation of capital and the headquarters of businesses for the express purpose of evading United Kingdom Income Tax.

There is a saving subsection in the Clause which permits any of these operations to be undertaken, provided that Treasury consent is obtained before they are begun. I am sure that my right hon. Friend has clearly in his mind that when the Treasury come to consider any applications to do any of the things which are unlawful without permission under this Clause the Treasury will apply their minds to the one thing which this Clause is designed to stop, and that is Income Tax avoidance. There will be nothing here to stop the risk of capital or of merchant adventurers going overseas to start fresh enterprises.

All that the Treasury is safeguarding here is the Revenue. I think that hon. Gentlemen opposite should get these and other tax evasion and avoidance Clauses in their proper perspective. If they attach more importance to the freedom of the private citizen and the freedom of private industry to do what they like, how they like, when they like, even though it is deliberately to deceive and cheat the Revenue of their lawful——

Mr. W. Fletcher

The hon. Gentleman is allowing himself to be carried away by his own exuberance. I think that every hon. Member on this side has said quite clearly that he entirely agrees with the stopping of tax evasion. But they have all said that this Clause, as it is drafted, will have effects which go much further than that; and the hon. Gentleman should not on that, build up an accusation that we are backing tax evasion, because it is untrue.

Mr. Houghton

I am not being carried away by my own exuberance. What I am being carried away by, if by anything at all, is my indignation that hon. Gentlemen opposite should mischievously misrepresent some of the Clauses in the Bill, because that is what they are doing. When the hon. Member for Bury and Radcliffe said that although Clause 32 sought to stop tax avoidance it went very much further than that, the answer is that the Treasury will not apply it——

Mr. Remnant

Is the hon. Member speaking for the Treasury?

Mr. Houghton

In this matter, I have complete confidence in the integrity and fair-mindedness of the right hon. Gentleman to apply this Clause in accordance with the views—[Interruption]—I think that we all on this side should be forgiven a lot after listening for a solid hour to the hon. Gentleman the Member for Orpington (Sir W. Smithers). If hon. Gentlemen opposite will just check their exuberance a little I will come to the conclusion of my remarks. [HON. MEMBERS: "Hear, hear."] If I am provoked in that way I shall have some further things to say.

In general, on this question of tax avoidance and evasion, I attach more importance to checks than to penalties. I do not think that the use of penalties can be so effective a deterrent as actual checks and safeguards in the manner proposed in this Bill. After all, it is frequently difficult to prove beyond a peradventure that a taxpayer sets out deliberately to cheat the Inland Revenue. It is true, of course, that if a taxpayer who is a widower claims an allowance for a wife he can scarcely plead that he has forgotten that she is dead. If a taxpayer omits to include in his return a large sum of untaxed interest, when he is asked about it he can plead that he had completely overlooked it and ask to be believed. I think that experience shows that the difficulty in carrying prosecutions to the point of conviction suggests that it is far better to apply checks rather than penalties.

My concluding remarks on this—[HON. MEMBERS: "Go on."] If hon. Gentlemen are really interested in this subject, I will suggest to them a few more directions in which effective safeguards should be considered. One thing I suggest is that, periodically, a statement of wealth, in addition to a statement of income, would be a very desirable check on the validity of an Income Tax return. I would also suggest that my right hon. Friend should certainly consider the suggestion made by my hon. Friend for Nottingham, Central (Mr. Winterbottom), when he said that gambling winnings, football prizes and other gains of that kind from speculation and gambling should be subject to tax. Many tax evaders plead a big win on the turf or a big football pool prize as the alibi when asked where they got their capital.

In any case, I agree with my hon. Friend that there seems to be not the slightest reason why professional or business men, workers or anybody else should pay the heavy taxes imposed upon them for hard work and effort, when the mere filling up of a football pool coupon may bring a large sum tax free. I really do not see the social justice of that position.

Mr. John Foster (Northwich)

May I ask the hon. Gentleman——

Mr. Houghton

No—Finally I offer the suggestion that commercial entertaining should be excluded from the allowances for Income Tax purposes. There is no doubt that, at the present time, commercial entertaining is carried out on a very large scale, and it is going on because it can be charged against business expenses. The Inland Revenue is, therefore, indirectly paying more than half the cost of the beanfeast.

Mr. Osborne rose——

Mr. Houghton

No, I cannot give way I wish to bring my remarks to a close.

I suggest, also, that more publicity should be given to those who are found guilty of tax evasion and avoidance. After all, railway ticket frauds for trifling sums and other crimes are given wide publicity in the newspapers, yet those who have cheated the State of large sums of money and make voluntary disclosures have the whole thing hushed up. There are men in public life today whose affairs would not bear examination.

I will finish by giving a quotation from the Report of the Royal Commission in 1920, which, I feel certain, is in point today and will receive the whole-hearted approbation of hon. Gentlemen opposite. It said: We think that no doubt need be entertained of the complete acceptance by the public of increased stringency in administration provided they are satisfied that equity will be maintained; on the contrary, we believe that their sense of justice and fair play, so far from being outraged, will be strengthened and encouraged. I ask the right hon. Gentleman the Member for Aldershot what he has to say to that.

9.30 p.m.

Mr. John Arbuthnot (Dover)

There are three points to which I should like to draw the attention of the House. The first is one on which I believe there has been agreement between both sides. My hon. Friend the Member for Bury and Radcliffe (Mr. W. Fletcher) said in his speech, to which the whole House listened with the greatest attention, that it was vitally important, particularly at this time, that we should release capital for long-term investment abroad. The Financial Secretary to the Treasury speaking in a different connection—about tobacco licences being made available to people with mobile fish and chip shops, said we were at present in a period when the Budget should be enabling and not restrictive.

It is, therefore, with some concern that I read Clause 32 of the Bill. I felt, as did other hon. Members in all parts of the House, that we were going to have in the Budget speech a resumé of what the Finance Bill actually contained, but there seemed to me no indication that Clause 32, which is going to prevent companies from going abroad, was to be included in the Finance Bill. I am not sure about the effectiveness of that Clause: there will be many opportunities for evading it. What I am concerned with is not so much the companies that are in existence at present but future registrations, because Clause 32 will mean that nobody will register a company in this country if he can possibly avoid doing so.

"The Times" in its leading article of yesterday said: The control and the taxable capacity of oversea enterprises can no doubt be imprisoned in this country if they are already here; but control of new enterprises will certainly not be brought here so long as this constraint prevails. This can mean only that this country, as time goes on, will control a wasting and ageing body of oversea resources, while the new, vigorous, and virgin resources will pass into other hands—at a time when, with the supply and control of raw materials so important to the nation, the advantages of close and continuing association with oversea resources are clearer than ever before. That is what "The Times" thought about it. There is no doubt that the great industrial prosperity of this country has been built up on the fact that businesses have been encouraged to come here and to register here. As my right hon. Friend the Member for Aldershot (Mr. Lyttelton) said, this fact has built up an entrepôt trade in this country. It has provided for the country banking and insurance which have been an enormous asset. Are we going to throw all that away for future registrations? I hope the Chancellor will reconsider Clause 32.

Secondly, I should like to draw attention to the picture the Chancellor painted of recent dividend increases. I believe that picture has been distorted. He described the dividend increases that have taken place recently as being substantial. It is extremely important that we should get this subject into true perspective. We must bear in mind that the increases in dividends we have seen have not been an indication of increased purchasing power in the hands of shareholders, but have been merely an indication of the declining value of the pound. It is from that angle that we should look at it.

Let us see what these increases in dividends have in fact been. Between the years 1947 and 1950 the total amount of increases in dividend and interest has amounted to £3 million, or less than one-half of one per cent. During the same period wages have gone up by £940 million, or 25 per cent. I am not for one moment decrying the increases in wages, but what I am saying is that in the light of the increases that have taken place in wages, the increases that have taken place in dividends have been comparatively modest. I suggest to the right hon. Gentleman the Chancellor that the increases in dividends have been very largely caused by the actions by members of his own party. They have been fostered by the Socialist vendetta against shareholders, which has made directors of companies distribute more for fear of what the Chancellor of the Exchequer himself might do to them.

Therefore, I believe that the Government have not been guiltless in bringing about the increases in dividends which the Chancellor of the Exchequer dislikes. He is creating an increase in the Profits Tax which is a flat rate increase. Surely, if what he wants to do is to be fair to the shareholders and discourage the increases, it would be reasonable to ask him to have a three-tier Profits Tax—say, a 10 per cent. Profits Tax on undistributed profits, a 30 per cent. tax on profits up to the date of the Budget, and increases in dividends that take place after the Budget should be liable to a higher rate of tax. In that way I think he would succeed in his objective of trying to prevent the increases in dividends to which he takes exception.

My third and last point is this. It is the object of the Budget, as announced by the Chancellor, to prevent inflation and to hold the scales, so to speak, comparatively level while the re-armament programme is being completed. I believe that the Budget—I do not mean this Budget but any Budget—is not a strong enough weapon alone with which to achieve that objective. We have all of us seen miscalculations in previous Budgets. We know that the last Budget for example was £200 million out. This time the Chancellor is juggling with a matter of £150 million. This Budget by itself is not a strong enough weapon with which to tackle the great and unknown forces which are facing the nation. The last Budget was very largely out because we could not anticipate Korea. This Budget may well be out because of some other factor which at the present moment we are unable to anticipate.

I believe that there is a much more powerful weapon which ought to be used in conjunction with the Budget and which, for some reason, the Chancellor of the Exchequer seems anxious not to use. That weapon is a contraction of the credit base and the free play of interest rates. The Chancellor has, in fact, used it in a disguised fashion when he withdrew the 40 per cent. initial allowance. That was a form of restricting credit. But I was surprised to hear the Financial Secretary to the Treasury say that this was not the best time to stimulate production by an interest free loan by the Exchequer, when that is precisely what the Budget has done. The Chancellor, when he announced that the 40 per cent. allowance would be removed, produced the short-term result that industry rushed in with demands for delivery before the date next year when the 40 per cent. allowance comes off, with the result that there has been an immediate inflow of orders and the increased demand which the Budget was intended to prevent.

I believe that if the Chancellor would use further the restriction of credit, and would allow interest rates to reach a natural level, he would have an automatic form of control which would take account of circumstances as they arose and would be an effective weapon in controlling excess expenditure which the nation cannot afford. It is those three points to which I should like to draw the attention of the House and of the Chancellor.

9.42 p.m.

Mr. L. M. Lever (Manchester, Ardwick)

The speeches to which we have listened today from the opposite side of the House in the main have conveyed to the people of this country and the world that this country is down and out and that its economic position is more parlous today than ever before. I feel that it is our duty on this side of the House to point out that never was this country of ours, which we love, more alive, more vigorous, more economically strong than it is today and has been during the past six years. When we take our minds back to the serious financial position which we assumed in 1945, with all our overseas markets gone, then I am sure the people of this country realise that during the past six years, under this Labour Government, we have made an enormous recovery and put this country in a position of financial stability which would have been undreamed of in 1945.

Mr. Beverley Baxter (Southgate)

Where have our overseas markets gone?

Mr. Lever

Today it is true to say that we are exporting more, that there are more of our people in work, that our production is higher than ever before, under any other Government pre-war. It is very curious that all this decrying and disparaging of one's country should come from hon. Members opposite who so much proclaim, particularly at election time, that sense of patriotism in which all of us should possess.

We must realise that today we are faced with many problems internationally which involve us in expenditure from which there is no possible escape in light of world wide commitments. It is no good hon. Members opposite saying, "We are in complete favour of rearmament; we believe in a Britain that is strong," and yet at the same time, wanting to cut down expenditure, which would mean that our strength as a nation internationally would be imperilled. I feel that we have a Finance Bill today that is reasonably fair; one that is not penal in the sense in which hon. Members opposite expect it to be. In fact all the reports throughout the country from the business section of the community have been that the Budget has let them off pretty lightly.

I feel that not enough emphasis has been laid on some of the virtues of this Bill, on the way in which it has assisted the family, the increased allowances for children, the increased allowances for married people and the increased allowances for those who have responsibilities to keep members of their own families. These virtues ought to be emphasised to the people of this country so that they may realise that the Government is considerate of the interests of the family and is anxious to help the married man particularly with children, so that his children may be brought up without penury, such as we knew in days gone by.

It is indisputable that over the past six years we have been enjoying full employment, and in spite of the forebodings of hon. Members opposite two or three years ago that within a short time there would be a rise in unemployment, I am very happy that these forebodings which came from the Tory Party have not matured and that we enjoy in this country full employment and will continue to do so under a Labour Government.

I appeal to the Chancellor of the Exchequer on a matter which affects the lives of the people. I refer to the high tax on speedways. [Interruption.] May I say that we see plenty of virtues in what this Government has done, and I am sure that the Government will listen to matters which we as representatives of the people are anxious to bring forward on behalf of the people. I desire to refer to a large number of letters which I have received from constituents in regard to the high tax on speedways. One letter refers to the speedway as being a family sport. [Laughter.] Hon. Members may laugh, but people are entitled to their opinions. Another letter states: Speedway is a sport comparable to football or cricket. It has league championships as its backbone like football and cricket. It is an exhibition of individual and team-riding skill. It is one of the very few sports with no betting at all. Speedway is a very expensive sport; for example, motor cycles are much more expensive than footballs. Speedway riders require much larger fees from promoters than footballers or cricketers because of the heavy costs in motor cycles, equipment and maintenance which is their responsibility. Attendances have fallen and continue to do so and it is certain that some tracks will be closing down altogether. I am, therefore, asking the Chancellor to give further consideration to a reduction of the high taxation as it affects speedways. I have in my constituency the great field of sport, Bellevue, Manchester. We are very proud of Bellevue. It is one of the greatest pleasure grounds of Britain and the world. I hope hon. Members who have not had the privilege of spending some happy times there will visit it and be very happy. Perhaps if they have been to Bellevue as often as they should they would not reflect that miserable view which is associated with the Tory benches opposite.

9.50 p.m.

Mr. Selwyn Lloyd (Wirral)

The Chancellor of the Exchequer has not been with us for the whole of the debate for reasons which we well understand, but no doubt some of the interesting topics that have been raised will be reported to him. He has heard not the least interesting for himself, from the hon. Member for Ardwick (Mr. L. M. Lever). I was very interested in the speech of the right hon. Member for East Stirling (Mr. Woodburn). After what I thought some very admirable remarks about the taxation of the rich, he put forward a new suggestion for raising revenue when he said that the Chancellor of the Exchequer should put a special tax on people who seek to set up businesses in London and Birmingham. That was a very novel proposition, and no doubt he hoped that the right hon. Gentleman would have recourse to Clause 32, and possibly a fine of £10,000 or two years' imprisonment on a person setting up a business in London and Birmingham.

I think the City of Nottingham is to be congratulated, because all three Members caught the eye of Mr. Speaker during the debate today. The hon. Member for Nottingham, Central (Mr. Ian Winterbottom) put forward the idea of a capital gains tax and a tax on gambling. The Chancellor will be able to deal with those suggestions himself. Then we had a very interesting suggestion from the hon. Lady the Member for Coventry, South (Miss Burton). I think everyone will have sympathy with her point about the cost of parcels to Korea. We are also in sympathy with what was said by the hon. Member for Lichfield and Tamworth (Mr. Snow), about toothbrushes, and then we passed in due course to my hon. Friend the Member for Cambridge (Mr. Hamilton Kerr) and his suggestion with regard to works of art.

Then we come to the hon. Member for Nottingham, South (Mr. Norman Smith), who made his usual annual speech about social credit. He had his annual tilt at the banks, but he was nothing like so hard on the present Chancellor of the Exchequer as he used to be on Sir Stafford Cripps. He said that the Chancellor completely failed to understand why the cost of living was going up, and, like a sort of pale lamplight gleaming through the fog, he said that the real reason for social credit was that the Labour Party had to have a programme for the next General Election.

I will come in a moment to other speeches made, particularly that of the hon. Member for Sowerby (Mr. Hough-ton), but I should first like to congratulate the Chancellor on the Finance Bill, not only because congratulations from a political opponent are the most damaging and wounding things that can be given, but because of the interesting diversity of the Bill. I think we can promise him a very lively Committee stage. Already we have had one endurance test, in the course of the evening, and I can assure the right hon. Gentleman that during the Committee stage there will be plenty more.

So far as the background of the Bill is concerned, I do not think that we on these benches are the least bit gloomy or have the least desire to disparage our country. The hon. Member for Ardwick completely misconceives the position. Most of us feel that there is great resilience in this country and a great spirit and great capacity; that the worst thing about the country at present is the fact that right hon. Gentlemen opposite are occupying the Treasury Bench, and that once we can get rid of them this country will achieve the standard of life and the society which it has done so much to deserve.

On the general background of the Bill, I do not think there is much dispute between hon. Members in all quarters of the House. No one has attempted to dispute rising prices but we differ as to its causes. We on this side of the House think that there are three causes or three sets of causes. The first is the financial mismanagement, which led to devaluation. We do not expect hon. Members opposite to agree with us about that. We also think that it is due to Government ineptitude over raw materials, and again we do not expect agreement from the other side. We agree that there are other causes, such as increased world demand, over which the Government have no control.

The second feature in the background is the substantially increased demand for goods and services, owing to the rearmament programme. Again, we think that this delayed demand is to some extent due to the Government's previous conduct, but no one disputes that it is necessary now to go in for a re-armament programme. We have to judge the Bill by the tests suggested by my right hon. Friend at the beginning of his speech, and I have heard no hon. Member on the other side of the House seek to dispute those tests. The first test of all is: Is it a spur to an increase in prices or in costs of production and distribution or in the cost of living? Is it an incentive to effort and production; or is it an incentive to saving? If it fails by those tests, even though it appears to cover the inflationary gap, in the long run it will have made the problem very much worse.

On the question of the standard of living and of hardship, I would ask hon. Members on the other side of the House to believe that we realise what the curse of inflation will mean to those who have less economic bargaining power and are less able to bear the burden—the old, the sick, the people who are living on small fixed incomes. It is because we desire to save all classes in the country from the curse of inflation, galloping inflation, that we make these criticisms of the Finance Bill.

But before I come to these matters there are some subsidiary topics of some moment and the first is tax evasion. It needs to be said that we have no sympathy at all with the person who seeks to evade his proper taxes, on moral grounds, and on the very practical grounds put orward by my right hon. Friend. Tax evasion means that those of us who pay our taxes have to pay more taxes. Therefore, any Measure which is put forward on the ground that it will stop evasion of taxation has to be looked at on its merits.

I think that Clause 23, is, on the whole, a step in the wrong direction and is not in the best interests of the country. That is the Clause dealing with the banks. The tradition of confidential dealings between banker and client is an old one in this country. It was accepted by the Government in their Bill dealing with the Bank of England. It has long been the rule in Post Office dealings and, on the whole, it is in the public interest to preserve that tradition. After all, the Revenue have the remedy in their own hands. They can always assess the taxpayer at a certain figure and give him the chance to come along and prove that it is wrong. That is the remedy of the tax gatherer, and it is a very much better way than the Government have sought in the Bill.

The injurious thing about this Clause is its invitation to defraud the Revenue up to the amount of £15, and also its invitation to people who do desire to defraud the Revenue to spread their deposits over a number of different banks, so that in no case will the interest exceed £15. In practice, I think that the right hon. Gentleman will lose by this Clause rather than gain, and that if he wants to sustain the Revenue of the country he had better drop this Clause straightaway.

The next Clause on tax evasion is Clause 28, which permits the executive retrospectively to re-arrange the affairs of the taxpayer so as to suit the Revenue best. At the risk of wearying the House, I must quote from the judgment of Lord Sumner, to which my right hon. Friend referred. The judgment was given in 1928. It said: It is trite law that His Majesty's subjects are free, if they can, to make their own arrangements so that their cases may fall outside the scope of the Taxing Acts. They incur no legal penalties and, strictly speaking, no moral censure if, having considered the lines drawn by the legislature for the imposition of taxes, they make it their business to walk outside them. It seems to follow from this and from other general considerations that the subject ought to be told in statutory and plain terms when he is chargeable and when he is not. I am perfectly certain that that is a sound canon of taxation and that this idea of retrospective re-arrangement by the Executive is a very evil precedent indeed.

Where will it stop? The hon. Member for Ealing, North (Mr. J. Hudson) is a great teetotaller. He deliberately places himself outside the revenue collection of the Chancellor in the taxes on liquor. He deliberately avoids paying that taxation. In fact, ginger beer consumption today is one of the most inflationary things there could be. Does the right hon. Gentleman intend to go along and re-arrange the private affairs of people and say to them, "You deliberately chose to organise yourself so that you walked outside the limits set by the tax gatherer and we are going to re-assess you now on the basis that you must bring yourself within my purview by being deemed to have consumed so much for so long"? That may be a fantastic example, but nevertheless the principle is there—the thoroughly vicious principle of retrospective re-arrangement in the interests of the Executive.

We come next to Clause 33, although I will have a word to say about Clause 32 in a moment. Clause 33 deals with transactions between associated companies and it says that those transactions have to be reviewed as though the parties were independent persons dealing at arm's length. What does that mean exactly? Where will it end? Does it mean that every series of transactions in which a parent company has disposed of goods to an associated company on preferential terms, so as to build up a new business in an attempt to capture a market overseas, is to be reviewed and re-assessed on the notional basis of transactions between persons "at arm's length?" I think the right hon. Gentleman should explain a little more exactly what it means and what are the limits of Clause 33.

Turning next to Clause 32, I was most disappointed that we have not heard voices raised from the other side of the House about this Clause. Of course, we deplore the fact that companies should transfer themselves overseas to avoid taxation, but we say that the remedy—to keep them here—is to make this country more attractive to capital, to make them feel that they will have a fair deal here and that their sojourn in this country, by reason of the banking and insurance and shipping facilities given here, is worth the extra taxation they will have to pay. Wholly the wrong way to try to keep people in this country is to say, "A £10,000 fine or two years' imprisonment if you seek to leave."

I want to ask the right hon. Gentleman a specific question. What will be the effect of this Clause upon our insurance companies with foreign-owned subsidiaries? Everybody pays tribute to the work done by our insurance companies in building up our foreign exchange and sustaining our balance of payments. It seems to me that transfers by them will come within the purview of this Clause in more ways than one, and I should like a reassurance from the right hon. Gentleman on that matter. As one of my hon. Friends has pointed out, the evil of this Clause is not so much that of keeping people here by penal sanctions but the discouragement which the Clause will be to any newcomers to come here. What chance is there of a company, which is contemplating setting up a subsidiary in this country to carry on business here, having any confidence in going on with that project, knowing that it might be quite impossible for it to extricate that subsidiary from this country?

Supposing the company envisaged development of our Imperial or colonial resources. It would be very much to the advantage of this country that the head-quarters of that company should be here, and in view of this Clause what chance is there of reasonable people taking the risk? It is suggested that the Treasury will be reasonable over these matters, but the Treasury are not the Government of the country. The Government of the country are the people who have a majority in this House of Commons, and we have seen in the past five years only too often how property rights are treated unfairly to fail to realise what disincentive this Clause will be to people coming to this country.

I should have thought that national pride would have stopped us putting a Clause of this kind into a Finance Bill. We are so proud of our country, so proud of Solicialist Britain, that if anybody seeks to leave it he will have to pay a fine of £10,000 or suffer two years' imprisonment.

Now I come to one or two of the specific tax proposals, first of all the tax on petrol. That is a directly inflationary tax. Some people have suggested that it is curious how additional taxation on petrol always seems to coincide with additional railway rates of some description. Perhaps that is just a coincidence, but I have seen it estimated that out of the £35 million of increased yield, £30 million will be passed on. Some 84 per cent. of petrol used is for industrial or commercial purposes. I have heard that the Transport Commission calculate that it will cost them £3¼ million more, London Transport £630,000 more, and independent hauliers £3 million more. It is time that someone in the House drew attention to the enormously increased taxation which road transport has been called upon to bear during the past two years.

In 1949–50 the fuel tax was £62 million, vehicle excise £55 million, Purchase Tax £20 million, less a certain amount for industrial user oils, coming to a figure of about £130 million. By 1950 to 1951 that figure had gone up to £211 million. I will not weary the House with the details, but by 1951–52 it had gone up to £275 million. In two years the taxes on road transport have increased from £130 million to £275 million. Those figures are very much in point when we talk about a reserve of taxable capacity. The very fact that there is not that reserve of taxable capacity is proved by this tax, because the Chancellor has had to go to a tax which is, in my submission, directly inflationary in order to get the necessary amount of money.

I come to initial allowances. I would venture to remind the House again of what Sir Stafford Cripps said when he doubled the amount. He emphasised the need for higher productivity, for more and better mechanisation, and the importance to industry of the power to re-equip. At the same time, and in the same speech, he set up the Tucker Committee to consider the whole question of calculating profits in a way which could take care of marked changes in price and the incidence of tax and its effect upon risk bearing. Those words are extremely interesting, because they show that Sir Stafford Cripps had realised that so-called profits are not profits at all in the sense of being disposable to shareholders.

Then, at long last, we have had the Millard Tucker Report, which, I think, is an interesting but rather disappointing document. It has many useful suggestions which could represent improvements, but on the main issue I think the members of that Committee have been over-impressed by the accountancy difficulties. Whatever one may say about the Report of that Committee on the general principle of determining profits, the one thing of which they came out in favour was the continuance of initial allowances. They suggested a sort of flexible system, for which I am not certain there is very much to be said——

Mr. Gaitskell indicated assent.

Mr. Lloyd

I am glad to see that the right hon. Gentleman agrees with me on that. At all events, that Committee were quite certain that the way to deal with the question of true profits was to maintain the initial allowances. To use a colloquialism, I think that they "missed the bus" on the question of profits. Nevertheless, the Chancellor is going against the only positive recommendation of that Committee upon a major issue.

There is the problem of planning. The figure is first put at 20 per cent., is then put up to 40 per cent., and is then brought down to nil. It is extremely difficult for those in charge of our industries to plan their affairs rationally if they meet that sort of order, counter-order and disorder. There are various complications which it would be more appropriate to seek to iron out during the Committee stage, but in connection with certain complications with regard to orders which have already been placed, on which varying amounts of work have been done or will be done before April, 1952.

I want to mention, in particular, the question of shipping. The argument for the abolition of initial allowances is that the right hon. Gentleman wanted to conserve resources, to stop capital development in favour of re-armament, and to restrict the amount used for capital development by private industry. So far as shipping is concerned, I should have thought that in the interests of defence there was no other industry which needed more capital resources expended upon it at this time. A great deal has been done to rebuild our merchant fleet, but in many ways the situation is not yet satisfactory. We have not the same numbers or types of vessels as we had before. A great deal more has been done to build tankers, for instance, rather than in other spheres. But I should have thought, in the interests of the defence programme, that only a lunatic would have said that shipbuilding should not get the 40 per cent. initial allowance at the present time.

The right hon. Gentleman has made a concession today, but apparently it refers only to ships with keels already laid. Obviously, one must not be too discourteous about any concession, and we are grateful for this one, but, as the right hon. Gentleman knows, many orders will already have been given, with finance arranged, with component parts ordered and specifications, etc., worked out, but where the keels will not be laid for a couple of years. That, I gather, applies particularly to tankers. I ask the right hon. Gentleman, therefore, to say tonight that he has not said his final word on this matter. It is a very complex question, and the right hon. Gentleman has plenty of time before the passage of the last stages of the Bill. I ask him to go into this matter very thoroughly, because I do not think that its full implications have yet been realised. It is very much in the interests of re-armament that every possible endeavour should be made to see that our shipbuilding programme is carried through.

So far as the other aspects of this proposal are concerned, the idea is to stop inflation. Of course, in this year it is having a directly inflationary effect, because for a year the initial allowance will still be given. There will be, on the one hand, a scramble of people to get delivered anything they can for which they are likely to want over the next two or three years, which will qualify for the allowance. At the same time, in order to qualify, people will be rushing round seeking to impose payment upon those from whom they are to get the capital goods. Over the short view of the next 12 months, it seems to me that this will be about as inflationary as anything of which the right hon. Gentleman could have thought. So much for initial allowances.

Bound up very much with the problems affected therein is the question of the Profits Tax, with regard to which the Chancellor's declared object is to stop money being paid out in dividends—that is how he put it—and second, to increase corporate savings; the right hon. Gentleman set the figure which he anticipates at £30 million. This business of stopping money being paid out to shareholders is a very easy cry for the demagogue; we have had one or two examples of that in the debate today.

It is very easy if one is animated chiefly by envy, hatred or malice to hold up the unfortunate rentier, or dividend receiver and say, "He is a useless person, cut his money." On the general view of profits, however, I think that a man who makes a profit by producing something which somebody wants and marketing it in an attractive way at the time a person wants to buy it is performing a social purpose which is very much more useful to the State than a Government Department which does some of these things at a loss. I congratulate the right hon. Gentleman that he did allow a slight gleam of the truth to come through in his speech in this respect.

The next proposition—and I come back to this because it seems so vital—is that the term "profits" is wholly misleading. Sir Stafford Cripps impliedly said that. The fact is that companies are taxed on what are not distributable surpluses—and the case was made by my right hon. Friend and has not been met by anyone on the benches opposite about extra depreciation and the funds required to carry stocks. I would remind the House of what the chairman of the Cunard Company said only a day or two ago on this matter. He gave a clear example of depreciation of £2,500,000 in respect of a fleet the replacement cost of which would be £120 million, and he gave the average life as 20 to 25 years. Depreciation at that annual rate will not do more than half to provide for the replacement of that fleet at current prices. He mentioned that £15 million had been taken in taxation from that company in the last four years.

One would have thought that would be a warning signal and would make people realise the importance to employment, economy and the prosperity of the country of seeing that companies are able to set aside proper sums to replace their assets at current prices and not have so much taken out in taxation. It may be said, apart from that, "Why not hit the ordinary shareholder? Why not hit the dividend receiver? If companies do not like this tax they need not pay the dividends, but cut down on the dividends and they will have reserves to enable them to replace their fleets." But why should the dividend recipient be further penalised? My hon. Friend below the Gangway gave some very good figures on this matter.

The point is: Do we want people to save? There is a lot of talk about incentives, but do we want savings and capital to be available for risk taking? If we want that we have to give people a reward which will make them deny themselves, restrict their purchasing capacity, so as to save money and buy ordinary shares to make resources available for risk taking. If we cut down and down and make it more and more unattractive we shall not get the savings on which the Chancellor so much depends. On the other hand, if we did concede that because of the increased and rising cost of living the dividend recipient is entitled to a little more, it means that to pay him that little more, the reserves of companies will have to be drawn upon.

Most people feel that Income Tax is much too high, particularly when they have to pay it themselves. What I do not think the right hon. Gentleman sufficiently acknowledges is the general inflationary effect of high taxation. Every company, every business, is now taxed at 10s. 6d. in the pound, even upon profits it does not distribute. I am perfectly certain that that has a directly inflationary effect upon most people who conduct, manage and work in those businesses. There is a feeling that the Chancellor is paying 10s. 6d. and the company is paying 9s. 6d. in the pound and, in those circumstances let the money be spent; let the demand, or whatever it is, be met. Simply because the general level of taxation is so high, the Chancellor is bearing a very large proportion of the expense.

The question of the height of Income Tax surely relates to the question of personal savings. We had difficulty with Sir Stafford Cripps about the figure of personal savings. I should like the Chancellor to interrupt and tell me if I am wrong with my figures. So far as I can make out from his tables the gross personal savings in 1950 were £332 million, from which has to be deducted the capital payments, by way of Death Duties mostly, I imagine, of £188 million, which means that there was a net personal saving of £144 million.

It is a most extraordinary coincidence, if my calculations are correct, that the figure for 1938 was £222 million less £78 million, which comes out at precisely the same figure of £144 million. With the purchasing power of the pound having diminished by over half in the interim, that means that the net personal saving position is not at all good. It would be a very good thing if the right hon. Gentleman would say that, and make people realise that there is no cause for complacency over this figure of personal saving.

I do not want to submit the House to another endurance test. I have only one or two further comments to make. I think that I have crabbed most of the Government's new taxes. I think that the right hon. Gentleman is entitled to say to me, "How would you finance rearmament?" My answer is that by public and private economy, coupled with greater production, it would be possible to finance re-armament. I give some examples of the sort of thing I am talking about. It is a pity to talk about public economy without giving some particulars. This is a letter which appeared in a newspaper: As a temporary clerk in a Food Ministry Office I have had to attend a welfare foods course. This involved an overall journey of 100 miles. For this I was paid a working day's pay, return fare, and a ten-hour subsistence grant. What did I learn? How to make crepe paper frills for decorating food displays of cod liver oil. The name and address of the writer was given. That is an activity, a journey and a subsistence allowance, and all the rest of it, which we could do without in present circumstances. Hon. Members opposite may say that it is only a small matter, but a great many small matters, added together, come to something large.

Let us come to something rather bigger—the question of the costs of some of our foreign services. I asked some questions of the Chancellor of the Exchequer and the Minister of Works at this time last year about our expenses in Washington. In 1938, the cost to the British taxpayer of premises rented in Washington was £21,000. In 1949, it was £258,000. The staffs in the U.S.A. in 1938 numbered 196, costing £144,000. In 1950, the number was 1,465, costing £2,382,000. I admit at once that probably there are big responsibilities upon our diplomatic staffs overseas. If we keep a constant spate of stuff going out at this end, we have to have somebody at the other end to read it, minute it and answer it. It seems to me that these are most remarkable figures which show something of the prodigality running through our public affairs.

I am delighted to see the right hon. Gentleman the Minister of Local Government and Planning in his place, because my next example affects his Department. Possibly I may get something out of him on this one. It deals with housing. In one of the urban districts in my constituency there are 24 tenants of council houses who want to build their own houses at their own expense. If they did, they would vacate the existing premises, and 24 families at the top of the waiting list could be housed. That would save the taxpayer a subsidy, and it would save the ratepayer a subsidy. These people will be able to build their own houses at their own expense.

This matter has been ventilated for month after month, and so far as my information goes the right hon. Gentleman's Department has done nothing about it. It might be said that that would be a small saving, but it seems to me to be one way, without disturbing any social priorities at all, to save the taxpayers and ratepayers some money. I am not suggesting that the district should get an extra allocation. I suggest that from its allocation licences should be permitted for these people to build houses at their own expense, and then the next 24 families on the waiting list could go into the houses they vacated.

Finally, on the question of public economy, I received a letter from someone who is well acquainted with hospital administration. I am glad to see a representative of the Ministry of Health present. The last paragraph of that letter says: On Friday last I received a 3-page circular setting out the most complicated methods of finance accounting which, as far as I can see, will lead to no economy but must involve a considerable amount of additional work in the Financial Departments of Management Committees. The people who are drawing up these circulars are quite out of touch with the difficulties at the periphery and their demands lead to excessive overtime and overwork on the financial side. A much simpler system without the very expensive set-up with which we now contend would, I believe, save a great deal of money and still be as effective in curing the patients in the hospitals. These are four examples of small savings. I believe there could be large savings. I am certain that the whole public administration of this country is rife with that sort of overspending.

To obtain private economy the right hon. Gentleman will have to alter the climate of opinion. The business of denouncing profit-making and denouncing savings is not conducive to people withdrawing their purchasing power. Some figures were recently given about the value of Savings Certificates. One purchased in 1945 for 15s. 6d. now has a value of 18s., but in terms of purchasing power is worth 14s. compared with 1945. To induce people to go on saving they must be given some confidence in the value of our money. Also, we must not abandon the hope of increased production, as the Chancellor appeared to do in his Budget speech. It is no good saying that what I am suggesting will not hurt anybody. Public economy will hurt some people just as private economy will involve a certain amount of self-denial by the withholding of purchasing power.

To sum up, this Bill is designed to secure an excessive amount of tax. It is directly inflationary in some respects, diminishes effort, damages the will to save and does nothing to increase production. It does nothing to help and a lot to hinder. Though we have some degree of admiration for the Chancellor for having stood up to the nigger in the woodpile in the shape of the right hon. Gentleman the Member for Ebbw Vale (Mr. Bevan), and for the Chancellor's recognition, at long last, that profits are not altogether indecent and immoral the greatest contribution which the Government can make to the financial stability and prosperity of the country is to get out and get out quickly.

10.28 p.m.

The Chancellor of the Exchequer (Mr. Gaitskell)

The most noticeable feature of this debate has been the marked change in the attitude of the Opposition since the Budget debate. I must say that I was a little puzzled at the time by their friendly reception. I felt that there was something a little unnatural about it. It occurred to me at the time that it might possibly be connected with certain differences of opinion within our party. It is now fairly clear. The Opposition have shown their true colours. I noticed the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) nodding his approval. Previously, the hon. Member for Orpington (Sir W. Smithers) celebrated the occasion by making a long and I am sure very interesting speech, which, I am sorry to say, I missed. It must be a great reassurance to him to feel that his Front Bench are now back on the party line again.

The purpose of the Bill is, of course, clear. It is to provide for the net increase in taxation which we believe to be necessary. It is to tighten up the powers of the Government against various forms of tax evasion and, as in the case of most Finance Bills, to deal with a number of miscellaneous administrative questions of a not very controversial character. Until the hon. and learned Member for Wirral (Mr. Selwyn Lloyd) said at the end that the rate of taxation was too high and that the total amount to be raised was too high, there has been singularly little discussion or controversy about the size of the so-called inflationary gap or the amount of taxation that had to be raised.

What has been said this evening, and the right hon. Member for Aldershot (Mr. Lyttelton), mentioned it also this after-noon, was that in my Budget speech I did not talk enough about production. I think that is a little unreasonable. At the beginning of my Budget speech, I apologised for its length and said I was not going to follow precedent and talk about the whole economic field. I detected at that moment a sigh of relief from everybody, and I think it is rather unfair to say now that the Chancellor forgot all about production. The whole production situation had been dealt with very fully in the Economic Survey and covered in earlier speeches by myself and my hon. Friends, and I do not think that I could very well have covered it without going on at inordinate length on the occasion of my Budget statement.

Perhaps I may say a few words about it now, in view of what was said by the hon. and learned Member for Wirral and by the noble Lady the Member for Anglesey (Lady Megan Lloyd George), who made a most thoughtful and interesting speech, in marked contrast in tone and temper to that of the right hon. Member for Aldershot. The noble Lady asked me, in particular, about the raw material situation. I think the House knows generally what the position is there. In the Economic Survey we assumed that the situation would be worse than last year and therefore that increases in productivity would be held up to some extent by shortages of raw materials, but we believed we could possibly get an increase of about 4 per cent. in production over last year, in comparison with the increase of 8 to 9 per cent. in 1950 over 1949.

The noble Lady asked me how the Conference and the various commodity committees in Washington were going. I think these committees are now really getting down to extremely important and valuable work. It is not a very easy thing to organise an international materials conference, in which a large number of different countries are involved, having different interests in what is to be done, and it is bound to be a little time before all the facts have been brought to the surface and sifted out.

I would divide the problem facing the committees and the Conference into two parts: first, the short-term, immediate problem of arranging to share out the available supplies of raw materials in such a way as to damage the defence programmes and economies of the various countries concerned as little as possible; and secondly, the longer term problem of increasing the supplies of raw materials. The real difficulty, of course, is that all the Western Powers are trying to expand production—and it is natural that they should—in order to carry the additional burden of defence to the greatest possible extent.

The United States has a programme of increasing output by 5 per cent. a year—15 per cent. over three years. We ourselves have estimated for this year an increase of 4 per cent. though, of course, we should have liked a very much larger increase. Broadly speaking, the same is true of other Western countries. The danger in this expansion—and there is bound to be a greater impact in the case of the United States because of the absolute size of their output—is that manufacture will run ahead of raw materials supplies. I think that is fully realised now in the Conference and by the United States. I should like to say that our discussions with Mr. Charles Wilson, who was over here recently, were extremely satisfactory and reassuring. We found him most sympathetic and understanding, and I am glad that my right hon. Friend the Lord Privy Seal is to go to Washington, I think tomorrow, for a short visit in order to continue the discussions with Mr. Wilson and his colleagues.

The noble Lady asked why we did not introduce the system of combined boards which operated during the war. We really have a different situation today. At that time there were only three countries, Canada, the United States and Great Britain, who were really involved and they were able to control the whole situation by their control of shipping; and by Government purchase on a tremendous scale. We have not got that now. We have as many countries as there are in the International Materials Conference, to start with, and we have not the control of shipping. I do not think that is a possible solution in the present situation. But I do think that there has been a very considerable advance in the attitude of the different countries concerned to the kind of solution we all now feel necessary; the short-run solution of some system of fair shares, and the long-run solution of pushing up the production of raw materials as fast as possible.

The noble Lady also spoke of the investment programme and pressed me to do as little as I could to do damage to it. In that connection she queried our decision to suspend the initial allowances. Various other hon. Members, including the hon. and learned Member for Wirral have spoken on this subject. We should all like to see a high level of investment here, and the continuance of the high level of investment which we have had in these last few years.

Clearly, it is of importance and benefit to British industry to be able to instal as rapidly as possible the most modern equipment. It is obvious, also, that it is vitally important that we should build up the power stations that we require as industry develops and the need for electrical power increases, and so on. But we have to face the situation as it is. We are going to impose a defence programme which, as we know, will fall primarily on the engineering group of industries, and on the building industry. That cannot be avoided, and the question at once arises: what is it to displace?

The noble Lady and a number of other hon. Members may feel that we could increase production in these industries on a scale sufficient both to take care of the armament programme; to maintain investment at the old level and also—and this is vitally important—to retain exports at their previous level. Nobody would be more pleased than we would be if that were possible. But I come back to the raw material situation, and we have to take this into account in making our plans. It so happens that the engineering industries at any rate, are dependent to a considerable extent on a number of metals which are among the scarce commodities at the moment. We have all along said that we do not believe an extension of that kind would be practical. There would be certain other dangers about it.

The engineering industry is enormously expanded now, as compared, for example, with before the war, and to extend it still further; to take labour away from other industries; to provide additional capacity on the big scale—because it would have to be on a big scale—would lead to formidable problems later. I think we should find that we should have to get over the materials difficulty, at any rate so far as the maintenance of a reasonable level of investment is concerned. We are short of these materials, and therefore I do not think we can possibly assume that the engineering group of industries would be able to take care of exports, investment and defence altogether.

We do not want any substantial reduction in home investment, and if hon. Members will recollect from the Budget statement no substantial reduction is involved. There is some reduction in real terms. We face also some reduction in some engineering exports. We hope that will be balanced by increases in others. We feel pretty certain that with the present level of demand for investment goods falling on these industries there will be a highly inflationary situation, unless we take some steps to restrain it. The danger undoubtedly then would be that we would not get our defence programme carried out so easily or, alternatively, we would have a severe decline in exports. That we cannot afford.

I do not think there is anything inconsistent with what Sir Stafford Cripps said when he introduced the proposal to increase initial allowances and what we are now doing. At that time it was perfectly reasonable to say the urgent need was to build up British industry's equipment. We have now a new situation, a rather dangerously inflationary situation in that field, and I think we are perfectly right to say this stimulus we introduced earlier must be suspended for the time being. But, as I said in my Budget speech, we hope it may well be possible to restore the allowances.

The hon. and learned Member for Wirral made some play with the fact that in the first year, that is before the new proposal comes into operation, there will be a tremendous rush. I concede, of course, that clearly firms will be anxious to claim initial allowances, but he will probably agree with me that it is better to face that than to make the suspension of the initial allowance from 1st April this year, because that would be giving industry no notice whatever. We feel that would be quite unreasonable. That is one of the things we have to face if we have to give a year's notice in matters of this kind. The armament programme is not going to be completed in one year and the pressure will be even greater next year.

Some hon. Members associated the Profits Tax with the suspension of the initial allowance. These two measures, taken together, were described as depriving industry of capital and a very gloomy picture indeed was given of the situation resulting from that. I think it is not unfair to the right hon. Gentleman the Member for Aldershot to say he really gave the impression that industry was desperately short of capital, that there was grave danger that the equipment of industry would run down and that, meanwhile, shareholders were living in poverty. That is such a complete contrast with reality that it makes nonsense.

What is the situation in these industries of ours which produce investment goods? I repeat, they are very highly extended as compared with pre-war conditions. No one knows better than the right hon. Gentleman the Member for Aldershot that their order books are very overloaded at the moment and there is no sign whatever of British industry showing disinclination to spend money on new machinery. As to the position of shareholders, it must be well-known to hon. Members that profits have been rising fairly fast. I said in my Budget speech that that was going to happen, and one has seen signs that it is happening. There has been some increase in dividends as I also pointed out in my Budget speech, and I do not think, from the movement of Stock Exchange prices, that there is any depressed feeling there.

The right hon. Gentleman the Member for Aldershot and other hon. Members, when they talk in these terms about shareholders, are forgetting for the moment the whole serious international background of our present situation. We are told—and I shall deal with that later—that this is quite a different situation from that in which we were in during the war. Thank goodness it is a different situation today, but we are fighting a cold war at the moment and we must take into account the attitude of the community as a whole—which is being asked to make sacrifices as a whole—to the position of shareholders. I have not, as hon. Members know, criticised the profit-making motive, but what I have said—and I repeat it—is that it is one thing to say that there should be some incentive to people to invest in industry and to manage their businesses efficiently themselves, and another thing to say we should disregard the tendency for profits to go up, which has nothing to do with those managing the businesses.

What is the Opposition's attitude to the Profits Tax? I am still very puzzled about this. I do not know whether they really think that we should have done anything about the Profits Tax this year. Do they really believe that it would have been reasonable, with all the background of profits going up exceptionally in relation to other incomes, that we should have left that tax unchanged? I do not know. The hon. Member for Dover (Mr. Arbuthnot), made the interesting suggestion that we should not have done it by way of an increase in the flat rate of tax, but that the Profits Tax should have had some rather more complicated system more akin to the Excess Profits Tax.

I said in my Budget speech that we had considered that, and we did; but I have not the slightest doubt, as far as industry is concerned, that it very much prefers this method to anything in the way of an Excess Profits Tax, which would certainly be difficult to administer on anything like an equitable basis. I should have thought in a financial situation such as this one would be bound to do something about Profits Tax, that one would be bound to do something about these profits, that the way to do it would be by a tax on dividends, and that is exactly what we have done.

There is, perhaps, an impression in some quarters, to judge by certain Press comments, that, having increased the Profits Tax, the Government are indifferent to an increase in dividends. I want to make it clear that that is incorrect. It is true, of course, that the effect of increasing the Profits Tax on distributed profits to 50 per cent. will be that for every £1 paid out in dividends 10s. has already been paid in Profits Tax before it can be paid out, and that from that £1 itself 9s. 6d. is taken in Income Tax, so that from the money set aside for dividends almost exactly two-thirds is now taken in taxation, even without counting Surtax. That is perfectly true. But it does not mean that I would prefer in the interests of revenue a greater payment of dividends, because this, in our opinion, would conflict with the interests of the economy.

In my Budget speech I gave figures showing the increases in dividends that have taken place in recent months compared with a year ago, and I said that we could not afford such substantial increases. The "Financial Times" figures for April have now appeared. They show an increase in dividends of 8½ per cent. over the corresponding month last year, as compared with 14 per cent. in March and with 10 per cent. in January and February. Obviously, it would be rash to draw conclusions from one month's figures alone, but I certainly hope that this is the beginning of a downward trend in the rate of increase. If there were any general departure from the policy of moderation and restraint we should have to consider very seriously whether any further action were necessary to ward off the consequent inflationary effect.

If, as has been suggested, there really is a shortage of money capital, obviously moderation and restraint in the payment of dividends are in the interests of the companies themselves, because they will, in the present situation, so far as possible, have to finance development themselves from their own resources. Manifestly, one cannot have the same critic complaining about a capital shortage and, at the same time, demanding or pressing for an increase in dividend payments.

Mr. Selwyn Lloyd

Would the right hon. Gentleman say how much the increase is this month? He gave it in terms of percentages.

Mr. Gaitskell

I have not the absolute increase, but the hon. and learned Gentleman can see the relevance of it.

Mr. Lloyd

The right hon. Gentleman talked about percentages. It all depends on how much.

Mr. Gaitskell

I said that if there were an abandonment of the policy of moderation and restraint, we should have to consider taking further action to check the inflationary tendency, and I said I was glad to see that the rate of increase had moved downwards as compared with last year—if one can judge from one month. [An HON. MEMBER: "Has the right hon. Gentleman got the figures for wages?"] No, not at the moment. I think that even the hon. Member will probably agree that wages did not increase 14 per cent. in one month.

Mr. Maclay

Will the right hon. Gentleman, before he leaves this part of his speech, deal with shipping? The hon. Member who spoke first, and the hon. and learned Member for Wirral (Mr. Selwyn Lloyd) raised two important points on this which the Chancellor of the Exchequer has not answered. We appreciate that the right hon. Gentleman has given a concession, but what we are anxious to know is whether he realises that, even with that concession, there is grave complication to the existing shipbuilding programme. Will the right hon. Gentleman be prepared to go into this matter in greater detail before the Committee stage, apart from whether shipping should be included in this at all as a major part of defence?

Mr. Gaitskell

I hope that the hon. Member will not press me to answer that tonight. I have listened to what has been said, but I would rather not say any more at the moment.

I come now to those parts of the Bill dealing with tax evasion. On this the Opposition declares its good intentions. It is opposed to tax evasion yet, strangely enough, when it comes to any particular measure which we believe will be necessary to stop this evasion, the Opposition is opposed to it. I find it surprising that these measures and Clauses should be treated in such a controversial manner, because in present circumstances—and I must remind the right hon. Gentleman, who throughout his speech hardly referred to the defence programme and the whole background of this—I find it difficult to understand how the Opposition can condone attempts by people or companies to seek to evade their fair share. [HON. MEMBERS: "We do not."] Hon. Members say that they do not do so; but when it comes to what they say on the various Clauses, that is a different story. Then, it is always the poor taxpayer, the chap who is trying to evade tax; what is wrong with it? [HON. MEMBERS: "No."] We really must have consistency in this matter.

As to the particular proposals against which criticism has been levelled, there are four main ones. The first is Clause 32, the Clause concerned with the transfer of companies abroad. That is mainly directed, as I think the House realises, to stopping the recently growing tendency on the part of companies with overseas activities to migrate. There are signs that the rate of migration has been increasing, and representations made to us before the Budget by the British Overseas Mining Association indicated that further migration must be expected unless some relief from taxation were granted.

We cannot allow this tendency to continue unchecked. Once again, the heavy re-armament which is necessary justifies us, in our view, in taking steps similar to those which had to be taken during the war. Unless the Opposition is prepared to say in the circumstances that what we ought to do, and what it would do, is to reduce the Profits Tax, and to reduce Income Tax, how can it defend criticism of our efforts to stop this migration which, after all, might involve the revenue in very considerable losses?

When the Prime Minister announced the re-armament programme, he made it perfectly plain that we would have to introduce a number of controls of various kinds. We have already had to do a certain amount of that. I do not see that companies which wish to migrate should be exempt. Does the Opposition wish to defend the type of case which has been mentioned by the Financial Secretary to the Treasury? If any hon. Members now present were not here, then I hope that they will read about it and then say, in the Committee stage of the Bill, whether they think this should be allowed.

The position is perfectly simple: a company is liable to United Kingdom Income Tax and Profits Tax if it resides in the United Kingdom, and it resides where its central control is exercised, usually through a board of directors. To establish that a company is not resident in the United Kingdom it is, in general, sufficient to show that all directors' meetings are held outside this country. The directors need not reside abroad; all that is necessary is that they should go overseas for meetings—a not very difficult, or unpleasant thing to do in these days of air travel—probably at the company's expense. But to involve the Exchequer in a loss of tax, which might be extremely serious, cannot be justified in any way.

There may be a migration which can be justified, and some of the other transactions which may not be done without Treasury consent may be perfectly harm-less. If no loss of tax is involved, or if any loss of tax is outweighed by really compelling reasons, then consent will be given without more ado. In other cases there may be a more difficult balance. It may not be easy to say if there is a genuine and powerful case for the migration of a company quite apart from any question of tax advantage, and it may be wise to appoint a small advisory committee to help me reach accurate conclusions. In view of the revenue involved, the decision must, of course, rest with the Chancellor, and I recognise that the type of legislation may give rise to some anxiety; but I hope that those concerned will feel that the issues will not be decided purely on revenue grounds.

It was said by the hon. Member for Bury and Radcliffe (Mr. W. Fletcher), among others, that the Clause might restrict the investment of private capital, particularly in Colonial Territories. I can assure hon. Members that we have no intention of restricting genuine investment of this kind and consent will be readily forthcoming to those cases. Hon. Members who assume that no companies are to be allowed under any circumstances to move their residence—which term I have explained—are misunderstanding the position completely. We want to prevent tax evasion, but we do not want to prevent a company which wants, for perfectly genuine reasons to move, from doing so, and where there is no question of tax evasion.

The next most controversial Clause is Clause 23. This, referred to by many hon. Members, is concerned with information to be given by banks to the Inland Revenue authorities on request so that the inspector can check the accuracy of a taxpayer's return. I find it extremely difficult to understand all the fuss that there seems to be about this. There is no question here of giving the inspector the right to look at bank accounts as such. All that is proposed is that the bank should inform the Inland Revenue authorities of the amount paid over; income from which tax has not been deducted. How this can be described as "the break-down for ever of the cherished, confidential relations which exist between banker and client" I cannot understand. That was the expression used by one hon. Member; and if the banks give this information about payments to persons for their labour, about which I have heard no complaint, how then, is it wrong to give information about unearned income?

As for the right hon. Gentleman's comment about the Inland Revenue authorities trying to deal with cash transactions in this way, he is completely beside the point. What we are concerned with is what is the amount being received from the bank. Incidentally, I must say that I thought the right hon. Gentleman's references to the Inland Revenue were peculiar. He described them as "unworldly, retiring, and nevertheless all-pervasive," a strange sort of ghost to wander about and very different from the tax-inspectors I have met or have had to deal with. It is very natural that the banks themselves should show no enthusiasm for this, particularly as it involves them in some work; and no doubt they feel that there is some breach of principle of confidential relationship, which I do not admit.

I must make it plain that their representatives who were consulted at an earlier stage, did not agree with this proposal but, after considering their attitude and other things and the need to prevent evasion, which we are advised is by no means unsubstantial in this field, I came to the conclusion that this is a power which the Inland Revenue ought to have. As to the criticism that I did not mention this in my Budget speech, there is no convention that all the Clauses in the Finance Bill should be mentioned, but only those which require a Budget Resolution. In fact, the precedents are rather against going into detail on anti-tax evasion measures in the Budget speech. I am surprised that there should be any reaction of that kind to this particular proposal.

I do not want to delay the House too long. The other anti-evasion Clauses are also, in my view, absolutely justified. It is quite intolerable that in present circumstances, companies should be enabled first to make a bonus issue—and they do not have to go to the Capital Issue Committee if the amount is less than £50,000—and then follow it by a reduction of capital in the form of cash which escapes the higher rate of Profits Tax and so get away with distributing a bonus free of Profits Tax. I do not see how anybody can defend allowing that to continue. I should think, from the point of view of hon. Members opposite, who are sometimes critical of our attitude to bonus issues, that they would welcome a proposal of this kind which, to some extent, clarifies the position.

As for Clause 28, which is aimed at avoidance of Profits Tax in general, I could give the House a number of examples of the kind of thing that is happening and which we want to stop. I will not do this now, but I shall certainly do it when we get to the Committee stage. The plain fact is that this type of measure was in operation or found to be necessary during the war in connection with Excess Profits Tax and it is just as necessary now. It seems a very strange attitude to say that in war we must stop tax evasion, but not unless there is an actual hot war in progress. We really cannot accept that. What remains of the Opposition's criticism of the Bill and the Budget from which it springs? Only, if I may say so, the usual Cassandra-like warnings on inflation, the arguments that the rate of taxation is very much too high and that we have used up all our financial resources, that something or other has happened in the past which has given rise, as the result of our financial policy, to all these difficulties today.

What is the implication, of the Opposition's attitude here? The right hon. Gentleman opposite used the phrase that the Government have used all their financial resources. What does he mean by that? He means, presumably, that taxation is at a very high level, and, therefore, that it should not be at such a high level. Does he mean that the Government were wrong to have expanded the social services in the way they have? Does he think we ought not to have raised the school-leaving-age which has increased the expenditure on education? Does he think we are wrong to go on with the food subsidies? Perhaps, he would like to change his mind on that subject again? Or does he accept them? We cannot have this general denouncing of the high level of taxation combined with a determined effort to get on the Government's band-wagon when it comes to social services. That is exactly what they are doing all the time. This time the right hon. Gentleman is being a little more cautious in responding to my invitation about whether he changes his mind on food subsidies, and we must assume that, in the opinion of the Opposition, food subsidies must continue at their present level.

The plain fact is, and it has been shown again and again during the Budget debate and since—and the right hon. Gentleman has come down to £50 million from the £500 million his right hon. Friend the Member for Woodford (Mr. Churchill), used to talk about—that there is no possibility of getting reductions in taxation, which the right hon. Gentleman, on the one side, indicates all the time are essential, without tremendous cuts in the social services on the other. The Opposition like to bring up these few trivial examples. They are going to finance the re-armament programme by stopping a Ministry of Food official from going to a course. That is not a serious contribution.

Mr. Lyttelton

The right hon. Gentleman is unlikely to finance the armament programme by allowing laxity in anything.

Mr. Gaitskell

That really does not get to the point. Hon. Members opposite must make up their minds on this. Are they in favour of substantial reduction in taxation? If so, what are they going to save? If they are not going to save anything it is time they stopped talking about taxation. The fact is that their attitude is completely negative and hopeless. They oppose anti-tax evasion measures, and tax increases, which I would have thought most people would have thought necessary to finance the re-armament programme. At the same time, they give no indication of making any cuts in expenditure, yet talk of the necessity of controlling inflation.

We all know that there is a limit to the amount of taxation that can be taken and transferred without damage to the economy. Nobody on our side has ever denied that. The whole record of this country since the war suggests that we have not overstepped that level. Our production figures, our export figures, the position of the balance of payments, the high rate of investment; all these have occurred at a time when, admittedly, taxation has been higher than ever before.

Mr. Osborne rose——

Mr. Gaitskell

Nobody on this side of the House would for one moment question that it is more difficult to carry through the armament programme on the scale we are going to carry it through when one has to start with full employment. We do not believe that that is an argument for starting with unemployment. Equally, we say that while we may admit it is more difficult if one starts with taxation at a higher level than ever before, that is no argument in our view for not having carried out our social reforms of the last few years. What the Opposition was really saying is that we should not have taxed the rich so much to finance the social services so that they could be caught later on.

That is not a policy we can accept for one moment. The difficulties with which we have to contend have nothing to do with our social and fiscal policies during the last few years. They are difficulties which face every democratic country all over the world trying to carry out a rearmament programme. They include the rising prices and scarcity of materials, and they are facing the U.S. Government as well. I do not for one moment despair of overcoming them. On the contrary, I am sure we shall, if we have common-sense at home and in the international field. Indeed, I am certain that with good sense and restraint, and the sense of social justice which we on this side regard as essential to the whole situation, we shall accept the burden and carry out the defence programme which we regard as essential.

Question put, and agreed to.

Bill accordingly read a Second time.

Bill committed to a Committee of the whole House for Tomorrow.